U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended August 31, 2005.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______ to _______.
Commission file number 0-8532
OAKRIDGE ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Utah
(State or other jurisdiction of
incorporation or organization)
87-0287176
(I.R.S. Employer
Identification No.)
4613 Jacksboro Highway
Wichita Falls, Texas 76302
(Address of principal executive offices)
(940) 322-4772
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
The number of shares outstanding of each of the issuer's classes of common
equity, as of October 15, 2005: Common Stock, $.04 par value, 4,282,942 shares
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Transitional Small Business Disclosure Format (check one);
YES [ ] NO [X]
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act 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 [ ]
INDEX
Page #
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Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets at August 31, 2005 (Unaudited) and February 28, 2005 (Audited) 1
Condensed Statements of Operations (Unaudited) For the Three and Six Months Ended August 31, 2005 and 2004 2
Statements of Cash Flows (Unaudited) For the Six Months Ended August 31, 2005 and 2004 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 5
Item 3. Controls and Procedures 14
Part II - Other Information
Item 6. Exhibits 15
Signatures 15
ITEM 1. FINANCIAL STATEMENTS.
OAKRIDGE ENERGY, INC.
CONDENSED BALANCE SHEETS
AUGUST 31, 2005 FEBRUARY 28, 2005
--------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 2,884,966 $ 2,294,548
Trade accounts receivable 228,031 150,459
Investment securities available for sale 294,898 664,199
Prepaid expenses and other 12,138 20,492
----------- -----------
Total current assets 3,420,033 3,129,698
----------- -----------
Oil and gas properties, at cost using the successful efforts method of
accounting, net of accumulated depletion and depreciation of
$6,343,746 on August 31, 2005 and $6,303,976 on February 28, 2005 954,532 989,464
Coal and gravel properties, net of accumulated depletion and depreciation
of $8,051,719 on August 31, 2005 and $8,051,719 on February 28, 2005 260,488 260,488
Real estate held for development 3,054,903 3,029,759
Other property and equipment, net of accumulated depreciation
of $415,608 on August 31, 2005 and $402,903 on February 28, 2005 129,372 142,076
Deferred income taxes 32,014 198,038
Other non-current assets 860,076 860,076
----------- -----------
$ 8,711,418 $ 8,609,599
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,810 $ 58,671
Accrued expenses 75,155 47,048
Deferred income taxes 90,314 170,715
Current portion of asset retirement obligations 223,708 223,708
----------- -----------
Total current liabilities 436,987 500,142
Asset retirement obligations 416,953 407,748
----------- -----------
Total liabilities 853,940 907,890
----------- -----------
Stockholders' equity:
Common stock, $.04 par value, 20,000,000
shares authorized, 10,157,803 shares issued 406,312 406,312
Additional paid-in capital 805,092 805,092
Retained earnings 16,733,874 16,433,803
Accumulated other comprehensive income 153,976 291,053
----------- -----------
18,099,254 17,936,260
Less treasury stock, at cost, 5,874,561 shares on August 31, 2005
and 5,872,811 on February 28, 2005 10,241,776 10,234,551
----------- -----------
Total stockholders' equity 7,857,478 7,701,709
----------- -----------
$ 8,711,418 $ 8,609,599
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
OAKRIDGE ENERGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
3 Months Ended August 31, 6 Months Ended August 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues:
Oil and gas $ 382,306 $ 322,131 $ 745,330 $ 595,231
Gravel 7,500 21,123 20,000 39,708
----------- ----------- ----------- -----------
Total revenues 389,806 343,254 765,330 634,939
----------- ----------- ----------- -----------
Operating expenses:
Oil and gas 201,196 200,725 397,866 406,314
Coal and gravel 13,719 21,599 29,436 45,787
Real estate development (1) 46 23 120
General and administrative 221,157 146,259 356,000 595,286
----------- ----------- ----------- -----------
Total operating expenses 436,071 368,629 783,325 1,047,507
----------- ----------- ----------- -----------
Loss from operations (46,265) (25,375) (17,995) (412,568)
Interest and other, net 472,424 10,417 494,072 19,725
----------- ----------- ----------- -----------
Income (loss) before income taxes 426,159 (14,958) 476,077 (392,843)
Income tax expense (benefit) 157,551 (5,530) 176,006 (145,234)
----------- ----------- ----------- -----------
Net income (loss) $ 268,608 $ (9,428) $ 300,071 $ (247,609)
=========== =========== =========== ===========
Basic and diluted income (loss) per common share $ 0.06 $ (0.00) $ 0.07 $ (0.06)
=========== =========== =========== ===========
Weighted average shares outstanding 4,283,772 4,291,976 4,284,329 4,296,775
=========== =========== =========== ===========
Comprehensive income for the three months ended August 31, 2005 and 2004 was
$70,648 and $38,851, respectively. Comprehensive income (loss) for the six
months ended August 31, 2005 and 2004 was $162,994 and $(215,401), respectively.
