SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File No. 0-18774
SPINDLETOP OIL & GAS CO.
(Exact name of registrant as specified in its charter)
Texas 75-2063001
(State or other jurisdiction (IRS Employer or ID #)
of incorporation or organization)
331 Melrose, Suite 102, Richardson, TX 75080
(Address of principal executive offices) (Zip Code)
(972) 644-2581
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.01 per share
(Title of Class)
Indicate by check mark whether the Company (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 Company
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 March 31, 2003, 7,607,471 shares of the Company's common stock were
issued and outstanding, and the aggregate market value of the voting stock
held by non-affiliates of the company as of that date is not determinable
since no significant public trading market has been established for the
Company's common
stock.
PART I
Item 1. Description of Business
(a) General Business Development
- ----------------------------
Spindletop Oil & Gas Co. is engaged in the exploration, development and
production of oil and natural gas; the rental of oilfield equipment; and
through one of its subsidiaries, the gathering and marketing of natural gas.
The term "Company" is used herein to refer to Spindletop Oil & Gas Co. and
its wholly owned subsidiaries, Prairie Pipeline Co. ("PPL") and Spindletop
Drilling Company ("SDC").
The net crude oil and gas reserves of the Company as of December 31, 2002,
were 153,000 barrels of oil and condensate and 16,275,000 MCF (thousand cubic
feet) of natural gas. The Company owns rental equipment, including natural
gas compressors, pumping units, natural gas dehydrators and other various
pieces of oilfield production equipment. In addition, the Company, through
PPL, owns approximately 26.1 miles of pipelines located in Texas, which are
used for the gathering of natural gas. The Company's principal executive
offices are located at 331 Melrose, Suite 102, Richardson, Texas. The
telephone number is (972) 644-2581.
BACKGROUND
The Company is a Texas Corporation. The Company was previously known as
Prairie States Energy Co. ("PSE"). On July 13, 1990, Spindletop Oil & Gas
Co., a Utah Corporation, ("SOG UTAH") merged into PSE, and the name of PSE
was changed to Spindletop Oil & Gas Co., the Company herein.
The Company was originally incorporated in Colorado as Mid-America Drilling &
Exploration, Inc., on August 9, 1978 as a wholly owned subsidiary of
Mid-America Petroleum, Inc.("MAP"). The principal business of the Company at
that time was contract drilling of oil and gas wells. The initial public
offering of the Company occurred by prospectus dated December 13, 1979. In
January 1981, the shares of the Company owned by MAP were distributed as a
dividend to the shareholders of MAP. The Company's name was changed to
Prairie States Exploration, Inc. on March 15, 1983. Prairie States
Exploration, Inc. became insolvent in late 1983, and filed for protection
under Chapter 11 of the Bankruptcy Code on December 14, 1983.
Prairie States Exploration, Inc. was successfully reorganized under Chapter 11
of the Bankruptcy Code, and the Bankruptcy Court approved the plan of
reorganization on September 9, 1985. Pursuant to the Plan, the Company merged
into a wholly owned subsidiary, Prairie States Energy Co., a Texas
Corporation. The Plan of Reorganization was proposed and funded by
Paul E. Cash.
Since the reorganization, the Company has engaged in the general oil and gas
business, including exploration, development, and production of oil and gas,
the rental of oilfield production equipment and the ownership and construction
and operation of pipelines for the gathering and marketing of natural gas. SOG
Utah was incorporated on August 15, 1975 as Main Street Equities, Inc., a Utah
corporation. SOG Utah sold 5,000,000 shares of common stock in a public
offering in 1976. Until 1981, the business of the company consisted of minor
real estate operations. In October 1981 the name was changed to Aledo Oil and
Gas Company, and in January 1983 the name was changed to Spindletop Oil & Gas
Co.
The name "Spindletop" has been used by Paul E. Cash since 1975 in conjunction
with several previous oil and gas businesses in which he was engaged.
On July 13, 1990, SOG Utah was merged into PSE, and the name of the surviving
company was changed to Spindletop Oil & Gas Co., a Texas corporation. In the
merger, each shareholder of PSE received one-half share of the common stock of
the surviving company, for each share of PSE owned prior to the merger. Each
shareholder of SOG Utah received one and one-half shares of the common stock
of the surviving company, for each share of SOG Utah owned prior to the merger.
After the merger, the Company had 44,922,564 shares of common stock
outstanding, 32,255,195 of which were owned by the shareholders of PSE and
12,667,369 by shareholders of SOG Utah. Shares issued to the former
shareholders of SOG Utah have not been registered with the Securities and
Exchange Commission but according to Rule 144-K these shares would
automatically become free trading three years from date of issuance. The
Company's management believes that all shares issued to the former
shareholders of SOG Utah are now free trading in accordance with Rule 144-K.
On January 31, 1997, the Company effected a one for six reverse stock split.
The Company reduced the authorized common shares from 150,000,000 to
100,000,000 and increased the par value from $.001 to $.01 per share.
On December 1, 1999, Giant Energy Corp. purchased controlling interest in
Spindletop Oil & Gas Co. Giant purchased 5,860,889 shares of the Registrant's
outstanding Common Stock and as of December 31, 2002 owns 77.3 percent of the
Registrant's 7,582,471 shares of outstanding Common Stock. Chris Mazzini,
President and Chairman of the Board of the Registrant, is sole owner of Giant.
PLAN OF OPERATION
The Company's long-term strategy is to build an oil and gas production company
through a strategic combination of selected property acquisitions and an
exploration program. Additionally, the Company will continue to rework
existing wells in an attempt to increase production and reserves.
The Company will continue to generate and evaluate prospects using its own
staff. The Company intends to fund operations primarily from cash flow
generated by operations. The Company's primary area of operation has been and
will continue to be in Texas with an emphasis in the geological provinces
known as the Ft. Worth Basin in Texas.
The Company will attempt to expand its pipeline system. Expansion will be
dependent upon success in its exploration programs, since the majority of its
existing pipelines are connected to wells that the Company operates. In
addition, the oilfield rental equipment and compression business will be
expanded as needed, but this segment also depends upon the success of the
exploration and development program.
(b) Financial information relating to Industry Segments
---------------------------------------------------
The Company has two identifiable business segments: exploration, development
and production of oil and natural gas, and gas gathering and oil field
equipment rental. Footnote 14 to the Consolidated Financial Statements filed
herein sets forth the relevant information regarding revenues, income from
operations and identifiable assets for these segments.
(c) Narrative Description of Business
---------------------------------
The Company and SDC are engaged in the exploration, development and production
of oil and natural gas, and the rental of oil and gas production equipment.
PPL is engaged in the gathering and marketing of natural gas.
(i) Principal Products, Distribution and Availability
-------------------------------------------------
The principal products marketed by the Company are crude oil and natural gas
which are sold to major oil and gas companies, brokers, pipelines and
distributors, and oil and gas properties which are acquired and sold to oil
and gas development entities. Reserves of oil and gas are depleted upon
extraction, and the Company is in competition with other entities for the
discovery of new prospects.
The Company is also engaged in the gathering and marketing of natural gas
through its subsidiary PPL. The Company owns 26.1 miles of pipelines and
currently gathers approximately 807 MCF of gas per day. Gas is gathered for a
fee. Substantially all of the gas gathered by the Company is gas produced
from wells that the Company operates and in which it owns a working interest.
The Company is also engaged in the business of rental of oilfield production
equipment. The equipment is comprised of pumping units, compressors, gas
dehydrators and related production equipment. Substantially all of such
equipment is located on wells that the Company operates and in which it owns
a working interest.
(ii) Patents, Licenses and Franchises
--------------------------------
Oil and gas leases of the Company are obtained from the owner of the mineral
estate. The leases are generally for a primary term of 1 to 5 years, and in
some instances as long as 10 years, with the provision that such leases shall
be extended into a secondary term and will continue during such secondary term
as long as oil and gas are produced in commercial quantities or other
operations are conducted on such leases as provided by the terms of the leases
It is generally required that a delay rental be paid on an annual basis during
the primary term of the lease unless the lease is producing. Delay rentals
are normally $1.00 to $5.00 per net mineral acre.
The Company currently holds interests in producing and non-producing oil and
gas leases. The existence of the oil and gas leases and the terms of the oil
and gas leases are important to the business of the Company because future
additions to reserves will come from oil and gas leases currently owned by the
Company, and others that may be acquired, when they are proven to be
productive. The Company is continuing to purchase oil and gas leases in areas
where it currently has production, and also in other areas.
(iii) Seasonality
-----------
The Company's oil and gas activities generally are conducted on a year round
basis with only minor interruptions caused by weather.
(iv) Working Capital Items
---------------------
The Company finances the majority of its operations, including the purchase
of oil and gas leases, the development of wells, the construction of pipelines
and acquisition of oil field rental equipment from its internal working
capital as well as some borrowings.
