SPINDLETOP OIL & GAS CO - Quarter Report: 2020 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-18774
SPINDLETOP OIL & GAS CO.
(Exact name of registrant as specified in its charter)
|
Texas (State or other jurisdiction of incorporation or organization)
12850 Spurling Rd., Suite 200, Dallas, Texas (Address of principal executive offices) |
75-2063001 (I.R.S. Employer Identification No.)
75230 (Zip Code) |
(972-644-2581)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | SPND | OTC Markets - Pink |
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [ X ] No [ ]
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [ X ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act. Yes [ ] No [ X ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common, as of the latest practicable date.
|
Common Stock, $0.01 par value (Class) |
6,755,318 (Outstanding at November 16, 2020) |
2
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
FORM 10-Q
For the quarter ended September 30, 2020
Index to Consolidated Financial Statements and Schedules
| Part I – Financial Information: | Page | |||
| Item 1. – Financial Statements | ||||
| Consolidated Balance Sheets | 4 - 5 | |||
| September 30, 2020 (Unaudited) and December 31, 2019 | ||||
| Consolidated Statements of Operations (Unaudited) | 6 | |||
| Nine Months Ended September 30, 2020 and 2019 | ||||
| Three Months Ended September 30, 2020 and 2019 | ||||
| Consolidated Statements of Changes in Shareholder's Equity (Unaudited) | 7 | |||
| Nine Months Ended September 30, 2020 and | ||||
| Nine Months Ended September 30, 2019 | ||||
| Consolidated Statements of Cash Flow (Unaudited) | 8 | |||
| Nine Months Ended September 30, 2020 and 2019 | ||||
| Notes to Consolidated Financial Statements | 9 | |||
| Item 2. – Management’s Discussion and Analysis of Financial | ||||
| Condition and Results of Operations | 10 | |||
| Item 4. – Controls and Procedures | 15 | |||
| Part II – Other Information: | ||||
| Item 5. – Other Information | 16 | |||
| Item 6. – Exhibits | 17 | |||
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Part I - Financial Information
Item 1. - Financial Statements
| SPINDLETOP OIL & GAS Co. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 8,164,000 | $ | 15,229,000 | ||||
| Restricted cash | 295,000 | 795,000 | ||||||
| Accounts receivable | 2,557,000 | 3,190,000 | ||||||
| Income tax receivable | 214,000 | 83,000 | ||||||
| Total Current Assets | 11,230,000 | 19,297,000 | ||||||
| Property and Equipment - at cost | ||||||||
| Oil and gas properties (full cost method) | 27,083,000 | 26,938,000 | ||||||
| Rental equipment | 412,000 | 412,000 | ||||||
| Gas gathering system | 115,000 | 115,000 | ||||||
| Other property and equipment | 315,000 | 315,000 | ||||||
| 27,925,000 | 27,780,000 | |||||||
| Accumulated depreciation and amortization | (25,883,000 | ) | (25,664,000 | ) | ||||
| Total Property and Equipment | 2,042,000 | 2,116,000 | ||||||
| Real Estate Property - at cost | ||||||||
| Land | 688,000 | 688,000 | ||||||
| Commercial office building | 1,624,000 | 1,580,000 | ||||||
| Accumulated depreciation | (1,034,000 | ) | (992,000 | ) | ||||
| Total Real Estate Property | 1,278,000 | 1,276,000 | ||||||
| Other Assets | ||||||||
| Deferred Income Tax Asset | 68,000 | 56,000 | ||||||
| Long-term certificates of deposit | 8,725,000 | 1,150,000 | ||||||
| Other | 4,000 | 3,000 | ||||||
| Total Other Assets | 8,797,000 | 1,209,000 | ||||||
| Total Assets | $ | 23,347,000 | $ | 23,898,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
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| SPINDLETOP OIL & GAS Co. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 5,649,000 | $ | 6,005,000 | ||||
| Notes payable, Paycheck Protection Program | 403,000 | — | ||||||
