UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the Quarterly Period Ended March 31, 2015
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
Commission
File Number 0-8157
THE
RESERVE PETROLEUM COMPANY
(Exact
Name of Registrant as Specified in Its Charter)
DELAWARE |
73-0237060 |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
|
6801
Broadway ext., Suite 300
Oklahoma City, Oklahoma 73116-9037
(405) 848-7551 |
(Address and telephone number, including area code, of registrant’s principal executive offices) |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R 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 R No ☐
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 (Check one):
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of May 8, 2015, 158,553 shares of the registrant’s $.50 par value common stock were outstanding.
PART
I – FINANCIAL INFORMATION
ITEM 1. |
FINANCIAL STATEMENTS |
THE RESERVE PETROLEUM COMPANY |
BALANCE SHEETS |
ASSETS |
| |
| |
|
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Derived from |
| |
| |
audited financial |
| |
| |
statements) |
Current Assets: | |
| |
|
Cash and Cash Equivalents | |
$ | 16,756,630 | | |
$ | 15,203,558 | |
Available-for-Sale Securities | |
| 6,654,303 | | |
| 6,654,303 | |
Trading Securities | |
| 439,674 | | |
| 445,476 | |
Refundable Income Taxes | |
| 309,976 | | |
| 154,393 | |
Receivables | |
| 1,152,467 | | |
| 2,142,356 | |
Prepaid Seismic | |
| 86,856 | | |
| 86,856 | |
| |
| 25,399,906 | | |
| 24,686,942 | |
Investments: | |
| | | |
| | |
Equity Investment | |
| 365,078 | | |
| 352,995 | |
Other | |
| 676,856 | | |
| 672,416 | |
| |
| 1,041,934 | | |
| 1,025,411 | |
Property, Plant and Equipment: | |
| | | |
| | |
Oil and Gas Properties, at Cost, | |
| | | |
| | |
Based on the Successful Efforts Method of Accounting – | |
| | | |
| | |
Unproved Properties | |
| 1,800,962 | | |
| 1,728,944 | |
Proved Properties | |
| 53,036,810 | | |
| 53,110,630 | |
| |
| 54,837,772 | | |
| 54,839,574 | |
Less – Accumulated Depreciation, Depletion,
Amortization and Valuation Allowance | |
| 38,342,608 | | |
| 36,883,078 | |
| |
| 16,495,164 | | |
| 17,956,496 | |
Other Property and Equipment, at Cost | |
| 448,263 | | |
| 440,284 | |
| |
| | | |
| | |
Less – Accumulated Depreciation | |
| 307,738 | | |
| 329,429 | |
| |
| 140,525 | | |
| 110,855 | |
Total Property, Plant and Equipment | |
| 16,635,689 | | |
| 18,067,351 | |
Other Assets | |
| — | | |
| 391,290 | |
Total Assets | |
$ | 43,077,529 | | |
$ | 44,170,994 | |
| |
| | | |
| | |
See Accompanying Notes | |
| | | |
| | |
THE RESERVE PETROLEUM COMPANY |
BALANCE SHEETS |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| |
| |
|
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(Unaudited) | |
(Derived from |
| |
| |
audited financial |
| |
| |
statements) |
Current Liabilities: | |
| |
|
Accounts Payable | |
$ | 211,391 | | |
$ | 819,010 | |
Other Current Liabilities – Deferred Income Taxes and Other | |
| 143,470 | | |
| 263,234 | |
| |
| 354,861 | | |
| 1,082,244 | |
Long-Term Liabilities: | |
| | | |
| | |
Asset Retirement Obligation | |
| 1,665,022 | | |
| 1,645,597 | |
Dividends Payable | |
| 1,433,682 | | |
| 1,451,635 | |
Deferred Tax Liability, Net | |
| 2,869,322 | | |
| 3,249,291 | |
| |
| 5,968,026 | | |
| 6,346,523 | |
Total Liabilities | |
| 6,322,887 | | |
| 7,428,767 | |
| |
| | | |
| | |
Stockholders’ Equity: | |
| | | |
| | |
Common Stock | |
| 92,368 | | |
| 92,368 | |
Additional Paid-in Capital | |
| 65,000 | | |
| 65,000 | |
Retained Earnings | |
| 37,963,687 | | |