(v) Dependence on Customers
-----------------------
The following is a summary of significant purchasers of the oil and natural
gas produced by the Company for the three-year period ended December 31, 2002:
Year Ended December 31, (1)
--------------------------------
Purchaser 2002 2001 2000
- ----------------------------------------- -------- -------- --------
Cantera Resources 22% 32% 23%
Devon Gas Services/Mitchell Marketing Co. 38% 41% 24%
(1) Percent of Total Oil & Gas Sales
Gas is sold to numerous gas purchasers (such as Devon Gas Services, L.P.,
Cantera Resources, Reliant Energy and Duke Energy Field Services) under
market sensitive, short-term contracts computed on a month to month basis.
The Company currently has no hedged contracts.
(vi) Competition
-----------
Numerous entities and individuals, many of which have far greater financial
and other resources than the Company, are active in the exploration for and
production of oil and gas. Substantial competition exists for leases,
prospects and equipment, all of which are necessary for successful operations.
Competition is focused primarily on the discovery of new prospects, which can
be developed and made productive.
The market prices received for the Company's products depend on a number of
factors beyond the control of the Company, including consumer demand,
worldwide availability, transportation facilities, and United States and
foreign government regulation of exports, imports, production and prices.
Widely fluctuating prices for oil and gas over recent years have had a direct
effect on the profitability of the Company's operations.
(vii) Development Activities
----------------------
The Company's primary oil and gas prospect acquisition efforts have been in
known producing areas in the United States with emphasis devoted to Texas.
The Company intends to use a portion of its available funds to participate in
drilling activities. Any drilling activity is performed by independent
drilling contractors. The Company does not refine or otherwise process its
oil and gas production.
Exploration for oil and gas is normally conducted with the Company acquiring
undeveloped oil and gas prospects, and carrying out exploratory drilling on
the prospect with the Company retaining a majority interest in the prospect.
Interests in the property are sometimes sold to key employees and associated
companies at cost. Also, interests may be sold to third parties with the
Company retaining an overriding royalty interest, carried working interest,
or a reversionary interest.
A prospect is a geographical area designated by the Company for the purpose of
searching for oil and gas reserves and reasonably expected by it to contain at
least one oil or gas reservoir. The Company utilizes its own funds along with
the issuance of common stock and options to purchase common stock in some
cases, to acquire oil and gas leases covering the lands comprising the
prospects. These leases are selected by the Company and are obtained directly
from the landowners, as well as from land men, geologists, other oil companies,
some of whom may be affiliated with the Company, and by direct purchase, farm-
in, or option agreements. After an initial test well is drilled on a
property, any subsequent development of such prospect will normally require
the Company's participation for the development of the discovery.
(viii) Environmental Regulation
------------------------
The Company's oil and gas exploration and production activities are subject to
Federal, State and environmental quality and pollution control laws and
regulations. Such regulations restrict emission and discharge of wastes from
wells, may require permits for the drilling of wells, prescribe the spacing
of wells and rate of production, and require prevention and clean-up of
pollution.
Although the Company has not in the past incurred substantial costs in
complying with such laws and regulations, future environmental restrictions or
requirements may materially increase the Company's capital expenditures,
reduce earnings, and delay or prohibit certain activities. However, such
restrictions and requirements would also apply to the Company's competitors,
and it is unlikely that compliance by the Company would adversely affect the
Company's competitive position.
(ix) Additional Government Regulation
--------------------------------
In addition to environmental regulations, the production and sale of oil and
gas is subject to regulation by Federal, State and local governmental
authorities and agencies. Such regulations encompass matters such as the
location and spacing of wells, the prevention of waste, the rate of
production, the sale price of certain oil and gas, conservation, and safety.
Oil Price Regulation
- --------------------
Historically, regulatory policy affecting crude oil pricing was derived from
the Emergency Petroleum Allocation Act of 1973, as amended, which provided for
mandatory crude oil price controls until June 1, 1979, and discretionary
controls through September 30, 1981. On April 5, 1979, President Carter
directed the Department of Energy to complete administrative procedures
designed to phase out, commencing June 1, 1979, price controls on all
domestically produced crude oil by October 1, 1981. However, on January 28,
1981, President Reagan ordered the elimination of remaining federal controls
on domestic oil production, effective immediately. Consequently, oil may
currently be sold at unregulated prices.
Gas Price Regulation
- --------------------
The Natural Gas Act of 1938 ("NGA") regulates the interstate transportation
and certain sales for resale of natural gas. The Natural Gas Policy Act of
1978 ("NGPA") regulates the maximum selling prices of certain categories of
gas, whether sold in so-called "first sales" in interstate or intrastate
commerce. These statutes are administered by the Federal Energy Regulatory
Commission ("FERC"). The NGPA established various categories of natural gas
and provided for graduated deregulation of price controls for first sales of
several categories of natural gas. With certain exceptions, all price
deregulation contemplated under the NGPA as originally enacted in 1978 has
already taken place. Under current market conditions, deregulated gas prices
under new contracts tend to be substantially lower than most regulated price
ceilings prescribed by the NGPA.
On July 26, 1989, the Natural Gas Wellhead Decontrol Act of 1989 ("Decontrol
Act") was enacted. The Decontrol Act amended the NGPA to remove as of
July 27, 1989 both price and non-price controls from natural gas not subject
to a first sale contract in effect on July 26, 1989. The Decontrol Act also
provided for the phasing out of all price regulation under the NGPA by
January 1, 1993.
(x) Special Tax Provisions
- ---------------------------
See footnote 7 to Consolidated Financial Statements
(xi) Employees
---------
The Company, on its own account and through a management contract with its
parent corporation, employs or contracts for the services of a total of 25
people. Six are full-time employees or contractors. The remainder are part-
time contractors or employees.
(d) Financial information about foreign and domestic operations and export
(e) sales.
All of the Company's business is conducted domestically, with no export sales.
Item 2. Properties
Oil and Gas Properties
- ----------------------
The following table sets forth pertinent data with respect to the Company-
owned oil and gas properties, all located within the continental United
States, as estimated by the Company:
Year Ended December 31,
----------------------------------
2002 2001 2000
----------- ----------- ----------
Gas and Oil Properties, net (1):
Proved developed gas reserves-Mcf (2) 4,976,890 5,311,830 2,204,137
Proved undeveloped gas reserves-Mcf (3) 11,297,690 1,097,690 628,986
----------- ----------- -----------
Total proved gas reserves-Mcf 16,274,580 6,409,520 2,833,123
=========== =========== ===========
Proved Developed Crude Oil and
Condensate reserves-Bbls (2) 152,994 42,970 18,971
Proved Undeveloped crude oil and
Condensate reserves-Bbls (3) - - -
----------- ----------- -----------
Total proved crude oil and condensate
Reserves-Bbls 152,994 42,970 18,971
=========== =========== ===========
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Present Value of Estimated Future
Net Reserves from proved reserves (4)(5)
Developed $ 5,577,935 $ 3,365,450 $ 5,254,000
Developed and Undeveloped 11,815,408 3,729,186 7,109,000
(1) The estimate of the net proved oil and gas reserves, future net revenues,
and the present value of future net revenues.
(2) "Proved Developed Oil and Gas Reserves" are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods.
(3) "Proved Undeveloped Reserves" are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. See Footnote 17
to the Financial Statements, Supplemental Reserve Information (Unaudited),
for further explanation of the increase for 2002.
(4) "Estimated Future Net Revenues" are computed by applying current prices
of oil and gas, less the estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves.
(5) "Present Value of Estimated Future Net Revenues" is computed by
discounting the Estimated Future Net Revenues at the rate of ten percent
(10%) per year in accordance with the Securities and Exchange Commission Rules
and Regulations.
The Company's working interests in exploration and development wells completed
during the years indicated were as follows:
Year Ended December 31,
--------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Gross Net Gross Net Gross Net
------ ------ ------ ------ ------ ------
Exploratory Wells:
Productive - - - - - -
Non-Productive - - - - - -
------ ------ ------ ------ ------ ------
Total - - - - - -
------ ------ ------ ------ ------ ------
Development Wells:
Productive 1.000 .125 - - - -
Non-Production - - - - - -
------ ------ ------ ------ ------ ------
Total - - - - - -
------ ------ ------ ------ ------ ------
Total Exploration &
Development Wells:
Productive 1.000 .125 - - - -
Non-Productive - - - - - -
------ ------ ------ ------ ------ ------
Total - - - - - -
====== ====== ====== ====== ====== ======
The following tables set forth additional data with respect to production
from Company-owned oil and gas properties, all located within the continental
United States:
For the years ended December 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Oil and Gas Production, net:
Natural Gas (Mcf) 499,081 472,728 479,769 277,834 350,566
Crude Oil & Condensate (Bbl) 9,553 9,229 10,111 6,986 13,304
Average Sales Price per Unit
Produced:
Natural Gas ($/Mcf) $ 3.02 $ 4.07 $ 3.58 $ 2.20 .$ 1.97
Crude Oil &
Condensate($/Bbl) $ 23.27 $ 25.19 $ 27.37 $ 16.70 $ 11.97
Average Production Cost per
Equivalent Barrel (1)(2) $ 8.51 $ 9.15 $ 8.09 $ 9.59 $ 7.37
(1) Includes severance taxes and ad valorem taxes.
