UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-610
EQUITY OIL COMPANY
[Exact name of registrant as specified in its charter]
Colorado 87-0129795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 West Broadway, Suite 806 84101
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 521-3515
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value, $1 per share)
[Title of class]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of February 13, 2001, 12,654,612 common shares were outstanding, and the
aggregate market value of voting stock held by non-affiliates of the registrant
was approximately $49,300,000.
Documents Incorporated by Reference
1. Definitive proxy statement to be filed in connection with Issuer's
Annual Stockholders' Meeting to be held on May 9, 2001 and more particularly the
information contained on pages 2 through 6 are incorporated by reference into
Part III of this report.
PART I
ITEM 1. BUSINESS
GENERAL
Equity Oil Company ("Equity" or "the Company") was originally incorporated
in the state of Utah in 1923. In 1958, it was merged into its subsidiary, Weber
Oil Company, a Colorado corporation. The surviving company adopted the name
Equity Oil Company.
Equity is an independent oil and gas exploration and production company,
currently conducting its business in seven states and two Canadian provinces.
Equity is also a 50% shareholder in Symskaya Exploration, Inc., a Texas
corporation (Symskaya) which is licensed to operate in Russia. Headquartered in
Salt Lake City, Utah, the Company maintains an exploration office in Denver,
Colorado, and field offices in Cody, Wyoming and Vernal, Utah. The Company has
23 full-time employees.
The executive office in Salt Lake City is responsible for conducting all
administrative functions of the Company, including strategic planning, direction
of exploration and development activities, shareholder relations, and financial
and legal activities.
The Company's exploration office in Denver is responsible for the
generation and review of exploration prospects, and participates in the
planning, where necessary, to drill the prospects. These include prospects
developed in-house, as well as those presented by independent third parties.
All operated production activities of the Company are coordinated through
the Company's field office in Cody, Wyoming. The office was opened on January 1,
2000, as a result of a property exchange in the Big Horn Basin of Wyoming and
Montana. Further information concerning the exchange can be found in Item 2.
PROPERTIES, under the caption PRESENT ACTIVITY.
BUSINESS STRATEGY
The Company's business strategy is to enhance shareholder value by
increasing the net asset value of the Company through the growth of its oil and
gas reserves and production base. This is accomplished through a balanced
program of focused exploration drilling, development drilling, the exploitation
of existing reserves and the acquisition of proved oil and gas reserves. These
activities are conducted in a limited number of core geographic areas. Each
project in this program is independently evaluated to ensure that the estimated
rate of return from the project is commensurate with the risk associated with
the individual project.
2
The Company is continuing to refine its geographic focus, concentrating on
areas where its technical staff has the necessary skill and expertise to compete
successfully. The Company's core areas include the Rocky Mountains, the
Sacramento Basin of Northern California, and Alberta, Canada. In addition, the
Company has other non-core production located in Texas.
When conducting its exploration activities, the general practice of the
Company is to participate in projects on a 25% to 50% working interest basis.
Participation varies with each prospect depending on location and the attendant
financial and technical risk.
In addition to its exploration ventures, the Company works in conjunction
with other working interest owners in producing properties to identify projects
that will develop and exploit the productive capacities of existing wells and
fields. These projects include development drilling, production enhancement,
operating cost reductions and other types of activities.
The Company also investigates opportunities to purchase interests in
properties with existing production. During the last five years, the Company has
replaced a significant amount of its production through the purchase of
producing properties. These purchases have, in turn, produced additional
developmental and enhancement projects, as well as numerous operating
efficiencies.
The Company has conducted international exploration in Russia through its
50% ownership of Symskaya. Symskaya's operations during 2000 were limited
primarily to maintaining its license. Similar operations will be conducted in
2001. Further discussion of this venture and other Company activities is found
in ITEM 2. PROPERTIES, under the caption PRESENT ACTIVITY.
PRINCIPAL PRODUCTS AND MARKETS
The Company produces crude oil and natural gas. During the last five years,
revenues from the sales of these products have accounted for more than 90% of
the total revenues of the Company. Remaining revenues have come from other
sources, including interest income on invested funds, operating overhead
reimbursements, and the sales of various developed and undeveloped properties.
The majority of the Company's oil production occurs in Colorado, other
Rocky Mountain states, and the Canadian provinces of Alberta and British
Columbia. The Company's crude oil production is sold under short-term contracts
at current posted prices for each geographic area, less applicable quality
adjustments, plus negotiated bonuses. Prices are set by oil purchasers, and,
while their methods of determining prices are not within the control of the
Company, it is assumed they are influenced by regional, national and
international factors relating to oil supply and demand (see discussion under
MAJOR CUSTOMERS).
3
The bulk of the Company's natural gas production occurs in Wyoming,
California and the Canadian province of Alberta. During 1999, the Company sold
all of its gas producing properties that were located in Texas. While the areas
where the Company has its major gas reserves are characterized by large reserves
of other companies, the Company has historically been able to sell all of its
productive capacity, and expects to be able to continue to do so in the near
future. The majority of gas sold is marketed under contracts at index prices
that change monthly. The contracts are subject to renegotiation on an annual
basis.
The Company periodically enters into hedging activities with a portion of
its oil production which are intended to comply with the terms of its credit
facility, to support its oil price at targeted levels, and to manage the
Company's exposure to oil price fluctuations. Further discussion of the
Company's hedging activities can be found in Footnote 1 to the financial
statements.
SEASONALITY
The Company experiences some seasonality in gas sales revenues. Net gas
sales prices and production tend to rise during the winter months compared to
the rest of the year. However, since over 70% of the Company's oil and gas
revenues come from the sale of oil, the seasonal impact on total oil and gas
sales is not significant.
MAJOR CUSTOMERS
All oil and gas produced in the U.S. or Canada is sold to unaffiliated
pipeline, refining or crude oil purchasing companies. These companies may be the
operators of the fields where the product is produced, owners of the pipelines
which transport the products, or other third-party purchasers. While certain
entities purchase more than 10% of the Company's oil and gas production,
previous changes in purchasers have not resulted in an interruption of
production or transportation, and consequently have not had a material adverse
effect on the business of the Company.
COMPETITION
Equity is part of a highly competitive industry composed of many companies
that are significantly larger and possess greater resources than the Company.
These include major oil companies as well as large independent exploration and
production companies. Their size and resources may allow these parties to
operate at a greater competitive advantage than Equity. During 2000, the Company
did not experience any competitive factors which impaired its production or sale
of oil and gas, nor did it experience significant difficulties in contracting
for drilling and related equipment.
4
GOVERNMENT REGULATION
Drilling activities of the Company are regulated by several governmental
agencies in the United States, both federal and state, including the
Environmental Protection Agency, Forest Service, Department of Wildlife and
Bureau of Land Management, as well as state oil and gas commissions for those
states in which the Company has operations. Canadian and Russian operations are
subject to similar requirements.
The Company believes that it is currently in compliance with all federal,
state and local environmental regulations, both domestically and abroad.
