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, 2010
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 75-2063001
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
12850 Spurling Rd., Suite 200, Dallas, TX 75230
(Address of principal executive offices) (Zip Code)
(972)644-2581
(Registrant's telephone number, including area code)
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 (Sec 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 [ ]
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 7,630,803
(Class) (Outstanding at November 15, 2010)
- 2 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
FORM 10-Q
For the quarter ended September 30, 2010
Index to Consolidated Financial Statements and Schedules
Page
Part I - Financial Information:
Item 1. - Financial Statements
Consolidated Balance Sheets
September 30, 2010 (Unaudited)and December 31, 2009 4-5
Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30, 2010 and 2009 and
Three Months Ended September 30, 2010 and 2009 6
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2010 and 2009 7
Notes to Consolidated Financial Statements 8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4. - Controls and Procedures 15
Part II - Other Information:
Item 1A - Risk Factors 9
Item 5. - Other Information 16
Item 6. - Exhibits 18
- 3 -
Part I - Financial Information
Item 1. - Financial Statements
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
-------------------------
September 30 December 31
2010 2009
(Unaudited)
----------- -----------
ASSETS
Current Assets
Cash $ 7,443,000 $ 8,853,000
Accounts receivable, trade 1,359,000 873,000
Prepaid income tax - 582,000
Other short-term investments 400,000 300,000
----------- -----------
Total Current Assets 9,202,000 10,608,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 16,397,000 15,080,000
Rental equipment 399,000 399,000
Gas gathering systems 145,000 145,000
Other property and equipment 245,000 187,000
----------- -----------
17,186,000 15,811,000
Accumulated depreciation and amortization (8,454,000) (7,904,000)
----------- -----------
Total Property and Equipment, net 8,732,000 7,907,000
----------- -----------
Real Estate Property, at cost
Land 688,000 688,000
Commercial office building 1,580,000 1,580,000
Accumulated depreciation (476,000) (400,000)
----------- -----------
Total Real Estate Property, net 1,792,000 1,868,000
----------- -----------
Other Assets
Other long-term investments 1,000,000 -
Other 5,000 3,000
----------- -----------
Total other assets 1,005,000 3,000
----------- -----------
Total Assets $20,731,000 $20,386,000
=========== ===========
The accompanying notes are an integral part of these statements.
- 4 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
As of
-------------------------
September 30 December 31
2010 2009
(Unaudited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable, current portion $ 120,000 $ 120,000
Accounts payable and accrued liabilities 2,491,000 2,995,000
Income tax payable 119,000 -
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 2,827,000 3,212,000
----------- -----------
Noncurrent Liabilities
Notes payable, long-term portion 870,000 960,000
Asset retirement obligation 832,000 762,000
----------- -----------
1,702,000 1,722,000
----------- -----------
Deferred income tax payable 2,363,000 2,341,000
----------- -----------
Total Liabilities 6,892,000 7,275,000
----------- -----------
Shareholders' Equity
Common stock, $.01 par value; 100,000,000
shares authorized; 7,677,471 shares issued
and 7,630,803 shares outstanding at
September 30, 2010; 7,677,471 shares issued
and 7,630,803 shares outstanding at
December 31, 2009. 77,000 77,000
Additional paid-in capital 901,000 901,000
Treasury Stock (23,000) (23,000)
Retained earnings 12,884,000 12,156,000
----------- -----------
Total Shareholders' Equity 13,839,000 13,111,000
----------- -----------
Total Liabilities and Shareholders' Equity $20,731,000 $20,386,000
=========== ===========
The accompanying notes are an integral part of these statements.