(2) Gas production is converted to equivalent barrels at the rate of six Mcf
per barrel, representing relative energy content of natural gas to oil.
The Company owns producing royalties and overriding royalties under properties
located in Texas. The revenue from these properties is not significant.
Current Activities - March 31, 2003:
- ------------------------------------
Gross Wells in Process of Drilling -0-
Net Wells in Process of drilling -0-
Water floods in Process of Installation -0-
Pressure Maintenance Operations -0-
The Company is not aware of any major discovery or other favorable or adverse
event that is believed to have caused a significant change in the estimated
proved reserves since December 31, 2002.
Office Space:
- -------------
The Company leases office space as follows:
Location Square Feet Lease Expires
- ------------------- ----------- -----------------
Richardson, Texas 3,833 February 28, 2004
Pipelines
- ---------
The Company owns, through its subsidiary Prairie Pipeline Co., 26.1 miles of
natural gas pipelines in Parker, Palo Pinto and Eastland Counties, Texas.
These pipelines are steel and polyethylene and range in size from 2 inches to
6 inches. These pipelines primarily gather natural gas from wells operated by
the Company and in which the Company owns a working interest, but also for
other parties.
The Company normally does not purchase and resell natural gas, but gathers gas
for a fee. The fees charged in some cases are subject to regulations by the
State of Texas and the Federal Energy Regulatory Commission. Average daily
volumes of gas gathered by the pipelines owned by the Company was 807, 496,
and 697 MCF per day for 2002, 2001, and 2000 respectively.
Oil Field Production Equipment
- ------------------------------
The Company owns various natural gas compressors, pumping units, dehydrators
and various other pieces of oil field production equipment.
Substantially all of the equipment is located on oil and gas properties
operated by the Company and in which it owns a working interest. The rental
fees are charged as lease operating fees to each property and each owner.
Item 3. Legal Proceedings
Neither the Registrant nor its subsidiaries nor any officers or directors is
a party to any material pending legal proceedings for or against the Company
or its subsidiary nor are any of their properties subject to any proceedings.
Item 4. Submission of Matters of Security Holders to a Vote
None
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
No significant public trading market has been established for the Company's
common stock. The common stock of the Company is traded on an occasional
basis in the over the counter market. The Company does not believe that
listings of bid and asking prices for its stock are indicative of the actual
trades of its stock, since trades are made infrequently.
There is no amount of common stock that is subject to outstanding warrants to
purchase, or securities convertible into, common stock of the Company. As of
March 31, 2003, there were options outstanding to purchase up to 145,000
shares of common stock at an exercise price of $0.30 per share. These options
expire beginning in July, 2003 through July, 2004. None of these options were
granted to officers or employees of the Company.
On January 31, 1997, the Company effected a one for six reverse stock split.
At that time, the Company reduced the authorized common shares from
150,000,000 to 100,000,000 and increased the par value from $.001 to $.01 per
share.
The approximate number of record holders of the Company's Common Stock on
March 31, 2002, was 630.
The Company has not paid any dividends since its reorganization and it is not
contemplated that it will pay any dividends on its Common Stock in the
foreseeable future. There are no financing agreements in place which restrict
payment of dividends.
The Registrant currently serves as its own stock transfer agent and
registrar.
Item 6. Selected Financial Data
The selected financial information presented should be read in conjunction
with the consolidated financial statements and the related notes thereto.
-------------- For the years ended December 31, -----------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Total Revenue $ 2,084,000 $ 2,610,000 $ 2,345,000 $ 1,072,000 $ 1,239,000
Net Income (Loss) 382,000. 776,000 .849,000. (271,000) (229,000)
Earnings per Share(1) $ .05 $ .10 $ .11 ($ .04) ($ .03)
--------------------- As of December 31, ------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Total Assets $ 3,629,000 $ 3,486,000 $ 2,909,000 $ 1,843,000 $ 1,793,000
Long-Term Debt - 55,000 246,000 308,000 -
(1) After the 1 for 6 stock split discussed in Footnote 2 to the Consolidated
(2) Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company's operating capital needs, as well as its capital spending program
are generally funded from cash flow generated by operations. Because future
cash flow is subject to a number of variables, such as the level of production
and the sales price of oil and natural gas, the Company can provide no
assurance that its operations will provide cash sufficient to maintain current
levels of capital spending. Accordingly, the Company may be required to seek
additional financing from third parties in order to fund its exploration and
development programs.
Results of Operations:
- ----------------------
2002 Compared to 2001
- ---------------------
Oil and gas revenues decreased for the year 2002. This was due primarily to an
approximate 26% decline in average gas prices from $4.07 per Mcf to $3.02 per
Mcf. The decline in prices was partially offset by an increase in production
which was due primarily to the acquisition of eight operated oil and gas
properties during the last half of the year. These acquisitions offset a
slight decline in production from properties existing at the beginning of the
year. Natural gas production was approximately 499,000 Mcf and 472,000 Mcf
for 2002 and 2001 respectively. Crude oil and condensate production was
approximately 9,533 and 9,229 for 2002 and 2001 respectively.
The increase in revenue from lease operations this year was due to the
addition of operated properties acquired during the year. The Company bills
overhead in accordance with the operating agreements, and records as income
the charges made to the non-operating interests.
Gas gathering and compression fee income decreased during 2002 as a result
of a decrease in production from properties served by Prairie Pipeline Co.
The decrease was a result of natural decline in production, but the Company
also lost almost one full month of production from these wells due to a
compressor failure. The Company charges a fee for transportation of gas from
the well site to the purchaser's pipeline, and in some cases provides and
charges for compression services.
Interest income is up due to the Company's policy of investing excess cash
funds in higher earning money market accounts as opposed to checking accounts,
as well as the higher level of cash balances earning interest in 2002 as
compared to 2001.
Lease operating expenses were lower due to a decrease in work-over activity
during the year as compared with 2001. Even though gas and oil prices
generally rose during 2002, they never reached the average prices attained in
2001. As a result of general inflationary increases in the cost of repairs,
maintenance, materials and supplies for the year, the Company opted to only
work over wells necessary to hold leases, and tightened the belt, looking for
ways to reduce operating expenses wherever possible.
Amortization of the full cost pot (depletion) was up in 2002 due to an
increase in costs added to the full cost pot, the addition of reserves and
the resulting increase in production for the year.
General and administrative expenses stayed essentially the same. The slight
increase is due to an increase of $20,000 between 2002 and 2001 of a
management fee charged by an affiliated entity. All other general and
administrative expenses were held substantially the same as in 2001.
Interest expense decreased due to the accelerated amortization of the Note
Discount in 2001, that was caused by a substantial prepayment of principal on
the note to a related party and related amortization of the note discount.
The current income tax provision decreased as the Company's taxable income
decreased ratably for 2002 as compared to the Company's net income before tax
for 2002 and 2001.
2001 Compared to 2000
- ---------------------
Oil and gas revenues increased slightly for the year 2001. Although 2001
production ended up slightly less than in 2000, the average price for gas sold
was $.49 per mcf higher in 2001. The gas prices decreased throughout the year
from a high of over $8.00 per mcf in January, to a low of under $2.00 per mcf
in October and December. The higher prices were applied to production in the
first part of the year that was slightly higher than production on some wells
in the last quarter of the year.
The decrease in revenue from lease operations was substantially due to a
change in the company's method of accounting for overhead charges billed to
the joint accounts where the company is the operator of the properties. In
prior periods, the company recorded the revenue from the charges to the joint
account, and charged lease-operating expenses with its proportionate share of
the overhead charges. The company no longer records its proportionate share
of the overhead income and related lease operating expense, but records as
income the charges to the non-operating interests.
Gas gathering and compression fee income increased due to a combination of an
increase in gas transported through the Companies pipelines during the year,
as well as the addition of a contract with a major purchaser. In this
transaction, the Company now transports 100% of the gas from certain operated
properties, charges a fee on an mcf basis, collects and distributes the
revenue from sales.
Interest income is up due to the Company's policy of investing excess cash
funds in higher earning money market accounts as opposed to checking accounts,
as well as the higher level of cash balances earning interest in 2001 as
compared to 2000.
Lease operating expenses increased due to an increase in work-over activity
in the first half of the year as well as a general inflationary increase in
the cost of repairs, maintenance, materials and supplies for the year. As
oil and gas prices dropped during the year, the cost of drilling and
operating properties increased.
General and administrative expenses increased due to several reasons.
Approximately $25,000 and $35,000 of the increase was due to an increase in
the number of full-time personnel and professional contract employees
respectively during the year. In addition, the management fee charged by an
affiliated entity represents an increase of approximately $20,000 during the
year. The Company's state franchise tax expense increased by $33,000, due to
the increase in the Company's taxable income position, which is now positive.
Interest expense increased due to the accelerated amortization of the Note
Discount that was caused by a substantial prepayment of principal on the note
to a related party.