Further, the Company does not believe that any current environmental regulations
will have a material impact on its capital expenditures or earnings, nor will
they result in any competitive disadvantage to the Company.
FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS
Foreign operations of the Company are currently conducted in the Canadian
provinces of Alberta and British Columbia. Financial information concerning
these operations can be found in Footnotes 5 and 9 to the financial statements.
For financial reporting purposes, the Company does not allocate any general and
administrative expenses to its Canadian operations, nor are they burdened with
indirect exploration overhead expenses. Direct exploration expenses are charged
to the geographic area in which they occur. Because the majority of the
Company's exploration efforts occur in the United States, very little
exploration expenses are allocated to the Canadian operations. As a result of
these and other factors, the operating profit of the Canadian operations is
significantly greater than the operating profit in the United States. The
Company does not believe that its Canadian operations are attended with any more
risk than those in the United States.
The Company owns a 50% interest in Symskaya, which is licensed to operate
in Russia. Further discussion of this venture is found in ITEM 2. PROPERTIES,
under the caption PRESENT ACTIVITY, and in Footnotes 6 and 9 in the financial
statements.
ITEM 2. PROPERTIES
The principal properties of the Company consist of developed and
undeveloped oil and gas leasehold interests. Developed leases are comprised of
properties with existing production, where lease terms continue as long as oil
and/or gas is produced. Undeveloped leases include unproven acreage on both
public and private lands. The leases have set terms and terminate at the time
specified in each lease unless oil and/or gas in commercial quantities are
discovered prior to that time.
The Company also has a fee interest in 6,996 net acres of oil shale lands
in Colorado. These properties have not generated significant revenue for the
Company.
5
RESERVES
The information found in Footnote 9 to the financial statements concerning
proved reserves represents the Company's best estimate of product quantities
expected to be produced from its properties based on geologic and engineering
data, as well as current economic and operating conditions. The presentation is
made in accordance with Securities and Exchange Commission guidelines, and is
based on prices and costs in effect on December 31, 2000. No estimates of
reserves have been filed with or included in any report to any other federal
agency during 2000.
PRODUCTION
The following table sets forth the Company's production, average sales
prices and average lifting costs by geographic area for 2000, 1999 and 1998:
2000 1999 1998 2000 1999 1998
Oil Oil Oil Gas Gas Gas
Area (Bbls) (Bbls) (Bbls) (MMCF) (MMCF) (MMCF)
---------------------------------------- ------- ------- ------- ------- ------- -------
Production
Colorado .............................. 272,855 298,507 332,230 76 76 117
Texas ................................. 13,879 18,433 22,291 -- 85 145
Montana ............................... 21,590 19,650 20,434 32 28 34
Utah .................................. 18,194 13,120 20,658 -- -- --
Wyoming ............................... 174,556 130,453 131,943 557 601 733
North Dakota .......................... 92,744 96,068 67,906 64 55 31
California ............................ -- -- -- 732 923 1,032
Other ................................. -- 4 5 -- -- --
------- ------- ------- ------- ------- -------
Total U.S. ............................ 593,818 576,235 595,467 1,461 1,768 2,092
Alberta ............................... 61,732 74,257 75,015 186 245 277
B.C ................................... 10,300 11,898 21,352 14 20 69
------- ------- ------- ------- ------- -------
Total Canada .......................... 72,032 86,155 96,367 200 265 346
Grand Total ............................ 665,850 662,390 691,834 1,661 2,033 2,438
======= ======= ======= ======= ======= =======
Average Price
U.S .................................. $ 26.55* $ 17.44 $ 12.28 $ 4.02 $ 2.11 $ 1.95
Canada ............................... $ 26.29 $ 17.12 $ 11.43 $ 3.51 $ 1.57 $ 1.15
------- ------- ------- ------- ------- -------
Total $ 26.52 $ 17.40 $ 12.16 $ 3.96 $ 2.04 $ 1.83
======= ======= ======= ======= ======= =======
Lifting Costs
U.S .................................. $ 7.51 $ 6.86 $ 6.11 $ 1.14 $ .83 $ .97
Canada ............................... $ 6.12 $ 4.87 $ 4.48 $ .82 $ .40 $ .40
------- ------- ------- ------- ------- -------
Total $ 7.36 $ 6.60 $ 5.88 $ 1.10 $ .77 $ .89
======= ======= ======= ======= ======= =======
* -includes the effect of hedging costs.
6
PRODUCTIVE WELLS AND ACREAGE
The location and quantity of Equity's productive wells and acreage as of
December 31, 2000 are as follows:
Productive Wells: Gross Net
----------------- ----- ---
Oil:
United States 646 86.621
Canada 333 14.666
Gas:
United States 67 20.332
Canada 7 1.576
------- -------
Total Productive Wells 1,053 123.195
======= =======
Developed Acreage
United States 112,960 12,423
Canada 126,440 2,701
------- -------
Total Developed Acreage 239,400 15,124
======= =======
7
UNDEVELOPED LEASEHOLD ACREAGE
The following table sets forth the Company's undeveloped oil and gas
leasehold acreage as of December 31, 2000 by geographic area:
Gross Net
Area Acreage Acreage
---- ------- -------
Colorado 18,561 13,719
Texas 2,157 331
Montana 22,271 5,748
Utah 26,451 11,927
Wyoming 43,015 17,041
California 23,537 10,642
North Dakota 14,451 5,742
------- ------
Total U.S. 150,443 65,150
------- ------
Alberta 12,595 4,317
------- ------
Total Canada 12,595 4,317
------- ------
Grand Total 163,038 69,467
======= ======
Through its 50% ownership in Symskaya, the Company also has an indirect 50%
interest in an additional 1,100,000 gross acres in Russia. Further discussion of
this venture is found in ITEM 2. PROPERTIES, under the caption PRESENT ACTIVITY,
and in Footnotes 6 and 9 to the financial statements.
8
DRILLING ACTIVITY
During 2000, the Company participated in the drilling of 18 gross wells. Of
this total, 12 were completed as producing oil and gas wells and 6 were plugged
and abandoned as dry holes. In addition one well was in process at year-end
2000.
Gross exploratory wells
drilled: Status 2000 1999 1998
----------------------- ------ ---- ---- ----
United States Productive 3 5 6
Dry 6 5 5
Canada Productive - - -
Dry - - -
Gross development wells
drilled:
-----------------------
United States Productive 1 - 1
Dry - - -
Canada Productive 8 - -
Dry - - -
Net exploratory wells
drilled: Status 2000 1999 1998
--------------------- ------ ---- ---- ----
United States Productive .75 1.74 2.18
Dry 3.35 2.25 2.10
Canada Productive - - -
Dry - - -
Net development wells
drilled:
-----------------------
United States Productive .30 - .40
Dry - - -
Canada Productive 3.19 - -
Dry - - -
9
PRESENT ACTIVITY
ACQUISITIONS/DIVESTITURES:
In early January of 2001, the Company agreed to purchase a 100% working
interest in several producing oil wells in Utah. The wells are located adjacent
to the Company's Ashley Valley field, where the Company discovered the first
commercial oil well in Utah in 1948, and is still actively producing oil. The
proximity of the wells to existing production will allow the Company to take
advantage of operating efficiencies.