| 37,946,212 | |
| |
| 38,121,055 | | |
| 38,103,580 | |
| |
| | | |
| | |
Less – Treasury Stock, at Cost | |
| 1,366,413 | | |
| 1,361,353 | |
Total Stockholders’ Equity | |
| 36,754,642 | | |
| 36,742,227 | |
Total Liabilities and Stockholders’ Equity | |
$ | 43,077,529 | | |
$ | 44,170,994 |
See Accompanying
Notes
THE RESERVE PETROLEUM COMPANY |
STATEMENTS OF INCOME |
(Unaudited) |
| |
| |
|
| |
Three Months Ended |
| |
March 31, |
| |
2015 | |
2014 |
| |
| |
|
Operating Revenues: | |
| |
|
Oil and Gas Sales | |
$ | 2,152,948 | | |
$ | 5,275,210 | |
Lease Bonuses and Other | |
| 535,214 | | |
| 200,942 | |
| |
| 2,688,162 | | |
| 5,476,152 | |
Operating Costs and Expenses: | |
| | | |
| | |
Production | |
| 690,856 | | |
| 844,600 | |
Exploration | |
| 150,150 | | |
| 657,471 | |
Depreciation, Depletion, Amortization and Valuation Provisions | |
| 1,570,350 | | |
| 867,632 | |
General, Administrative and Other | |
| 442,373 | | |
| 438,241 | |
| |
| 2,853,729 | | |
| 2,807,944 | |
Income / (Loss) from Operations | |
| (165,567 | ) | |
| 2,668,208 | |
| |
| | | |
| | |
Other Income / (Loss), Net | |
| 2,733 | | |
| (15,558 | ) |
Income / (Loss) Before Provision for Income Taxes | |
| (162,834 | ) | |
| 2,652,650 | |
Income Tax Provision / (Benefit): | |
| | | |
| | |
Current | |
| 344,423 | | |
| 902,762 | |
Deferred | |
| (524,733 | ) | |
| (224,815 | ) |
Total Income Tax Provision / (Benefit) | |
| (180,310 | ) | |
| 677,947 | |
Net Income | |
$ | 17,476 | | |
$ | 1,974,703 | |
Per Share Data: | |
| | | |
| | |
Net Income, Basic and Diluted | |
$ | 0.11 | | |
$ | 12.40 | |
| |
| | | |
| | |
Weighted Average Shares Outstanding, Basic and Diluted | |
| 158,659 | | |
| 159,228 | |
See Accompanying
Notes
THE RESERVE PETROLEUM COMPANY |
CONDENSED STATEMENTS OF CASH FLOWS |
(Unaudited) |
| |
| |
|
| |
Three Months Ended |
| |
March 31, |
| |
2015 | |
2014 |
| |
| |
|
Net Cash Provided by Operating Activities | |
$ | 2,492,388 | | |
$ | 3,264,333 | |
Cash Applied to Investing Activities: | |
| | | |
| | |
Proceeds from Disposal of Property, Plant and Equipment | |
| — | | |
| 200 | |
Purchase of Property, Plant and Equipment | |
| (911,863 | ) | |
| (1,318,627 | ) |
Cash Distribution from Equity Investee | |
| — | | |
| 40,095 | |
Other Investment | |
| (4,440 | ) | |
| — | |
Net Cash Applied to Investing Activities | |
| (916,303 | ) | |
| (1,278,332 | ) |
Cash Applied to Financing Activities: | |
| | | |
| | |
Dividends Paid to Stockholders | |
| (17,953 | ) | |
| (12,740 | ) |
Purchase of Treasury Stock | |
| (5,060 | ) | |
| (59,585 | ) |
Total Cash Applied to Financing Activities | |
| (23,013 | ) | |
| (72,325 | ) |
Net Change in Cash and Cash Equivalents | |
| 1,553,072 | | |
| 1,913,676 | |
| |
| | | |
| | |
Cash and Cash Equivalents, Beginning of Period | |
| 15,203,558 | | |
| 10,764,506 | |
Cash and Cash Equivalents, End of Period | |
$ | 16,756,630 | | |
$ | 12,678,182 | |
See Accompanying
Notes
THE
RESERVE PETROLEUM COMPANY
NOTES
TO FINANCIAL STATEMENTS
March
31, 2015
(Unaudited)
Note
1 – BASIS OF PRESENTATION
The
accompanying balance sheet as of December 31, 2014, which has been derived from audited financial statements, the unaudited
interim financial statements and these notes have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain disclosures normally included in financial statements prepared in accordance with the accounting
principles generally accepted in the United States of America (“GAAP”) have been omitted. The accompanying financial
statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2014.