The current income tax provision increased as a substantial portion of the
Company's net operating loss carry forward expired or was used up during 2001,
and the Company now needs to provide currently for federal income taxes due on
its taxable net income.
Certain Factors That Could Affect Future Operations
- ---------------------------------------------------
Certain information contained in this report, as well as written and oral
statements made or incorporated by reference from time to time by the Company
and its representatives in other reports, filings with the Securities and
Exchange Commission, press releases, conferences, teleconferences or
otherwise, may be deemed to be 'forward-looking statements' within the
meaning of Section 21E of the Securities Exchange Act of 1934 and are subject
to the 'Safe Harbor' provisions of that section.
Forward-looking statements include statements concerning the Company's and
management's plans, objectives, goals, strategies and future operations and
performance and the assumptions underlying such forward-looking statements.
When used in this document, the words "anticipates", "estimates", "expects",
"believes", "intends", "plans", and similar expressions are intended to
identify such forward-looking statements. Actual results and developments
could differ materially from those expressed in or implied by such statements
due to these and other factors.
Item 8. Consolidated Financial Statements and Schedules
Index at page 21.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The accountants for the Company are Farmer, Fuqua & Huff, P.C., formerly
Farmer, Fuqua, Hunt & Munselle, P.C., who have prepared audit reports for the
years ended December 31, 2002, 2001, and 2000.
There have been no disagreements between the Company and Farmer, Fuqua, &
Huff, P.C. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) and (b) The Directors and Executive Officers of the Company and certain
information concerning them is set forth below:
Name Age Position
-------------------- --- --------------------------------------
Chris Mazzini 45 Chairman of the Board, Director and
President
Michelle Mazzini 41 Director, Vice President and Secretary
Paul E. Cash 70 Director
All directors hold office until the next annual meeting of the shareholders or
until their successors are duly elected and qualified. Officers of the
Company serve at the discretion of the board of directors.
(c) Significant employees
---------------------
Not applicable
(d) Family relationships
- --------------------
Michelle Mazzini is the wife of Chris Mazzini
(e) Business experience
- -------------------
Chris Mazzini, President graduated from the University of Texas at Arlington
in 1979 with a Bachelor of Science degree in geology. Mr. Mazzini founded
Giant Energy Corp ("Giant") in 1985 and has served as President of Giant since
then. He has worked in the oil and gas industry since 1978. He joined the
Company in December 1999 when he purchased controlling interest from Mr. Cash.
Michelle Mazzini, received her Bachelor of Science Degree in Business
Administration (accounting major) from the University of Southwestern
Louisiana where she graduated magna cum laude in 1985. Ms. Mazzini earned her
law degree from Louisiana State University where she graduated Order of the
Coif in 1988. Ms. Mazzini serves as Vice President and General Counsel of the
Company.
Paul E. Cash is a graduate of The University of Texas (B.B.A.-Accounting) and
is a Certified Public Accountant. He has been active in the oil and gas
industry for over 25 years, during which time he has served as financial
officer of two publicly-owned companies, Texas Gas Producing Co. and Landa Oil
Co., and also served as president of publicly-owned Continental American
Royalty Co., Bloomfield Royalty Co., Southern Bankers Investment Co.,
Spindletop Oil & Gas Co. (a Utah Corporation), Double River Oil & Gas Co.,
and Loch Exploration Inc. Mr. Cash has also been an officer and part owner
of several private oil and gas companies and partnerships. Mr. Cash also
formerly served as Mayor of the City of Sunnyvale, Texas.
(f) Involvement in certain legal proceedings
- ----------------------------------------
None of the directors or executive officers of the Registrant, during the past
five years, has been involved in any civil or criminal legal proceedings,
bankruptcy filings or has been the subject of an order, judgment or decree of
any Federal or State authority involving Federal or State securities laws.
Item 11. Executive Compensation
(a) Cash Compensation
- -----------------
For the year ended December 31, 2002, Mr. Mazzini did not take any salary from
the Company. None of the Company's executive officers were paid cash
compensation at an annual rate in excess of $100,000.
(b) Compensation Pursuant to Plan.
- ------------------------------
None
(c) Other Compensation
- ------------------
Key employees and officers of the Company, may sometimes be assigned
overriding royalty interests and/or carried working interest in prospects
acquired by or generated by the Company. These interests normally vary from
one-half to ten percent for each employee or officer. There is no set formula
or policy for such program, and the frequency and amounts are largely
controlled by the economics of each particular prospect.
(d) Compensation of Directors
- -------------------------
Directors are not currently compensated nor are there plans to compensate them
for their services on the board.
(e) Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
There are no plans or arrangements for payment to officers or directors upon
resignation or a change in control of the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) & (b) Security ownership of certain beneficial owners and managers
------------------------------------------------------------
The table below sets forth the information indicated regarding ownership of
the Registrant's common stock, $.01 par value, the only outstanding voting
securities, as of December 31, 2002 with respect to: (i) any person who is
known to the Registrant to be the owner of more than five percent (5%) of the
Registrant's common stock; (ii) the common stock of the Registrant
beneficially owned by each of the directors of the Registrant and, (iii) by
all officers and directors as a group. Each person has sole investment and
voting power with respect to the shares indicated, except as otherwise set
forth in the footnotes to the table.
Pct Based On
Nature of Outstanding
Name and Address Number Beneficial Percent of
Of Beneficial Owner of Shares Ownership Class
- -------------------------------- ------------- ----------- ------------
Chris Mazzini 5,900,543 Direct 78%
331 Melrose, Suite 102
Richardson, Texas 75080
Paul E. Cash 308,468 Direct 4%
331 Melrose, Suite 102
Richardson, Texas 75080
All officers and directors
as a group 6,209,011 82%
(c) Changes in control
------------------
The Company is not aware of any arrangements or pledges with respect to its
securities that may result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with management and others.
None
(b) Certain Business Relationships
Key employees and officers of the Company, may sometimes be assigned
overriding royalty interests and/or carried working interests in prospects
acquired by or generated by the Company. These interests normally vary from
one-half to ten percent for each employee or officer. There is no set
formula or policy for such program, and the frequency and amounts are largely
controlled by the economics of each particular prospect.
PART IV
Item 14. - Controls and Procedures
Based on their most recent evaluation, which was completed within 90 days of
the filing of this Form 10-K, our Acting Principal Executive Officer and
Acting Chief Financial Officer, believe our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There were
not any significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation, and there has not been any corrective action with regard to
significant deficiencies and material weaknesses.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Report
1. Independent Auditors' Report
Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Income for the years ended
December 31, 2002, 2001, and 2000
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 2002, 2001, and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000
Notes to Consolidated Financial Statements
2. Financial Statement Schedules required to be filed by Item 8 and
Paragraph (d) of this Item 14
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or
required under the rules of Regulation S-X or the information has been
supplied in the consolidated financial statements or notes thereto. Such
schedules and reports are at page 45 of this Report.
3. The Exhibits are listed in the index of Exhibits Required by Item 601
of Regulation S-K at Item (c) below and included at page 45.
(b) No Form 8-K was filed during the period covered by this Report.
(c) The Index of Exhibits is included following the Financial Statement
Schedules beginning at page 44 of this Report.
(d) The Index to Consolidated Financial Statements and Supplemental
Schedules is included following the signatures, beginning at page 21 of this
Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPINDLETOP OIL & GAS CO.
Dated March 31, 2003
By /s/ Chris Mazzini
_____________________________
Chris Mazzini
President, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following on behalf of the Company and in
the capacities and on the dates indicated.
Signatures Capacity Dates
Principal Executive Officers:
/s/ Chris Mazzini
__________________________________ President, Director March 31, 2003
Chris Mazzini
/s/ Michelle Mazzini
__________________________________ Secretary, Director March 31, 2003
Michelle Mazzini
/s/ Robert E. Corbin
__________________________________ Controller March 31, 2003
Robert E. Corbin
/s/ Paul E. Cash
__________________________________ Director March 31, 2003
Paul E. Cash
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page
Independent Auditors' Report 22
Consolidated Balance Sheets - December 31, 2002 and 2001 23-24
Consolidated Statements of Income for the years
Ended December 31, 2002, 2001 and 2000 25
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 2002,2001, and 2000 26
Consolidated Statements of Cash Flows for the
years ended December 31, 2002, 2001 and 2000 27
Notes to Consolidated Financial Statements 28
Schedules for the years ended December 31, 2002, 2001 and 2000
II - Valuation and Qualifying Accounts 43
All other schedules have been omitted because they are not applicable, not
required, or the information has been supplied in the consolidated financial
statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Spindletop Oil & Gas Co.
We have audited the accompanying consolidated balance sheets of Spindletop
Oil & Gas Co. (a Texas Corporation) and subsidiaries as of December 31, 2002
and 2001, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Spindletop Oil & Gas Co. and subsidiaries as of December 31, 2002 and 2001,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2002, in conformity with
U.S. generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in
the index of consolidated financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not
part of the basic consolidated financial statements. These schedules have
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly state, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
FARMER, FUQUA, & HUFF, P.C.
