1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
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 0-2517
TOREADOR ROYALTY CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-0991164
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification Number)
4809 Cole Avenue, Suite 108
Dallas, Texas 75205
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 559-3933
-------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1999
- -------------------------------- ---------------------------------
Common Stock, $0.15625 par value 5,176,871 shares
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TOREADOR ROYALTY CORPORATION
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 2
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows
Three and Nine Months Ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
Index to Exhibits 16
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOREADOR ROYALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 20,539 $ 726,187
Short-term investments 760,375 1,218,291
Accounts receivable 712,238 517,442
Marketable securities 252,006 374,915
Federal income tax receivable 63,064 63,064
Assets held for sale -- 334,489
Other 56,528 61,130
------------ ------------
Total current assets 1,864,750 3,295,518
------------ ------------
Properties and equipment, less accumulated
depreciation, depletion and amortization 19,267,770 16,209,631
Other assets 276,299 78,873
Deferred tax benefit -- 198,240
------------ ------------
Total assets $ 21,408,819 $ 19,782,262
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 262,912 $ 587,754
Federal income taxes payable 58,524 --
Current portion of long-term debt -- 720,000
------------ ------------
Total current liabilities 321,436 1,307,754
Long-term debt 10,355,000 7,880,000
------------ ------------
Total liabilities 10,676,436 9,187,754
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 4,000,000
shares authorized; 160,000 issued 160,000 160,000
Common stock, $0.15625 par value, 20,000,000 shares and
10,000,000 authorized; 5,651,571 and 5,644,071 shares issued 883,058 881,886
Capital in excess of par value 8,222,615 8,202,862
Retained earnings 2,778,268 2,529,371
Accumulated other comprehensive loss (45,394) (24,922)
------------ ------------
11,998,547 11,749,197
Treasury stock at cost:
474,700 and 438,400 shares (1,266,164) (1,154,689)
------------ ------------
Total stockholders' equity 10,732,383 10,594,508
------------ ------------
Total liabilities and stockholders' equity $ 21,408,819 $ 19,782,262
============ ============
The Company uses the successful efforts method of accounting for its oil and gas
producing activities.
See accompanying notes to the consolidated financial statements.
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TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------------- -----------------------------
1999 1998 1999 1998
--------------- --------------- ----------- -------------
Revenues:
Oil and gas sales $ 1,084,286 $ 396,962 $ 2,616,687 $ 1,487,650
Lease bonuses and rentals 122,885 -- 319,510 168,664
Interest and other income 21,571 50,263 87,838 130,581
Gain on sale of properties 294,499 -- 851,726 --
----------- ----------- ----------- -----------
Total revenues 1,523,241 447,225 3,875,761 1,786,895
----------- ----------- ----------- -----------
Costs and expenses:
Lease operating expense 172,589 96,206 429,176 412,253
Dry holes and abandonments -- -- -- 100,207
Depreciation, depletion and amortization 201,536 150,913 604,563 358,659
Geological and geophysical 107,189 109,388 275,685 244,189
General and administrative 296,249 340,180 1,216,423 765,108
Interest expense 209,808 -- 563,706 --
----------- ----------- ----------- -----------
Total costs and expenses 987,371 696,687 3,089,553 1,880,416
----------- ----------- ----------- -----------
Income (loss) before federal income taxes 535,870 (249,462) 786,208 (93,521)
Provision (benefit) for federal income taxes 182,196 (84,717) 267,311 (32,143)
----------- ----------- ----------- -----------
Net income (loss) 353,674 $ (164,745) 518,897 $ (61,378)
----------- ----------- ----------- -----------
Dividends on preferred shares 90,000 -- 270,000 --
----------- ----------- ----------- -----------
Income (loss) applicable to common shares $ 263,674 $ (164,745) $ 248,897 $ (61,378)
=========== =========== =========== ===========
Basic income (loss) per share $ 0.05 $ (0.03) $ 0.05 $ (0.01)
=========== =========== =========== ===========
Diluted income (loss) per share $ 0.05 $ (0.03) $ 0.05 $ (0.01)
=========== =========== =========== ===========
Weighted average shares outstanding
Basic 5,181,738 5,160,671 5,188,582 5,067,694
Diluted 5,216,738 5,160,671 5,223,582 5,067,694
See accompanying notes to the consolidated financial statements.
