FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-610
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EQUITY OIL COMPANY
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(Exact name of registrant as specified in its charter)
COLORADO 87-0129795
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 806, #10 West Third South, Salt Lake City, Utah 84101
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(Address of principal executive offices)
(Zip Code)
(801) 521-3515
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Registrant's telephone number, including area code
(Former name, former address and former fiscal year,
if changed since last report)
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 12,688,061
ITEM I: Financial Statements
EQUITY OIL COMPANY
Statements of Operations
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
2001 2000
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REVENUES
Oil and gas sales $17,247,604 $16,818,425
Interest income 127,180 130,887
Other 182,765 1,295,153
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17,557,549 18,244,465
EXPENSES
Operating costs 5,583,541 5,032,304
Depreciation, depletion and
amortization 2,850,000 3,000,000
Impairment of proved oil and
gas properties 69,545 -
Equity loss in
Symskaya Exploration, Inc. 105,414 101,890
3-D seismic 200,005 590,769
Exploration 1,436,842 1,523,754
General and administrative 1,889,517 1,467,340
Interest 353,872 885,183
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12,488,736 12,601,240
Income before income taxes 5,068,813 5,643,225
Provision for income taxes 1,814,805 2,067,666
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NET INCOME $ 3,254,008 $3,575,559
========== =========
Net income per share
Basic $.26 $.28
Diluted $.25 $.28
Weighted average shares outstanding
Basic 12,678,711 12,643,440
Diluted 12,980,699 12,932,233
The accompanying notes are an integral part of these statements.
2
EQUITY OIL COMPANY
Statements of Operations
For the Three Months Ended September 30, 2001 and 2000
(Unaudited)
2001 2000
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REVENUES
Oil and gas sales $3,797,827 $6,027,006
Interest income 27,656 55,236
Other 9,916 142,284
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3,835,399 6,224,526
EXPENSES
Operating costs 1,847,134 1,747,786
Depreciation, depletion and
amortization 930,000 1,000,000
Impairment of proved oil and
gas properties 69,545 -
Equity loss in
Symskaya Exploration, Inc. 53,243 18,931
3D seismic 175,181 59,976
Exploration 600,607 734,810
General and administrative 514,593 495,783
Interest 71,150 270,616
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4,261,453 4,327,902
Income (loss) before
income taxes (426,054) 1,896,624
Provision for (benefit from)
income taxes (300,519) 682,597
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NET INCOME (LOSS) $ (125,535) $1,214,027
========== =========
Net income (loss) per common share:
Basic $ (0.01) $ 0.10
Diluted $ (0.01) $ 0.09
Weighted average shares outstanding:
Basic 12,688,061 12,643,440
Diluted 12,901,672 12,860,825
The accompanying notes are an integral part of these statements.
3
EQUITY OIL COMPANY
Balance Sheet
as of September 30, 2001 and December 31, 2000
(Unaudited)
September 30, December 31,
ASSETS 2001 2000
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Current assets:
Cash and cash equivalents $ 2,355,714 $ 2,190,548
Accounts and advances receivable 3,415,551 5,471,937
Income taxes receivable 303,361 107,490
Deferred income taxes 120,846 79,896
Other current assets 55,973 58,667
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6,251,445 7,908,538
Property and equipment 109,914,458 106,031,805
Less accumulated depreciation,
depletion and amortization 69,356,006 66,509,569
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40,558,452 39,522,236
Other assets 307,582 366,937
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307,582 366,937
TOTAL ASSETS $47,117,479 $47,797,711
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,091,671 $ 2,303,102
Accrued liabilities 165,039 189,912
Federal, state and foreign
income taxes payable 43,716 632,435
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2,300,426 3,125,449
Revolving credit facility 5,500,000 8,500,000
Deferred income taxes 3,431,011 3,588,575
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8,931,011 12,088,575
Stockholders' equity:
Common stock 12,851,661 12,819,212
Paid in capital 3,735,763 3,719,865
Less cost of treasury stock (528,302) (528,302)
Retained earnings 19,826,920 16,572,912
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35,886,042 32,583,687
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $47,117,479 $47,797,711
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The accompanying notes are an integral part of these statements.