Included in comprehensive income (loss) is the change in available for sale
securities and net income (loss).
The accompanying notes are an integral part of these financial statements.
2
OAKRIDGE ENERGY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months Ended August 31,
2005 2004
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 300,071 $ (247,609)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depletion and depreciation 52,474 95,886
Accretion of discount on asset retirement obligations 9,205 -
Gain on sales of investment securities (445,130) -
Deferred federal income taxes 166,024 (154,105)
Net changes in assets and liabilities:
Trade accounts receivable (77,572) (53,855)
Prepaid expenses and other current assets 8,354 8,198
Accounts payable (10,861) (29,034)
Accrued expenses 28,107 12,154
Asset retirement obligations - (234)
----------- -----------
Net cash provided by (used in) operating activities 30,672 (368,599)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (4,837) (110,113)
Additions to real estate held for development (25,144) (19,867)
Additions to other property and equipment - (28,090)
Proceeds from sales of investment securities 596,952 -
----------- -----------
Net cash provided by (used in) investing activities 566,971 (158,070)
----------- -----------
Cash flows from financing activities:
Purchases of treasury stock (7,225) (79,265)
----------- -----------
Net cash used in financing activities (7,225) (79,265)
----------- -----------
Net increase (decrease) in cash and cash equivalents 590,418 (605,934)
Cash and cash equivalents at beginning of period 2,294,548 2,853,798
----------- -----------
Cash and cash equivalents at end of period $ 2,884,966 $ 2,247,864
=========== ===========
Supplemental disclosures of cash flow information:
Income taxes paid $ 17,294 $ 16,822
Recognition in Stockholders' Equity of the net unrealized holding gain on
available for sale securities of $137,077 net of tax effect of $80,401 during
the six months ended August 31, 2005 and $32,208 net of tax effect of $18,891
during the six months ended August 31, 2004.
The accompanying notes are an integral part of these financial statements.
3
OAKRIDGE ENERGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial statements and with the instructions to Form
10-QSB of Regulation S-B for the three and six month periods ended August 31,
2005 and 2004 and reflect, in the opinion of management, all adjustments, which
are of a normal and recurring nature, necessary for a fair presentation of the
results for such periods. The foregoing financial statements do not include all
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. However,
except as disclosed herein, there has been no material change in the information
disclosed in the notes to the financial statements for the year ended February
28, 2005 included in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission. The interim unaudited financial statements
should be read in conjunction with the annual financial statements and
accompanying notes. Operating results for the three and six months ended August
31, 2005 are not necessarily indicative of the results that may be expected for
the year ending February 28, 2006. The Company's operating segments are set
forth in the annual financial statements and accompanying notes for the fiscal
year ended February 28, 2005.