In
the opinion of Management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring
accruals), which are necessary for a fair statement of the results of the interim periods presented. The results of operations
for the current interim periods are not necessarily indicative of the operating results for the full year.
Note
2 – OTHER INCOME / (LOSS), NET
The
following is an analysis of the components of Other Income / (Loss), Net:
| |
Three Months Ended |
| |
March 31, |
| |
2015 | |
2014 |
Net Realized and Unrealized Gain / (Loss) on Trading Securities | |
$ | (5,995 | ) | |
$ | (45,925 | ) |
Gain on Asset Sales | |
| — | | |
| 1,123 | |
Interest Income | |
| 3,751 | | |
| 5,332 | |
Equity Earnings in Investee | |
| 12,083 | | |
| 27,245 | |
Other Income | |
| 4,898 | | |
| 7,930 | |
Interest and Other Expenses | |
| (12,004 | ) | |
| (11,263 | ) |
Other Income / (Loss), Net | |
$ | 2,733 | | |
$ | (15,558 | ) |
Note
3 – INVESTMENTS AND RELATED COMMITMENTS AND CONTINGENT LIABILITIES, INCLUDING GUARANTEES
Equity
Investment consists of a 33% ownership interest in Broadway Sixty-Eight, Ltd. (the “Partnership”), an Oklahoma limited
partnership, which owns and operates an office building in Oklahoma City, Oklahoma. Although the Company invested as a limited
partner, it agreed, jointly and severally, with all other limited partners to reimburse the general partner for any losses suffered
from operating the Partnership. The indemnity agreement provides no limitation to the maximum potential future payments. To date,
no monies have been paid with respect to this agreement.
Note
4 – PROVISION FOR INCOME TAXES
In
2015 and 2014, the effective tax rate was less than the statutory rate, primarily as a result of allowable depletion for tax purposes
in excess of the cost basis in oil and gas properties and the corporate graduated tax rate structure.
Excess
federal percentage depletion, which is limited to certain production volumes and by certain income levels, reduces estimated taxable
income projected for any year. The federal excess percentage depletion estimates will be updated throughout the year until finalized
with the detail well-by-well calculations at year-end. When a provision for income taxes is recorded, federal excess percentage
depletion benefits decrease the effective tax rate. The benefit of federal excess percentage depletion is not directly related
to the amount of pre-tax income recorded in a period. Accordingly, in periods where a recorded pre-tax income is relatively small,
the proportional effect of these items on the effective tax rate may be significant.
Note
5 – ASSET RETIREMENT OBLIGATION
The
Company records the fair value of its estimated liability to retire its oil and natural gas producing properties in the period
in which it is incurred (typically the date of first sale). The estimated liability is calculated by obtaining current estimated
plugging costs from the well operators and inflating it over the life of the property. Current year inflation rate used is 4.08%.
When the liability is first recorded, a corresponding increase in the carrying amount of the related long-lived asset is also
recorded. Subsequently, the asset is amortized to expense over the life of the property and the liability is increased for the
change in its present value which is currently 3.25%.