- 5 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
--------------------- -------------------------
Sept 30 Sept 30 Sept 30 Sept 30
2010 2009 2010 2009
----------- ----------- ----------- -----------
Revenues
Oil and gas revenue $ 4,676,000 $ 3,510,000 $ 1,515,000 $ 1,064,000
Revenue from lease
operations 212,000 254,000 79,000 81,000
Gas gathering, compression
and Equipment rental 112,000 145 000 41,000 50,000
Real estate rental income 350,000 378,000 103,000 126,000
Interest income 128,000 157,000 44,000 46,000
Other 86,000 174,000 49,000 23,000
----------- ----------- ----------- -----------
Total revenue 5,564,000 4,618,000 1,831,000 1,390,000
----------- ----------- ----------- -----------
Expenses
Lease operations 1,190,000 1,079,000 547,000 450,000
Production taxes, gathering
and marketing 538,000 598,000 191,000 170,000
Pipeline and rental operations 23,000 27,000 6,000 12,000
Real estate operations 145,000 141,000 46,000 46,000
Depreciation, depletion and
amortization 627,000 967,000 203,000 358,000
Asset retirement obligation
accretion 65,000 29,000 22,000 10,000
General and administrative 2,327,000 2,338,000 779,000 759,000
Interest expense 49,000 44,000 16,000 8,000
----------- ----------- ----------- -----------
Total Expenses 4,964,000 5,223,000 1,810,000 1,813,000
----------- ----------- ----------- -----------
Income (Loss) Before Income Tax 600,000 (605,000) 21,000 (423,000)
----------- ----------- ----------- -----------
Current tax provision (benefit) (150,000) (14,000) (244,000) (14,000)
Deferred tax provision (benefit) 22,000 (199,000) 39,000 (139,000)
----------- ----------- ----------- -----------
(128,000) (213,000) (205,000) (153,000)
----------- ----------- ----------- -----------
Net Income (Loss) $ 728,000 $ (392,000) $ 226,000 $ (270,000)
=========== =========== =========== ===========
Earnings (Loss) per Share
of Common Stock
Basic and diluted $ 0.10 $ (0.05) $ 0.03 $ (0.04)
=========== =========== =========== ===========
Weighted Average Shares
Outstanding
Basic and diluted 7,630,803 7,617,177 7,630,803 7,620,803
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-------------------------
Sept 30 Sept 30
2010 2009
----------- -----------
Cash Flows from Operating Activities
Net Income (Loss) $ 728,000 $ (392,000)
Reconciliation of net income (loss)
to net cash provided by
Operating Activities
Depreciation, depletion and amortization 627,000 967,000
Changes in asset retirement obligation 65,000 29,000
Employee compensation paid with
treasury stock - 20,000
Changes in accounts receivable (486,000) 706,000
Changes in prepaid income taxes 582,000 (356,000)
Changes in accounts payable (504,000) (25,000)
Changes in current taxes payable 119,000 (44,000)
Changes in deferred tax payable 22,000 (200,000)
Other (2,000) -
----------- -----------
Net cash provided by operating activities 1,151,000 705,000
----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (1,311,000) (508,000)
Purchase of property and equipment (60,000) (12,000)
Purchase of other short-term investments (100,000) (300,000)
Purchase of other long-term investments (1,000,000) -
----------- -----------
Net cash used for investing activities (2,471,000) (820,000)
----------- -----------
Cash Flows from Financing Activities
Decrease in notes payable (90,000) (90,000)
----------- -----------
Net cash used for Financing activities (90,000) (90,000)
----------- -----------
Increase (decrease) in cash (1,410,000) (205,000)
Cash at beginning of period 8,853,000 10,468,000
----------- -----------
Cash at end of period $ 7,443,000 $10,263,000
=========== ===========
Interest paid in Cash $ 48,000 $ 36,000
=========== ===========
Income taxes paid $ - $ 400,000
=========== ===========
The accompanying notes are an integral part of these statements.
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 in
the United States of America 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, 2009 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, 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.
Certain balances for 2009 have been reclassified to conform to the 2010
presentation.
Subsequent Events:
------------------
The Company has evaluated subsequent events through the issuance date of
November 15, 2010.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates. A significant estimate made by
management includes the percentage used to calculate the depletion of the oil
and gas properties using the full cost method. The estimate is based on the
prior year ending reserves and adjusting the beginning reserve balance by any
reserve acquisitions or reserve dispositions. Estimated production for the
- 8 -
first, second, and third quarter of 2010 are subtracted from the beginning
reserves to arrive at the estimated proved reserve position of the Company at
September 30, 2010.