Information regarding operations and assets by segment is as follows:
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
August 31, 2005 August 31, 2004 August 31, 2005 August 31, 2004
--------------- --------------- --------------- ---------------
Business segment revenue:
Oil and gas $ 382,306 $ 322,131 $ 745,330 $ 595,231
Gravel 7,500 21,123 20,000 39,708
--------- --------- --------- ---------
$ 389,806 $ 343,254 $ 765,330 $ 634,939
--------- --------- --------- ---------
Business segment profit (loss):
Oil and gas $ 181,110 $ 121,406 $ 347,464 $ 188,917
Coal and gravel (6,219) (476) (9,436) (6,079)
Real estate development 1 (46) (23) (120)
General corporate (221,157) (146,259) (356,000) (595,286)
--------- --------- --------- ---------
Loss from operations (46,265) (25,375) (17,995) (412,568)
Interest and other, net 472,424 10,417 494,072 19,725
--------- --------- --------- ---------
Income (loss) before income taxes $ 426,159 $ (14,958) $ 476,077 $(392,843)
========= ========= ========= =========
As of As of
August 31, 2005 February 28, 2005
--------------- -----------------
Total assets:
Oil and gas $4,437,991 $4,340,258
Coal and gravel 260,488 260,488
Real estate development 3,054,903 3,029,759
General corporate 958,036 979,094
---------- ----------
$8,711,418 $8,609,599
---------- ----------
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with Items 6
and 7 of the Company's Annual Report on Form 10-KSB for the fiscal year ended
February 28, 2005 and the Notes to Condensed Financial Statements contained in
this report.
RESULTS OF OPERATIONS
The Company had net income of $268,608 ($0.06 per share) for the
three months ended August 31, 2005 compared to a net loss of $9,428 ($0.00 per
share) for the three months ended August 31, 2004. During the six months ended
August 31, 2005, the Company had net income of $300,071 ($0.07 per share)
compared to a net loss of $247,609 ($0.06 per share) for the same period in
2004. Increased oil and gas revenues and a profit derived from the sale of a
portion of the Company's investment securities available for sale contributed to
the profit for the three-month period ended August 31, 2005. For the six months
ended August 31, 2005, the same two income items were the contributing factors
to profit in addition to the absence of the bonus paid to the Company's Chief
Executive Officer in April 2004 for her extraordinary services over a number of
years with respect to the Company's proposed Colorado real estate development
project.
Oil and gas revenues increased approximately $60,180 (18.7%) and
$150,100 (25.2%) during the three and six-month periods ended August 31, 2005,
respectively, as compared to the same periods in 2004, due to a significant
increase in the Company's average oil price received, although the oil sales
volumes in both periods declined as compared to the 2004 periods. However, the
gas volumes and prices both increased during the 2005 periods. The following
tables compare the Company's oil and gas revenues and average prices received
and its sales volumes of oil and gas during the three and six-month periods
ended August 31, 2005 with those during the three and six-month periods ended
August 31, 2004:
THREE MONTHS THREE MONTHS
ENDED ENDED PERCENTAGE
AUGUST 31, 2005 AUGUST 31, 2004 DIFFERENCE
--------------- --------------- ----------
Oil:
Revenues $ 313,894 $ 261,327 + 20.1%
Volume (Bbls.) 5,365 6,415 - 16.4%
Average Price
(per Bbl.) $ 58.51 $ 40.74 + 43.6%
5
THREE MONTHS THREE MONTHS
ENDED ENDED PERCENTAGE
AUGUST 31, 2005 AUGUST 31, 2004 DIFFERENCE
--------------- --------------- ----------
Gas:
Revenues $ 55,818 $ 48,933 + 14.1%
Volume (MCF) 8,546 7,745 + 10.3%
Average Price
(per MCF) $ 6.53 $ 6.31 + 3.5%
SIX MONTHS SIX MONTHS
ENDED ENDED PERCENTAGE
AUGUST 31, 2005 AUGUST 31, 2004 DIFFERENCE
--------------- --------------- ----------
Oil:
Revenues $ 620,610 $ 490,196 + 26.6%
Volume (Bbls.) 11,282 12,592 - 10.4%
Average Price
(per Bbl.) $ 55.01 $ 38.93 + 41.3%
Gas:
Revenues $ 102,976 $ 83,189 + 23.8%
Volume (MCF) 16,155 14,106 + 14.5%
Average Price
(per MCF) $ 6.37 $ 5.90 + 8.0%
Non-material amounts of natural gas liquids revenues and volumes are excluded
from the foregoing tables.
