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 JUNE 30, 2010
or
[ ] TRANSITION REPORT PURSUANT OT 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 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 August 16, 2010)
- 2 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
FORM 10-Q
For the quarter ended June 30, 2010
Index to Consolidated Financial Statements and Schedules
Page
Part I - Financial Information:
Item 1. - Financial Statements
Consolidated Balance Sheets
June 30, 2010 (Unaudited) and December 31, 2009 4-5
Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 2010 and 2009 and
Three Months Ended June 30, 2010 and 2009 6
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 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
-------------------------
June 30 December 31
2010 2009
(Unaudited)
----------- -----------
ASSETS
Current Assets
Cash $ 8,593,000 $ 9,153,000
Accounts receivable, trade 1,053,000 873,000
Prepaid income tax 489,000 582,000
----------- -----------
Total Current Assets 10,135,000 10,608,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 15,942,000 15,080,000
Rental equipment 399,000 399,000
Gas gathering systems 145,000 145,000
Other property and equipment 245,000 187,000
----------- -----------
16,731,000 15,811,000
Accumulated depreciation and amortization (8,276,000) (7,904,000)
----------- -----------
Total Property and Equipment, net 8,455,000 7,907,000
----------- -----------
Real Estate Property, at cost
Land 688,000 688,000
Commercial office building 1,580,000 1,580,000
Accumulated depreciation (451,000) (400,000)
----------- -----------
Total Real Estate Property, net 1,817,000 1,868,000
----------- -----------
Other Assets 5,000 3,000
----------- -----------
Total Assets $20,412,000 $20,386,000
=========== ===========
The accompanying notes are an integral part of these statements.
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SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
As of
-------------------------
June 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 2,549,000 2,995,000
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 2,766,000 3,212,000
----------- -----------
Noncurrent Liabilities
Notes payable, long-term portion 900,000 960,000
Asset retirement obligation 809,000 762,000
----------- -----------
1,709,000 1,722,000
----------- -----------
Deferred income tax payable 2,324,000 2,341,000
----------- -----------
Total Liabilities 6,799,000 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
June 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 12,658,000 12,156,000
----------- -----------
Total Shareholders' Equity 13,613,000 13,111,000
----------- -----------
Total Liabilities and Shareholders' Equity $20,412,000 $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)
Six Months Ended Three Months Ended
--------------------- -------------------------
June 30 June 30 June 30 June 30
2010 2009 2010 2009
----------- ----------- ----------- -----------
Revenues
Oil and gas revenue $ 3,161,000 $ 2,446,000 $ 1,484,000 $ 1,292,000
Revenue from lease
operations 133,000 173,000 63,000 92,000
Gas gathering, compression
and Equipment rental 71,000 95 000 33,000 56,000
Real estate rental income 247,000 252,000 122,000 125,000
Interest income 84,000 111,000 45,000 66,000
Other 37,000 151,000 18,000 118,000
----------- ----------- ----------- -----------
Total revenue 3,733,000 3,228,000 1,765,000 1,749,000
----------- ----------- ----------- -----------
Expenses
Lease operations 643,000 629,000 394,000 333,000
Production taxes, gathering
and marketing 347,000 428,000 167,000 176,000
Pipeline and rental operations 17,000 15,000 7,000 9,000
Real estate operations 99,000 95,000 47,000 49,000
Depreciation, depletion and
amortization 424,000 609,000 195,000 325,000
Asset retirement obligation
accretion 43,000 19,000 21,000 9,000
General and administrative 1,548,000 1,579,000 784,000 831,000
Interest expense 33,000 36,000 16,000 18,000
----------- ----------- ----------- -----------
Total Expenses 3,154,000 3,410,000 1,631,000 1,750,000
----------- ----------- ----------- -----------
Income Before Income Tax 579,000 (182,000) 134,000 (1,000)
----------- ----------- ----------- -----------
Current tax provision 94,000 - 63,000 -
Deferred tax provision (17,000) (60,000) (76,000) (1,000)
----------- ----------- ----------- -----------
77,000 (60,000) (13,000) (1,000)
----------- ----------- ----------- -----------
Net Income (Loss) $ 502,000 $ (122,000) $ 147,000 $ -
=========== =========== =========== ===========
Earnings (Loss) per Share
of Common Stock
Basic and diluted $ 0.07 $ (0.02) $ 0.02 $ -
=========== =========== =========== ===========