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 no changes from the risk
factors previously described in the Company's Form 10-K for the fiscal year
ended December 31, 2009 (the "Form 10-K").
The current global economic and financial crisis 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.
Prices for oil and natural gas have decreased significantly from highs reached
in 2008. 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
- 9 -
natural gas prices would likely have a material adverse effect on the Company's
business, financial condition and results of operations, could further limit
the Company's access to liquidity and credit and could hinder its ability to
satisfy its capital requirements.
Capital and credit markets experienced unprecedented volatility and disruption
during the last half of 2008 and continue to be unpredictable. Given the
current levels of market volatility and disruption, the availability of funds
from those markets has diminished substantially. Further, arising from concerns
about the stability of financial markets generally and the solvency of
borrowers specifically, accessing the credit markets has become more difficult
as many lenders have enacted tighter lending standards or altogether ceased to
provide funding to borrowers.
Due to these capital and credit market conditions, Spindletop cannot be certain
that funding will be available to the Company 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, Spindletop 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 Spindletop's
business, financial condition and results of operations.
The Obama Administration has set forth budget proposals 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.
- 10 -
Results of Operations
Nine months ended September 30, 2010 compared to nine months ended
September 30, 2009
----------------------------------------------------------------------------
Oil and gas revenues for the first nine months of 2010 were $4,676,000, an
increase of $1,166,000 or 33% from revenues of $3,510,000 during the same
period in 2009.
Natural gas revenues for the first nine months of 2010 were $2,996,000 compared
to $2,584,000 for the same period in 2009, an increase of $412,000, or 16%.
Natural gas volumes sold for the first nine months of 2010 were approximately
574,000 mcf compared to approximately 651,000 mcf during the first nine months
of 2009, a decrease of approximately 77,000 mcf, or 12%.
Average natural gas prices received were approximately $5.15 per mcf during the
first nine months of 2010 as compared to approximately $3.49 per mcf in the
first nine months of 2009, an increase of approximately $1.66 per mcf or 48%.
Oil sales for the first nine months of 2010 were approximately $1,680,000
compared to approximately $926,000 in the first nine months of 2009, an
increase of approximately $754,000 or 81%. Oil volumes sold for the first nine
months of 2010 were approximately 23,000 bbls compared to approximately 18,600
bbls during the first nine months of 2009, an increase of approximately 4,400
bbls, or 24%.
Average oil prices received were $73.06 per bbl in the first nine months of
2010 compared to $49.89 per bbl in the first nine months of 2009, an increase
of approximately $23.17 or 46%. This increase in the average sales price is
the result of the overall improvement in crude oil pricing.
Revenue from lease operations for the first nine months of 2010 was
approximately $212,000 compared to approximately $254,000 for the first nine
months of 2009, a decrease of about $42,000 or 17%. This net decrease between
periods resulted from a decrease of approximately $16,000 in field operations
income, a decrease of approximately $30,000 in operator overhead income, and an
increase of approximately $4,000 in pumper service revenue.
Revenue from gas gathering, compression and equipment rental for the first nine
months of 2010 was approximately $112,000, compared to approximately $145,000,
a net decrease of $33,000 or 23% for the same period in 2009. Gas gathering
and compression revenue is generated from the volume of MCFs that are processed
through the Company's gathering systems. Gas sales volumes for the first nine
months of 2010 were less than during the same period in 2009, causing the
decrease in revenues.
Interest income for the first nine months of 2010 was approximately $128,000 as
compared with approximately $157,000 for the same period in 2009, a decrease of
about $29,000 or 18%. Interest earned on amounts in money market accounts and
in certificates of deposit decreased between the two periods as interest rates
continued to remain low. During the 2009, the Company moved amounts normally
invested in certificates of deposit into business checking accounts at its
primary banking institution to take advantage of the unlimited FDIC insurance
- 11 -
coverage. The Company also moved money to take advantage of higher FDIC
coverage of $250,000 at other banks in order to protect the Company's liquid
assets from risk of loss for bank failures. During the third quarter of 2010,
the Company moved $1,000,000 into longer term certificates of deposit in order
to earn a higher rate of interest. These amounts have been classified as other
long-term investments on the Company's balance sheet.