A
reconciliation of the Company’s asset retirement obligation liability is as follows:
Balance at December 31, 2014 | |
$ | 1,645,597 | |
Liabilities incurred for new wells (net of revisions) | |
| 7,542 | |
Liabilities settled (wells sold or plugged) | |
| — | |
Accretion expense | |
| 11,883 | |
Balance at March 31, 2015 | |
$ | 1,665,022 | |
Note
6 – FAIR VALUE MEASUREMENTS
Inputs
used to measure fair value are organized into a fair value hierarchy based on the observability of the inputs. Level 1 inputs
consist of quoted prices in active markets for identical assets. Level 2 inputs are inputs, other than quoted prices, for similar
assets that are observable. Level 3 inputs are unobservable inputs.
Recurring
Fair Value Measurements
Certain
of the Company’s assets are reported at fair value in the accompanying balance sheets on a recurring basis. The Company
determined the fair value of the available-for-sale securities using quoted market prices for securities with similar maturity
dates and interest rates. At March 31, 2015 and December 31, 2014, the Company’s assets reported at fair value
on a recurring basis are summarized as follows:
| |
March 31, 2015 |
| |
Level 1 Inputs | |
Level 2 Inputs | |
Level 3 Inputs |
Financial Assets: | |
| |
| |
|
Available-for Sale Securities – | |
| |
| |
|
U.S. Treasury Bills Maturing in 2015 | |
$ | — | | |
$ | 6,654,303 | | |
$ | — | |
Trading Securities: | |
| | | |
| | | |
| | |
Domestic Equities | |
| 280,533 | | |
| — | | |
| — | |
International Equities | |
| 131,674 | | |
| — | | |
| — | |
Others | |
| 27,467 | | |
| — | | |
| — | |
| |
December 31, 2014 |
| |
Level 1 Inputs | |
Level 2 Inputs | |
Level 3 Inputs |
Financial Assets: | |
| |
| |
|
Available-for Sale Securities – | |
| |
| |
|
U.S. Treasury Bills Maturing in 2015 | |
$ | — | | |
$ | 6,654,303 | | |
$ | — | |
Trading Securities: | |
| | | |
| | | |
| | |
Domestic Equities | |
| 183,168 | | |
| — | | |
| — | |
International Equities | |
| 124,998 | | |
| — | | |
| — | |
Others | |
| 137,310 | | |
| — | | |
| — | |
Non-Recurring
Fair Value Measurements
The
Company’s asset retirement obligation represents a non-recurring fair value liability. The fair value of the non-financial
liability incurred in the quarter ended March 31, was $7,542 in 2015 and $26,651 in 2014 and was calculated using Level 3 inputs.
See Note 5 above for more information about this liability and the inputs used for calculating fair value.
The impairment losses in
the quarter ended March 31 of $556,734 for 2015, with none for 2014, also represents non-recurring fair value expenses
calculated using Level 3 inputs. See Note 10 – LONG-LIVED ASSETS IMPAIRMENT LOSS on page 29 of the 2014 Form 10-K for a
description of the impairment loss calculation.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, marketable securities,
trade payables and dividends payable. At March 31, 2015 and December 31, 2014, the historical cost of cash and cash
equivalents, trade receivables, trade payables and dividends payable are considered to be representative of their respective fair
values due to the short-term maturities of these items.
Note
7 – NEW ACCOUNTING PRONOUNCEMENTS
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue
from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 clarifies the principles for recognizing revenue
and develops a common revenue standard under U.S. GAAP under which an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. ASU 2014-09 is effective for the Company beginning January 1, 2018. The new
standard allows application either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment
as of the date of adoption. Management is currently assessing the adoption method and the impact ASU 2014-09 will have on the
Company, but it is not expected to have a material effect on the Company’s financial position, results of operations or
cash flows.
On
April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-03, Interest
- Imputation of Interest (“ASU 2015-03”). The standard requires that debt issuance costs be presented in the balance
sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. ASU 2015-03
is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. The Company
currently has no debt nor any plans to issue any debt. Accordingly, adoption of ASU 2015-03 will have no effect on the Company’s
financial position, results of operations or cash flows.