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TOREADOR ROYALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ------------- ----------- -------------
Cash flows from operating activities:
Net income (loss) $ 353,674 $ (164,745) $ 518,897 $ (61,378)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation, depletion and amortization 201,536 150,913 604,563 358,659
Dry holes and abandonments -- (8,090) -- 100,207
Gain on sale of oil and gas properties (267,450) -- (824,677) --
Decrease (increase) in accounts receivable (179,481) 56,686 (194,796) 149,109
Increase in federal income tax receivable -- (49,016) -- (47,297)
Increase in other current assets 159,431 20,458 4,602 7,929
Increase (decrease) in accounts payable and accrued
liabilities 36,061 (24,269) (324,842) (74,950)
Increase in other assets (60,263) -- (197,426) --
Deferred tax expense 182,196 (35,701) 267,311 15,154
Other -- -- 2,175 --
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities 425,704 (53,764) (144,193) 447,433
----------- ----------- ----------- -----------
Cash flows from investing activities:
Expenditures for oil and gas property and equipment (219,099) (140,438) (311,836) (784,832)
Acquisition of oil and gas properties (3,133,824) -- (3,133,824) --
Proceeds from lease bonuses and rentals 8,775 -- 85,275 --
Sale of short-term investments 334,254 -- 457,916 --
Purchases of marketable securities 122,300 -- 91,890 --
Proceeds from sale of oil and gas properties 260,576 -- 1,000,626 --
Purchase of furniture and fixtures (95,582) -- (143,777) --
----------- ----------- ----------- -----------
Net cash used by investing activities (2,722,600) (140,438) (1,953,730) (784,832)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 18,750 -- 18,750 677,766
Decrease in current portion of long-term debt (720,000) -- (720,000) --
Proceeds from long-term debt 3,075,000 -- 2,475,000 --
Payment of preferred dividends (90,000) -- (270,000) --
Purchase of treasury stock (58,152) -- (111,475) (95,250)
----------- ----------- ----------- -----------
Net cash provided (used) by financing activities 2,225,598 -- 1,392,275 582,516
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (71,298) (194,202) (705,648) 245,117
Cash and cash equivalents, beginning of period 91,837 3,315,971 726,187 2,876,652
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 20,539 $ 3,121,769 $ 20,539 $ 3,121,769
=========== =========== =========== ===========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest expense $ 80,301 $ -- $ 384,534 --
See accompanying notes to the consolidated financial statements.
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements should be read in the context
of the consolidated financial statements and notes thereto filed with the
Securities and Exchange Commission in the 1998 Annual Report on Form 10-K of
Toreador Royalty Corporation (the "Company"). In the opinion of the Company's
management, the information furnished herein reflects all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the results of the interim periods reported herein. Operating
results for the nine months ended September 30, 1999 may not necessarily be
indicative of the results for the year ending December 31, 1999.
NOTE 2 - MARKETABLE SECURITIES
Marketable securities at September 30, 1999 consist of several issues
of preferred stock with a fair market value of $252,006 as of September 30,
1999. The net unrealized loss related to these securities before taxes is
$68,780 ($45,394 net of tax). The Company has designated these investments as
"securities available for sale" pursuant to Statement of Financial Accounting
Standards No. 115.
NOTE 3 - NON-PRODUCING MINERAL AND ROYALTY INTERESTS
Principal properties include perpetual mineral and royalty interests
acquired by the Company during 1951, 1958 and 1998. These interests total
approximately 1,336,000 net mineral acres underlying approximately 2,539,000
gross acres. These properties include approximately 1,775,000 gross (876,000
net) acres in Mississippi, Alabama and Louisiana and 764,000 gross (460,000 net)
acres located in the Texas Panhandle and West Texas. It is recognized that the
ultimate realization of the investment in these properties is dependent upon
future exploration and development operations which are dependent upon
satisfactory leasing and drilling arrangements with others and a favorable oil
and gas price environment.
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 1999 and 1998
NOTE 4 - ASSET DISPOSITION
Assets held for sale consisted of undeveloped mineral and royalty interests
which the Company was marketing. In the first quarter of 1999, the Company sold
a portion of its interests for $777,550 resulting in a pretax gain of $557,227.