Other income for the first nine months of 2010 was approximately $86,000 as
compared with approximately $174,000 for the same period in 2009, a decrease of
approximately $88,000 or 51%. Approximately $98,000 of this decrease was for
severance and ad valorem tax services provided by the Company to several of
its leases and approximately $18,000 was for divestitures of a non-operated
lease interest and land not associated with oil and gas interests in 2009.
Offsetting the overall decrease between years was a $26,000 payment received
for a farm-out in the third quarter of 2010. The remaining net decrease was
due to other miscellaneous items.
Lease operating expenses in the first nine months of 2010 were $1,190,000 as
compared to $1,079,000 for the same period in 2009, an increase of
approximately $111,000, or 10%. Approximately $101,000 of this increase is
attributable to various workovers and plugging of operated wells in 2010.
Another $27,000 of the increase is due to lease operating expenses attributable
to new wells acquired in 2010. Finally, there was a decrease of approximately
$16,000 in expenses on non-operated properties.
Production taxes, gathering, transportation and marketing expenses for the
first nine months of 2010 were approximately $538,000 as compared to $598,000
during the first nine months of 2009, a net decrease of approximately $60,000
or 10%. The decrease is due to timing differences of severance tax credits on
high cost wells drilled and placed on line during 2008. The credits were
accrued as of December 31, 2008 and reversed in January 2009. A portion of the
credits were utilized in May, 2009 with the remaining $169,000 being utilized
in July, 2009. As a result, the nine months ended September 30, 2009
production taxes were approximately $209,000 higher. The remaining increase in
this line item of approximately $149,000 relates to the overall increase in
revenues subject to severance tax.
For presentation purposes, the Company split out amounts for production taxes,
gathering, transportation, and marketing expenses separately from lease
operations. In prior years, these amounts were presented together under the
line item description of lease operating expenses. There have been no changes
to the expenses for 2009 but the presentation for 2009 has been restated to
conform to the new presentation. The Company feels the separate reporting of
amounts gives a better look at the results of the Company's expenses to operate
its leases.
Real estate expenses during the first nine months of 2010 were approximately
$145,000 compared to approximately $141,000 for the same period in 2009, an
increase of $4,000 or 3%. The Company's real estate expenses have been
consistent for the period with no significant differences.
Depreciation, depletion, and amortization expenses for the first nine months of
2010 were $627,000 as compared to $967,000 for the same period in 2009, a
decrease of $340,000, or 35%. $533,000 of the amount for the first nine months
- 12 -
of 2010 was for amortization of the full cost pot of capitalized costs compared
to $871,000 for the first nine months of 2009, a decrease of $338,000 or 39%.
The Company re-evaluated its proved oil and gas reserve quantities as of
December 31, 2009. This re-evaluated reserve base was adjusted at the end of
each quarter for the estimated addition or disposition of reserves during the
first nine months of 2010 and reduced for oil and gas reserves that were
produced or sold during the period. A depletion rate of 1.866% for the first
quarter of 2010, a depletion rate of 1.546% for the second quarter of 2010, and
a depletion rate of 1.559% for the third quarter of 2010 was calculated and
applied to the Company's full cost pot of capitalized oil and gas properties
for a weighted average of 4.971% for the first nine months of 2010 compared to
a total depletion rate of 7.10% for the first nine months of 2009.
General and administrative costs for the first nine months of 2010 were
$2,327,000 compared to $2,338,000 for the same period in 2009, a decrease of
$11,000 or less than 1%
Interest expense was approximately $49,000 for the first nine months of 2010
compared to approximately $44,000 for the same period in 2009, an increase of
approximately $5,000.