There
were no other accounting pronouncements issued and none that became effective since December 31, 2014 that were directly
applicable to the Company.
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This
discussion and analysis should be read with reference to a similar discussion in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (hereinafter, the “2014 Form
10-K”), as well as the financial statements included in this Form 10-Q.
Forward
Looking Statements
This
discussion and analysis includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward looking statements give the Company’s current expectations of
future events. They include statements regarding the drilling of oil and gas wells, the production that may be obtained from oil
and gas wells, cash flow and anticipated liquidity and expected future expenses.
Although
management believes the expectations in these and other forward looking statements are reasonable, we can give no assurance they
will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties.
Factors that would cause actual results to differ materially from expected results are described under “Forward Looking
Statements” on page 8 of the 2014 Form 10-K.
We
caution you not to place undue reliance on these forward looking statements, which speak only as of the date of this Form 10-Q,
and we undertake no obligation to update this information. You are urged to carefully review and consider the disclosures made
in this and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the
risks and factors that may affect our business.
Financial
Conditions and Results of Operations
Liquidity
and Capital Resources
Please
refer to the Balance Sheets and the Condensed Statements of Cash Flows in this Form 10-Q to supplement the following discussion.
In the first quarter of 2015, the Company continued to fund its business activity through the use of internal sources of cash.
The Company had net cash provided by operations of $2,492,388. The Company utilized cash for property additions of $911,863, other
investment of $4,440 and financing activities of $23,013 for total cash applied of $939,316. Cash and cash equivalents increased
$1,553,072 to $16,756,630.
Discussion
of Significant Changes in Working Capital. In addition to the changes in cash and cash equivalents discussed above, there
were other changes in working capital line items from December 31, 2014. A discussion of these items follows.
Refundable
income taxes increased $155,583 (101%) to $309,976 from $154,393 due to the first quarter 2015 current income tax provision of
$344,423 offset by estimated tax payments of $500,006 for the same period.
Receivables
declined $989,889 (46%) to $1,152,467 from $2,142,356. This decrease was due entirely to lower oil and gas sales
receivables. Sales variances are discussed in the “Results of Operations” section below.
Accounts
payable decreased $607,619 (74%) to $211,391 from $819,010 due to a decline in the drilling activity in the quarter ended
March 31, 2015 compared to the quarter ended December 31, 2014.
Discussion
of Significant Changes in the Condensed Statements of Cash Flows. As noted in the first paragraph above, net cash provided
by operating activities was $2,492,388 in 2015, a decrease of $771,945 (24%) from the comparable period in 2014. The decrease
was primarily the result of decreased oil and gas sales. For more information see “Operating Revenues” and “Operating
Costs and Expenses” below.
Cash
applied to the purchase of property additions in 2015 was $911,863 a decrease of $406,764 (31%) from cash applied in 2014 of $1,318,627.
For both 2015 and 2014, cash applied to property additions was mostly related to oil and gas exploration and development activity.
The decrease in property additions for 2015 is mostly due to a decline in the exploration and development drilling activity in
the first quarter of 2015 versus 2014. See the subheading “Exploration Costs” in the “Results of Operations”
section below for additional information.
Conclusion.
Management is unaware of any additional material trends, demands, commitments, events or uncertainties, which would impact
liquidity and capital resources to the extent that the discussion presented in the 2014 Form 10-K would not be representative
of the Company’s current position.
Material
Changes in Results of Operations Three Months Ended March 31, 2015, Compared with Three Months Ended March 31, 2014
Net
income decreased $1,957,227 (99%) to $17,476 in 2015 from $1,974,703 in 2014. Net income per share, basic and diluted, decreased
$12.29 to $0.11 in 2015 from $12.40 in 2014.
A
discussion of revenue from oil and gas sales and other significant line items in the statements of income follows.