In the third quarter of 1999 the Company sold an additional portion of it's
interests for $300,000 resulting in a pretax gain of $285,000. The remaining
balance of the assets held for sale have been reclassified as "Properties and
equipment" in order to more properly reflect their long-term nature based upon
the Company's current estimation.
NOTE 5 - INTEREST AND OTHER INCOME
Items in interest and other income consist of:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- --------------
1999 1998 1999 1998
-------- ------- ------- --------
Interest $20,971 $43,131 $55,843 $119,744
Dividends 14,875 -- 33,331 --
Other Income (14,275) 7,132 (1,336) 10,837
------- ------- ------- --------
$21,571 $50,263 $87,838 $130,581
======= ======= ======= ========
NOTE 6 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income." Comprehensive
income consists of:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net income $ 353,674 $(164,745) $ 518,897 $ (61,378)
Unrealized losses on securities (8,008) -- (20,472) --
--------- --------- --------- ---------
Comprehensive income $ 345,666 $(164,745) $ 498,425 $ (61,378)
========= ========= ========= =========
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TOREADOR ROYALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 1999 and 1998
NOTE 7 - LONG-TERM DEBT
A new credit agreement was entered into as of September 30, 1999 with
Compass Bank providing for a revolving line of credit of up to $25,000,000 with
a current borrowing base of $10,500,000, subject to adjustment depending upon
the underlying collateral value. The current outstanding loan is $10,355,000
which matures on October 1, 2002. The loan bears interest equal to the prime
rate charged by the lender less 1/4%, which currently equates to 8%. The
credit agreement contains various representations, warranties and covenants of
the borrower customary for a loan of this type.
NOTE 8 - EARNINGS PER ORDINARY SHARE
The following table reconciles the numerators and denominators of the
basic and diluted earnings per ordinary share computation for earnings from
continuing operations:
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Nine months ended September 30, 1999:
Net income $ 518,897
Less: Dividends on preferred shares 270,000
---------
Income applicable to common shares 248,897
Basic income per share 5,188,582 $ 0.05
======
Effect of dilutive securities:
Stock options -- 35,000
--------- ---------
Income applicable to common shares and
assumed conversions $ 248,897 5,223,582 $ 0.05
========= ========= ======
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Nine months ended September 30, 1998:
Net income (61,378)
Basic income per share 5,067,694 $(0.01)
======
Effect of dilutive securities:
Stock options -- --
--------- ---------
Income applicable to common shares and
Assumed conversions $ (61,378) 5,067,694 $(0.01)
========= ========= ======
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TOREADOR ROYALTY CORPORATION
For the three and nine months ended September 30, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Form 10-Q, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy, plans and objectives of
management of the Company for future operations, and industry conditions, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Any forward-looking
statements herein are subject to certain risks and uncertainties inherent in
petroleum exploration, development and production, including, but not limited to
the risk that no commercially productive oil and gas reservoirs will be
encountered; the risk that acquisitions of additional producing properties may
not be feasible, or that such acquisitions may not be profitable; inconclusive
results from 3-D seismic projects; delays or cancellation of drilling operations
as a result of a variety of factors; volatility of oil and gas prices due to
economic and other conditions; intense competition in the oil and gas industry;
operational risks (e.g., fires, explosions, blowouts, cratering and loss of
production); insurance coverage limitations and requirements; and potential
liability imposed by intense governmental regulation of oil and gas production;
all of which are beyond the control of the Company. Any one or more of these
factors could cause actual results to differ materially from those expressed in
any forward-looking statement. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements disclosed in
this paragraph and otherwise in this report.
LIQUIDITY AND CAPITAL RESOURCES
Historically, most of the exploration activity on our acreage has been
funded and conducted by other oil companies. Exploration activity by third party
oil companies typically generates lease bonus and option income to us. If such
drilling is successful, we receive royalty income from the oil or gas production
but bear none of the capital or operating costs.
Since the middle of 1996, we have successfully accelerated the
evaluation of several areas of our Texas mineral acreage as well as increased
our ownership in any reserves that were discovered by third parties conducting
3-D seismic projects (without cost to us) and selectively participated in any
wells drilled as a result of such geophysical activity. At this time we have
discontinued this policy.