The acquired wells have estimated recoverable reserves of approximately
250,000 barrels of oil at a total acquisition cost to the Company of $610,000.
While the effective date of this acquisition was December 1, 2000, no reserves
are included in year- end 2000 figures as the acquisition was closed in 2001.
In addition, the Company acquired a small, producing property adjacent to
one of its Big Horn Basin properties during 2000. The Company is likewise
attempting to take advantage of its new operated production office in Cody,
Wyoming, by identifying and acquiring other properties that fit with its current
production base.
EXPLORATION
While all 2000 exploration drilling took place in California, important
progress was made in developing new exploration projects in the Rocky Mountains
for 2001 and beyond. The Company recently completed a 20 square mile 3-D seismic
survey in North Dakota, which includes the prolific Beaver Creek #24-15 well
completed in the Nisku formation in 1998. At year-end 2000, this well has
recorded cumulative gross production of 906,000 barrels, while maintaining a
flow rate of 700 barrels and 440 mcf per day. The objective of the survey was to
identify possible drill sites on the 3,520 acre Northwest Beaver Creek prospect
which are similar to the #24-15 well. The Company's 2001 budget includes funds
for three new exploratory wells in this area.
Significant progress was also made in assembling the acreage for two new
oil exploration projects in Utah. Initial test wells on both projects are
scheduled for the first half of 2001.
During 2000, the Company completed a 25 square mile 3-D survey at its
Rancho Colusa prospect in the Sacramento Basin. With a 55% working interest, the
Company drilled three test wells, all of which were dry holes. In response to
these results, the Company has assigned its working interest in the project to
its partner to avoid the payment of $150,000 in rental payments in 2001. The
Company also drilled two dry holes at its Davis Ranch prospect.
10
The Company and its partners successfully completed two non- operated wells
in the Sacramento Basin. One additional re-entry project was also successful,
and one well was in process at year-end.
As a result of the dry holes at Rancho Colusa and Davis Ranch, the Company
is reevaluating its strategy of exploring in less mature areas of the Sacramento
Basin. The Company is currently planning to shift the bulk of its exploration
spending to the Rocky Mountains. Consequently, drilling will continue at a
slower pace in California, while the Company and its partners drill the
remaining prospective locations on existing surveys. 2001 plans contemplate four
to eight new wells and several recompletions on existing wells in new zones,
capitalizing on the multiple anomaly feature of many wells in the area.
DEVELOPMENT/EXPLOITATION
Using data obtained from a 3-D seismic survey shot in 1998, the Company
successfully drilled six low-cost development wells at its Cessford field in
western Alberta, Canada. The survey enabled the Company and its partner to
highgrade drilling locations at this field, which has been producing since the
late 1970's. 2001 plans include up to five additional wells at the field. Total
daily producing capacity from the six new wells is approximately 50 net barrels
of oil and 500 MCF per day.
Subsequent to obtaining operational control of its Big Horn Basin
properties at the beginning of 2000, the Company initiated an extensive workover
program, directing more than 15 separate activities during the year. Included in
the workovers are recompletions, stimulations, polymer treatments, and
production restoration at formerly shut-in wells. The workover program has
increased net daily production by 85 barrels of oil and 530 MCF per day.
In addition to its Big Horn Basin activities, the Company has participated
in 20 additional projects at other properties. Included in this count are
several gas recompletions in the Sacramento Basin, where the Company is
exploiting the multiple anomaly characteristics of the wells in that region.
Additional development drilling in 2001 is scheduled at the Company's
Siberia Ridge field in Sweetwater County, Wyoming. The Company first discovered
gas in this area in 1974. The Company will propose three 50% working interest
wells and one 100% working interest well in early 2001.
11
SYMSKAYA EXPLORATION
Equity continues to hold its 50% ownership position in Symskaya Exploration
Inc. Symskaya was issued a 25 year, 1 million acre License in 1993 to explore
for, develop and produce hydrocarbons in the Krasnoyarsk Krai in Russia. As oil
prices have improved, and interest in the region by other oil companies is
beginning to increase, the Company believes that it continues to be in the best
interest of its shareholders for Symskaya to hold the License at minimum cost.
Drilling and testing operations were recently completed at the
Averinskaya-150 well, a well drilled by a local government entity close to
Symskaya's license area. The drilling contractor is evaluating data obtained
from the well. Copies of this data along with the evaluation will be furnished
to the Company. During 2000, the Company made its final payments under a
bottom-hole agreement with the drilling contractor.
Subsequent to year-end, Symskaya was notified by local authorities that it
must either increase the level of its operations in the License area or face
possible termination of its License. There is no provision in Symskaya's License
for termination on the grounds suggested by the local authorities. Barring major
developments from the Averinskaya well and changes in Russian federal and local
policies regarding production sharing, further attempts to drill Symskaya's
prospect or to resist governmental termination of is License is unlikely without
additional outside financing. Symskaya has been unable thus far to find
additional partners and/or financing. Further discussion of this venture is
found in Footnotes 6 and 9 in the financial statements.
DELIVERY COMMITMENTS
The Company is not obligated to provide any fixed or determinable quantity
of oil or gas in the future under any existing contracts or agreements.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to the security holders for a vote, and no proxies were
solicited.
12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED MATTERS
The Company's stock is traded on the over-the-counter market and quoted
over the NASDAQ National Market System using the symbol EQTY. High and low
closing prices for 2000 and 1999 are as follows:
Quarter High Low
------- ---- ---
2000 - 4th $3.50 $2.28
3rd $3.66 $2.19
2nd $2.94 $1.50
1st $2.13 $1.25
1999 - 4th $1.53 $1.00
3rd $1.50 $1.13
2nd $1.63 $1.00
1st $1.56 $0.91
The approximate number of registered stockholders of the Company as of
January 31, 2001 is 1,500.
No unregistered equity securities of the registrant have been sold during
the period covered by this report.