Operating
Revenues. Revenues from oil and gas sales decreased $3,122,262 (59%) to $2,152,948 in 2015 from $5,275,210 in 2014. Of the
$3,122,262 decrease, crude oil sales decreased $1,976,933; natural gas sales decreased $934,196; and miscellaneous oil and gas
product sales decreased $211,133.
The
$1,976,933 (61%) decrease in oil sales to $1,279,886 in 2015 from $3,256,819 in 2014 was the result of a decrease in the average
price per barrel (Bbl) and the volume sold. The volume of oil sold decreased 7,227 Bbls to 28,306 Bbls in 2015, resulting in a
negative volume variance of $662,355. The average price per Bbl decreased $46.43 to $45.22 per Bbl in 2015, resulting in a negative
price variance of $1,314,578. The decrease in oil volumes sold was mostly due to production declines from older wells partially
offset by production of 7,266 Bbls from new wells.
The
$934,196 (53%) decrease in gas sales to $819,752 in 2015 from $1,753,948 in 2014 was the result of a decrease in the average price
per thousand cubic feet (MCF) and the volume sold. The volume of gas sold decreased 76,331 MCF to 291,374 MCF in 2015 from 367,705
MCF in 2014, for a negative volume variance of $364,099. The decrease in gas volumes sold was mostly due to production declines
from older wells partially offset by production of 77,220 MCF from new wells. The average price per MCF decreased $1.96 to $2.81
per MCF in 2015 from $4.77 per MCF in 2014, resulting in a negative price variance of $570,097.
Sales
from the Robertson County, Texas royalty interest properties provided approximately 21% of the Company’s first quarter gas
sales volumes for 2015 and 2014. See discussion on page 11 of the 2014 Form 10-K under the subheading “Operating Revenues”
for more information about these properties. Sales from Arkansas working interest properties provided approximately 16% of the
Company’s first quarter 2015 gas sales volumes and about 18% of the first quarter 2014 gas sales volumes.
For
both oil and gas sales, the price change was mostly the result of a change in the spot market prices upon which most of the Company’s
oil and gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are
expected to continue.
Sales
of miscellaneous oil and gas products were $53,310 in 2015 compared to $264,443 in 2014.
The
Company received lease bonuses of $535,214 in the first quarter of 2015 for leases on its owned minerals. Lease bonuses for the
first quarter of 2014 were $200,942.
Operating
Costs and Expenses. Operating costs and expenses increased $45,785 (2%) to $2,853,729 in 2015 from $2,807,944 in 2014.
Production
Costs. Production costs decreased $153,744 (18%) in 2015 to $690,856 from $844,600 in 2014. This decrease was due primarily
to lower production taxes as a result of decreased oil and gas sales revenue. Production taxes declined $133,815 (63%) to $78,319
in 2015 from $212,134 in 2014. The remaining $19,929 decrease was due to lower lease operating expense.
Exploration
Costs. Total exploration expense decreased $507,321 (77%) to $150,150 in 2015 from $657,471 in 2014. The net decrease was
due to a decrease in geological and geophysical expense of $656,891 to $1,054 in 2015 from $657,945 in 2014, offset by an increase
of $149,570 in dry hole costs.
The
following is a summary as of April 30, 2015, updating both exploration and development activity from December 31, 2014, for
the period ended March 31, 2015.
The
Company will participate with its 18% working interest in the drilling of three development wells on a Barber County, Kansas prospect
in the second half of 2015.
The
Company participated with its 16% working interest in the drilling of a development well on a Woods County, Oklahoma prospect.
A completion is in progress. Capitalized costs for the period were $68,800.
The
Company is participating with an 8% working interest in the completion of a development well that was drilled in 2014 on a Woods
County, Oklahoma prospect.
The
Company participated with its 10.5% working interest in the drilling of an exploratory well on a Cimarron County, Oklahoma prospect.
The well was completed as a dry hole. The Company will participate in the drilling of another exploratory well starting in May
2015. Costs expensed to dry hole costs were $66,531.
The
Company is participating with its 10.5% working interest in the completion of an exploratory well that was drilled in 2014 on
a Logan County, Oklahoma prospect. Capitalized costs for the period were $57,578.