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TOREADOR ROYALTY CORPORATION
For the three and nine months ended September 30, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We have shifted our exploration focus to geologic regions, particularly
those areas with proven and attractive gas reserves, that can provide
potentially better rates of return on our capital resources. We also plan to
evaluate 3-D seismic projects or drilling prospects generated by third party
operators. If judged geologically and financially attractive by our management,
we will enter into joint ventures on those third party projects or prospects
which are within the capital exploration budget approved by our board of
directors.
We also intend to actively evaluate opportunities to acquire producing
properties that represent unique opportunities for us to add additional reserves
to our reserve base. Any such acquisitions will be financed using cash on hand,
third party sources, existing credit facilities or any combination thereof.
Our remaining 1999 capital and exploratory budget, excluding any
acquisitions we may make, could range from $100,000 to $200,000, depending on
the timing of any new seismic surveys and drilling of exploratory and
development wells in which we may hold a working interest position.
At the present time, the primary source of capital for financing our
operations is our cash flow from operations and proceeds from oil and gas
properties sold. During the first nine months of 1999, cash flow provided by
operations and oil and gas properties sold was $756,433.
On September 30, 1999, we purchased certain oil and gas royalty
interests located in Arkansas, California, Kansas and Michigan (the "Four State
Acquisition") from Conoco, Inc., pursuant to a written offer by us and a letter
of acceptance from Conoco. The purchase price was $3,215,000 which was funded
with our available cash ($600,000) and a loan from Compass Bank, Dallas
($2,615,000). The effective date of the purchase was August 1, 1999.
On November 13, 1997 we obtained a credit facility from Compass Bank.
The credit facility contains borrowing base restrictions and various affirmative
and negative covenants. These covenants, among other things, limit additional
indebtedness, the sale of assets and the payment of dividends, change of control
and require us to meet certain financial tests. We must maintain a ratio of
current assets to current liabilities of at least 1:1.
The credit facility was amended on April 16, 1999 to increase the size
of the facility to $25.0 million. On September 30, 1999, a new credit agreement
was entered into with Compass Bank which amended various terms and conditions
of the previous facility. The main changes were a new maturity date of October
1, 2002, with an increased borrowing base of $10,500,000. The increased
borrowing base was a result of the Four State Acquisition. As of September 30,
1999 the Company was in compliance with all covenants pursuant to the credit
agreement.
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TOREADOR ROYALTY CORPORATION
For the three and nine months ended September 30, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We maintain our excess cash funds in interest-bearing deposits
and in marketable securities. In addition to the properties described above, we
also may acquire other producing oil and gas assets, which could require the use
of debt, including the aforementioned credit facility or other forms of
financing. Our management believes that sufficient funds are available from
internal sources and other third party sources to meet anticipated capital
requirements for fiscal 1999.
From October 10, 1995 through October 29, 1999 we have used $1,249,421
of our cash reserves to purchase 469,000 shares of our Common Stock pursuant to
three share repurchase programs approved by the board of directors. During the
third quarter of 1999 we purchased 7,300 of the shares at a cost of $25,143. On
July 23, 1998, our board of directors suspended the policy of share repurchases
for the time being to instead use the Company's excess cash resources toward
funding our participation in third party operated 3-D projects or drilling
prospects and acquisition of producing oil and gas properties. On March 23,
1999, our board of directors reinstated the common stock repurchase program
enabling the Company to purchase the remaining shares available under the third
stock repurchase plan from time to time and depending on market conditions.
There are approximately 81,000 shares authorized and available for repurchase
under the third plan.
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TOREADOR ROYALTY CORPORATION
For the three and nine months ended September 30, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS.