Weighted Average Shares
Outstanding
Basic and diluted 7,630,803 7,615,333 7,630,803 7,615,333
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-------------------------
June 30 June 30
2010 2009
----------- -----------
Cash Flows from Operating Activities
Net Income (Loss) $ 502,000 $ (122,000)
Reconciliation of net income
to net cash provided by
Operating Activities
Depreciation, depletion and amortization 425,000 609,000
Changes in asset retirement obligation 43,000 19,000
Employee compensation paid with
treasury stock - 20,000
Changes in accounts receivable (180,000) 609,000
Changes in prepaid income taxes 93,000 (356,000)
Changes in accounts payable (446,000) 12,000
Changes in current taxes payable - (44,000)
Changes in deferred tax payable (17,000) (60,000)
Other (2,000) -
----------- -----------
Net cash provided by operating activities 418,000 687,000
----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (858,000) (337,000)
Purchase of property and equipment (60,000) -
----------- -----------
Net cash used for investing activities (918,000) (337,000)
----------- -----------
Cash Flows from Financing Activities
Decrease in notes payable (60,000) (60,000)
----------- -----------
Net cash used for Financing activities (60,000) (60,000)
----------- -----------
Increase (decrease) in cash (560,000) 290,000
Cash at beginning of period 9,153,000 10,468,000
----------- -----------
Cash at end of period $ 8,593,000 $10,758,000
=========== ===========
Interest paid in Cash $ 33,000 $ 36,000
=========== ===========
Income taxes paid $ - $ 400,000
=========== ===========
The accompanying notes are an integral part of these statements.
- 7 -
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 the second quarter of 2009 have been reclassified to
conform to the 2010 presentation.
Subsequent Events:
------------------
The Company has evaluated subsequent events through the issuance date of this
report of August 16, 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
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first and second quarter of 2010 are subtracted from the beginning reserves to
arrive at the estimated proved reserve position of the Company at June 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
natural gas prices would likely have a material adverse effect on the Company's
- 9 -
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, 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 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 recently 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
Six months ended June 30, 2010 compared to six months ended June 30, 2009
-------------------------------------------------------------------------
Oil and gas revenues for the first half of 2010 were $3,161,000, an increase of
$715,000 or 29% from revenues of $2,446,000 during the same period in 2009.
Natural gas revenues for the first six months of 2010 were $2,042,000 compared
to $1,840,000 for the same period in 2009, an increase of 202,000, or 11%.
Natural gas volumes sold for the first half of 2010 were approximately 399,000
mcf compared to approximately 478,000 mcf during the first half of 2009, a
decrease of approximately 79,000 mcf, or 17 %.
Average natural gas prices received were approximately $5.37 per mcf during the
first half of 2010 as compared to approximately $3.85 per mcf in the first half
of 2009, an increase of approximately $1.52 per mcf or 39%.
Oil sales for the first six months of 2010 were approximately $1,119,000
compared to approximately $606,000 in the first six months of 2009, an increase
of approximately $513,000 or 85%. Oil volumes sold for the first six months of
2010 were approximately 15,000 bbls compared to approximately 14,000 bbls
during the first six months of 2009, an increase of approximately 1,000 bbls,
or 7%.
Average oil prices received were $72.15 per bbl in the first half of 2010
compared to $43.57 per bbl in the first half of 2009, an increase of
approximately $28.58 or 66%. 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 half of 2010 was approximately
$133,000 compared to approximately $173,000 for the first half of 2009, a
decrease of about $40,000 or 23%. This net decrease between periods resulted
from a decrease of approximately $16,000 in field operations income, a decrease
of approximately $28,000 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 half
of 2010 was approximately $71,000, compared to approximately $95,000, a net
decrease of $24,000 or 25% 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 half
of 2010 were less than during the same period in 2009, causing the decrease in
revenues.
