SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly
period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8157
THE RESERVE PETROLEUM COMPANY
(Exact name of small business issuer as specified in its charter)
Delaware 73-0237060
------------------------------ ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6801 N. Broadway, Suite 300, Oklahoma City OK 73116-9092
(Address of principal executive offices)
(405) 848-7551
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 ___
As of May 8, 2001, 167,411.73 shares of the Registrant's $.50 par value common
stock were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
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PART 1
FINANCIAL INFORMATION
1
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
ASSETS
------
March 31, December 31,
2001 2000
--------- ----------
Current Assets:
Cash and Cash Equivalents $ 564,678 $ 330,178
Available for Sale Securities 5,135,106 4,951,277
Trading Securities 253,598 400,371
Receivables 420,258 443,933
Prepayments & Deferred Income Taxes 42,252 5,625
--------- ---------
6,415,892 6,131,384
--------- ---------
Investments:
Partnership and Limited
Liability Companies 526,850 544,081
Other 15,298 15,298
--------- ---------
542,148 559,379
--------- ---------
Property, Plant & Equipment:
Oil & Gas Properties, at Cost Based on the
Successful Efforts Method of Accounting
Unproved Properties 504,067 531,093
Proved Properties 4,755,567 4,561,075
--------- ---------
5,259,634 5,092,168
Less-Valuation Allowance and Accumulated
Depreciation, Depletion & Amortization 3,980,139 3,959,762
--------- ---------
1,279,495 1,132,406
--------- ---------
Other Property & Equipment, at Cost 334,780 330,490
Less-Accumulated Depreciation & Amortization 165,820 175,846
--------- ---------
168,960 154,644
--------- ---------
1,448,455 1,287,050
--------- ---------
Other Assets 446,623 494,868
--------- ---------
$8,853,118 $8,472,681
========= =========
(continued)
See Accompanying Notes
2
THE RESERVE PETROLEUM COMPANY
BALANCE SHEETS
(Unaudited)
(Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, December 31,
2001 2000
--------- ----------
Current Liabilities:
Accounts Payable $ 88,959 $ 41,321
Income Taxes Payable 111,615 118,500
Other Current Liabilities-
Gas Balancing Commitment 35,111 35,111
Deferred Income Taxes and Other 15,000 30,641
--------- ---------
250,685 225,573
--------- ---------
Dividends Payable 124,953 128,037
--------- ---------
Stockholders' Equity:
Common Stock 92,368 92,368
Additional Paid-in Capital 65,000 65,000
Retained Earnings 8,512,887 8,154,158
--------- ---------
8,670,255 8,311,526
Less - Treasury Stock, at Cost 192,775 192,455
--------- ---------
8,477,480 8,119,071
--------- ---------
$8,853,118 $8,472,681
========= =========
See Accompanying Notes
3
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2001 2000
--------- ---------
Operating Revenues:
Oil and Gas Sales $ 931,396 $ 418,947
Lease Bonuses and Other 80 8,713
--------- ---------
931,476 427,660
--------- ---------
Operating Costs and Expenses:
Production 110,448 83,706
Exploration 145 64,632
Depreciation, Depletion, Amortization
and Valuation Provisions 66,540 47,383
General, Administrative and Other 164,892 153,879
--------- ---------
342,025 349,600
--------- ---------
Income from Operations 589,451 78,060
Other Income (Loss), Net (115,846) 175,619
--------- ---------
Income Before Income Taxes 473,605 253,679
Provision for
Income Taxes 114,876 68,964
--------- ---------
Net Income $ 358,729 $ 184,715
========= =========
Per Share Data
Net Income, Basic and Diluted $ 2.14 $ 1.10
========= =========
Weighted Average Shares
Outstanding, Basic and Diluted 167,436 167,623
========= =========
See Accompanying Notes
4
THE RESERVE PETROLEUM COMPANY
STATEMENTS OF CASH FLOW
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31,
2001 2000
--------- ---------
Net Cash Provided by Operating Activities $ 626,927 $ 183,429
--------- ---------
Cash Flows Applied to Investing Activities:
Purchase of Available for Sale Securities (2,951,695) (887,453)
Sales of Available for Sale Securities 2,767,865 853,779
Property Dispositions 21,119 10,674
Property Additions (234,563) (113,473)
Cash Distributions from Equity Investments 8,250 8,250
--------- ---------
Net Cash Applied to Investing Activities (389,024) (128,223)
--------- ---------
Cash Flows Applied to Financing Activities:
Decrease in Dividends Payable (3,083) (744)
Purchase of Treasury Stock (320) (320)
--------- ---------
Total Cash Applied to Financing Activities (3,403) (1,064)
--------- ---------
Net Change in Cash and Cash Equivalents 234,500 54,142
Cash and Cash Equivalents,
Beginning of Period 330,178 367,963
--------- ---------
Cash and Cash Equivalents,
End of Period $ 564,678 $ 422,105
========= =========
Supplemental Disclosures of
Cash Flow Information,
Cash Paid During the Periods for:
Interest $ 3,750 $ ----
Income Taxes $ 116,000 $ ----
See Accompanying Notes
5
THE RESERVE PETROLEUM COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Note 1 - BASIS OF PRESENTATION
In the opinion of Management, the accompanying financial statements
reflect all adjustments which are necessary for a fair statement of the
results of the interim periods presented. The results of operations for
the current interim periods are not necessarily indicative of the
operating results for the full year.