Three months ended September 30, 2010 compared to three months ended
September 30, 2009
----------------------------------------------------------------------------
Oil and gas revenues for the three months ended September 30, 2010 were
$1,515,000, an increase of $451,000, or 42% from revenues of $1,064,000 for the
same period in 2009.
Natural gas revenues for the third quarter of 2010 were $954,000 compared to
$744,000 for the same period in 2009, an increase of $210,000 or 28%. Natural
gas volumes sold for the third quarter of 2010 were approximately 180,000 mcf
compared to approximately 219,000 mcf during the same period of 2009, a
decrease of approximately 39,000 mcf, or 18%.
Average natural gas prices received were approximately $5.18 per mcf in the
third quarter of 2010 as compared to approximately $3.35 per mcf during the
same period in 2009, an increase of approximately $1.83, or 55%.
Oil sales for the third quarter of 2010 were approximately $561,000 compared
to approximately $320,000 for the same period of 2009, an increase of
approximately $241,000 or 75%. Oil volumes sold for the third quarter of 2010
were approximately 6,600 bbls compared to approximately 5,000 bbls during the
same period of 2009, an increase of 1,600 bbls or 32%.
Average oil prices received were approximately $70.39 per bbl in the third
quarter of 2010 compared to $59.98 per bbl during the same period of 2009, an
increase of approximately $10.41 per bbl, or 17%.
Revenue from lease operations for the third quarter of 2010 was approximately
$79,000 compared to approximately $81,000 for the third quarter of 2009, a
decrease of about $2,000 or 2%.
- 13 -
Revenue from gas gathering, compression and equipment rental for the third
quarter of 2010 was approximately $41,000, compared to approximately $50,000,
a decrease of $9,000 or 18% for the same period in 2009. Gas gathering and
compression revenue is generated from the volume of mcfs that are processed
through the Company's gathering systems. Gas sales volumes for the third
quarter of 2010 were less than during the same period in 2009, causing the
decrease in revenues.
Interest income for the third quarter of 2010 was approximately $44,000 as
compared with approximately $46,000 for the same period in 2009 a decrease of
about $2,000 or 4%. Interest earned on amounts in money market accounts and in
certificates of deposit decreased between the two periods as interest rates
continued to decrease. During 2009 the Company moved amounts normally invested
in certificates of deposit into business checking accounts at its primary
banking institution to take advantage of the unlimited FDIC insurance coverage.
The Company also moved money to take advantage of higher FDIC coverage of
$250,000 at other banks in order to protect the Company's liquid assets from
risk of loss for bank failures.
Other income for third quarter of 2010 was approximately $49,000 as compared
with approximately $23,000 for the same period in 2009, an increase of
approximately $26,000 or 113%. This increase was due to a $26,000 payment
received for a farm-out in the third quarter of 2010.
Lease operating expenses in the third quarter of 2010 were $547,000 as compared
to $450,000 for the same period in 2009, an increase of approximately $97,000,
or 22%. Approximately $72,500 of this increase is attributable to various
workovers and plugging of operated wells in 2010. The majority of the
remaining $24,500 is due to the acquisition of new wells in 2010.
Production taxes, gathering, transportation and marketing expenses for the
third quarter of 2010 were approximately $191,000 as compared to $170,000
during the third quarter of 2009, a net increase of approximately $21,000 or
12%.
For presentation purposes, the Company split out amounts for production taxes,
gathering, transportation, and marketing expenses separately from lease
operations. In prior years, these amounts were presented together under the
line item description of lease operating expenses. There have been no changes
to the expenses for 2009 but the presentation for 2009 has been restated to
conform to the new presentation. The Company feels the separate reporting of
amounts gives a better look at the results of the Company's expenses to operate
its leases.
Real estate expenses during the third quarter were flat at $46,000 both years.