13
ITEM 6. Selected Financial Data
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Oil and Gas Sales ........ $ 24,316,369 $ 15,434,537 $ 12,720,876 $ 16,457,048 $ 16,115,125
Other Income ............. 1,082,653 334,980 377,282 1,023,037 312,759
Lease Operating
Costs .................... 6,726,769 5,948,055 6,233,955 5,940,808 5,912,128
Depreciation, Depletion
and Amortization ......... 3,808,777 4,072,278 5,029,119 4,675,411 4,292,237
Impairment of
Proved Oil and
Gas Properties ........... 368,543 313,751 4,015,158 411,894 237,279
Equity Loss and Impairment
of Investment in Symskaya
Exploration, Inc. ........ 174,432 169,933 446,758 356,661 9,204,394
3-D Seismic .............. 979,028 35,200 431,075 626,525 757,964
Exploration
Expense .................. 2,513,916 1,566,521 2,383,163 3,026,550 2,336,405
General and
Administrative ........... 1,897,190 1,743,590 1,914,590 2,048,194 2,030,811
Net Income (Loss) ........ 5,164,071 403,521 (5,814,884) (211,156) (5,502,646)
Basic
Net Income (Loss)
Per Common Share ......... $ .41 $ .03 $ (.46) $ (.02) $ (.43)
============ ============ ============ ============ ============
Diluted
Net Income (Loss)
Per Common Share ......... $ .40 $ .03 $ (.46) $ (.02) $ (.43)
============ ============ ============ ============ ============
Total Assets ............. $ 47,797,711 $ 46,117,335 $ 47,271,168 $ 53,541,639 $ 50,181,437
Long-Term Debt ........... $ 8,500,000 $ 15,000,000 $ 16,500,000 $ 13,978,830 $ 8,878,830
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL. The profitability of the Company's operations in any particular
accounting period will be directly related to the average realized prices of oil
and gas sold, the volume of oil and gas produced and the results of acquisition,
development and exploration activities. The average realized prices of oil and
gas will fluctuate from one period to another due to market conditions. The
aggregate amount of oil and gas produced may fluctuate based on development and
exploitation of oil and gas reserves and other factors. Production rates,
value-based production taxes, labor and maintenance expenses are expected to be
the principal influences on operating costs. Accordingly, the results of
operations of the Company may fluctuate from period to period.
OIL AND GAS RESERVES. Estimates of reserve quantities and related future
net cash flows are calculated using unescalated year-end oil and gas prices and
operating costs, and may be subject to substantial fluctuations based on the
prices in effect at the end of each year. The following table sets forth a
comparison of year- end reserves, the weighted average prices used in
calculating estimated reserve quantities and future net cash flows, pre-tax
future net cash flows discounted at 10%, and per barrel of oil equivalent
discounted cash flows at the end of 2000, 1999 and 1998 (quantities in
thousands, except for pricing and per barrel of oil equivalent amounts):
Year-end SEC-10
proved reserves Year-end SEC-10 pre-tax
Oil Gas prices pre-tax values
(MMBLS) (MMCF) BOE* Oil Gas values per BOE
------- ------ ---- --- --- ------ -------
12/31/00 9,129 16,991 11,961 $23.78 $10.39 $121,890 $10.19
12/31/99 9,293 16,331 12,015 $22.99 $ 1.93 $ 63,366 $ 5.27
12/31/98 6,193 19,010 9,361 $10.80 $ 1.95 $ 25,210 $ 2.69
* - gas converted at 6,000 Mcf per barrel.
15
Reserve revisions occur when the economic limit of a property is lengthened
or shortened due to changes in commodity pricing. The following excerpt from the
footnotes to the Company's financial statements shows the effect of changing oil
prices on the volume of oil reserves (shown in thousands of barrels):
Year ended December 31,
2000 1999 1998
---- ---- ----
Proved oil reserves (000's):
Beginning of year 9,293 6,193 8,420
Revisions of previous estimates 203 3,442 (1,896)
Extensions and discoveries 503 6 361
Improved recovery 190 - -
Acquisition of minerals in place 46 563 -
Sales of minerals in place (440) (249) -
Production (666) (662) (692)
----- ----- -----
End of year 9,129 9,293 6,193
===== ===== =====
As oil prices increased only slightly from year-end 1999 to year- end 2000
($22.99 vs. $23.78, respectively), revisions due to price changes during 2000
were lower than in previous years. The revisions of 3,442,000 and (1,896,000)
barrels in 1999 and 1998, respectively, were primarily price-related.
During the early winter of 2000-2001, gas prices reached record highs. The
average index price for the Company's gas reserves was $10.39 per Mcf at the end
of 2000, compared to $1.93 per Mcf at the end of 1999. Accordingly, the majority
of the Company's upward revision of gas volumes at year-end 2000 of 1.28 Bcf was
due primarily to higher year-end prices.
Excluding revisions to previous estimates, the Company's 2000 drilling and
acquisition activities added 913,000 barrels of oil equivalent reserves, 97% of
2000 total oil and gas production. Subsequent to year-end 2000, the Company
entered into an agreement to acquire approximately 250,000 barrels of proved oil
reserves, with an effective date of December 1, 2000. The reserves are
associated with several producing wells located adjacent to the Company's Ashley
Valley field in Utah. The Company has a 100% working interest in these
properties. The reserves acquired have not been included in year-end 2000
reserve figures.
1999 drilling and acquisition activities, which were curtailed for much of
the year, added 663,000 barrels of oil equivalent to the Company's proved
reserve base, replacing 66% of 1999 production. In 1998, the Company added
779,000 barrels of oil equivalent, equal to 71% of 1998 oil and gas production.
Further information concerning the Company's reserve volumes and values can be
found in Footnote 9 to the financial statements.
16
IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES. Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long Lived Assets
and for Assets Held for Disposal, requires successful efforts companies to
evaluate the recoverability of the carrying costs of their proved oil and gas
properties by comparing the expected undiscounted future net revenues from each
producing field with the related net capitalized costs at the end of each
period. When the net capitalized costs exceed the undiscounted future net
revenues, the cost of the property is written down to fair value, which is
determined using discounted future net revenues from the producing field.
During 2000, the Company recorded an impairment of proved oil and gas
properties of $368,543 ($230,339 net of tax) associated with certain properties
that experienced increased operating costs, declining production, reduced
prospectivity due to unsuccessful drilling, and other technical problems that
reduced their economic reserves or value. During 1999, the Company recorded an
impairment of proved oil and gas properties of $313,751 ($196,094 net of tax).
Primarily as a result of depressed year-end oil prices, the Company recorded
proved property impairment charges of $4,015,158 in 1998.
RESULTS OF OPERATIONS
COMPARISON OF 2000 WITH 1999
OIL AND GAS PRODUCTION AND SALES. Year-long higher oil prices, combined
with record gas prices during the early winter of 2000- 2001, enabled the
Company to recognize record revenues in 2000. Oil and gas sales for the year of
$24,316,369 were 58% higher than those recorded in 1999, as average oil and gas
prices were 52% and 94% higher, respectively.
Revenues were reduced by $1,048,018 in 2000 by costs associated with the
Company's hedging program, which was instituted in 1999 as a requirement of its
bank financing arrangement. The Company had 400 barrels of oil per day hedged
under a costless collar, with a floor of $18.00 and a ceiling of $25.30, which
terminated on September 30, 2000. The Company had an additional 500 barrels of
oil per day hedged under a second costless collar, with a floor of $18.00 and a
ceiling of $27.22. This collar terminated on December 31, 2000. The floor and
ceilings were based on the average near month WTI price on the New York
Mercantile Exchange (NYMEX).
While the Company may hedge future volumes as a means to mitigate price
risk and/or to ensure the availability of capital to fund its drilling programs,
there are no further requirements to hedge under its bank arrangement. As of
January 1, 2001, the Company had no volumes of oil or gas subject to hedging
arrangements.