Interest income for the first half of 2010 was approximately $84,000 as
compared with approximately $111,000 for the same period in 2009, a decrease of
about $27,000 or 24%. 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
- 11 -
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 the first half of 2010 was approximately $37,000 as compared
with approximately $151,000 for the same period in 2009, a decrease of
approximately $114,000 or 76%. Approximately $90,000 of this amount was for
severance and ad valorem tax services provided by the Company to several of its
leases. Approximately $18,000 was for divestitures of a non-operated lease
interest and land not associated with oil and gas interests in 2009. The
remaining decrease was due to other miscellaneous items.
Lease operating expenses in the first half of 2010 were $643,000 as compared to
$629,000 for the same period in 2009, an increase of approximately $14,000,
or 2%.
Production taxes, gathering, transportation and marketing expenses for the
first half of 2010 were approximately $347,000 as compared to $428,000 during
the first half of 2009, a net decrease of approximately $81,000 or 19%. 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 six months ended June 30, 2009 production taxes were
approximately $169,000 higher. The remaining increase in this line item of
approximately $88,000 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 six months of 2010 were approximately
$99,000 compared to approximately $95,000 for the same period in 2009, an
increase of $4,000 or 4%. The Company's real estate expenses have been
consistent for the period with no significant differences.
Depreciation, depletion, and amortization for the first half of 2010 was
$424,000 as compared to $609,000 for the same period in 2009, a decrease of
$185,000, or 30%. $361,000 of the amount for the first half of 2010 was for
amortization of the full cost pot of capitalized costs compared to $372,000 for
the second half of 2009, a decrease of $11,000 or 3%. 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 and disposition of reserves during the first six 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 and a
depletion rate of 1.546% for the second quarter of 2010 was calculated and
applied to the Company's full cost pot of capitalized oil and gas properties
compared to a total depletion rate of 3.475% for the first six months of 2009.
- 12 -
General and administrative costs for the first half of 2010 were $1,548,000
compared to $1,579,000 for the same period in 2009, a decrease of approximately
$31,000 or 2%.
Interest expense was approximately $33,000 for the first half of 2010 compared
to approximately $36,000 for the same period in 2009, a decrease of
approximately $3,000. This is due to the continued reduction of the principal
amount of the loan on the Company's corporate office building as interest on
the note is calculated and paid based on the unpaid balance of the loan.
Three months ended June 30, 2010 compared to three months ended June 30, 2009
-----------------------------------------------------------------------------
Oil and gas revenues for the three months ended June 30, 2010 were $1,484,000,
an increase of $192,000, or 15% from revenues of $1,292,000 for the same period
in 2009.
Natural gas revenues for the second quarter of 2010 were $886,000 compared to
$858,000 for the same period in 2009, an increase of $28,000 or 3%. Natural
gas volumes sold for the second quarter of 2010 were approximately 198,000 mcf
compared to approximately 288,000 mcf during the same period of 2009, a
decrease of approximately 90,000 mcf, or 31%.
Average natural gas prices received were approximately $4.71 per mcf in the
second quarter of 2010 as compared to approximately $3.92 per mcf during the
same period in 2009, an increase of approximately $0.79, or 20%.
Oil sales for the second quarter of 2010 were approximately $598,000 compared
to approximately $434,000 for the same period of 2009, an increase of
approximately $164,000 or 38%. Oil volumes sold for the second quarter of 2010
were approximately 3,500 bbls compared to approximately 7,500 bbls during the
same period of 2009, a decrease of 4,000 bbls or 53%.
Average oil prices received were approximately $73.55 per bbl in the second
quarter of 2010 compared to $49.60 per bbl during the same period of 2009, an
increase of approximately $23.95 per bbl, or 48%.
Revenue from lease operations for the second quarter of 2010 was approximately
$63,000 compared to approximately $92,000 for the second quarter of 2009, a
decrease of about $29,000 or 32%. This decrease between periods resulted from
decreases of approximately $23,000 in field operations income and $6,000 in
operator overhead income.