Note 2 - COMPREHENSIVE INCOME
Total comprehensive income was $358,729 for the three months ended March
31, 2001. Total comprehensive income for the three months ended March
31, 2000, was $141,564.
Note 3 - UNREALIZED LOSS ON TRADING SECURITIES
The statement of operations for the period ended March 31, 2001,
included unrealized losses on trading securities of $139,592. Through
May 7, 2001, there were no sales of trading securities in inventory at
March 31, 2001. The fair value of trading securities on hand at March
31, 2001, and still in inventory at May 7, 2001, had increased $53,974.
6
THE RESERVE PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2001
(Unaudited)
The discussion and analysis of financial condition and results of operations
should be read with reference to a similar discussion in the Company's December
31, 2000, Form 10-KSB filed with the Securities and Exchange Commission, as well
as the condensed financial statements included in this Form 10-QSB.
1. Liquidity and Capital Resources.
-------------------------------
The Company's cash, cash equivalents and available for sale securities at March
31, 2001, totaled $5,699,784, an amount which, along with the cash flow from
operations, is adequate to fund all currently budgeted investing and financing
activities. Management is unaware of any additional material trends, demands,
commitments, events or uncertainties which would impact liquidity and capital
resources to the extent that the discussion presented in Form 10-KSB for
December 31, 2000, would not be representative of the Company's current
position.
2. Material Changes in Results of Operations Three Months Ended March 31, 2001,
----------------------------------------------------------------------------
Compared with Three Months Ended March 31, 2000.
- -----------------------------------------------
Operating Revenue. Oil and gas sales were $931,396 in 2001, a $512,449 (122%)
increase from 2000. The increase was almost totally the result of an increase in
the average unit price of natural gas. The volume of gas, the average unit price
and the volume of oil sold remained flat between the periods.
The average unit price of gas per thousand cubic feet (MCF) increased $4.61 to
$6.83 per MCF, and the volume of gas produced fell 242 MCF to 114,606 MCF. The
average unit price per barrel (Bbl) of oil increased $.48 to $27.28 per Bbl, and
the volume of oil sales increased 185 Bbls to 6,012 Bbls.
Production in the quarter ended March 31, 2001, from properties which first
produced after March 31, 2000, was 18,873 MCF of gas and 548 Bbls of oil. This
increased volume from new production was offset by the normal decline in volume
from older properties by 19,115 MCF of gas and 363 Bbls of oil.
Operating Costs and Expenses. Production costs increased $26,742 (32%) to
$110,448, for the most part because of a $22,636 (70%) increase in gross
production tax. The production tax increase was the result of increased oil and
gas sales.
7
Exploration costs charged to expense decreased $64,487 to $145 in 2001. The
remaining expenditures for exploration costs totaling approximately $179,000
were capitalized. One Oklahoma well with accumulated cost of approximately
$147,000 at March 31, 2001, in which the Company has a 17.5% working interest,
was completed as a gas producer. The well is producing at a rate of about 250
MCF per day with additional potential production from another zone. Another
Oklahoma well (21% working interest) with accumulated costs of approximately
$28,000 at March 31, 2001 was testing as of May 7, 2001.
The provisions for depreciation, depletion, amortization and valuation increased
$19,157 (40%) to $66,540 mostly because of unit of production depreciation on
oil and gas properties which first produced after March 31, 2000. Those
properties had depreciation provisions which totaled $19,738 in the first
quarter of 2001.
General, administrative and other expenses increased $11,013 (7%) to $164,892.
The items with the most significant increases were salaries, which increased
$4,659 because of salary adjustments and director fees which increased $4,500 as
the result of an additional board of directors' meeting.
Other Income (Loss), Net. Other income, net declined $291,465 to a loss of
$115,846 in 2001 from a gain of $175,619 in 2000. For the most part, the loss
was the result of a $258,389 decrease in realized and unrealized gain on trading
securities from a gain of $110,908 in 2000 to a loss of $147,481 in 2001. See
Note 3, to the accompanying condensed financial statements, for additional
information on trading securities.
Also contributing to the decline was a $27,077 decrease in gain on sale of
property and equipment to a loss of $16,395 in 2001 as well as a $13,899 decline
in income from equity investments to a loss of $8,981 in 2001. However, interest
income, mostly from available for sale securities, increased $9,079 to $67,937
in 2001.
Provision For Income Taxes. The provision for income taxes increased $45,912
(67%) to $114,876 in 2001. The effective Federal income tax rate was 24% in 2001
and 27% in 2000, as compared to the statutory US Federal income tax rate of 35%.
For the most part, the effective tax rate was less than the statutory rate each
year because of allowable depletion for Federal income tax purposes in excess of
depletion for financial statements.
In 2001, the Company had an estimated provision for income taxes of $114,876 as
estimated current tax expense of $109,115 was increased by estimated deferred
tax expense of $5,761. For the comparable period in 2000, the Company had an
estimated provision for income taxes of $68,964 as estimated current tax expense
of $9,340 was increased by estimated deferred tax expense of $59,624.
8
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(b) No reports on Form 8-K were required to be filed by the Registrant for
the three months ended March 31, 2001.
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 thereto duly authorized.
THE RESERVE PETROLEUM COMPANY
-----------------------------
(Registrant)
Date: May 8, 2001 /s/ Mason McLain
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Mason McLain,
President
Date: May 8, 2001 /s/ Jerry L. Crow
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Jerry L. Crow
Principal Financial and Accounting Officer
9