17
After taking into consideration the hedging costs discussed above, average
oil prices received in 2000 were $26.52 per barrel, up 52% from $17.40 per
barrel in 1999. Gas prices were also up sharply, averaging $3.96 per Mcf in
2000,compared to $2.04 per Mcf in 1999. Oil production rose slightly from
662,000 barrels in 1999 to 666,000 barrels in 2000. Gas production in 2000 was
1,661,000 Mcf compared to 2,033,000 Mcf last year. The reduction in gas
production was due in part to the Company's reduced drilling program and reduced
drilling success in California during 2000 and 1999. Due to some unexpected
lengthy repair work on a 14 mile section of a PG&E main line, the Company also
had approximately 1 MMCFD shut-in for most of the third quarter of 2000. In
addition, the Company sold all of its gas producing properties that were located
in Texas in 1999.
OTHER INCOME. Included in 2000 revenues is $506,000 in non- recurring
property sales recognized in the first quarter of the year. The Company also
recognized gains on the sale of securities and revenue from property promotions
that were non-recurring.
LEASE OPERATING COSTS. Operating costs rose 13% from 1999 levels on a cost
basis, and 20% on a barrel of oil equivalent basis. The most significant factor
leading to this increase was a function of higher oil and gas prices resulting
in higher value-based production taxes. In addition, the Company's higher-cost,
lower- margin oil properties were on production the entire year 2000, whereas a
portion of these properties were shut-in during part of 1999.
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A). DD&A per unit charges
decreased slightly from $4.07 per BOE in 1999 to $4.04 per BOE in 2000.
IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES. As discussed previously,
included in the statement of operations for 2000 and 1999 are non-cash charges
for the impairment of proved oil and gas properties in the amount of $368,543
and $313,751, respectively.
3-D SEISMIC AND EXPLORATION EXPENSES. The Company participated in two new
3-D seismic surveys during 2000. The first was a 25 mile survey at the Company's
Rancho Colusa prospect in the Sacramento Basin of California. The second was a
20 mile survey at the Company's Beaver Creek prospect in North Dakota. The costs
of both surveys were charged to expense during the year. The Company curtailed
its use of 3-D seismic in 1999 in response to low oil prices during the first
part of the year.
Higher exploration costs in 2000 reflected higher dry hole costs incurred
during the year. While the Company drilled only one more dry hole in 2000 than
in 1999, the wells drilled in 2000 carried a higher working interest than those
of the previous year. Dry hole costs in 2000 were approximately $800,000 higher
than the amount recorded in 1999.
18
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 9% from 1999 levels. The increase was due to higher compensation,
employee relocation, and shareholder expenses. During the low oil price
environment of early 1999, the Company froze salaries, reduced employee
benefits, and made other compensation reductions. As oil prices have increased,
the Company has restored some of these previous reductions. In addition, the
Company recorded overhead expenses associated with its new Cody, Wyoming office.
INTEREST AND INCOME TAXES. Lower interest costs in 2000 reflect lower
balances outstanding under the Company's credit facility. During 2000, the
Company reduced its credit facility debt by $6,500,000. Income tax expense
recorded for both periods reflect the results of operations, as well as various
credits available to the Company. Details concerning the components of the tax
provision can be found in Footnote 3 to the financial statements.
COMPARISON OF 1999 WITH 1998
OIL AND GAS PRODUCTION AND SALES. Oil and gas sales increased more than 20%
in 1999 over 1998 levels. Higher oil and gas prices were offset somewhat by
decreases in both oil and gas production. Total revenues increased 20% from 1998
to 1999.
Oil production decreased 4% in 1999, as a number of the Company's
high-cost, low-margin oil wells were shut-in during the first several months of
the year. Oil production was 662,000 barrels, compared to 692,000 barrels in
1998. Gas production decreased 17% to 2.0 Bcf in 1999 from 2.4 Bcf in 1998. Gas
production declined primarily as a result of reduced drilling in California
during 1998 and 1999, as well as the sale of the Company's Texas gas properties
during the fourth quarter of 1999.
While average year-end oil prices in 1999 were more than double those of
year-end 1998, the average price received for the entire year increased a more
modest 43%. Higher second half prices were offset by abnormally low prices in
the first half of the year. The Company's average oil price for the full year of
1999 was $17.40 compared to $12.16 per barrel realized during 1998. Gas prices
were also higher, averaging $2.04 per Mcf in 1999 compared to $1.83 per Mcf in
1998.
LEASE OPERATING COSTS. Lease operating costs decreased 5% over the prior
year. Higher per unit costs were offset by reduced volumes. Per unit costs rose
as the Company recorded higher value-based production taxes associated with
higher oil prices.
19
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A). DD&A per unit charges
decreased from $4.58 per BOE in 1998 to $4.07 per BOE in 1999. The primary
reason for the per unit decrease was the elimination of approximately $4 million
from the Company's depletable base through a property impairment charge in the
fourth quarter of 1998. In addition, higher oil prices enabled the Company to
record positive reserve revisions, which in turn decreased DD&A rates for many
of the Company's oil properties.
IMPAIRMENT OF PROVED OIL AND GAS PROPERTIES. As discussed previously,
included in the statement of operations for 1999 and 1998 are non-cash charges
for the impairment of proved oil and gas properties in the amount of $313,751
and $4,015,158, respectively.
EQUITY LOSS IN SYMSKAYA EXPLORATION, INCORPORATED. The equity loss in
Symskaya Exploration decreased by $276,825 during 1999. As operations continue
to be curtailed at the project, Symskaya terminated its only domestic employee,
and further reduced administrative expenses in 1999. The 1998 loss included
$125,000 of accrued interest income on a senior note between Symskaya and the
Company that had been recognized in prior periods. The 1998 amount also included
the Company's share of a bottom hole contribution that was not repeated in 1999.
3-D SEISMIC AND EXPLORATION EXPENSES. Lower exploration costs in 1999
resulted from the Company's reduced drilling program. During 1999, the Company
incurred approximately $470,000 in dry hole costs compared to approximately
$875,000 in 1998. In addition, as a result of the Company's cost cutting
measures in 1999, the Company reduced other exploratory geological and
administrative costs by 23%.
In 1998, the Company incurred 3-D seismic charges in the amount of $431,000
associated with its Sequoia prospect in California. The Company curtailed its
use of 3-D seismic in 1999 in response to low oil prices during the first part
of the year.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company cut its general and
administrative expenses by $171,000, or 9%, from 1998 levels. In response to
abnormally low oil prices in the beginning of 1998, the Company made a concerted
effort to reduce overhead costs through staff reductions, lower compensation
costs, reduced employee benefits and other costs.
INTEREST AND INCOME TAXES. Lower interest costs in 1999 reflect lower
average interest rates on the debt outstanding under the Company's credit
facility. The income tax expense (benefits) recorded for both periods reflect
the results of operations, as well as various credits available to the Company.
Details concerning the components of the tax provision can be found in Footnote
3 to the financial statements.