Revenue from gas gathering, compression and equipment rental for the second
quarter of 2010 was approximately $33,000, compared to approximately $56,000,
a decrease of $23,000 or 41% 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 second
quarter of 2010 were less than during the same period in 2009, causing the
decrease in revenues.
Interest income for the second quarter of 2010 was approximately $45,000 as
compared with approximately $66,000 for the same period in 2009 a decrease of
about $21,000 or 32%. Interest earned on amounts in money market accounts and
- 13 -
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 second quarter of 2010 was approximately $18,000 as compared
with approximately $118,000 for the same period in 2009, a decrease of
approximately $100,000 or 85%. Approximately $90,000 of this amount was for
ad valorem tax services provided by the Company to several of its leases that
were new during the second quarter of 2009. The remaining net decrease was due
to other miscellaneous items.
Lease operating expenses in the second quarter of 2010 were $394,000 as
compared to $333,000 for the same period in 2009, an increase of approximately
$61,000, or 18%. Approximately $16,000 of this increase is attributable to
workovers completed in 2010 on various wells. Approximately $45,000 is due to
plugging and abandonment costs on wells that have been inactivated.
Production taxes, gathering, transportation and marketing expenses for the
second quarter of 2010 were approximately $167,000 as compared to $176,000
during the second quarter of 2009, a net decrease of approximately $9,000 or
5%. The decrease is due to timing differences of severance tax credits on high
cost wells drilled and placed online during 2008. The credits were accrued as
of December 31, 2008 and reversed in January, 2009. A portion of the severance
tax credits was utilized in May, 2009 with the remainder being utilized in
July, 2009. As a result, the three months ended June 30, 2009 is approximately
$40,000 higher. After taking this into consideration, the remaining increase
in this line item of $31,000 results from the overall increase in revenues
subject to severance taxes.
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 second three months of 2010 were approximately
$47,000 compared to approximately $49,000 for the same period in 2009, a
decrease of $2,000 or 4%. The Company's real estate expenses have been
consistent for the period with no significant differences.
Depreciation, depletion, and amortization for the second quarter of 2010 was
$195,000 as compared to $325,000 for the same period in 2009, a decrease of
$130,000, or 40%. $163,000 of the amount for the second quarter of 2010 was
for amortization of the full cost pot of capitalized costs compared to $320,000
for the second quarter of 2009, a decrease of $157,000 or 49%. 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
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estimated addition and disposition of reserves during the first six 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 and a
depletion rate of 1.546% for the second quarter of 2010 was calculated and
applied to the Company's full cost pot of capitalized oil and gas properties
compared to a total depletion rate of 3.475% for the first six months of 2009.
General and administrative costs for the second quarter of 2010 were $784,000
compared to $831,000 for the same period in 2009, a decrease of approximately
$47,000 or 6%. The decrease in expense is due to a decrease of approximately
$11,000 in personnel costs and benefits, and an approximate reduction of
$35,000 in professional fees.
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 six months ended June 30, 2010 that
have materially affected, or are reasonably likely to materially affect the
Company's internal controls over financial reporting.
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Part II - Other Information
Item 5 - Other Information
North Texas:
------------
During the fourth quarter of 2008, the Poston #1 well, located on our Godley
North Block, in Johnson County, Texas was drilled to the Barnett Shale
Formation at a depth of 6,754 ft. and cased. The well was completed and was
placed on-line and went into sales with an initial rate of 400 mcfgpd on
August 2, 2010. The well is located in the Newark, E. (Barnett Shale) field.
The Company owns a 91% working interest in this well.
West Texas:
-----------
During the first half of 2010, the Company participated in the drilling of four
non-operated wells located in the Fuhrman-Mascho field in Andrews County,
Texas. Three of the wells were cased, completed and placed in production
during the second quarter of 2010. The fourth well was cased and completed
July 2, 2010 and placed in production July 11, 2010. The Miles #13, #14, #15,
and #16 wells had initial production rate of 148 bopd, 69 bopd, 99 bopd, and 76
bopd respectively, and 30 mcfgpd , 30 mcfgpd, 28 mcfgpd, and 16 mcfgpd
respectively from the San Andres formation at an approximate depth of 4,750 ft.