The Company's principal producing oil and gas property in Madison
County, Texas is in the process of being waterflooded. Revenues from the
property increased during each of the three and six-month periods ended August
31, 2005 and August 31, 2004, primarily due to the increase in the Company's
average oil price received from the property. Sales volumes for both oil and gas
were at roughly the same levels during the three months ended August 31, 2005,
as in each of the preceding three fiscal quarters lending further encouragement
to the Company's management that production volumes from the property are
stabilizing rather than declining. The operator has begun to see an upturn in
the production in some of the wells. Any significant increase in oil production
volumes from the property is not expected to occur until
6
fiscal 2008 due to the substantial lag time for the buildup of sufficient water
volumes to replace the volume of oil and gas which has been removed from the
formation and push the incremental secondary oil reserves to producing wells.
The Company's gravel revenues declined approximately $13,600 (64.5%)
and $19,710 (49.6%) during the three and six-month periods ended August 31,
2005, respectively, as compared to the same periods in 2004, as a result of the
discontinuance of gravel sales and road usage fees, but there were rentals for
surface use. A dispute developed in fiscal 2004 between the Company and Four
Corners Materials, which at the time was conducting gravel mining operations on
the Company's Colorado property. As a result of such dispute, Four Corners
Materials is no longer mining the property and sales from stockpiles have
discontinued and Four Corners Materials is nearing the completion of the
reclamation of its gravel mining operation. The Company would lease the property
again for gravel operations but has no intention of conducting any operations
itself.
The expenses of the Company's oil and gas operations increased
approximately $470 (0.2%) and decreased approximately $8,450 (2.1%) during the
three and six-month periods ended August 31, 2005, respectively, as compared to
the same periods in 2004. Depletion and depreciation expenses declined
approximately $21,900 (53.1%) and $39,570 (49.9%) during the three and six-month
periods ended August 31, 2005, respectively, as compared to the same periods in
2004. Such decline was primarily attributable to the Madison County, Texas
property and was due to lower production volumes realized than in the comparable
2004 periods and a reduced per barrel amortization rate resulting from the
higher quantity of proven oil and gas reserves for the property at the fiscal
2005 year end as compared to the prior year. The decrease in depletion expenses
was offset by an increase in lease operating expenses, production taxes and a
newly required accounting policy related to accretion of the discount of the
retirement obligation. Lease operating expenses increased approximately $14,549
(11.8%) and $12,710 (4.9%) during the three and six-month periods ended August
31, 2005, as compared to the same periods in 2004. Expenses increased from the
Madison and Greg County and North Texas area properties during both periods.
Production taxes increased approximately $2,530 (16.7%) and $9,590(38.3%) during
the three and six-month periods ended August 31, 2005, respectively, as compared
to the same periods in 2004, due to the increase in oil and gas revenues. The
Company did not incur any exploration expenses, dry
7
hole expenses or leasehold abandonment charges during the first six months of
either fiscal 2006 or fiscal 2005.