4
EQUITY OIL COMPANY
Statement of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,254,008 $ 3,575,559
Adjustments:
Depreciation, depletion and
amortization 2,850,000 3,000,000
Impairment of proved oil and
gas properties 69,545 -
Loss (gain) on
property dispositions 1,078 (499,965)
Equity loss in
Symskaya Exploration, Inc. 105,414 101,890
Change in other assets 59,355 72,786
Change in deferred income taxes (198,514) 1,920,001
Increase (decrease) from changes in:
Accounts and advances receivable 2,056,386 (583,897)
Other current assets 2,694 192,560
Accounts payable and accrued
liabilities (236,304) 440,368
Income taxes receivable/payable (749,346) (102,269)
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Net cash provided
by operating activities 7,214,316 8,117,033
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of properties - 513,298
Advances to Symskaya Exploration (105,414) (101,890)
Capital expenditures (3,956,839) (1,823,362)
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Net cash used in
investing activities (4,062,253) (1,411,954)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan fees - (26,136)
Stock option proceeds 13,103 3,189
Payments on credit facility (3,000,000) (5,500,000)
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Net cash used in financing
activities (2,986,897) (5,522,947)
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NET INCREASE IN CASH 165,166 1,182,132
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,190,548 1,006,602
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,355,714 $ 2,188,734
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The accompanying notes are an integral part of these statements.
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NOTES TO FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying financial statements of Equity Oil Company ("Equity" or
"the Company") are unaudited. In the opinion of the Company's management, the
financial statements reflect the adjustments, all of which are of a normal and
recurring nature, necessary to present fairly the financial position of the
Company as of September 30, 2001, and the results of its operations for the
three and nine month periods ended September 30, 2001 and 2000, and its cash
flows for the nine month periods ended September 30, 2001 and 2000.
The financial statements and the accompanying notes to financial statements
have been prepared according to rules and regulations of the Securities and
Exchange Commission. Accordingly, certain notes and other information have been
condensed or omitted from the interim financial statements presented in this
Quarterly Report on Form 10-Q. These financial statements should be read in
conjunction with the Company's 2000 Annual Report on Form 10-K, and the
Company's Form 10-Q for the first and second quarters of 2001.
The results for the three and nine month periods ended September 30, 2001
are not necessarily indicative of future results.
Note 2. Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common and, if
dilutive, potential common equivalent shares outstanding during the period.
Potential common equivalent shares consist of the incremental common shares
issuable upon the exercise of stock options (using the treasury stock method).
Options to purchase approximately 1,649,000 shares of common stock at
prices of $1.06 to $5.125 per share were outstanding at September 30, 2001, of
which, 246,060 and 301,988 of these options were included in the computation of
diluted earnings per share for the third quarter and first nine months of 2001,
respectively. Options to purchase approximately 1,589,000 shares of common stock
at prices of $1.06 to $5.50 per share were outstanding at September 30, 2000, of
which, 536,500 were included in the computation of diluted net income per share
for the third quarter and first nine months of 2000.
6
PART I
ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operation
RESULTS OF OPERATIONS
Financial Results
Lower oil and gas prices and increased exploration activities during the
third quarter of 2001 negatively impacted earnings for the quarter. For the
quarter ended September 30, 2001, Equity recorded a net loss of $125,535, or
$(.01) per basic share, compared to net income of $1,214,027, or $.10 per basic
share, in the third quarter of 2000. Revenues in the 2001 third quarter were
$3,835,399, down 38% from revenues of $6,224,526 in the 2000 third quarter. Cash
flow from operating activities in the third quarter of 2001 of $1,569,575 was
52% lower than the third quarter 2000 operating cash flow of $3,262,879.
Net income for the first nine months of 2001 was $3,254,008, or $.26 per
basic share, compared to net income of $3,575,559, or $.28 per basic share
reported in the first nine months of 2000. Total revenues of $17,557,549 were 4%
lower than total revenues of $18,244,465 recorded in the first nine months of
2000. Cash flow from operating activities in the first nine months of 2001 of
$7,214,316 was 12% lower than 2000 nine months cash flow of $8,177,033.
Operating Activities
The Company participated in a successful development well in the Beaver
Creek Field during the quarter. The Westport #24-15T recorded an initial pumping
potential of 95 BOPD, 25 MCFD and 350 BWPD. Equity maintains a 32.5% working
interest in the #24-15T. An exploratory dry hole was drilled on the Company's
operated Merlin survey in the Sacramento Basin during the quarter.
