SPINDLETOP OIL & GAS CO. Results Of Operations
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-K 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 discussed above, which investors should review.
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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
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and natural gas reserves are capitalized in cost centers on a country-by-country basis. For each cost center, capitalized costs, less accumulated amortization and related deferred income taxes, shall not exceed an amount (the cost center ceiling) equal to the sum of:
a) The present value of estimated future net revenues computed by applying
current prices of oil and natural gas reserves (with consideration of price
changes only to the extent provided by contractual arrangements) to estimated
future production of proved oil and gas reserves as of the date of the latest
balance sheet presented, less estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves computed
using a discount factor of ten percent and assuming continuation of existing
economic conditions; plus
b) The cost of properties not being amortized; plus
c) The lower of cost or estimated fair market value of unproven properties
included in the costs being amortized; less
d) Income tax effects related to differences between the book and tax basis of
the properties.
If unamortized costs capitalized within a cost center, less related deferred
income taxes, exceed the cost center ceiling (as defined), the excess is charged
to expense and separately disclosed during the period in which the excess
occurs. Amounts required to be written off will not be reinstated for any
subsequent increase in the cost center ceiling. All of the Company's oil and gas
properties are located within
In order to test the cost center ceiling, the Company prepares a "Standardized
Measure of Discounted Future Net Cash Flows and Changes Therein Relating to
Proved Oil and Natural Gas Reserves (Unaudited)" as of the end of each calendar
year ("the Reserve Report"). The Company prepared its annual Reserve Report as
of
Reserve estimates are prepared in accordance with standard
These Reserve Reports do not purport to present the fair market value of a company's oil and gas properties. An estimate of such value should consider, among other factors, anticipated future prices of oil and natural gas, the probability of recoveries in excess of existing proved reserves, the value of probable reserves and acreage prospects, and perhaps different discount rates.
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It should be noted that estimates of reserve quantities, especially from new discoveries, are inherently imprecise and subject to substantial revision. Accordingly, the estimates are expected to change as more current information becomes available. It is reasonably possible that, because of changes in market conditions or the inherent imprecision of these reserve estimates, that the estimates of future cash inflows, future gross revenues, the amount of oil and natural gas reserves, the remaining estimated lives of the oil and natural gas properties, or any combination of the above may be increased or reduced in the near term. If reduced, the carrying amount of capitalized oil and gas properties may be reduced materially in the near term.
During the year ended
During the year ended
The increases or decreases in the Company's product prices have a direct effect on its cash flow, profits, projected development and drilling schedules, and the estimated net present value of its proved reserves. 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.
We may incur impairments to our crude oil and natural gas properties in 2020 if prices do not increase. The possibility and amount of any future impairment is difficult to predict, and will depend, in part, upon future crude oil and natural gas prices to be utilized in the ceiling test, estimates of proved reserves and future capital expenditures and operating costs. We cannot assure you that we will not experience write-downs in the future. If commodity prices decline or if any of our proved reserves are revised downward, a write-down of the carrying value of our oil and gas properties may be required.
Liquidity and Capital Resources
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. Substantial decreases in crude 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. Accordingly, the Company may be required to seek additional financing from third parties in order to fund its exploration and development programs.
As noted in our Results of Operations discussion below, the Company has focused on lowering costs through headcount reduction by attrition and spending only on essential general and administrative expenditures. In order to raise additional revenue, the Company is pursuing the acquisition of new operated and non-operated reserves through acquisitions of producing properties and drilling ventures. The Company believes that it is well positioned to take advantage of the declining prices for existing wells with its cash reserves and ability to borrow in order to effect any acquisition.
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Results of Operations
2019 Compared to 2018
Oil and natural gas revenues for the year ended
Oil revenue for 2019 was approximately
Natural gas revenue for 2019 was approximately
The decrease in oil revenue is due to a decrease in crude oil prices and a decrease in volumes sold during 2019 compared to 2018. Oil production from operated properties increased slightly during 2019, but decreases in oil production on non-operated properties contributed to the overall production decrease. The decrease in natural gas revenue during 2019 is due to the decrease in natural gas pricing. Natural gas volumes sold increased during 2019 compared to 2018; however, the 27% decrease in pricing resulted in an overall decrease in natural gas revenue.
Revenue from lease operations was approximately
Revenues from gas gathering, compression, and equipment rental for 2019 were
approximately
Real estate rental revenue for 2019 was approximately
Interest income for 2019 was approximately
Other revenue for 2019 was
Lease operating expenses 2019 were
Production taxes, gathering, and marketing expenses for 2019 were approximately
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Pipeline and rental expenses for 2019 were
Real estate expenses in 2019 were approximately
Depreciation and amortization expense for 2019 was
Asset Retirement Obligation ("ARO") accretion expense for 2019 was
General and administrative expenses for 2019 were approximately
2018 Compared to 2017
Oil and natural gas revenues for the year ended
Oil revenue for 2018 was approximately
Natural gas revenue for 2018 was approximately
The increase in oil revenue is predominantly due to an increase in crude oil prices during 2018 compared to 2017. In addition, the increase in natural gas revenue is primarily due to natural gas production increases related to producing wells acquired during the fourth quarter of 2017.
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Revenue from lease operations was approximately
Revenues from gas gathering, compression, and equipment rental for 2018 were
approximately
Real estate rental revenue for 2018 was approximately
Interest income for 2018 was approximately
Other revenue for 2018 was
Lease operating expenses 2018 were
Production taxes, gathering, and marketing expenses for 2018 were approximately
Pipeline and rental expenses for 2018 were
Real estate expenses in 2018 were approximately
Depreciation and amortization expense for 2018 was
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Asset Retirement Obligation ("ARO") accretion expense for 2018 was
General and administrative expenses for 2018 were approximately
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