The expenses of the Company's coal and gravel operations decreased
approximately $7,880 (36.5%) during the three months ended August 31, 2005
compared to the same period in 2004 as a result of lower permitting expenses,
lower ad valorem taxes and the absence of depletion expenses resulting from the
cessation of gravel sales. The $16,350 (35.7%) decrease in such expenses during
the six-month period ended August 31, 2005 resulted from the same contributing
factors; plus lower legal expenses were also incurred in connection with the
dispute with Four Corners Materials. Engineering expense was an additional
expense in the first two quarters of 2005 in connection with the expected
reclamation of the coal mine. Real estate development expenses declined
approximately $50 (100.0%) and $100 (80.8%) during the three and six-month
periods ended August 31, 2005 due to the absence of any legal or depreciation
expenses in 2005. The Company incurred virtually no expenses (as opposed to
capitalized costs) in the first two quarters of 2005 after the Company made the
decision to attempt to sell its proposed real estate development. The Company
and its advisors are currently in discussions with potential buyers who have
indicated an interest in acquiring the property.
General and administrative expenses increased approximately $74,900
(51.2%) during the three months ended August 31, 2005 and decreased
approximately $239,290 (40.2%) during the six months ended August 31, 2005, as
compared to the same periods in 2004. In each of the first two quarters of 2005,
there were increases in legal and U.S. Securities and Exchange Commission (the
"Commission") reporting expenses due to the establishment of the relationship
with a new legal firm and the required amendments of prior period "Commission"
filings. There was also an increase in auditing expenses due to the same
required filings. The significant decrease in the six-month period ended August
31, 2005 was primarily as a result of the previously mentioned $315,000 bonus
paid to Sandra Pautsky in April 2004 and the employer portion of payroll taxes
associated with the bonus, while no bonus was incurred in the 2005 period.
Other income increased approximately $462,010 (4,435.3%) during the
three months ended August 31, 2005 and $474,350 (2,404.8%) during the six months
ended August 31, 2005 due to the sale of a portion of the Company's investment
securities available for sale. Interest and dividend income together continued
to increase in both 2005 periods compared to the 2004 periods.
8
The Company's weighted average shares outstanding decreased
approximately 0.2% and 0.3% during the three and six-month periods ended August
31, 2005, respectively. The Company purchased 1,625 shares of its stock during
the first three months of fiscal 2006 and an aggregate of 1,750 shares during
the first six months of fiscal 2006. All of such purchases were from unrelated
parties.
FINANCIAL CONDITION AND LIQUIDITY
During the first half of fiscal 2006, the Company's operating and
investing activities were net providers of funds. As a consequence, the
Company's cash and cash equivalents increased by approximately $590,000 during
the six-month period ended August 31, 2005, as compared to the same period in
2004. The Company did not participate in any exploratory or development drilling
during the first half of fiscal 2006 and the Company's operating activities
provided approximately $30,700 of funds. The Company's investing activities
provided approximately $567,000, primarily due to the sale of a portion of the
Company's investment securities available for sale. The Company did not receive
any funds from sales of oil and gas properties or other property and equipment
during the period. The Company's financing activities used approximately $7,200,
all on purchases of the Company's common stock. At August 31, 2005 the Company
had no indebtedness and cash, cash equivalents and investment securities
available for sale totaling approximately $3,179,860.
The Company expects to fund its contemplated operations and any
purchases of the Company's stock it makes during the remainder of fiscal 2006
from its cash and cash equivalents, sales of all or a portion of its investment
securities available for sale and any cash flow from its operations. Given the
Company's decision to attempt to sell its proposed Colorado real estate
development project, the Company currently does not expect to make any material
expenditure on such project for the remainder of fiscal 2006.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The foregoing discussion and analysis of the Company's results of
operations and financial condition and liquidity is based upon the financial
statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires
the Company to make
9
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. In response to the "Commission" Release No. 33-8040,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies," the
Company has identified certain of its accounting policies as being of particular
importance to the portrayal of the Company's results of operations and financial
position and which require the application of significant judgment by
management. The Company analyzes its estimates, including those related to oil
and gas revenues, oil and gas properties, income taxes, contingencies and
litigation, and bases its estimates on historical experience and various other
assumptions that the Company believes to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The Company believes the following critical accounting policies
affect its more significant judgments and estimates used in the preparation of
the Company's financial statements:
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING: The Company accounts for its
natural gas and crude oil exploration and development activities utilizing the
successful efforts method of accounting. Under this method, costs of productive
exploratory wells, development dry holes and productive wells, costs to acquire
mineral interests and three-dimensional (3-D) seismic costs are capitalized.