The Company anticipates receipt of a drilling permit for the Equity #33-14
Beaver Creek in November. The #33-14 is the first exploration well to be drilled
on the Beaver Creek proprietary 3-D seismic project in the Williston Basin of
North Dakota. Currently, Equity's working interest in the #33-14 Beaver Creek is
100%. The Company anticipated drilling two exploratory wells in Beaver Creek
during 2001; however, the drilling permit for the Equity #32-4 Beaver Creek will
not be issued this year. The exploration effort in this area is being expanded
with the data acquisition phase of an approximate 15 square mile extension of
the original Beaver Creek survey.
The Company participated in a exploratory dry hole during October at its
Raven Ridge prospect in the Uintah Basin of Northeastern Utah.
During November 2001, Equity plans to commence its four well development
drilling program in the Sage Creek and Torchlight Fields in its Bighorn Basin
core area of operation. Drilling objectives in Sage Creek include an extension
of the principal producing reservoir and an infill development well. A
proprietary four square mile 3-D seismic survey, completed earlier this year,
identified field extension development drilling opportunities in the Torchlight
Field. Assuming issuance of one remaining drilling permit, two wells are planned
at Torchlight. Equity's operated working interest in the Bighorn Basin
development program varies between 56% and 100%.
7
A six well infill development drilling program is underway in the Company's
principal Canadian asset, the Cessford Field, in Southern Alberta. The 2001
drilling program is a continuation of the successful 2000 drilling campaign. The
five 2000 infill wells are currently producing approximately 40% of the field's
oil production of 380 BOPD and 60% of the total casing head gas production of
800 MCFD. Equity's working interest in Cessford is 50%.
The three well development drilling program in the Siberia Ridge Field of
Southwestern Wyoming may be initiated during the fourth quarter, however, the
operator, Anadarko Petroleum, has currently been unable to secure drilling
permits from the Federal Bureau of Land Management. It is likely that some
portion of this drilling program will be deferred until 2002.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents totaled $2,355,714 as of September 30, 2001, an
increase of 8% since year-end 2000. Working capital at September 30, 2001
decreased 17% at $3,951,019, compared to $4,783,089 at December 31, 2000. The
Company's ratio of current assets to current liabilities improved to 2.72 to 1
at September 30, 2001, compared to 2.53 to 1 at December 31, 2000.
Cash balances and working capital remained strong despite the fact that the
Company has reduced its outstanding debt by $3.0 million during 2001 to $5.5
million at September 30, 2001.
The Company's commitment under its credit facility is subject to a
redetermination as of May 1 and November 1 of each year, with estimated future
oil and gas prices used in the evaluation determined by the Company's lender.
The Company's current commitment under its credit facility is $17 million.
Accordingly, as of September 30, 2001, the Company had $11.5 million of
availability under its facility. The Company is in compliance with all of its
facility covenants.
Investment in property and equipment for the first nine months of 2001
totaled $4,034,421, a 121% increase from the amount recorded during the
corresponding nine months of 2000. High cash flows have enabled the Company to
actively pursue its 2001 drilling and workover programs.
The Company believes that existing cash balances, cash flow from operating
activities, and funds available under the Company's credit facility will provide
adequate resources to meet its capital and exploration spending objectives for
2001.
8
COMPARISON OF THIRD QUARTER 2001 WITH THIRD QUARTER 2000
Lower oil and gas prices, coupled with decreased oil and gas production,
resulted in a 37% decrease in oil and gas sales for the third quarter of 2001.
Total revenues for the period were $3,835,399, compared to $6,224,526 during the
same period of 2000.
The average oil price received in the third quarter was $22.68 per barrel,
down 20% from $28.34 per barrel in the third quarter of 2000. Gas prices were
down more drastically, averaging $1.59 per Mcf in the third quarter of 2001
compared to $3.84 per Mcf in 2000. Oil production decreased 8% to 151,000
barrels in 2001 compared to 165,000 barrels during the same period of 2000. Gas
production in the 2001 quarter decreased to 357,000 Mcf compared to 370,000 Mcf
in the comparable period last year. The reduction in oil and gas production is
attributable to a normal production decline as properties mature.
Total expenses in 2001 decreased 5% over 2000 third quarter levels. The
decrease is attributable to lower exploration costs in 2001 and lower interest
expense. Operating costs rose 6% from 2000 levels, primarily as a result of
costs associated with abandoning nonproducing wells and higher workover
expenses.
Lower exploration costs are associated with the Company's delay in
obtaining necessary drilling permits and oilfield services which have led to
less drilling events this year as compared to the prior year. General and
administrative expenses increased 4% from 2000 third quarter levels due to
higher compensation, and employee relocation costs associated with the hiring of
a new vice president of corporate development.