20
LIQUIDITY AND CAPITAL RESOURCES
The Company took advantage of higher oil and gas prices, increased cash
flows, and positive financial results in 2000, to continue to strengthen its
balance sheet and improve its financial flexibility. The Company's cash balances
increased by 118% from December 31, 1999. Working capital at December 31, 2000
was 67% higher than that at December 31, 1999. The Company's ratio of current
assets to current liabilities also improved, reaching 2.53 to 1 at December 31,
2000 compared to 2.40 to 1 at the end of 1999. As cash flow from operating
activities more than doubled in 2000, the Company reduced its outstanding debt
by 43%.
Higher cash flows also enabled the Company to expand its drilling and
workover programs in 2000. Capital expenditures increased 31% over 1999 levels,
reaching approximately $3.1 million in 2000. The Company's 2000 capital
expenditures were partially offset by proceeds from the sale of certain non-core
oil and gas properties.
In September of 1999, the Company obtained a $50 million reducing revolving
credit facility with Bank One Texas, N.A. The facility has an initial commitment
of $17 million, and the maturity date of the facility is September 9, 2002,
three years from the date of closing. The new facility has a LIBOR or a prime
interest rate option; the weighted average interest rate on debt outstanding at
December 31, 2000 was 8.57 percent.
The Company's commitment under its credit facility is subject to a
redetermination as of May 1 and November 1 of each year, with estimated future
oil and gas prices used in the evaluation determined by the Company's lender. As
of December 31, 2000, the Company had $8,500,000, or 50%, of remaining
availability on the facility. The Company is in compliance with all its facility
covenants.
The Company utilized its higher cash flows in 2000 to reduce the amount of
debt outstanding, making principal reductions of $6,500,000 during the year.
Excess cash flows in 1999 enabled the Company to make principal payments of
$1,500,000 during that year. Should the Company have cash flows in excess of its
capital requirements for 2001, additional reductions of outstanding debt during
the year may occur.
Cash flow from operating activities of $10,319,912 was 135% higher than the
amount recorded during 1999. While increased net income was the primary driver
for the increase, the following items impacted the amount as well.
At the end of 1999, the Company had approximately $5.8 million in net
operating loss carryforwards, all of which was utilized during 2000 to offset
taxable income. As a result, deferred income taxes increased by approximately
$1.9 million year-to-year.
21
As gas prices reached record levels in November and December of 2000,
resulting in higher accrued revenues, the Company's accounts receivable at
year-end were approximately $2.1 million higher than at year-end 1999. The
increase in accounts payable was primarily due to the timing of invoice payments
by the Company. In addition, the assumption of operations in the Big Horn Basin
led to increases in both receivables and payables as the Company assumed
responsibilities for the payment of invoices on behalf of its partners.
The Company believes that existing cash balances, cash flow from operating
activities, and funds available under the Company's credit facility will provide
adequate resources to meet its capital and exploration spending objectives for
2001. The Company has adequate liquidity to maintain its operations as they
currently exist.
COMMITMENTS. Under the terms of Symskaya's License and Production Sharing
Agreement (PSA), Equity was committed to advance Symskaya a minimum of $6
million during the first 5 contract years, representing 50% of the minimum
expenditures called for in the License and PSC, with the remainder being funded
by Leucadia National Corporation, Symskaya's other 50% shareholder. The first
contract year began November 15, 1993. The amounts spent through November 14,
1998, the end of the fifth contract year, have satisfied all minimum commitments
required. Further discussion of this venture is found in ITEM 2. PROPERTIES,
under the caption PRESENT ACTIVITY, and in Footnotes 6 and 9 to the financial
statements.
OTHER ITEMS. The Company has reviewed all recently issued, but not yet
adopted accounting standards in order to determine their effects, if any, on the
results of operations or financial position of the Company. Based on that
review, the Company believes that none of these pronouncements will have any
significant effects on current or future earnings or operations.
22
FORWARD LOOKING STATEMENTS
The preceding discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing
elsewhere in this annual report on Form 10-K. Except for the historical
information contained herein, the matters discussed in this annual report
contain forward-looking statements within the meaning of Section 27a of the
Securities Act of 1933, as amended, and Section 21e of the Securities Exchange
Act of 1934, as amended, that are based on management's beliefs and assumptions,
current expectations, estimates, and projections. Statements that are not
historical facts, including without limitation statements which are preceded by,
followed by or include the words "believes," "anticipates," "plans," "expects,"
"may," "should" or similar expressions are forward-looking statements. Many of
the factors that will determine the Company's future results are beyond the
ability of the Company to control or predict. These statements are subject to
risks and uncertainties and, therefore, actual results may differ materially.
All subsequent written and oral forward- looking statements attributable to the
Company, or persons acting on its behalf, are expressly qualified in their
entirety by these cautionary statements. The Company disclaims any obligation to
update any forward-looking statements whether as a result of new information,
future events or otherwise.
Important factors that may affect future results include, but are not
limited to: drilling success, the risk of a significant natural disaster, the
inability of the Company to insure against certain risks, fluctuations in
commodity prices, the inherent limitations in the ability to estimate oil and
gas reserves, changing government regulations, as well as general market
conditions, competition and pricing, and other risks detailed from time to time
in the Company's SEC reports, copies of which are available upon request from
the Company's investor relations department.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The
answers to items listed under Item 7(a) are inapplicable or negative.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Stockholders and Board of
Directors of Equity Oil Company:
In our opinion, the financial statements as listed in Item 14 (a) of this
Form 10-K, present fairly, in all material respects, the financial position of
Equity Oil Company (the "Company") at December 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
January 30, 2001
24
EQUITY OIL COMPANY
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
------------- -------------
Current assets:
Cash and cash equivalents ............................... $ 2,190,548 $ 1,006,602
Accounts receivable ..................................... 5,012,331 2,896,558
Operator advances ....................................... 459,606 485,803
Federal, state and foreign income
taxes receivable ...................................... 107,490 221,199
Deferred income taxes ................................... 79,896 19,632
Other current assets .................................... 58,667 277,595
------------- -------------
Total current assets ............................ 7,908,538 4,907,389
------------- -------------
Property and equipment, at cost (successful efforts method):
Unproved oil and gas properties ......................... 2,601,314 2,388,819
Proved oil and gas properties:
Developed leaseholds .................................. 10,209,296 10,265,095
Intangible drilling costs ............................. 65,676,544 64,282,028
Equipment ............................................. 26,433,032 25,671,687
Other property and equipment ............................ 1,111,619 966,997
------------- -------------
106,031,805 103,574,626