Exploration costs, including personnel costs, certain geological and geophysical
expenses including two-dimensional (2-D) seismic costs and delay rentals for oil
and gas leases, are charged to expense as incurred. Exploratory drilling costs
are initially capitalized, but charged to expense if and when the well is
determined not to have found reserves in commercial quantities. The sale of a
partial interest in a proved property is accounted for as a cost recovery and no
gain or loss is recognized.
The application of the successful efforts method of accounting requires
managerial judgment to determine the proper classification of wells designated
as developmental or exploratory which will ultimately determine the proper
accounting treatment of the costs incurred. The results from a drilling
operation can take considerable time to analyze and the determination that
commercial reserves have been discovered requires both judgment and industry
experience. Wells may be completed that are assumed to be productive but
actually deliver oil and gas in quantities insufficient to be economic, which
may result in the abandonment of the wells at a later date. Wells may be drilled
that target geologic structures that are both developmental and exploratory in
nature and an allocation of costs is required to properly account for the
results. The evaluation of oil and gas leasehold acquisition costs requires
managerial judgment to estimate the fair value of these costs with reference to
drilling activity in a given area. Drilling activities in an area by other
companies may also effectively condemn leasehold positions.
10
The successful efforts method of accounting can have a significant impact
on the operational results reported when the Company is entering a new
exploratory area in hopes of funding an oil and gas field that will be the focus
of future development drilling activity. The initial exploratory wells may be
unsuccessful and will be expensed.
RESERVE ESTIMATES: The Company's estimates of oil and gas reserves, by
necessity, are projections based on geologic and engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that are difficult to measure. The
accuracy of any reserve estimate is a function of the quality of available data,
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and gas reserves and future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions governing future oil and gas prices, future operating costs,
severance taxes, development costs and workover gas costs, all of which may in
fact vary considerably from actual results. The future drilling costs associated
with reserves assigned to proved undeveloped locations may ultimately increase
to an extent that these reserves may be later determined to be uneconomic. For
these reasons, estimates of the economically recoverable quantities of oil and
gas attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected there from may vary substantially. Any significant variance in the
assumptions could materially affect the estimated quantity and value of the
reserves, which could affect the carrying value of the Company's oil and gas
properties and/or the rate of depletion of the oil and gas properties. Actual
production, revenues and expenditures with respect to the Company's reserves
will likely vary from estimates and such variances may be material.
IMPAIRMENT OF OIL AND GAS PROPERTIES: The Company reviews its oil and gas
properties for impairment at least annually and whenever events and
circumstances indicate a decline in the recoverability of their carrying value.
The Company estimates the expected future cash flows of its oil and gas
properties and compares such future cash flows to the carrying amount of the
properties to determine if the carrying amount is recoverable. If the carrying
amount exceeds the estimated undiscounted future cash flows, the Company will
adjust the carrying amount of the oil and gas properties to their fair value.
The factors used to determine fair value include, but are not limited to,
estimates of proved reserves, future commodity pricing, future production
estimates, anticipated capital expenditures and a discount rate commensurate
11
with the risk associated with realizing the expected cash flows projected.
Given the complexities associated with oil and gas reserve estimates and
the history of price volatility in the oil and gas markets, events may arise
that would require the Company to record an impairment of the recorded book
values associated with oil and gas properties. The Company has not recognized
impairments this year, but has in prior years and there can be no assurance that
impairments will not be recognized in the future.