| Total Current Liabilities | 6,052,000 | 6,005,000 | ||||||
| Noncurrent Liabilities | ||||||||
| Asset retirement obligation | 1,470,000 | 1,408,000 | ||||||
| Total Noncurrent Liabilities | 1,470,000 | 1,408,000 | ||||||
| Deferred Income Tax Payable | — | — | ||||||
| Total Liabilities | 7,522,000 | 7,413,000 | ||||||
| Shareholders' Equity | ||||||||
| Common stock, $.01 par value, 100,000,000 shares authorized; 7,677,471 shares issued and 6,755,318 and 6,809,602 shares outstanding at September 30, 2020 and at December 31, 2019. | 77,000 | 77,000 | ||||||
| Additional paid-in capital | 943,000 | 943,000 | ||||||
| Treasury stock, at cost | (1,874,000 | ) | (1,806,000 | ) | ||||
| Retained earnings | 16,679,000 | 17,271,000 | ||||||
| Total Shareholders' Equity | 15,825,000 | 16,485,000 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 23,347,000 | $ | 23,898,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
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| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | ||||||||||||||||
| Oil and gas revenues | $ | 2,025,000 | $ | 3,501,000 | $ | 933,000 | $ | 1,126,000 | ||||||||
| Revenues from lease operations | 168,000 | 249,000 | 49,000 | 62,000 | ||||||||||||
| Gas gathering, compression, equipment rental | 57,000 | 94,000 | 12,000 | 28,000 | ||||||||||||
| Real estate rental revenue | 204,000 | 179,000 | 70,000 | 60,000 | ||||||||||||
| Interest Income | 164,000 | 150,000 | 61,000 | 37,000 | ||||||||||||
| Other revenues | 29,000 | 49,000 | 10,000 | 27,000 | ||||||||||||
| Total Revenues | 2,647,000 | 4,222,000 | 1,135,000 | 1,340,000 | ||||||||||||
| Expenses | ||||||||||||||||
| Lease operating expenses | 727,000 | 1,239,000 | 265,000 | 418,000 | ||||||||||||
| Production taxes, gathering and marketing expenses | 468,000 | 592,000 | 212,000 | 204,000 | ||||||||||||
| Pipeline and rental expenses | 6,000 | 25,000 | 2,000 | 6,000 | ||||||||||||
| Real estate expenses | 106,000 | 104,000 | 39,000 | 32,000 | ||||||||||||
| Depreciation and amortization expenses | 261,000 | 407,000 | 126,000 | 137,000 | ||||||||||||
| ARO accretion expense | 90,000 | 142,000 | 30,000 | 48,000 | ||||||||||||
| General and administrative expenses | 1,723,000 | 2,212,000 | 332,000 | 721,000 | ||||||||||||
| Total Expenses | 3,381,000 | 4,721,000 | 1,006,000 | 1,566,000 | ||||||||||||
| Income (Loss) before income tax | (734,000 | ) | (499,000 | ) | 129,000 | (226,000 | ) | |||||||||
| Current income tax provision (benefit) | (131,000 | ) | 38,000 | 43,000 | 58,000 | |||||||||||
| Deferred income tax provision (benefit) | (12,000 | ) | (249,000 | ) | (17,000 | ) | (98,000 | ) | ||||||||
| Total income tax provision (benefit) | (143,000 | ) | (211,000 | ) | 26,000 | (40,000 | ) | |||||||||
| Net income (Loss) | $ | (591,000 | ) | $ | (288,000 | ) | $ | 103,000 | $ | (186,000 | ) | |||||
| Earnings (Loss) per Share of Common Stock | ||||||||||||||||
| Basic and Diluted | $ | (0.09 | ) | $ | (0.04 | ) | $ | 0.02 | $ | (0.03 | ) | |||||
| Weighted Average Shares Outstanding | ||||||||||||||||
| Basic and Diluted | 6,776,392 | 6,809,602 | 6,776,392 | 6,809,602 | ||||||||||||
| The accompanying notes are an integral part of these statements. | ||||||||||||||||
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| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY | ||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Treasury Stock Shares | Treasury Stock Amount | Retained Earnings | |||||||||||||||||||
| Balance December 31, 2019 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | $ | (1,806,000 | ) | $ | 17,271,000 | |||||||||||||
| Net Loss | — | — | — | — | — | (272,000 | ) | |||||||||||||||||
| Balance March 31, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | ($ | 1,806,000 | ) | $ | 16,999,000 | |||||||||||||