Less accumulated depreciation,
depletion and amortization ...................... (66,509,569) (62,800,100)
------------- -------------
39,522,236 40,774,526
------------- -------------
Other assets ............................................... 366,937 435,420
------------- -------------
Total assets .................................... $ 47,797,711 $ 46,117,335
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 2,303,102 $ 1,541,834
Accrued liabilities ..................................... 189,912 177,550
Federal, state and foreign income
taxes payable ......................................... 632,435 321,981
------------- -------------
Total current liabilities ....................... 3,125,449 2,041,365
------------- -------------
Revolving credit facility .................................. 8,500,000 15,000,000
Deferred income taxes ...................................... 3,588,575 1,667,648
------------- -------------
12,088,575 16,667,648
------------- -------------
Commitments (Note 6)
Stockholders' equity:
Common stock, $1 par value:
Authorized: 25,000,000 shares
Issued: 12,819,212 shares in 2000
and 12,808,040 shares in 1999 ...................... 12,819,212 12,808,040
Paid in capital ......................................... 3,719,865 3,719,743
Retained earnings ....................................... 16,572,912 11,408,841
------------- -------------
33,111,989 27,936,624
Less treasury stock, at cost ............................ (528,302) (528,302)
------------- -------------
32,583,687 27,408,322
------------- -------------
Total liabilities and
stockholders' equity ............................ $ 47,797,711 $ 46,117,335
============= =============
The accompanying notes are an integral part of the financial statements
25
EQUITY OIL COMPANY
STATEMENTS OF OPERATIONS
for the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Revenues:
Oil and gas sales ......................... $ 24,316,369 $ 15,434,537 $ 12,720,876
Other income .............................. 1,082,653 334,980 457,107
------------ ------------ ------------
25,399,022 15,769,517 13,177,983
------------ ------------ ------------
Expenses:
Leasehold operating costs ................. 6,726,769 5,948,055 6,233,955
Depreciation, depletion and amortization .. 3,808,777 4,072,278 5,029,119
Impairment of proved oil and gas properties 368,543 313,751 4,015,158
Equity loss in Symskaya Exploration, Inc. . 174,432 169,933 446,758
Leasehold abandonments .................... 14,820 68,965 162,754
3-D seismic ............................... 979,028 35,200 431,075
Exploration ............................... 2,513,917 1,566,521 2,383,163
General and administrative ................ 1,897,190 1,743,590 1,914,590
Interest .................................. 1,110,062 1,214,600 1,298,061
------------ ------------ ------------
17,593,538 15,132,893 21,914,633
------------ ------------ ------------
Income (loss) before income taxes .... 7,805,484 636,624 (8,736,650)
Provision for (benefit from) income taxes ..... 2,641,413 233,103 (2,921,766)
------------ ------------ ------------
Net income (loss) .................... $ 5,164,071 $ 403,521 $ (5,814,884)
============ ============ ============
Basic net income (loss)
per common share ........................... $ .41 $ .03 $ (.46)
============ ============ ============
Basic weighted
average shares outstanding ................. 12,646,101 12,638,377 12,623,041
============ ============ ============
Diluted net income (loss)
per common share ........................... $ .40 $ .03 $ (.46)
============ ============ ============
Diluted weighted
average shares outstanding ................. 12,875,750 12,638,377 12,623,041
============ ============ ============
The accompanying notes are an integral part of the financial statements
26
EQUITY OIL COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 2000, 1999 and 1998
Common Stock Paid in Retained Treasury Stock
Shares Amount Capital Earnings Shares Cost
------ ------ ------- -------- ------ ----
Balance at January 1, 1998 ............. 12,761,100 $12,761,100 $ 3,667,707 $16,820,204 164,600 $ (528,302)
Net (loss) ............................. (5,814,884)
Common stock issued for
services, $2.42 per share ........ 32,940 32,940 46,786
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 ........... 12,794,040 $12,794,040 $ 3,714,493 $11,005,320 164,600 $ (528,302)
Net income ............................. 403,521
Common stock issued for
services, $1.38 per share ........ 14,000 14,000 5,250
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ........... 12,808,040 $12,808,040 $ 3,719,743 $11,408,841 164,600 $ (528,302)
Net income ............................. 5,164,071
Common stock issued on
exercise of stock option ......... 11,172 11,172 (3,731)
Income tax benefit from exercise
of stock options ................. 3,853
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 ........... 12,819,212 $12,819,212 $ 3,719,865 $16,572,912 164,600 $ (528,302)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
27
EQUITY OIL COMPANY
STATEMENTS OF CASH FLOWS
for the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) .................................. $ 5,164,071 $ 403,521 $ (5,814,884)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, depletion and amortization .... 3,808,777 4,072,278 5,029,119
Impairment of proved oil and gas properties . 368,543 313,751 4,015,158
Equity loss in Symskaya Exploration, Inc. ... 174,432 169,933 446,758
(Gain) loss on property dispositions ........ (482,191) (12,343) 325,558
Change in other assets ...................... 94,619 71,151 89,938
Deferred income tax expense (benefit) ....... 1,860,663 24,733 (3,209,749)
Common stock issued for services ............ -- 19,250 79,726
------------ ------------ ------------
10,988,914 5,062,274 961,624
Increase (decrease) from changes in:
Accounts receivable and operator advances (2,089,576) (686,201) 817,827
Other current assets ..................... 218,928 41,309 195,809
Accounts payable and accrued liabilities . 773,630 (210,950) 294,202
Income taxes payable/receivable .......... 428,016 179,796 (344,842)
------------ ------------ ------------
Net cash provided by operating activities 10,319,912 4,386,228 1,924,620
------------ ------------ ------------
Cash flows from investing activities:
Advances to Symskaya Exploration, Inc. ............. (174,432) (169,933) (319,210)
Capital expenditures ............................... (3,145,188) (2,406,251) (4,126,630)
Proceeds from sale of oil and gas properties ....... 702,349 474,486 65,725
------------ ------------ ------------
Net cash used in investing activities ... (2,617,271) (2,101,698) (4,380,115)
------------ ------------ ------------
Cash flows from financing activities:
Payments on revolving credit facility .............. (6,500,000) (18,000,000) --
Borrowings under revolving credit facility ......... -- 16,500,000 2,521,170
Payment of revolving credit facility fees .......... (26,136) (222,404) --
Proceeds from stock option exercises ............... 7,441 -- --
------------ ------------ ------------
Net cash provided by (used in)
financing activities ................ (6,518,695) (1,722,404) 2,521,170
------------ ------------ ------------
Net increase in cash and cash equivalents .......... 1,183,946 562,126 65,675
Cash and cash equivalents at beginning of year ..... 1,006,602 444,476 378,801
------------ ------------ ------------
Cash and cash equivalents at end of year ........... $ 2,190,548 $ 1,006,602 $ 444,476
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes .................................. $ 334,796 $ 148,938 $ 495,882
Interest ..................................... $ 1,110,062 $ 1,214,600 $ 1,298,061
Supplemental disclosures on
non-cash investing activities:
Non-cash proceeds from oil and gas property exchange $ - $ 366,699 $ -
The accompanying notes are an integral part of the financial statements
28
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
-------------------------------
A. The Company:
-----------
Equity Oil Company (the Company) is a Colorado corporation
engaged in oil and gas exploration, development and production in
the United States, Canada and Russia.
B. Cash and Cash Equivalents:
-------------------------
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be
cash equivalents.