The
Company participated with its 10.5% working interest in the drilling of a development well on a Seminole County, Oklahoma prospect.
The well is awaiting completion. The Company will participate in operations to plug back and stimulate a salt water disposal well,
repair casing in one producing well and install a submersible pump in another producing well on the prospect.
The
Company will participate with its 10.5% working interest in the drilling of a development well on a Seminole County, Oklahoma
prospect starting in May 2015.
The
Company participated in the drilling of two exploratory wells on a Creek County, Oklahoma prospect. The first well was completed
as a dry hole and the second is awaiting completion. Dry hole costs for the period were $26,981 and capitalized costs were $27,013.
The
Company participated with its 8.4% interest in a 3-D seismic survey on a Thomas County, Kansas prospect. Several structures have
been identified and an exploratory well will be drilled starting in May or June 2015.
In
April 2015, the Company purchased a 16% interest in 1861 net acres of leasehold on a Chase County, Nebraska prospect for $40,191.
The Company is participating in an exploratory well that is currently drilling.
Depreciation,
Depletion, Amortization and Valuation Provision (DD&A). DD&A increased $702,718 (81%) to $1,570,350 in 2015 from $867,632
in 2014. The increase was due primarily to $556,734 of long–lived asset impairment losses for 2015 with none for 2014. The
impairment losses for 2015 are due to lower oil and natural gas futures prices at March 31, 2015 compared to December 31, 2014.
Oil prices have declined approximately 50% and natural gas prices have declined approximately 33% during the first quarter of
2015. See Note 10 – LONG-LIVED ASSETS IMPAIRMENT LOSS on page 29 of the 2014 Form 10-K for a description of the impairment
loss calculation. The remaining $145,984 increase was due primarily to increased depreciation and lease impairment expense.
Other
Income / (Loss), Net. This line item increased $18,291 to a gain of $2,733 in 2015 from a loss of $(15,558) in 2014.
See Note 2 to the accompanying financial statements for the analysis of the various components of this line item.
Trading
securities losses in 2015 were $(5,995) compared to losses of $(45,925) in 2014, a decrease of $39,930. In 2015, the Company had
realized losses of $(1,092) and unrealized losses of $(4,903) from adjusting the securities to estimated fair market value. In
2014, the Company had realized gains of $16,732 and unrealized losses of $(62,657).
Income
Tax Provision / (Benefit). Income taxes decreased $858,257 to a $(180,310) tax benefit in 2015 from a $677,947
tax provision in 2014. The decrease was due to the decrease in income / (loss) before income taxes of $2,815,484 (106%) to
$(162,834) in 2015 from $2,652,650 in 2014. Of the 2015 income tax provision, the estimated current tax expense was $344,423,
which was offset by an estimated deferred tax benefit of $(524,733). Of the 2014 income tax provision, the current tax
expense and deferred tax benefit were $902,762 and $(224,815), respectively. See Note 4 to the accompanying financial
statements for additional information on income taxes.
Off-Balance
Sheet Arrangement
The
Company’s off-balance sheet arrangement relates to Broadway Sixty-Eight, Ltd., an Oklahoma limited partnership. The Company
does not have actual or effective control of this entity. Management of this entity could at any time make decisions in its own
best interest, which could materially affect the Company’s net income or the value of the Company’s investment. For
more information about this entity, see Note 3 to the accompanying financial statements.
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not
applicable.
ITEM 4. |
CONTROLS AND PROCEDURES |
As
defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), the term “disclosure
controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required
to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its
principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure.
The
Company’s Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the Company’s
disclosure controls and procedures. Based on this evaluation, they concluded that the Company’s disclosure controls and
procedures were effective as of March 31, 2015.
Internal
Control over Financial Reporting
As
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the term “internal control over financial reporting”
means a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers,
or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes, in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
(1) |
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
|
(2) |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and |
|
(3) |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the issuer’s assets that could have a material effect on the financial statements. |
The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
for the Company. There were no changes in the Company’s internal control over financial reporting during the quarter ended
March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II – OTHER INFORMATION
ITEM 1. |
LEGAL PROCEEDINGS |
During
the quarter ended March 31, 2015, the Company did not have any material legal proceedings brought against it or its properties.