Plano, Texas
March 31, 2003
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
--------------------------
2002 2001
----------- -----------
ASSETS
Current Assets
Cash $ 2,046,000 $ 2,323,000
Accounts receivable 274,000 175,000
Prepaid income tax 109,000 89,000
----------- -----------
Total current assets 2,429,000 2,587,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 3,936,000 3,224,000
Rental equipment 399,000 397,000
Gas gathering systems 145,000 145,000
Other property and equipment 85,000 85,000
----------- -----------
4,565,000 3,851,000
Accumulated depreciation and amortization (3,230,000) (2,952,000)
----------- -----------
Total property and equipment, net 1,335,000 899,000
----------- -----------
Total Assets $ 3,764,000 $ 3,486,000
=========== ===========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
As of December 31,
--------------------------
2002 2001
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 414,000 $ 358,000
Notes payable, related party 42,000 231,000
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 553,000 686,000
----------- -----------
Notes payable, related party - 55,000
----------- -----------
Deferred income tax payable 179,000 121,000
----------- -----------
Shareholders' Equity
Common stock, $.01 par value; 100,000,000
Shares authorized; 7,582,471 shares
Issued and outstanding at
December 31, 2002, 7,525,804 issued and
Outstanding at December 31, 2001, and
103,334 shares of Treasury Stock at
December 31, 2002 76,000 75,000
Additional paid-in capital 776,000 733,000
Treasury Stock at cost of $0.175 per share (18,000) -
Retained earnings 2,198,000 1,816,000
----------- -----------
Total shareholders' equity 3,032,000 2,624,000
----------- -----------
Total Liabilities and Shareholders' Equity $ 3,764,000 $ 3,486,000
=========== ===========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Revenues
Oil and gas revenue $ 1,733,000 $ 2,191,000 $ 1,994,000
Revenue from lease operations 46,000 32,000 93,000
Gas gathering, compression and
Equipment rental 176,000 19,000 161,000
Interest income 90,000 85,000 36,000
Other 39,000 83,000 61,000
----------- ----------- -----------
Total revenue 2,084,000 2,610,000 2,345,000
----------- ----------- -----------
Expenses
Lease operations 790,000 930,000 729,000
Pipeline and rental operations 25,000 36,000 29,000
Depreciation and amortization 278,000 133,000 244,000
General and administrative 467,000 438,000 310,000
Interest expense 9,000 111,000 30,000
----------- ----------- -----------
Total expenses 1,569,000 1,648,000 1,342,000
----------- ----------- -----------
Income before income tax 515,000 962,000 1,003,000
----------- ----------- -----------
Current tax provision 75,000 159,000 60,000
Deferred tax provision 58,000 27,000 94,000
----------- ----------- -----------
133,000 186,000 154,000
----------- ----------- -----------
Net income $ 382,000 $ 776,000 $ 849,000
=========== =========== ===========
Earnings per Share of Common Stock
Basic $ 0.05 $ 0.10 $ 0.11
=========== =========== ===========
Diluted $ 0.05 $ 0.10 $ 0.11
=========== =========== ===========
Weighted Average Shares Outstanding 7,582,471 7,525,804 7,525,804
=========== =========== ===========
Diluted Shares Outstanding 7,727,471 7,525,804 7,525,804
=========== =========== ===========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
Additional Treasury
Common Stock Paid-In Stock Retained
Shares Amount Capital Shares Amount Earnings
--------- -------- --------- ------- -------- ----------
Balance
December 31, 1999 7,252,804 $ 75,000 $ 733,000 - $ - $ 191,000
Net Income - - - - - 849,000
--------- -------- --------- ------- -------- ----------
Balance
December 31, 2000 7,525,804 75,000 733,000 - - 1,040,000
Net Income - - - - - 776,000
--------- -------- --------- ------- -------- ----------
Balance
December 31, 2001 7,525,804 75,000 733,000 - - 1,816,000
Issuance of 56,667
shares of Common
Stock for the
purchase of a
drilling prospect 56,667 1,000 16,000 - - -
Issuance of options
to purchase Common
Stock - - 27,000 - - -
Purchase of
Treasury Stock - - - 103,334 18,000 -
Net Income - - - - - 382,000
--------- -------- --------- ------- -------- ----------
Balance
December 31, 2002 7,582,471 $ 76,000 $ 776,000 103,334 $ 18,000 $2,198,000
========= ======== ========= ======= ======== ==========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------- ----------- -----------
2002 2001 2000
----------- ----------- -----------
Cash Flows from Operating Activities
Net Income $ 382,000 $ 776,000 $ 849,000
Reconciliation of net income
to net cash provided by
Operating Activities
Depreciation and amortization 278,000 133,000 244,000
Amortization of note discount (9,000) (27,000) 30,000
Decrease in accounts receivable -
related party - 8,000 -
Changes in accounts receivable (99,000) 165,000 (22,000)
Changes in prepaid income tax (20,000) (89,000) -
Changes in accounts payable 56,000 (114,000) 33,000
Changes in current taxes payable - (60,000) 60,000
Increase in deferred taxes payable 58,000 27,000 94,000
Other - - 10,000
----------- ----------- -----------
Net cash provided by operating
activities 646,000 819,000 1,298,000
----------- ----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (670,000) (23,000) (61,000)
Proceeds from sale of properties - - 64,000
Purchase of property and equipment - (33,000) -
----------- ----------- -----------
Net cash provided by (used for)
investing activities (670,000) (56,000) 3,000
----------- ----------- -----------
Cash Flows from Financing Activities
Repayment of notes payable to
related party (235,000) (25,000) -
Purchase of 103,334 shares of
treasury stock (18,000) - -
----------- ----------- -----------
Net cash used for financing
activities (253,000) (25,000) -
----------- ----------- -----------
Increase (decrease) in cash (277,000) 738,000 1,301,000
Cash at beginning of period 2,323,000 1,585,000 284,000
----------- ----------- -----------
Cash at end of period $ 2,046,000 $ 2,323,000 $ 1,585,000
=========== =========== ===========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION
Merger and Basis of Presentation
- --------------------------------
On July 13, 1990, Prairie States Energy Co., a Texas corporation, (the
Company)merged with Spindletop Oil & Gas Co., a Utah corporation (the
Acquired Company).The name of Prairie States Energy Co. was changed to
Spindletop Oil & Gas Co., a Texas corporation at the time of the merger.
Organization and Nature of Operations
- -------------------------------------
The Company was organized as a Texas corporation in September 1985, in
connection with the Plan of Reorganization ("the Plan"), effective
September 9, 1985, of Prairie States Exploration, Inc., ("Exploration"), a
Colorado corporation, which had previously filed for Chapter 11 bankruptcy.
In connection with the Plan, Exploration was merged into the Company, with
the Company being the surviving corporation. After giving effect to the
stock split discussed in Note 2, up to a total of 166,667 of the Company's
common shares may be issued to Exploration's former shareholders. As of
December 31, 2002, 2001, and 2000, 122,436 shares have been issued to former
shareholders in connection with the Plan.
Spindletop Oil & Gas Co. is engaged in the exploration, development and
production of oil and natural gas; the rental of oilfield equipment; and
through one of its subsidiaries, the gathering and marketing of natural gas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
Consolidation
- -------------
The consolidated financial statements include the accounts of Spindletop Oil &
Gas Co. and its wholly owned subsidiaries, Prairie Pipeline Co. and Spindletop
Drilling Company. All significant intercompany transactions and accounts have
been eliminated.
Oil and Gas Properties
- ----------------------
The Company follows the full cost method of accounting for its oil and gas
properties. Accordingly, all costs associated with acquisition, exploration
and development of oil and gas reserves are capitalized and accounted for in
cost centers, on a country-by-country basis. If unamortized costs within a
cost center exceed the cost center ceiling (as defined), the excess is charged
to expense during the year in which the excess occurs.
Depreciation and amortization for each cost center are computed on a composite
unit-of-production method, based on estimated proven reserves attributable to
the respective cost center. All costs associated with oil and gas properties
are currently included in the base for computation and amortization. Such
costs include all acquisition, exploration and development costs. All of the
Company's oil and gas properties are located within the continental United
States.
Gains and losses on sales of oil and gas properties are treated as adjustments
of capitalized costs. Gains or losses on sales of property and equipment,
other than oil and gas properties, are recognized as part of operations.
Expenditures for renewals and improvements are capitalized, while expenditures
for maintenance and repairs are charged to operations as incurred.
Property and Equipment
- ----------------------
The Company, as operator, leases equipment to owners of oil and gas wells, on
a month-to-month basis.
The Company, as operator, transports gas through its gas gathering systems,
in exchange for a fee.
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives (5 to 10
years for rental equipment and gas gathering systems, 4 to 5 years for other
property and equipment). The straight-line method of depreciation is used for
financial reporting purposes, while accelerated methods are used for tax
purposes.
Inventory
- ---------
Inventory consists of oil field materials and supplies, stated at the lower of
average cost or market.