| Purchase of 54,284 shares of Common Stock as Treasury Stock | — | — | — | 54,284 | (68,000 | ) | — | |||||||||||||||||
| Net (Loss) | — | — | — | — | — | (422,000 | ) | |||||||||||||||||
| Balance June 30, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,577,000 | |||||||||||||
| Net Income | — | — | — | — | — | 103,000 | ||||||||||||||||||
| Balance September 30, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,679,000 | |||||||||||||
| For the Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Treasury Stock Shares | Treasury Stock Amount | Retained Earnings | |||||||||||||||||||
| Balance December 31, 2018 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | $ | (1,806,000 | ) | $ | 17,917,000 | |||||||||||||
| Net Income | — | — | — | — | — | 21,000 | ||||||||||||||||||
| Balance March 31, 2019 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | $ | (1,806,000 | ) | $ | 17,938,000 | |||||||||||||
| Net (Loss) | — | — | — | — | — | (123,000 | ) | |||||||||||||||||
| Balance June 30, 2019 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | $ | (1,806,000 | ) | $ | 17,815,000 | |||||||||||||
| — | — | — | — | — | $ | (186,000 | ) | |||||||||||||||||
| Balance September 30, 2019 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | $ | (1,806,000 | ) | $ | 17,629,000 | |||||||||||||
| The accompanying notes are an integral part of these statements. | ||||||||||||||||||||||||
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| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited) | ||||||||
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net (Loss) | $ | (591,000 | ) | $ | (288,000 | ) | ||
| Reconciliation of net (Loss) to net cash | ||||||||
| provided by operating activities | ||||||||
| Depreciation and amortization | 261,000 | 407,000 | ||||||
| Accretion of asset retirement obligation | 90,000 | 142,000 | ||||||
| Changes in accounts receivable | 383,000 | (365,000 | ) | |||||
| Changes in income tax receivable | (131,000 | ) | (21,000 | ) | ||||
| Changes in accounts payable and accrued liabilities | (356,000 | ) | 462,000 | |||||
| Changes in deferred Income tax asset | (12,000 | ) | (163,000 | ) | ||||
| Changes in deferred Income tax payable | — | (86,000 | ) | |||||
| Changes in other assets | (1,000 | ) | 6,000 | |||||
| Net cash provided (used) for operating activities | (357,000 | ) | 94,000 | |||||
| Cash Flows from Investing Activities | ||||||||
| Capitalized acquisition, exploration and development | (174,000 | ) | (151,000 | ) | ||||
| Purchase of other property and equipment | — | (12,000 | ) | |||||
| Purchases/redemptions of certificates of deposit, net | (7,575,000 | ) | — | |||||
| Proceeds from sale of oil and gas properties | 250,000 | — | ||||||
| Capitalized tenant improvements and broker fees | (44,000 | ) | — | |||||
| Net cash (used) for investing activities | (7,543,000 | ) | (163,000 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Changes in notes payable | 403,000 | — | ||||||
| Purchase of 54,284 shares of treasury stock | (68,000 | ) | — | |||||
| Net cash used for financing activities | 335,000 | — | ||||||
| (Decrease) in cash, cash equivalents, and restricted cash | (7,565,000 | ) | (69,000 | ) | ||||
| Cash, cash equivalents, and restricted cash at beginning of period | 16,024,000 | 14,399,000 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 8,459,000 | $ | 14,330,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
8
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND ORGANIZATION
The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in the Company's annual Form 10-K filing. Accordingly, the reader of this Form 10-Q may wish to refer to the Company's Form 10-K for the year ended December 31, 2019 for further information.