Depreciation, depletion, and amortization expenses for the third quarter of
2010 were $203,000 as compared to $358,000 for the same period in 2009, a
decrease of $155,000, or 43%. $163,000 of the amount for the third quarter of
2010 was for amortization of the full cost pot of capitalized costs compared to
$299,000 for the third quarter of 2009, a decrease of $136,000 or 46%. The
Company re-evaluated its proved oil and gas reserve quantities as of December
31, 2009. This re-evaluated reserve base was adjusted at the end of each
- 38 -
quarter for the estimated addition or disposition of reserves during the first
nine months of 2010 and reduced for oil and gas reserves that were produced or
sold during the period. A depletion rate of 1.866% for the first quarter of
2010, a depletion rate of 1.546% for the second quarter of 2010, and a
depletion rate of 1.559% for the third quarter of 2010 were calculated and
applied to the Company's full cost pot of capitalized oil and gas properties
compared to a total depletion rate of 7.1% for the first nine months of 2009.
General and administrative costs for the third quarter of 2010 were $779,000
compared to $759,000 for the same period in 2009, an increase of approximately
$20,000 or 3%.
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. 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 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 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 and nine months ended September 30, 2010
that have materially affected, or are reasonably likely to materially affect
the Company's internal controls over financial reporting.
- 15 -
Part II - Other Information
Item 5 - Other Information
North Texas:
During the third quarter of 2010, the Company acquired non-operating working
interests in twenty-nine natural gas wells in Jack, Palo Pinto, Parker, and
Wise Counties, Texas. Gross production at the time of acquisition from these
wells was approximately 416 mcfd and 3.4 bopd. Net production attributable to
the Company's acquired interest was approximately 87 mcfd and 0.8 bopd.
Working interests acquired range from 21.2498% to 40.0%. Net Revenue Interests
acquired range from 16.4227% to 30.0%.
South Texas:
The Company acquired a 33.0555% operated working interest and a 22.5383% net
revenue interest in the State Tract 39A-#1 gas well in Chambers County, Texas
effective July 1, 2010. The State Tract 39A-#1 well produces gas from the
Turtle Beach (Vicksburg) field from a perforated interval at 11,111 ft. -
11,148 ft in the Vicksburg Formation. Gross gas production from this well at
the time of acquisition was approximately 1,294 mcfd and 3 bopd of oil.
Production attributable to the Company's acquired interest was approximately
292 mcfd and 0.68 bopd.
On July 29, 2010 the Company spud its Hynes #28 well in Bee County, Texas. The
well was drilled to a depth of 3,500 ft. to test the Catahoula Sands. The well
was cased and completed and placed into production on August 14, 2010. The
well's IPP (initial potential pumping) was 17 bopd and 20 bwpd from the
Papalote, E. (3250-B) field at a perforated interval of 3,244 ft.-3,346 ft.
from the Catahoula Formation. The company owns a 100.00% working interest and
a 60.83984% net revenue interest in this well.
East Texas:
The Company participated for a 45% non-operated working interest in the
drilling of two wells operated by Giant Energy Co., LP, a related entity. The
two wells are located in Nacogdoches County, Texas. The Giant Gas Unit #1 well
was spud on November 11, 2009 and reached a total depth of 9,700 ft. on
December 6, 2009. Production casing was set to a depth of 9,616 ft. through
the Travis Peak Formation. The Giant Gas Unit #2 well was spud on June 1, 2010
and reached a total depth of 9,608 ft. on July 7, 2010. Production casing was
set to a depth of 9,605 ft. through the Travis Peak Formation. The wells are
awaiting a pipeline connection.
Texas Panhandle:
During the third quarter of 2010, the Company acquired operations of two wells
in its Spearman SE block in Ochiltree County, Texas, the Pope #140-3 and Pope
#140-4. The Company has a 100.00% working interest and a 81.25% net revenue
interest in both of these wells. At the time of acquisition, the Pope #140-3
well was producing at a rate of 4 mcfd from the Horizon (Oswego) field from a
perforated interval at 6,920 ft.- 6,930 ft. in the Oswego Formation. The Pope
#140-4 well was producing at a rate of 24 mcfd from the Lips (Mississippian)
- 16 -
field from a perforated interval at 8,294 ft.- 8,396 ft. in the Mississippian
Formation.