THREE MONTHS ENDED SEPTEMBER 30, 1998
Revenues for the third quarter of 1999 were $1,523,241 versus $447,225
for the same period in 1998. Oil and gas sales were $1,084,286 on volumes of
30,686 Bbls of oil and 210,282 Mcf of natural gas for the third quarter of 1999
as compared to $396,962 on volumes of 21,191 Bbls and 79,091 Mcf in 1998. This
increase in oil and gas sales reflects an increase in oil and gas volumes from
the Howell Mineral Acquisition in addition to a substantial increase in oil and
gas prices. The average price for third quarter 1999 oil sales increased 61% to
$18.38/Bbl compared to $11.45/Bbl for the same quarter in 1998. The average
price for third quarter 1999 gas sales increased 19% to $2.29/Mcf compared to
$1.92/Mcf for the same period in 1998. Net lease bonuses and rentals for the
third quarter of 1999 were $122,885 versus none for the same period in 1998 due
to increased activity on acreage that was part of the Howell Mineral
Acquisition. Interest and other income were $21,571 in the third quarter of 1999
versus $50,263 for the third quarter of 1998 due to a decrease in cash funds
earning interest in 1999.
Costs and expenses for the third quarter of 1999 were $987,371 versus
$696,687 for the same period in 1998. Lease operating expenses increased 79% to
$172,589 in 1999 from $96,206 in 1998. This increase was due mainly to
production taxes incurred on increased oil and gas revenue as compared to the
same quarter in 1998. Depreciation, depletion and amortization increased 34% to
$201,536 for the third quarter of 1999 from $150,913 in 1998, primarily
reflecting depletion related to the Howell Mineral Acquisition. Geological and
geophysical expenses decreased slightly to $107,189 for the third quarter of
1999 from $109,388 in 1998. General and administrative expenses decreased 13% to
$296,249 in the third quarter of 1999 from $340,180 for the same period a year
ago. This decrease in general and administrative expense resulted primarily from
one-time charges in 1998, namely, a "break-up" fee paid to Dain Rauscher Wessels
for over $50,000 along with legal expenses totaling over $50,000 related to the
reorganization of the Board of Directors. Another factor in the decrease was a
credit of $58,000 during the third quarter of 1999 resulting from the
reclassification of technical service fees from Wilco Properties Inc. during
1999. The fees were classified as "Interest and other income" in previous
quarters.
During the third quarter of 1999 the Company incurred $209,808 in
interest expense and paid $90,000 for preferred dividends related to the
financing for the Howell Mineral Acquisition. In the same period for 1998 there
were no interest or dividend payments.
The Company recognized net income of $263,674, or $0.05 per share
(basic and diluted), for the third quarter of 1999 versus a net loss of
$164,745, or $0.03 per share (basic and diluted), for the same period in 1998.
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TOREADOR ROYALTY CORPORATION
For the three and nine months ended September 30, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS.
NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues for the nine months ended September 30, 1999 were $3,875,761
versus $1,786,895 for the same period in 1998. Oil and gas sales for the nine
months ended September 30, 1999 were $2,616,687 on volumes of 100,277 Bbls of
oil and 602,253 Mcf of natural gas as compared to $1,487,650 on volumes of
69,172 Bbls and 278,526 Mcf for the same period in 1998. The $1,129,037 or 76%
increase in oil and gas sales reflects an increase in oil and gas volumes from
the Howell Mineral Acquisition. Average oil prices increased slightly to
$13.80/Bbl for the nine months ended September 30, 1999 from $13.28/Bbl for the
nine months ended September 30, 1998. Average gas prices decreased 5% to
$1.93/Mcf for the nine months ended September 30, 1999 from $2.04/Mcf for the
nine months ended September 30, 1998. Lease bonuses and rentals increased to
$319,510 for the nine months ended September 30, 1999 compared to $168,664 for
the prior-year period. This 89% increase was primarily attributable to lease
bonuses received on acreage from the Howell Mineral Acquisition. Interest and
other income for the nine months ended September 30, 1999 was $87,838, down 33%
from $130,581 for the same period in 1998 due to reduced interest earned on
lower cash balances in 1999.
Costs and expenses for the nine months ended September 30, 1999 were
$3,089,553 versus $1,880,416 for the same period in 1998. Lease operating
expenses increased slightly to $429,176 for the nine months ended September 30,
1999 from $412,253 for the same period in 1998. Dry holes and abandonments
decreased to zero for the nine period ended September 30, 1999 from $100,207 for
the nine months ended September 30, 1998 reflecting the Company's decreased
participation in exploration projects on its minerals. Depreciation, depletion
and amortization increased 69% to $604,563 for the first nine months in 1999
from $358,659 for the same period in 1998, reflecting the increase in properties
and equipment from the Howell Mineral Acquisition. Geological and geophysical
expenses increased 13% to $275,685 for the nine months ended September 30, 1999
from $244,189 for the prior-year period. General and administrative expenses
increased to $1,216,423 for the nine months ended September 30, 1999 from
$765,108 for the same period a year ago, primarily due to non-recurring costs
related to the Howell Mineral Acquisition along with increased payroll costs.
