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