Lower interest costs in 2001 reflect the lower amount of debt outstanding
under the Company's credit facility and lower interest rates.
COMPARISON OF FIRST NINE MONTHS OF 2001 WITH FIRST NINE MONTHS OF 2000
Higher gas prices offset lower oil prices and declines in oil and gas
production to produce a modest 3% increase in oil and gas sales for the first
nine months of 2001. Oil and gas revenues for the period were $17,247,604,
compared to $16,818,425 during the first nine months of 2000. Total revenues for
the first nine months in 2001 of $17,557,549 decreased 4% from $18,244,465
received during the same period in 2000.
Average oil prices received by the Company in the first nine months of
2001, were $24.24 per barrel, compared to $26.10, net of hedging costs of
$835,562 during the same period of 2000. Average gas prices received during the
first nine months of 2001 were $5.25 per Mcf, which compared to $3.07 per Mcf
during the same period of 2000. Through the first nine months of 2001, oil
production of 472,000 barrels was down from 2000 production of 505,000 barrels.
Natural gas production decreased from 1,200,000 Mcf in 2000 to 1,100,000 Mcf in
2001. These production declines are attributable to normal declines as the
properties mature.
Included in the 2000 nine month revenues is $505,000 in non- recurring
property sales recognized in the first quarter of the year. There was no
corresponding amount received in 2001. The Company also recognized gains on the
sale of securities in 2000 and no such sales in 2001.
Higher operating costs, and administrative costs were offset by lower 3-D
seismic expense, exploration and interest costs. Overall expenses were 2% lower
in 2001 than in the same period of 2000. Operating costs rose 11% from 2000
levels, as the Company continues its well workover programs and to incur costs
associated with abandonment of nonproducing wells.
Expenses in the first nine months of 2001 include costs associated with a
new Company operated 3-D seismic survey in North Dakota. The Company
participated in two such surveys during the first nine months of 2000.
Exploration costs decreased as the Company's 2001 drilling program has been
delayed by the regulatory permitting process and difficulty in obtaining
oilfield services. Through the first nine months of 2001, the Company incurred
$311,000 in dry hole costs compared to $455,000 incurred during the same period
of 2000.
General and administrative expenses increased 28% from 2000 levels. The
increase was due to higher compensation, fees paid to an employment search firm
associated with hiring a new vice president of corporate development, employee
relocation and shareholder expenses.
Lower interest costs in 2001 reflect the lower amount of debt outstanding
under the Company's credit facility and lower interest rates.
OTHER ITEMS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. The Company
adopted SFAS No. 133 on January 1, 2001, and the adoption of this pronouncement
did not have a material impact on the Company's financial position and results
of operations.
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings or operations.
9
FORWARD LOOKING STATEMENTS
The preceding discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing in
the Company's annual report on Form 10-K. Except for the historical information
contained herein, the matters discussed in this report contain forward-looking
statements within the meaning of Section 27a of the Securities Act of 1933, as
amended, and Section 2le of the Securities Exchange Act of 1934, as amended,
that are based on management's beliefs and assumptions, current expectations,
estimates, and projections. Statements that are not historical facts, including
without limitation statements which are preceded by, followed by or include the
words "believes", "anticipates", "plans", "expects", "may", "should" or similar
expressions are forward-looking statements. Many of the factors that will
determine the Company's future results are beyond the ability of the Company to
control or predict. These statements are subject to risks and uncertainties and,
therefore, actual results may differ materially. 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 these cautionary
statements. The Company disclaims any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
Important factors that may effect future results include, but are not
limited to: drilling success, the availability of equipment and contract
services, environmental risks and impediments, geologic hazards, the risk of a
significant natural disaster, the inability of the Company to insure against
certain risks, fluctuations in commodity prices, the inherent limitations in the
ability to estimate oil and gas reserves, changing government regulations, as
well as general market conditions, competition and pricing, and other risks
detailed from time to time in the Company's SEC reports, copies of which are
available upon request from the Company's investor relations department.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The answers to items listed under Item 3 are inapplicable or negative.
PART II
OTHER INFORMATION
The answers to items listed under Part II are inapplicable or negative.
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.
EQUITY OIL COMPANY
(Registrant)
DATE: November 5, 2001 By /s/ Paul M. Dougan
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Paul M. Dougan
President
DATE: November 5, 2001 By /s/Russell V. Florence
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Russell V. Florence
Treasurer
Principal Accounting Officer
10