The Company owns a 4.6875% working interest and a 3.28125% net revenue interest
in these wells.
South Texas:
------------
During the second quarter of 2010, the Company acquired working interests in
five natural gas wells in Victoria County, Texas. The Company assumed
operatorship of three of these wells effective April 1, 2010.
The Vaquero #1 well produces gas from the Rob Welder (Wilcox 9100) field in the
Wilcox Group from a perforated interval of 9,314-46 ft. Production from the
Vaquero #1 is approximately 25 mcfgpd and one-half bopd. The Vaquero "A" #2
well produces gas from the Welder Ranch field from a perforated interval of
12,026-90 ft. in the Wilcox Group. The Vaquero "A" #2 well was initially
shut-in for mechanical repairs but prior to issuance of this report has been
re-opened and is expected to produce approximately 25 mcfgpd. The Rob Welder
#1 well produces gas from the McFaddin (5700) field from a perforated interval
at 5,660-58 ft. in the Yegua Formation. Production from this well is
approximately 120 mcfgpd and one-half bopd. The working interests in these
three wells are 94.6308%, 85%, and 100% with net revenue interests of 64.6859%,
58.1254%, and 68% respectively.
The interests acquired in the two remaining wells were non-operated working
interests. The Company acquired a 25% non-operating working interest and 17%
net revenue interest in the Welder Ranch #1 well which produces gas from the
Rob Welder (Wilcox 10,400) field from the perforated interval of 10,480-10,520
ft. in the Wilcox Group. Production from this well is approximately 19 mcfgpd
and one-half bopd. The Company acquired a 24.171123% non-operating working
interest and 16.437236% net revenue interest in the Welder Ranch A #2 well
which produces gas from the Marshall (Middle Wilcox) field from a perforated
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interval of 10,306-12 ft. in the Middle Wilcox Group. Production from this
well is approximately 168 mcfgpd and 3.7 bopd.
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.
For all of the above wells, the Company cautions that initial production rates
may not be an indicator of stabilized production rates or an indicator of the
ultimate recoveries obtained.
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Part II - Other Information
Item 6. - Exhibits
The following exhibits are filed herewith or incorporated by reference as
indicated.
Exhibit
Designation Exhibit Description
------------- --------------------------------------------------------
3.1 (a) Amended Articles of Incorporation of Spindletop Oil &
Gas Co. (Incorporated by reference to Exhibit 3.1 to
the General Form for Registration of Securities on
Form 10, filed with the Commission on August 14, 1990)
3.2 Bylaws of Spindletop Oil & Gas Co. (Incorporated by
reference to Exhibit 3.2 to the General Form for
Registration of Securities on Form 10, filed with the
Commission on August 14, 1990)
31.1 * Certification pursuant to Rules 13a-14 and 15d under
the Securities Exchange Act of 1934.
31.2 * Certification pursuant to Rules 13a-14 and 15d under
the Securities Exchange Act of 1934.
32.1 * Certification pursuant to 18 U.S.C. Section 1350.
____________________________
* filed herewith
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPINDLETOP OIL & GAS CO.
(Registrant)
Date: August 16, 2010 By: /s/ Chris G. Mazzini
-------------------------------
Chris G. Mazzini
President, Principal Executive Officer
Date: August 16, 2010 By: /s/ Michelle H. Mazzini
-------------------------------
Michelle H. Mazzini
Vice President, Secretary
Date: August 16, 2010 By: /s/ Robert E. Corbin
-------------------------------
Robert E. Corbin
Controller, Principal Financial and
Accounting Officer
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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
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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: August 16, 2010
/s/ Chris G. Mazzini
---------------------------------
CHRIS G. MAZZINI
President, Principal Executive Officer
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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
- 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: August 16, 2010.
/s/ Robert E. Corbin
---------------------------------
ROBERT E. CORBIN
Controller, Principal Financial and
Accounting Officer
- 23-
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 June 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: August 16, 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
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