The consolidated financial statements presented herein include the accounts of Spindletop Oil & Gas Co., a Texas corporation ("the Company") and its wholly owned subsidiaries, Prairie Pipeline Co., a Texas corporation and Spindletop Drilling Company (“SDC”), a Texas corporation. All significant inter-company transactions and accounts have been eliminated.
In the opinion of management, the accompanying unaudited interim financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, the results of operations and changes in cash flows of the Company and its consolidated subsidiaries for the interim periods presented. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.
2. COMMON STOCK
Effective April 6, 2020, and June 20, 2020, the Company repurchased 45,036 shares and 9,248 shares of its common stock from a non-controlling, unaffiliated shareholder of the Company for a negotiated purchase price of $56,295 and $11,560 respectively, or $1.25 per share. The repurchased shares are held as Treasury Stock.
3. NOTES PAYABLE
On May 1, 2020, the Company was granted a loan (the “Loan”) in the amount of $402,573 pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted March 27, 2020.
The Loan, which is in the form of a note dated April 9, 2020 issued by the Company, matures twenty-four months from the date of the note and bears interest at the rate of 0.98% per annum, payable monthly commencing on November 9, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties.
The PPP provides that loan principal and accrued interest may be forgiven after either an eight week period or a twenty-four week period as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. Under the CARES Act, the amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the period set forth in the CARES Act. It is our understanding that the Company’s lender recently has begun accepting applications for loan forgiveness from borrowers who received loans at the same time the Company did. The Company has prepared the PPP loan forgiveness application and is in the process of submitting to the Company’s lender.
The Company believes it has used the loan proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds should meet the conditions for forgiveness of at least a portion of the loan, we cannot assure you that the Company will be eligible for forgiveness of the loan, in whole or in part.
4. CONTINGENCIES
SDC has filed an answer to the lawsuit filed in Louisiana against SDC and multiple other oil and gas companies alleging a pollution claim for properties operated by the defendants. SDC plans to defend itself.
Subsequent Events
Management has evaluated subsequent events through November 16, 2020, the date on which the financial statements were available to be issued.
9
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
WARNING CONCERNING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
This Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors, that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the factors listed and described at Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K, which investors should review. There have been changes to the risk factors previously described in the Company’s Form 10-K. for the fiscal year ended December 31, 2019 (the “Form 10-K”), including significant global economic and pandemic factors occurring during the first quarter of 2020 and continuing into the third quarter of 2020 which are described in the following two paragraphs.
At the end of 2019, a novel strain of coronavirus (“COVID-19”) was reported in China. In the first quarter of 2020 and continuing currently, COVID-19 has spread to other countries including the U.S. This pandemic has drastically weakened the global demand for oil, putting unprecedented pressure on the price of oil. In addition, the delay through the end of the first quarter of 2020 of the Organization of Petroleum Exporting Countries and Russia to agree on production cuts, caused oil prices to drop dramatically in the first quarter of 2020 to as low as $6.00 per barrel which is approximately one-tenth of the oil price at the beginning of 2020. Additionally, during the second quarter of 2020, for the first time ever, the price of a barrel of oil plunged below zero dollars on the West Texas Intermediate Crude Index going as low as negative $37.63 due to concerns about dwindling capacity to store all the crude oil produced in excess of demand. During the third quarter of 2020, the price of a barrel of oil has somewhat stabilized with an average price per barrel of $36.48.
During the first nine months of 2020 and continuing subsequent to the end of the quarter, attempts at containment of COVID-19 have resulted in decreased economic activity which has adversely affected the broader global economy. As the economy dramatically stalled, the demand for oil and natural gas substantially weakened. Many countries around the world, as well as the majority of the states in the United States, ordered their citizens to stay home in order to contain the spread of the virus. As part of the “shelter in place” and “stay at home” orders in effect during the nine months of the year, fewer businesses than normal are open, less people are traveling to work, and more people are working from home which has reduced the demand for oil and natural gas. Airlines have dramatically cut back on flights as the number of passengers has fallen off. Fewer cars on the road and planes in the sky mean far less demand for oil. At this time, the full extent to which COVID-19 will negatively impact the global economy and our business is uncertain, but pandemics or other significant public health events will most likely have a material adverse effect on our business and results of operations.