ASSET RETIREMENT OBLIGATIONS: Effective March 1, 2003, the Company adopted
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations. The asset retirement obligations represent the estimated
present value of the amounts expected to be incurred to plug, abandon, and
remediate the producing properties at the end of their productive lives, in
accordance with state laws, as well as the estimated costs associated with the
reclamation of the property surrounding and including the Company's previous
coal mining operations. The Company determines the asset retirement obligations
by calculating the present value of estimated cash flows related to the
liability. The asset retirement obligations are recorded as a liability at the
estimated present value as of the asset's inception, with an offsetting increase
to producing properties. Periodic accretion of the discount related to the
estimated liability is recorded as an expense in the statement of operations.
The estimated liability is determined using significant assumptions,
including current estimates of plugging and abandonment costs, annual inflation
of these costs, the productive lives of wells, and a risk-adjusted interest
rate. Changes in any of these assumptions can result in significant revisions to
the estimated asset retirement obligations. Revisions to the asset retirement
obligations are recorded with an offsetting change to producing properties,
resulting in prospective changes to depletion and depreciation expense and
accretion of the discount. Because of the subjectivity of assumptions and the
relatively long lives of most of the wells, the costs to ultimately retire the
Company's wells may vary significantly from prior estimates.
FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10-QSB and
other materials filed by the Company with the Commission contain forward-looking
statements relating to the Company's operations and the oil and gas industry.
Such forward-looking statements are based on management's current projections
and estimates and are identified by words such as "expects," "intends," "plans,"
"believes," "estimates," "anticipates" and similar words. These statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that are
12
difficult to predict. Therefore, actual results may differ materially from what
is expressed in such forward-looking statements.
Among the factors that could cause actual results to differ materially are
crude oil and natural gas price fluctuations, failure to achieve expected
production and the timing of receipt of revenues from existing and future
exploration and development projects (including, particularly, the secondary
recovery project on the Madison County, Texas property), higher than estimated
oil and gas and coal reclamation costs and delays with respect to, or failure to
obtain, governmental permits and approvals necessary to proceed with real estate
development. In addition, these forward-looking statements may be affected by
general domestic and international economic and political conditions.
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ITEM 3. CONTROLS AND PROCEDURES.
The term "disclosure controls and procedures" is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange
Act. This term refers to the controls and procedures of a company that are
designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commission. Our management, including our Chief Executive Officer and
Principal Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-QSB. Based upon that evaluation, our Chief Executive Officer
and Principal Financial Officer have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this Quarterly
Report on Form 10-QSB.
There were no changes to our internal control over financial reporting
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
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ITEM 6. EXHIBITS
(3) (i) (a) Articles of Incorporation of Oakridge Energy, Inc.
dated May 9, 1969, filed herewith.
(3) (i) (b) Articles of Amendment to the Articles of
Incorporation of Oakridge Energy, Inc. dated
August 30, 1978, filed herewith.
(3) (i) (c) Articles of Amendment to the Articles of
Incorporation of Oakridge Energy, Inc. dated
October 22, 1982, filed herewith.
(3) (ii) Bylaws of Oakridge Energy, Inc., filed herewith.
(31) Rule 13a-14 (a) /Rule 15d-14 (a) Certifications:
(i) Certification of Sandra Pautsky, Principal
Executive Officer of the Company, filed herewith.
(ii) Certification of Carol J. Cooper, Principal
Financial Officer of the Company, filed herewith.
(32) Section 1350 Certifications - Certifications of
Sandra Pautsky, Principal Executive Officer of the
Company, and Carol J. Cooper, Principal Financial
Officer of the Company, filed herewith.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OAKRIDGE ENERGY, INC.
(Registrant)
DATE: October 17, 2005 By /s/ Sandra Pautsky
-----------------------------------
Sandra Pautsky, President and Principal
Executive Officer
DATE: October 17, 2005 By /s/ Carol J. Cooper
----------------------------------
Carol J. Cooper, Principal Financial
Officer
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