Oklahoma:
Effective August 1, 2010, the Company acquired operations and working interests
in four wells located in Major County and Canadian County, Oklahoma as follows:
The Irvan #1-22 well, located in Major County, produces natural gas from the
N. Homestead field from a perforation interval ranging from 7,158 ft. - 7,306
ft. from the Inola and Chester formations. At the time of acquisition, the
Irvan #1-22 well was producing natural gas at a rate of 6 mcfd. The Company
acquired a 100.00% working interest and a 75.00% net revenue interest in this
well.
The Tobe #1-21 well, located in Major County, produces natural gas from the
N. Homestead field from a perforation interval ranging from 7,158 - 7,232 ft.
from the Red Fork and Inola Formations. At the time of acquisition, the Tobe
#1-21 well was shut-in and not producing. The Company acquired a 92.3050%
working interest and a 73.2851% net revenue interest in this well.
The Faith #1-21 well, located in Canadian County, produces natural gas from the
Watonga-Chickasha field from a perforation interval ranging from 10,882 ft. -
10,952 ft. from the Morrow Formation. At the time of acquisition, the Faith
#1-21 well was shut-in and not producing. The Company acquired an 83.3330%
working interest and a 66.6664% net revenue interest in this well.
The Lottie Jones #33-4 well, located in Canadian County, produces natural gas
from the El Reno field from a perforation interval ranging from 8,750 ft.-
10,366 ft. from the Viola, Hunton, Mississippian and Red Fork formations.
At the time of acquisition, the Lottie Jones #4 well was shut-in and not
producing. The Company acquired a 97.4331% working interest and a 74.6353% net
revenue interest in this well.
These wells were acquired for their behind the pipe potential. The company
plans to rework them and place them back into production, if successful.
For all of the above wells, the Company cautions that the initial production
rates or production rates at the effective date of acquisition may not be an
indicator of stabilized production rates or an indicator of the ultimate
recoveries obtained.
- 17 -
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
- 18 -
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 15, 2010 By: /s/ Chris G. Mazzini
Chris G. Mazzini
President, Chief Executive Officer
Date: November 15, 2010 By: /s/ Michelle H. Mazzini
Michelle H. Mazzini
Vice President, Secretary
Date: November 15, 2010 By: /s/ Robert E. Corbin
Robert E. Corbin
Controller, Principal Financial Officer
- 19 -
Exhibit 31.1
CERTIFICATION
I, Chris G. Mazzini, certify that:
1. I have reviewed this report on Form 10-Q of Spindletop Oil & Gas Co.;
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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13-15(e) and 15d-15e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) 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, including its consolidated subsidiaries, is made known
to us by others within those entities, 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; and
(c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the 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
- 20 -
5. The registrant's other certifying officers 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 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
controls.
Dated: November 15, 2010
/s/ Chris G. Mazzini
CHRIS G. MAZZINI
President, Chief Executive Officer
- 21 -
Exhibit 31.2
CERTIFICATION
I, Robert E. Corbin, certify that:
1. I have reviewed this report on Form 10-Q of Spindletop Oil & Gas Co.;
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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13-15(e) and 15d-15e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) 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, including its consolidated subsidiaries, is made known
to us by others within those entities, 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; and
(c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the 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
- 22 -
5. The registrant's other certifying officers 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 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
controls
Dated: November 15, 2010.
/s/ Robert E. Corbin
ROBERT E. CORBIN
Controller, Principal Financial Officer
- 38 -
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Spindletop Oil & Gas Co.
(the "Company"), on Form 10-Q for the quarter ended September 30, 2010
as filed with the Securities Exchange Commission on the date hereof
(the "Report"), the undersigned Principal Executive Officer and Principal
Financial Accounting Officer of the Company, do hereby certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
Dated: November 15, 2010
/s/ Chris G. Mazzini
CHRIS G. MAZZINI
President, Principal Executive Officer
/s/ Robert E. Corbin
ROBERT E. CORBIN
Controller, Principal Financial and
Accounting Officer
- 24 -