10
The Company has felt the negative effects of these plummeting product prices and implemented cost cutting measures including temporary company-wide reductions in compensation for Company employees, including key and technical employees and officers, effective April 1, 2020. To further reduce expenses, the Company temporarily shut in wells that were not profitable when commodity prices plummeted. The Company is forecasting that oil and natural gas prices will remain lower than 2019 prices through the end of 2020, which the Company believes may cause an operating loss for all of 2020 in spite of the Company’s cost cutting measures. Operating losses are very likely to continue until oil and natural gas prices return to substantially higher levels on a continued basis.
Other uncertainties regarding the global economic and financial environment could lead to an extended national or global economic recession. A slowdown in economic activity caused by a recession would likely reduce national and worldwide demand for oil and natural gas and result in lower commodity prices for long periods of time. Costs of exploration, development and production have not yet adjusted to current economic conditions, or in proportion to the significant reduction in product prices. Prolonged, substantial decreases in oil and natural gas prices would likely have a material adverse effect on the Company’s business, financial condition, and results of operations, and could further limit the Company's access to liquidity and credit, and could hinder its ability to satisfy its capital requirements.
In the past several years, capital and credit markets have experienced volatility and disruption. Given the levels of market volatility and disruption, the availability of funds from those markets may diminish substantially. Further, arising from concerns about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards, or altogether ceased to provide funding to borrowers.
Due to these potential capital and credit market conditions, the Company cannot be certain that funding will be available in amounts or on terms acceptable to the Company. The Company is evaluating whether current cash balances and cash flow from operations alone would be sufficient to provide working capital to fully fund the Company's operations. Accordingly, the Company is evaluating alternatives, such as joint ventures with third parties, or sales of interest in one or more of its properties. Such transactions, if undertaken, could result in a reduction in the Company's operating interests or require the Company to relinquish the right to operate the property. There can be no assurance that any such transactions can be completed or that such transactions will satisfy the Company's operating capital requirements. If the Company is not successful in obtaining sufficient funding or completing an alternative transaction on a timely basis on terms acceptable to the Company, the Company would be required to curtail its expenditures or restructure its operations, and the Company would be unable to continue its exploration, drilling, and recompletion program, any of which would have a material adverse effect on its business, financial condition, and results of operations.
There could be adverse legislation which if passed, would significantly curtail our ability to attract investors and raise capital. Proposed changes in the Federal income tax laws which would eliminate or reduce the percentage depletion deduction and the deduction for intangible drilling and development costs for small independent producers, will significantly reduce the investment capital available to those in the industry as well as our Company. Lengthening the time to expense seismic costs will also have an adverse effect on our ability to explore and find new reserves.
Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks may emerge from time to time and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.
11
Results of Operations
Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Oil and gas revenues for the first nine months of 2020 were $2,025,000, as compared to $3,501,000 for the same period in 2019, a decrease of approximately $1,476,000 or 42.16%, due to low oil and natural gas prices and the shutting in of wells during 2020.
Oil sales for the first nine months of 2020 were approximately $1,178,000 compared to approximately $2,099,000 for the first nine months of 2019, a decrease of approximately $921,000 or 43.9%. Oil sales volumes for the first nine months of 2020 were approximately 21,987 bbls, compared to approximately 31,700 bbls during the same period in 2019, a decrease of approximately 9,713 bbls, or 30.6%.
Average oil prices received were $40.77 per bbl in the first nine months of 2020 compared to $56.80 per bbl in the first nine months of 2019, a decrease of approximately $13.09 per bbl or 23.1%.