Not
applicable.
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ISSUER PURCHASES OF EQUITY SECURITIES |
Period | |
Total Number of Shares Purchased | |
Average Price Paid Per Share | |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 |
January 1 to January 31, 2015 | |
| 11 | | |
$ | 230 | | |
| — | | |
| — | |
February 1 to February 28, 2015 | |
| — | | |
$ | 230 | | |
| — | | |
| — | |
March 1 to March 31, 2015 | |
| 11 | | |
$ | 230 | | |
| — | | |
| — | |
Total | |
| 22 | | |
$ | 230 | | |
| — | | |
| — | |
1The
Company has no formal equity security purchase program or plan. The Company acts as its own transfer agent, and most purchases
result from requests made by shareholders receiving small odd lot share quantities as the result of probate transfers.
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not
applicable.
ITEM 5. |
OTHER INFORMATION |
None.
The
following documents are exhibits to this Form 10-Q. Each document marked by an asterisk is filed electronically herewith.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereto duly authorized.
|
|
|
THE RESERVE PETROLEUM COMPANY |
|
|
|
(Registrant) |
|
|
|
|
|
Date:
May 13, 2015 |
|
/s/ Cameron R. McLain |
|
|
|
Cameron
R. McLain, |
|
|
|
Principal
Executive Officer |
|
|
|
|
|
Date:
May 13, 2015 |
|
/s/ James L. Tyler |
|
|
|
James
L. Tyler |
|
|
|
Principal
Financial Officer |
THE RESERVE PETROLEUM COMPANY 10-Q
Exhibit
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES
13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I,
Cameron R. McLain, certify that:
|
1. |
I have reviewed this report on Form 10-Q of The Reserve Petroleum Company; |
|
2. |
Based on my knowledge, this 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 report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within this entity, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date:
May 13, 2015 |
|
|
/s/ Cameron R. McLain |
|
|
|
Cameron
R. McLain |
|
|
|
Principal
Executive Officer |
THE RESERVE PETROLEUM COMPANY 10-Q
Exhibit
31.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES
13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I,
James L. Tyler, certify that:
|
1. |
I have reviewed this report on Form 10-Q of The Reserve Petroleum Company; |
|
2. |
Based on my knowledge, this 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 report; |
|
3. |
Based on my knowledge, the financial statements and other financial information included in this 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 report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within this entity, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date:
May 13, 2015 |
|
|
/s/ James L. Tyler |
|
|
|
James
L. Tyler |
|
|
|
Principal
Financial Officer |
THE RESERVE PETROLEUM COMPANY 10-Q
Exhibit
32
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL
OFFICER PURSUANT TO
18
U.S.C. SECTION 1350
In
connection with the Quarterly Report of The Reserve Petroleum Company (the “Company”) on Form 10-Q for the quarter
ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
we, Cameron R. McLain and James L. Tyler, Principal Executive Officer and Principal Financial Officer, respectively, of the Company,
certify, pursuant to 18 U.S.C. Section 1350, 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, as amended; and |
|
2. |
The information contained in the Report fairly present, in all material respects, the financial condition and results of operations of the Company for the quarter ended March 31, 2015. |
May
13, 2015 |
|
|
/s/ Cameron R. McLain |
|
|
|
Cameron
R. McLain, President |
|
|
|
(Principal
Executive Officer) |
|
|
|
|
|
|
|
/s/ James L. Tyler |
|
|
|
James
L. Tyler, 2nd Vice President |
|
|
|
(Principal
Financial Officer) |
Reserve Petroleum (PK) (USOTC:RSRV)
Historical Stock Chart
From May 2024 to Jun 2024
Reserve Petroleum (PK) (USOTC:RSRV)
Historical Stock Chart
From Jun 2023 to Jun 2024