Income Taxes
- ------------
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109), which
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities,
using enacted tax rates in effect in the years in which the differences are
expected to reverse. The temporary differences primarily relate to
depreciation, depletion and intangible drilling costs.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Split
- -----------
In December 1996 the Board of Directors declared a 1-for-6 reverse stock
split on the Company's common stock. The record date was January 31, 1997.
All share and per share data as appropriate, reflect this split.
3. ACCOUNTS RECEIVABLE
December 31,
----------------------------
2002 2001
------------ ------------
Trade $ 49,000 $ 49,000
Accrued receivable 255,000 156,000
------------ ------------
304,000 205,000
Less: Allowance for losses (30,000) (30,000)
------------ ------------
$ 274,000 $ 175,000
============ ============
4. ACCOUNTS PAYABLE
December 31,
----------------------------
2002 2001
------------ ------------
Trade payables $ 185,000 $ 78,000
Production proceeds payable 229,000 276,000
Other - 4,000
------------ ------------
$ 414,000 $ 358,000
============ ============
5. NOTES PAYABLE-RELATED PARTY
December 31,
--------------------------
2002 2001
------------ ------------
Non-interest bearing note to Paul Cash,
due in minimum monthly installments of
$3,333 beginning January, 2001, with
unpaid principal due November, 2008,
based on an effective interest rate of
8.5%). The note is not collateralized. (1) $ 42,000 $ 286,000
Less current maturities 42,000 231,000
------------ ------------
$ - $ 55,000
============ ============
(1) This non-interest bearing note is payable in monthly installments of
$3,333 or 10 percent of net oil and gas revenue, whichever is greater. Due to
the high average price of oil and natural gas during the 3 months subsequent
to December 31, 2002, it is anticipated that the remaining principal amount
due on this note will be fully paid during 2003, therefore, the entire
remaining balance has been classified as a current liability.
Principal maturities of notes payable as of December 31, 2002 are as follows:
Year Ended
December 31, Amount
----------- ------------
2002 $ 42,000
============
6. RELATED PARTY TRANSACTIONS
Beginning December 1, 1999 Giant Energy charged the Company $6,000 per month
management fee which was increased to $10,000 per month beginning on August 1,
2001. Giant Energy's personnel provide services to the Company and the
management fee is charged to recoup some of the costs associated with work
performed for the Company.
Included in the accompanying balance sheets are the following amounts related
to Mr. Cash:
December 31,
--------------------------
2002 2001
------------ ------------
Notes Payable, non-interest bearing $ 42,000 $ 286,000
============ ============
On August 30, 2001, the Company guaranteed a letter of credit issued by a bank
for the benefit of an affiliated company in favor of the Railroad Commission
of Texas. This letter of credit was issued in accordance with the filing of a
P-5 Organization Report as required by the Texas Natural Resources Code in
order to perform operations within the jurisdiction of the Railroad Commission
of Texas. The letter of credit is dated August 30, 2001 and expired on
February 1, 2003. This letter of credit has been extended to expire on
February 1, 2004. In addition to the Company's guarantee, this letter of
credit is also secured by a $100,000 certificate of deposit owned by the
Company.
7. STOCK OPTIONS
During 2002, the Company entered into two stock option agreements with third-
parties and issued stock options and other consideration to obtain interests
in oil and gas properties. As of December 31, 2002 there were 145,000 shares
of common stock reserved for issuance related to the stock option plans. The
options granted under the stock option plans expire beginning July 2003-July
2004 and have an exercise price of $0.30 per share. The Company has elected
to account for the options using FASB Statement 123, "Accounting for Stock-
Based Compensation," (FAS No. 123) which requires the use of option valuation
models. The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following assumption
ranges: risk free interest rates of 1 -2%, volatility factor of 170, and an
expected life of 1 year - 1.5 years. Using the Black-Scholes option
evaluation model, the weighted average value of the option granted during 2002
was $0.19, per option respectively. The effect of applying the fair value
method of FAS No. 123 to the stock options granted during 2002 had a $26,850
effect which was applied to the oil and gas properties and will be amortized
in the full cost method. These options had no dilutive effect on earnings per
share.
8. INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS
109 utilizes the liability method of computing deferred income taxes.
In connection with the Plan discussed in Note 1, the Company agreed to pay, in
cash, to Exploration's unsecured creditors, as defined, one-half of the future
reductions of Federal income taxes which were directly related to any allowed
carryovers of Exploration's net operating losses and investment tax credits.
Such payments are to be made on a pro-rata basis. Amounts incurred under this
agreement, which are considered contingent consideration under APB No. 16,
totaled $ -0-, $ -0-, and $ -0- in 2002, 2001 and 2000, respectively. As of
December 31, 2002 the Company has not received a ruling from the Internal
Revenue Service concerning the net operating loss and investment credit
carryovers. Until the tax savings which result from the utilization of these
carryforwards is assured, the Company will not pay to Exploration's unsecured
creditors any of the tax savings benefit. As of December 31, 2002 and 2001,
the Company owes $97,000 respectively to Exploration's unsecured creditors.
In calculating tax savings benefits described above, consideration was given
to the alternative minimum tax, where applicable, and the tax effects of
temporary differences, as shown below:
Income tax differed from the amounts computed by applying the U.S. federal
income tax rate of 35% to pretax income in 2002, 2001 and 2000 as a result of
the following:
2002 2001 2000
---------- ---------- ----------
Computed expected tax expense $ 180,000 $ 272,000 $ 351,000
Miscellaneous timing differences (105,000) (57,000) (18,000)
Net operating loss carryforward - (56,000) (273,000)
---------- ---------- ----------
$ 75,000 $ 159,000 $ 60,000
========== ========== ==========
Deferred income taxes reflect the effects of temporary differences between the
tax bases of assets and liabilities and the reported amounts of those assets
and liabilities for financial reporting purposes. Deferred income taxes also
reflect the value of net operating losses, investment tax credits and an
offsetting valuation allowance. The Company's total deferred tax assets and
corresponding valuation allowance at December 31, 2002 and 2001 consisted of
the following:
December 31,
--------------------------
2002 2001
------------ ------------
Deferred tax assets
Investment tax credit carry forwards $ 1,000 $ 1,000
Depreciation, depletion and amortization 153,000 150,000
Other, net 7,000 7,000
------------ ------------
Total 161,000 158,000
Deferred tax liabilities
Expired leasehold (41,000) (41,000)
Intangible drilling costs (299,000) (238,000)
------------ ------------
Net deferred tax liability (179,000) (121,000)
============ ============
9. CASH FLOW INFORMATION
The Company does not consider any of its assets to meet the definition of a
cash equivalent.
Net cash provided by operating activities includes cash payments for interest
of $ -0-, $ -0- and $ -0- in 2002, 2001 and 2000, respectively. Also included
are cash payments for taxes of $ -0- , $95,000, and $ -0- in 2002, 2001 and
2000, respectively.
Excluded from the Consolidated Statements of Cash Flows were the effects of
certain non-cash investing and financing activities, as follows:
2002 2001 2000
----------- ----------- -----------
Purchase of oil and gas properties
for common stock $ 17,000 $ - $ -
Retirement of fixed assets - - 121,000
10. EARNINGS PER SHARE
Earnings per share ("EPS") are calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), which
was adopted in 1997 for all years presented. Basic EPS is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding during the period. All calculations have
been adjusted for the effects of the stock split discussed in Note 2. The
adoption of SFAS 128 had no effect on previously reported EPS. Diluted EPS I
s computed based on the weighted number of shares outstanding, plus the
additional common shares that would have been issued had the options
outstanding been exercised.
11. CONCENTRATIONS OF CREDIT RISK
As of December 31, 2002, the Company had approximately $1,966,000 in accounts
at one bank.
Most of the Company's business activity is located in Texas. Accounts
receivable as of December 31, 2002 and 2001 are due from both individual and
institutional owners of joint interests in oil and gas wells as well as
purchasers of oil and gas. A portion of the Company's ability to collect
these receivables is dependent upon revenues generated from sales of oil and
gas produced by the related wells.
12. FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments at
December 31, 2002 and 2001 follow:
---------- 2002 ------- --------- 2001 --------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Cash $ 2,046,000 $ 2,046,000 $ 2,323,000 $ 2,323,000
Accounts receivable 274,000 274,000 175,000 175,000
Notes payable, related party 42,000 42,000 286,000 286,000
The fair value amounts for each of the financial instruments listed above
approximate carrying amounts due to the short maturities of these
instruments.
13. COMMITMENTS AND CONTINGENCIES
In connection with the Plan of Reorganization discussed in Note 1, the Company
agreed to pay, in cash, to Exploration's unsecured creditors, as defined, one-
half of the future reduction of Federal income taxes which were directly
related to any allowed carryovers of Exploration's net operating losses and
investment tax credits existing at the time of the reorganization.
The Company's oil and gas exploration and production activities are subject
to Federal, State and environmental quality and pollution control laws and
regulations. Such regulations restrict emission and discharge of wastes from
wells, may require permits for the drilling of wells, prescribe the spacing of
wells and rate of production, and require prevention and clean-up pollution.