Natural gas revenue for the first nine months of 2020 was $847,000 compared to $1,402,000 for the same period in 2019, a decrease of approximately $555,000 or 39.59%. Natural gas sales volumes for the first nine months of 2020 were approximately 524,000 mcf compared to approximately 692,000 mcf during the first nine months of 2019, a decrease of approximately 168,000 mcf or 24.3%.
Average gross natural gas prices received were $1.72 per mcf in the first nine months of 2020 as compared to $2.03 per mcf in the same time period in 2019, a decrease of approximately $0.41 per mcf or 20.2%.
Revenues from oil and gas producing operations experienced a significant decrease for the nine months ended 2020 compared to the same period in 2019. In addition, the third quarter results from operations also experienced a significant decline over the same period in 2019 as well as a decline from operations during the first nine months of 2020. The declines result in part from decreased oil and gas prices, as well as production declines. A number of both operated wells and non-operated wells were shut-in during the first nine months of 2020 due to the low oil and gas prices. Operators shut in wells, where practicable, waiting for the low oil prices to rebound.
Revenues from lease operations were $168,000 in the first nine months of 2020 compared to $249,000 in the first nine months of 2019, a decrease of approximately $81,000 or 32.5%. This decrease is due to a reduction in field supervision charges. Revenues from lease operations are derived from field supervision charged to operated leases along with operator overhead charged to operated leases.
Revenues from gas gathering, compression and equipment rental for the first nine months of 2020 were $57,000 compared to $94,000 for the same period in 2019, a decrease of approximately $37,000 or 39.4%. These revenues are derived from gas volumes produced and transported through the Company owned gas gathering systems.
Real estate revenue was approximately $204,000 during the first nine months of 2020 compared to $179,000 for the first nine months of 2019, an increase of approximately $25,000, or 13.9%. The increase is due to new office leases signed during the period.
Interest income was $164,000 during the first nine months of 2020 as compared to $150,000 during the same period in 2019, an increase of approximately $14,000 or 9.3%. Interest income is due to the Company investing its funds in both long-term and short-term certificates of depository accounts paying higher rates of interest than those received in money market accounts.
Other revenues for the first nine months of 2020 were $29,000 as compared to $49,000 for the same time period in 2019, a decrease of approximately $20,000 or 40.8%.
Lease operating expenses in the first nine months of 2020 were $727,000 as compared to $1,239,000 in the first nine months of 2019, a net decrease of $512,000, or 41.3%. Of this net decrease, approximately $97,000 is due in part to net decreases in operating expenses billed by third-party operators on non-operated properties that were shut in during the first nine months of 2020. The remaining net decrease of approximately $415,000 represents overall increases and decreases in well expenditures on various operated properties. A number of both operated wells and non-operated wells were shut-in during the first nine months of 2020 due to low oil and gas prices.
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Production taxes, gathering and marketing expenses in the first nine months of 2020 were approximately $468,000 as compared to $592,000 for the first nine months of 2019, a decrease of approximately $124,000, or 21.0%. This decrease relates directly to the decrease in oil and gas revenues as described in the above paragraphs.
Pipeline and rental expenses for the first nine months of 2020 were $6,000 compared to $25,000 for the same time period in 2019, a decrease of approximately $19,000. The decrease in 2020 is due to non-recurring repair and maintenance expenses in the first nine months of 2019.
Real estate expenses in the first nine months of 2020 were approximately $106,000 compared to $104,000 during the same period in 2019, an increase of approximately $2,000 or 1.9%.
Depreciation, depletion, and amortization expenses for first nine months of 2020 were $261,000 as compared to $407,000 for the same period in 2019, a decrease of $146,000, or 35.9%. $216,000 of the amount for the first nine months of 2020 was for amortization of the full cost pool of capitalized costs compared to $362,000 for the same period of 2019, a decrease of $146,000 or 40.3%. The Company re-evaluated its proved oil and natural gas reserve quantities as of December 31, 2019. This re-evaluated reserve base was reduced for oil and gas reserves that were produced or sold during the first nine months of 2020 and adjusted for newly acquired reserves or for changes in estimated production curves and future price assumptions. A depletion rate of 4.184% for the first quarter of 2020, a depletion rate of 0.813% for the second quarter of 2020, and a depletion rate of 5.269% for the third quarter of 2020 was calculated and applied to the Company’s full cost pool of capitalized oil and natural gas properties compared to rates of 3.191%, 3.554% and 3.727% for the third quarter of 2019. respectively.