The Company recognized net income of $518,897 or $0.05 per share (basic
and diluted), for the nine months ended September 30, 1999 versus a net loss of
$61,378, or $0.01 per share (basic and diluted), for the same period in 1998.
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TOREADOR ROYALTY CORPORATION
For the three and nine months ended September 30, 1999 and 1998
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This statement is not expected to
have a material impact on the Company's consolidated financial statements. This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000.
YEAR 2000 PROJECT
The year 2000 ("Y2K") problem arises because of computer programs which
use two digits rather than four digits to define a year. This may result in
miscalculations or complete system failures in processing data with programs
using date-sensitive information.
We currently use commercially available software for our management
information systems, including accounting, engineering, and word processing
applications. This software has either already been warranted by the suppliers
or publishers to be Y2K compliant or the suppliers and publishers have
represented such software will be compliant in upgrades we will receive in 1999
at minimal or no cost to us.
We have completed our review of our internal computer systems and we
have determined that these systems are Y2K compliant. As of September 30, 1999,
all costs incurred by us in connection with our compliance efforts were included
in general and administrative expenses. As of September 30,1999, the total cost
incurred was approximately $28,000. Management expects any additional Y2K
compliance costs to be minimal because our management information systems are
warranted to be compliant or are represented to be compliant in upgrades we will
receive. Furthermore, we replaced our former oil and gas system in 1998 with a
Y2K compliant oil and gas package. Management has obtained confirmation from our
major suppliers and purchasers that they also are or will be Y2K compliant.
Management believes that it will not be practical to independently verify the
responses because it does not believe that we would be given access to carry out
such verification or that the costs of doing so would be affordable. The cost of
replacing non-compliant or non-responsive suppliers and customers will not be
possible to determine until the review process has been completed. Any Y2K
problems that do occur will likely manifest themselves in reduced production
through equipment shut downs or impaired liquidity through inability of
customers to take delivery of production or process payments.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Inapplicable.
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TOREADOR ROYALTY CORPORATION
September 30, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- Inapplicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS -- Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- Inapplicable.
ITEM 5. OTHER INFORMATION -- Inapplicable.
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TOREADOR ROYALTY CORPORATION
September 30, 1999
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein:
No. Description of Exhibit:
--- -----------------------
10.1 Credit Agreement effective September 30, 1999,
between Compass Bank, as Lender, and Toreador Royalty
Corporation, Toreador Exploration & Production Inc.,
and Tormin, Inc. as Borrowers, and Toreador
Acquisition Corporation, as Guarantor (previously
filed as Exhibit 10.1 to Toreador Royalty Corporation
Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 29, 1999, and
incorporated by reference herein).
27 Financial Data Schedule
(b) Reports on Form 8-K:
1. Current Report on Form 8-K dated September 30, 1999,
filed October 27, 1999, reporting information under
Item 2.
SIGNATURES
Pursuant to the requirements 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.
TOREADOR ROYALTY CORPORATION,
Registrant
/s/ G. THOMAS GRAVES III
--------------------------------------------
G. Thomas Graves III,
President and Chief Executive Officer
/s/ DOUGLAS W. WEIR
--------------------------------------------
Douglas W. Weir
Vice President-Finance and Treasurer
(Principal Financial and Accounting Officer)
November 5, 1999
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TOREADOR ROYALTY CORPORATION
September 30, 1999
INDEX TO EXHIBITS
Exhibit
Number Exhibits
---------------- ---------------------------------------------------------
10.1 - Credit Agreement effective September 30, 1999, between
Compass Bank, as Lender, and Toreador Royalty Corporation,
Toreador Exploration & Production Inc., and Tormin, Inc.
as Borrowers, and Toreador Acquisition Corporation, as
Guarantor (previously filed as Exhibit 10.1 to Toreador
Royalty Corporation Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 29,
1999, and incorporated by reference herein).
27 - Financial Data Schedule
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