Although the Company has not in the past incurred substantial costs in
complying with such laws and regulations, future environmental restrictions or
requirements may materially increase the Company's capital expenditures,
reduce earnings, and delay or prohibit certain activities.
The Company has a $50,000 letter of credit with a bank in favor of the
Railroad Commission of Texas issued in accordance with the filing of a P-5
Organization Report as required by the Texas Natural Resources Code in order
to perform operations within the jurisdiction of the Railroad Commission of
Texas. The letter of credit is dated August 30, 2001 and initially expired on
February 1, 2003, but has subsequently been extended until February 1, 2004.
This letter of credit is secured by a certificate of deposit in the amount of
$100,000 issued by the same bank that issued the letter of credit. The
$100,000 certificate of deposit is also used as security for a $50,000 letter
of credit issued by an affiliated company in favor of the Railroad Commission
of Texas in accordance with the filing of a P-5 Organization Report as
required by the Texas Natural Resources Code in order to perform operations
within the jurisdiction of the Railroad Commission of Texas.
In addition to the above, the Company has a $25,000 letter of credit with a
bank in favor of the Oklahoma Corporation Commission in order to perform oil
and gas operations in the State of Oklahoma. This letter of credit is dated
November 21, 2002 and expires November 20, 2003. The letter of credit is
secured by a $25,000 certificate of deposit issued by the same bank that
issued the letter of credit.
Subsequent to December 31, 2002, Prairie Pipeline Co. and Spindletop Drilling
Co. each obtained letters of credit from a second bank in the amounts of
$25,000 and $50,000 respectively, in favor of the Railroad Commission of Texas
issued in accordance with the filing of a P-5 Organization Report as required
by the Texas Natural Resources Code in order to perform operations within the
jurisdiction of the Railroad Commission of Texas. The letters of credit
expire May 1, 2004 and April 1, 2004 respectively. Spindletop Drilling Co.
also obtained a letter of credit from the same bank in the amount of $25,000
in favor of the Louisiana Office of Conservation as required by the State of
Louisiana in order to provide financial security for the proper plugging and
abandonment of oil and gas wells. This letter of credit expires on 12/31/2003.
These three letters of credit are secured by the restriction of funds on
deposit at the bank issuing the letters of credit.
14. ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION
Certain information about the Company's operations for the years ended
December 31, 2002, 2001, and 2000 follows.
Significant Oil and Gas Purchasers
- ----------------------------------
The Company's oil sales are made on a day to day basis at approximately the
current area posted price. The loss of any oil purchaser would not have an
adverse effect upon operations. The Company generally contracts to sell its
natural gas to purchasers pursuant to short-term contracts. Additionally,
some of the Company's natural gas not under contract is sold at the then
current prevailing "spot" price on a month to month basis. Following is a
summary of significant oil and gas purchasers during the three-year period
ended December 31, 2002.
Year ended December 31,
------------------------------------
Purchaser 2002 2001 2000
- ------------------------------ ---------- ---------- ----------
Cantera Resources 22 % 32 % 23 %
Devon Gas Services/Mitchell Marketing Co. 38 % 41 % 24 %
There are no other customers of the Company that individually accounted for
more than 10% of the Company's oil and gas revenues during the three years
ended December 31, 2002.
Certain revenues, costs and expenses related to the Company's oil and gas
operations are as follows:
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Capitalized costs relating to oil
and gas producing activities:
Unproved properties $ - $ - $ -
Proved properties 3,910,000 3,224,000 3,202,000
----------- ----------- -----------
Total capitalized costs 3,910,000 3,224,000 3,202,000
Accumulated amortization (2,683,000) (2,436,000) (2,334,000)
----------- ----------- -----------
Total capitalized costs, net $ 1,227,000 $ 788,000 $ 868,000
=========== =========== ===========
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Costs incurred in oil and gas property
acquisition, exploration and
development:
Acquisition of properties $ 373,000 $ 24,000 $ 61,000
Development costs 295,000 - -
----------- ----------- -----------
Total costs incurred $ 668,000 $ 24,000 $ 61,000
=========== =========== ===========
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Results of Operations from producing
Activities:
Sales of oil and gas $ 1,733,000 $ 2,191,000 $ 1,994,000
----------- ----------- -----------
Production costs 790,000 930,000 729,000
Amortization of oil and gas
Properties 248,000 102,000 206,000
----------- ----------- -----------
Total production costs 1,038,000 1,032,000 935,000
----------- ----------- -----------
Total net revenue $ 695,000 $ 1,159,000 $ 1,059,000
=========== =========== ===========
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Sales price per equivalent Mcf $ 3.11 $ 4.15 $ 3.69
=========== =========== ===========
Production costs per equivalent Mcf $ 1.42 $ 1.76 $ 1.35
=========== =========== ===========
Amortization per equivalent Mcf $ .45 $ .19 $ .38
=========== =========== ===========
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Results of Operations from gas
gathering and equipment rental
activities:
Revenue $ 176,000 $ 219,000 $ 161,000
----------- ----------- -----------
Operating expenses 25,000 36,000 29,000
Depreciation 18,000 19,000 20,000
----------- ----------- -----------
Total costs 43,000 55,000 49,000
----------- ----------- -----------
Total net revenue $ 133,000 $ 164,000 $ 112,000
=========== =========== ===========
15. BUSINESS SEGMENTS
The Company's two business segments are (1) oil and gas exploration,
production and operations and (2) transportation and compression of natural
gas, including related equipment rental. Management has chosen to organize
the Company into the two segments based on the products or services provided.
The following is a summary of selected information for these segments for the
three-year period ended December 31, 2002:
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Revenues: (3)
Oil and gas exploration, production
and operations $ 1,779,000 $ 2,223,000 $2,087,000
Gas gathering, compression and
equipment rental 176,000 219,000 161,000
----------- ----------- -----------
$ 1,955,000 $ 2,442,000 $ 2,248,000
=========== =========== ===========
Depreciation, depletion and
Amortization expense:
Oil and gas exploration, production
and operations $ 260,000 $ 114,000 $ 206,000
Gas gathering, compression and
equipment rental 18,000 19,000 20,000
----------- ----------- -----------
$ 278,000 $ 133,000 $ 226,000
=========== =========== ===========
Income from operations:
Oil and gas exploration, production
and operations $ 729,000 $ 1,179,000 $ 1,152,000
Gas gathering, compression and
equipment rental 133,000 164,000 112,000
----------- ----------- -----------
862,000 1,343,000 1,264,000
Corporate and other (1) (480,000) (567,000) (415,000)
----------- ----------- -----------
Consolidated net income $ 382,000 $ 776,000 $ 849,000
=========== =========== ===========
Identifiable Assets:
Oil and gas exploration, production
and operations $ 1,271,000 $ 820,000 $ 868,000
Gas gathering, compression and
equipment rental 64,000 80,000 98,000
----------- ----------- -----------
$ 1,335,000 $ 900,000 $ 966,000
Corporate and other (2) 2,320,000 2,586,000 648,000
----------- ----------- -----------
Consolidated total assets $ 3,655,000 $ 3,486,000 $ 1,843,000
=========== =========== ===========
Note (1): Corporate and other includes general and administrative expenses,
other non-operating income and expense and income taxes.
Note (2): Corporate and other includes cash, accounts and notes receivable,
inventory, other property and equipment and intangible assets.
Note (3): All reported revenues are from external customers.
16. SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following items were charged directly to expense:
Year Ended December 31,
-----------------------------------
2002 2001 2000
----------- ----------- -----------
Maintenance and repairs $ 4,000 $ 36,000 $ 29,000
Production taxes 101,000 121,000 102,000
Taxes, other than payroll and
Income taxes 27,000 40,000 9,000
17. SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and gas reserves as of December 31, 2002, 2001
and 2000 have been estimated by Company personnel in accordance with
guidelines established by the Securities and Exchange Commission.
Accordingly, the following reserve estimates were based on existing economic
and operating conditions. Oil and gas prices in effect at December 31 of
each year were used. Operating costs, production and ad valorem taxes and
future development costs were based on current costs with no escalation.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represents estimates
only and should not be construed as being exact. Moreover, the present values
should not be construed as the current market value of the Company's oil and
gas reserves or the costs that would be incurred to obtain equivalent reserves.