Asset Retirement Obligation (“ARO”) expense for the first nine months of 2020 was approximately $90,000 as compared to approximately $142,000 for the same time period in 2019, a decrease of approximately $52,000 or 36.6%. The ARO expense is calculated to be the discounted present value of the estimated future cost to plug and abandon the Company’s producing wells.
General and administrative expenses for the first nine months of 2020 were approximately $1,723,000 as compared to approximately $2,212,000 for the same time period of 2019, a decrease of approximately $489,000 or 22.1%. The decrease is from reduced salary, wages, other personnel costs, and reduced office, computer, and other expenses.
Three months ended September 30, 2020 compared to three months ended September 30, 2019
Oil and natural gas revenues for the three months ended September 30, 2020 were $933,000, compared to $1,126,000 for the same period in 2019, a decrease of $193,000, or 17.1%, due to low oil prices and the shutting in of wells during the third quarter of 2020.
Oil sales for the third quarter of 2020 were approximately $570,000 compared to approximately $749,000 for the same period of 2019, a decrease of approximately $179,000 or 23.9%. Oil volumes sold for the third quarter of 2020 were approximately 9,687 bbls compared to approximately 11,300 bbls during the same period of 2019, a decrease of approximately 7,000 bbl or 68.6%.
Average oil prices received were approximately $36.48 per bbl in the third quarter of 2020 compared to $54.84 per bbl during the same period of 2019, a decrease of approximately $9.54 per bbl, or 17.4%.
Natural gas revenues for the third quarter of 2020 were $363,000 compared to $377,000 for the same period in 201 9, a decrease of approximately $14,000 or 3.7%.
Average gross natural gas prices received were approximately $1.88 per mcf in the third quarter of 2020 as compared to approximately $1.62 per mcf during the same period in 2019.
Revenues from lease operations for the third quarter of 2020 were approximately $49,000 compared to approximately $62,000 for the same period in 2019, a decrease of approximately $13,000 or 21.0%. This decrease is due to a reduction in field supervision charges. Revenues from lease operations are derived from field supervision charged to operated leases along with operator overhead charged to operated leases.
Revenues from gas gathering, compression and equipment rental for the third quarter of 2020 were approximately $12,000, compared to approximately $28,000 for the same period in 2019, a decrease of approximately $16,000 or 57.1%. These revenues are derived from gas volumes produced and transported through our gas gathering systems.
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Real estate revenue was approximately $70,000 during the third quarter of 2020 compared to $60,000 for the same period in 2019. The increase is due to higher rental rates and new office leases signed during the period.
Interest income for the third quarter of 2020 was approximately $61,000 as compared with approximately $37,000 for the same period in 2019, an increase of approximately $24,000 or 64.9%. Interest income is derived from investments in both short-term and long-term certificates of deposit as well as money market accounts at banks.
Other revenues for the third quarter of 2020 were approximately $10,000 as compared with approximately $27,000 for the same period in 2019, a decrease of approximately $17,000 or 63.0%.
Lease operating expenses in the third quarter of 2020 were $265,000 as compared to $418,000 in the third quarter of 2019, a net decrease of approximately $153,000, or 36.6%. Of this decrease, approximately $41,000 is due in part to net decreases in operating expenses billed by third-party operators on non-operated properties. The remaining net decrease of approximately $112,000 represents overall increases and decreases in well expenditures on various operated properties. A significant number of both operated wells and non-operated wells were shut-in during the first nine months of 2020 due to low oil and gas prices. Operators shut in wells, where practicable, waiting for the low prices to rebound.
Production taxes, gathering, transportation and marketing expenses for the third quarter of 2020 were approximately $212,000 as compared to $204,000 during the third quarter of 2019, a net increase of approximately $8,000 or 3.9%.
Pipeline and rental expenses for the third quarter of 2020 were $2,000 compared to $6,000 for the same period in 2019, a decrease of approximately $4,000, or 66.7%. The decrease in 2020 is due to non-recurring repair and maintenance expenses incurred in the third quarter of 2019.
Real estate expenses during the third quarter 2020 were approximately $39,000 compared to approximately $32,000 for the same period in 2019, an increase of approximately $7,000 or 21.9%.
Depreciation, depletion, and amortization expenses for the third quarter of 2020 were $126,000 as compared to $137,000 for the same period in 2019, a decrease of $11,000, or 8.0%. $111,000 of the amount for the third quarter of 2020 was for amortization of the full cost pool of capitalized costs compared to $123,000 for the third quarter of 2019, a decrease of $12,000 or 9.8%. The Company re-evaluated its proved oil and natural gas reserve quantities as of December 31, 2019. This re-evaluated reserve base was reduced for oil and gas reserves that were produced or sold during the first nine months of 2020 and adjusted for newly acquired reserves or for changes in estimated production curves and future price assumptions. A depletion rate of 5.269% for the third quarter of 2020 was calculated and applied to the Company’s full cost pool of capitalized oil and natural gas properties compared to rate of 3.727% for the third quarter of 2019, respectively.
Asset Retirement Obligation (“ARO”) expense for the third quarter of 2020 was approximately $30,000 as compared to approximately $48,000 for the same period in 2019, a decrease of approximately $18,000 or 37.5%. The ARO expense is calculated to be the discounted present value of the estimated future cost to plug and abandon the Company’s producing wells.
General and administrative expenses for the third quarter of 2020 were $332,000 compared to $721,000 for the same period in 2019, a decrease of approximately $389,000 or 54.0%. The decrease comes from decreased salary, wages, and other personnel costs, as well as decreases in office, computer, and other expenses.
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Financial Condition and Liquidity
The Company's operating capital needs, as well as its capital spending program are generally funded from cash flow generated by operations. The Company is operating at a loss and projects to continue to operate at a deficient through the end of the year unless oil and natural gas prices rebound substantially. 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.
Item 4. - Controls and Procedures
(a) As of the end of the period covered by this report, Spindletop Oil & Gas Co. carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based upon the evaluation, the Company's Principal Executive Officer and Principal Financial and Accounting Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report.
(b) There have been no changes in the Company's internal controls over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect the Company's internal controls over financial reporting.
Part II – Other Information
Item 5. – Other Information
None.
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Item 6. - Exhibits
The following exhibits are filed herewith or incorporated by reference as indicated.
| Exhibit Designation |
Exhibit Description | |
| 3.1 (a) | Amended Articles of Incorporation of Spindletop Oil & Gas Co. (Incorporated by reference to Exhibit 3.1 to the General Form for Registration of Securities on Form 10, filed with the Commission on August 14, 1990) | |
| 3.2 | Bylaws of Spindletop Oil & Gas Co. (Incorporated by reference to Exhibit 3.2 to the General Form for Registration of Securities on Form 10, filed with the Commission on August 14, 1990) | |
| 31.1 * | Certification pursuant to Rules 13a-14 and 15d under the Securities Exchange Act of 1934. | |
| 31.2* | Certification pursuant to Rules 13a-14 and 15d under the Securities Exchange Act of 1934 | |
| 32.1 * | Certification pursuant to 18 U.S.C. Section 1350 | |
____________________________
* filed herewith
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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: November 16, 2020
By: /s/ Chris G. Mazzini
Chris G. Mazzini
President, Principal Executive Officer
Date: November 16, 2020
By: /s/ Michelle H. Mazzini
Michelle H. Mazzini
Vice President, Secretary and
Treasurer