Changes in Estimated Quantities of Proved Oil and Gas Reserves (Unaudited):
Crude Oil Natural Gas
Bbls Mcf
------------ ------------
Quantities of Proved Reserves:
- ------------------------------
Balance December 31, 1999 22,562 1,910,744
Sales of reserves in place (2,008) -
Acquired properties 1,764 106,126
Revisions of previous estimates 6,764 1,296,022
Production (10,111) (479,769)
------------ ------------
Balance December 31, 2000 18,971 2,833,123
Sales of reserves in place - (18,825)
Acquired properties - 5,350
Revisions of previous estimates 33,228 4,062,600
Production (9,229) (472,728)
------------ ------------
Balance December 31, 2001 42,970 6,409,520
Sales of reserves in place - -
Acquired properties 116,662 10,439,648
Extensions and discoveries - 51,615
Revisions of previous estimates 2,915 (127,122)
Production (9,553) (499,081)
------------ ------------
Balance December 31, 2002 152,994 16,274,580
============ ============
Proved Developed Reserves:
- --------------------------
Balance December 31, 2000 18,971 2,204,137
Balance December 31, 2001 42,970 5,311,830
Balance December 31, 2002 152,994 4,976,890
17. SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves
(Unaudited)
The Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves ("Standardized Measures")
does not purport to present the fair market value of a company's oil and gas
properties. An estimate of such value should consider, among other factors,
anticipated future prices of oil and gas, the probability of recoveries in
excess of existing proved reserves, the value of probable reserves and
acreage prospects, and perhaps different discount rates. It should be noted
that estimates of reserve quantities, especially from new discoveries, are
inherently imprecise and subject to substantial revision.
Future net cash flows were computed using the contract price, which was not
escalated. Future production includes operating costs and taxes. No
deduction has been made for interest, general corporate overhead,
depreciation or amortization. The annual discount of estimated future net
cash flows is defined, for use herein, as future cash flows discounted at 10%
per year, over the expected period of realization.
During 2002, the Company acquired a 680 acre development block located within
the Newark Barnett Shale Field in North Texas. There are proven and producing
wells operated by companies other than the Company surrounding the prospect in
every direction. The Company's internal engineering estimates project that
gross gas reserves could exceed 1 BCF per well. The Company will be the
project operator and intends to drill up to 17 wells on the prospect. The
Company intends to sell portions of the individual wells to outside investors
to help offset the cost of drilling and completing the wells. The sale of
these partial interests will reduce the Company's ultimate portion of the
recoverable reserves from this field.
In the Changes in Estimated Quantities of Proved Oil and Gas Reserves shown
above, the Company has estimated that recoverable reserves attributable to the
Company's current interest in the Newark Barnett Shale prospect is
approximately 10,200 Mmcf of natural gas, and has recorded them as proved
undeveloped reserves. These reserves are shown as additions for 2002 from
acquired properties.
In the table shown below for Standardized measure of discounted future net
cash flows related to proved reserves, the Company has included $33,150,000 as
future production revenue and $17,901,000 as estimated future development and
production costs related to the Newark Barnett Shale prospect. In the
following table showing changes in the standardized measure of discounted
future net cash flows, the Company has included in Purchase of reserves in
place, $5,446,000 of future net revenue discounted at 10% relative to the
Newark Barnett Shale prospect.
The Company emphasizes that reserve estimates are inherently imprecise.
Accordingly, the estimates are expected to change as more current information
becomes available. It is reasonably possible that, because of changes in
market conditions or the inherent imprecision of these reserve estimates, that
the estimates of future cash inflows, future gross revenues, the amount of oil
and gas reserves, the remaining estimated lives of the oil and gas properties,
or any combination of the above may be increased or reduced in the near term.
If reduced, the carrying amount of capitalized oil and gas properties may be
reduced materially in the near term.
Standardized measure of discounted future net cash flows related to proved
reserves:
Year Ended December 31,
--------------------------------------
2002 2001 2000
------------ ------------ ------------
Future production revenue $ 56,535,000 $ 15,342,000 $ 16,488,000
Future development costs (14,621,000) (621,000) (253,000)
Future production costs (13,688,000) (7,507,000) (6,150,000)
------------ ------------ ------------
Future net cash flow before
Federal income tax 28,226,000 7,214,000 10,085,000
Future income taxes (4,234,000) (2,453,000) (1,513,000)
------------ ------------ ------------
Future net cash flows 23,992,000 4,761,000 8,572,000
Effect of 10% annual discounting (12,177,000) (1,032,000) (1,463,000)
------------ ------------ ------------
Standardized measure of
Discounted net cash flows $ 11,815,000 $ 3,729,000 $ 7,109,000
============ ============ ============
Changes in the standardized measure of discounted future net cash flows:
Year Ended December 31,
--------------------------------------
2002 2001 2000
------------ ------------ ------------
Beginning of the year $ 3,729,000 $ 7,109,000 $ 1,604,000
Oil and gas sales, net of
production costs (943,000) (1,261,000) (1,265,000)
Purchases of reserves in place 6,129,000 10,000 83,000
Sales of reserves in place - (34,000) (13,000)
Net change in prices, net of
Production costs 2,665,000 (2,700,000) 4,230,000
Changes in production rates,
Timing and other (2,083,000) (868,000) (1,482,000)
Revisions of quantity estimate (419,000) 739,000 5,305,000
Effect of income tax (802,000) 23,000 (1,513,000)
Accretion of discount 3,539,000 711,000 160,000
------------ ------------ ------------
End of year $ 11,815,000 $ 3,729,000 $ 7,109,000
============ ============ ============
SCHEDULE II
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Beginning Costs & Ending
Description Balance Expenses Deductions Balance
- --------------------------- ---------- ---------- ---------- ----------
Allowance for
Doubtful Accounts
December 31, 2000 $ 300,000 $ 30,000 $ 300,000 $ 30,000
========== ========== ========== ==========
December 31, 2001 $ 30,000 $ - $ - $ 30,000
========== ========== ========== ==========
December 31, 2002 $ 30,000 $ - $ - $ 30,000
========== ========== ========== ==========
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
Index to Exhibits
PAGE
22. Subsidiaries of the Registrant 45
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
Subsidiaries of the Registrant
Prairie Pipeline Co. incorporated June 22, 1983, under the laws of the State
of Texas, is a wholly owned subsidiary of Registrant.
Spindletop Drilling Company, incorporated September 5, 1975, under the laws
of the State of Texas, is a wholly owned subsidiary of the Registrant.
Part II - Other Information
Item 6. - Exhibits and Reports on Form 8-K
Exhibit 99.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Spindletop Oil & Gas Co.
("the Company") on Form 10-K for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof ("the Report"),
We, Chris G. Mazzini, President and Acting Principal Executive Officer and
Robert E. Corbin, Controller and Acting Principal Financial Officer of the
Company, hereby certify that to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: March 31, 2003 By: /s/Chris G. Mazzini
--------------------
Chris G. Mazzini
President, Acting Principal
Executive Officer
Date: March 31, 2003 By: /s/Robert E. Corbin
--------------------
Robert E. Corbin
Controller, Acting Principal
Financial Officer
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.
SPINDLETOP OIL & GAS CO.
(Registrant)
Date: March 31, 2003 By: /s/Chris G. Mazzini
Chris G. Mazzini
President, Acting Principal
Executive Officer
Date: March 31, 2003 By: /s/Michelle H. Mazzini
Michelle H. Mazzini
Secretary
Date: March 31, 2003 By: /s/Robert E. Corbin
Robert E. Corbin
Controller, Acting Principal
Financial Officer
CERTIFICATION
I, Chris Mazzini, Acting Principal Executive Officer of Spindletop Oil and Gas
Co. ("the Company"), certify that:
1) I have reviewed this annual report on Form 10-K of the Company;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4) I am responsible for establishing and maintaining internal controls and
procedures and have:
a) designed such internal controls to insure that material information
relating to the company and its consolidated subsidiaries is made known to
me by others within those entities, particularly for the periods presented in
this annual report;
b) evaluated the effectiveness of the Company's internal controls as of a date
within 90 days prior to the filing date of this annual report; and
c) presented in this annual report my conclusions about the effectiveness of
the disclosure controls and procedures based on a date within 90 days prior to
the filing date of this annual report;
5) I have disclosed to the Company's auditors and Audit Committee of the Board
of directors (or persons fulfilling the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize, and report financial data and have identified for the
Company's auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls; and
CERTIFICATION (continued)
6) I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Chris G. Mazzini
--------------------
Chris G. Mazzini
Acting Principal Executive Officer
March 31, 2003
CERTIFICATION
I, Robert E. Corbin, Acting Principal Financial Officer of Spindletop Oil and
Gas Co. ("the Company"), certify that:
1) I have reviewed this annual report on Form 10-K of the Company;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4) I am responsible for establishing and maintaining internal controls and
procedures and have:
a) designed such internal controls to insure that material information
relating to the company and its consolidated subsidiaries is made known to
me by others within those entities, particularly for the periods presented in
this annual report;
b) evaluated the effectiveness of the Company's internal controls as of a date
within 90 days prior to the filing date of this annual report; and
c) presented in this annual report my conclusions about the effectiveness of
the disclosure controls and procedures based on a date within 90 days prior to
the filing date of this annual report;
5) I have disclosed to the Company's auditors and Audit Committee of the Board
of directors (or persons fulfilling the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize, and report financial data and have identified for the
Company's auditors any material weakness in internal controls; and
b) any fraud, whether or not material, that involves management or other
c) employees who have a significant role in the Company's internal controls; and
CERTIFICATION (continued)
6) I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Robert E. Corbin
--------------------
Robert E. Corbin
Acting Principal Financial Officer
March 31, 2003
1
51