C. Accounting for Oil and Gas Operations:
-------------------------------------
The Company reports using the "successful efforts" method of
accounting for oil and gas operations. The use of this method
results in capitalization of those costs identified with the
acquisition, exploration and development of properties that
produce revenue or, if in the development stage, are anticipated
to produce future revenue. Costs of unsuccessful exploration
efforts are expensed in the period in which it is determined that
such costs are not recoverable through future revenues.
Exploratory geological and geophysical costs are expensed as
incurred. The costs of development wells are capitalized whether
productive or nonproductive.
The Company annually assesses undeveloped oil and gas properties
for impairment. Any impairment recorded represents management's
estimate of the decline in realizable value experienced during
the year. The unamortized costs of proved properties which
management determines are not recoverable are written off in the
period such determination is made. The net capitalized costs of
proved oil and gas properties are measured for impairment in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 121. (See Note 2).
The provision for depreciation, depletion and amortization of
proved oil and gas properties is computed using the units of
production method, based on proved oil and gas reserves.
Estimated dismantlement, restoration and abandonment costs are
expected to be offset by estimated residual values of lease and
well equipment. Thus, no accrual for such costs has been
recorded.
Continued
29
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, Continued:
-------------------------------
D. Concentration of Credit Risk:
----------------------------
Substantially all of the Company's accounts receivable are within
the oil and gas industry, primarily from purchasers of oil and
gas (see Note 5). Although diversified within many companies,
collectibility is dependent upon the general economic conditions
of the industry. The receivables are not collateralized and, to
date, the Company has experienced minimal bad debts. The majority
of the Company's cash and cash equivalents is held by one
financial institution located in Salt Lake City, Utah, and by one
financial institution in Calgary, Alberta.
E. Equipment:
---------
The provision for depreciation of equipment (other than oil and
gas equipment) is based on the straight-line method using asset
lives as follows:
Office equipment 10 years
Automobiles 3 years
When equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the statement of
operations.
F. Foreign Operations:
------------------
Operations and investments in Canada have been translated into
U.S. dollar equivalents at the average rate of exchange in effect
at the transaction date. Foreign exchange gains or losses during
2000, 1999 and 1998 were not material.
Continued
30
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, Continued:
-------------------------------
G. Net Income (Loss) Per Common Share:
----------------------------------
Basic earnings per share is computed by dividing the net income
(loss)by the weighted average number of common shares outstanding
Diluted earnings per share is computed by dividing the net income
(loss) by the sum of the weighted average number of common shares
and the effect of dilutive unexercised stock options. Dilutive
options to purchase approximately 536,500 shares of common stock
at prices of $1.06 to $1.71 per share were outstanding at
December 31, 2000 and were included in the computation of diluted
net income per share. Options to purchase 1,052,000, 1,434,000,
and 1,203,000 shares of common stock at prices ranging from $1.06
to $5.50 per share were outstanding at December 31, 2000, 1999
and 1998, respectively, but were not included in the computation
of diluted earnings per share because the effect would have been
antidilutive.
H. Estimates:
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements
include the estimates of proved oil and gas reserve volumes and
future dismantlement and abandonment costs used in determining
amortization and impairment provisions.
I. Hedging:
-------
The Company enters into futures contracts to hedge the price
risks associated with oil and gas sales. The Company defers the
impact of changes in the market value of these contracts until
such time as the hedged transaction is completed. At that time,
the impact of the changes in the fair value of these contracts is
recognized in income. Periodic gains or losses associated with
hedges are included in income as they occur.
To qualify as a hedge, the item to be hedged must expose the
Company to oil and gas price risk and the hedging instrument must
reduce that exposure. Any contracts held or issued that did not
meet the requirements of a hedge would be recorded at fair value
in the balance sheet and any changes in that fair value
recognized in income. If a contract designated as
Continued
31
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
1. Significant Accounting Policies, Continued:
-------------------------------
a hedge of price risk is terminated, the associated gain or loss is
deferred and recognized in income in the same manner as the hedged
item. Also, a contract designated as a hedge of an anticipated
transaction that is no longer likely to occur would be recorded at
fair value and the associated changes in fair value recognized in
income.
Under the terms of its revolving credit facility, the Company was
required to hedge at least 50%, but not more than 75%, of its daily
oil production at a price not lower than the lowest price used in the
bank's price deck, for a period between 12 and 18 months commencing
with the effective date of the facility, which was September 9, 1999.
The Company had 120 days after the closing date in September 1999 to
have the hedge or hedges in place. The Company entered into one collar
agreement for 12 months effective October 1, 1999, covering 400
barrels per day with a floor at $18.00 per barrel and a ceiling at
$25.30 per barrel. The Company entered into a second collar agreement
for 12 months effective January 1, 2000, covering 500 barrels per day
with a floor at $18.00 per barrel and a ceiling at $27.22 per barrel.
As a result of these hedges, revenues were reduced by $1,048,018 in
2000 and $9,784 in 1999. No hedging transactions occurred in 1998. The
Company has satisfied all hedging requirements under the credit
facility, and had no hedges in place as of January 1, 2001.
2. Impairment of Proved Oil and Gas Properties:
-------------------------------------------
SFAS No.121, Accounting for the Impairment of Long Lived Assets and for
Assets Held for Disposal, requires successful efforts companies to evaluate the
recoverability of the net capitalized costs of their proved oil and gas
properties at a field level. The SFAS No.121 impairment test compares the
expected undiscounted future net revenues from each property with the related
net capitalized costs at the end of each period. When the net capitalized costs
exceed the undiscounted future net revenues, the carrying value of the property
is written down to fair value, which is determined using discounted future net
revenues from the property.
The Company recorded SFAS No. 121 non-cash impairment charges of $368,543,
$313,751 and $4,015,158 for 2000, 1999 and 1998, respectively.
Continued
32
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. Income Taxes:
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income taxes are provided using enacted
tax rates applied to the difference between the tax basis of an asset or
liability and its reported amount in the financial statements that will result
in taxable or deductible amounts in future years when the reported amount of the
asset or liability is recovered or settled, respectively.
The provision for (benefit from) income taxes consists of the following:
Currently payable (receivable): 2000 1999 1998
---- ---- ----
U.S. income taxes (including
alternative minimum tax) ...... $ 14,924 $ 719 $ -
State income taxes ............... 158,582 5,000 6,500
Canadian income taxes ............ 605,725 336,167 208,046
Changes in prior years' taxes .... 1,519 (84,050) 73,437
Deferred tax (benefit) expense ... 1,860,663 (24,733) (3,209,749)
------------ ---------- ----------
$2,641,413 $233,103 $(2,921,766)
============ ========== ===========
Continued
33
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. Income Taxes, Continued:
------------
The components of the net deferred tax liability as of December 31, 2000
and 1999 were as follows:
2000 1999
---- ----
Deferred tax assets:
AMT credit carryforward ................ $ 269,221 $ 312,650
State income taxes ..................... 58,628 1,849
Deferred compensation .................. 21,268 17,783
Geological and geophysical costs ....... 342,624 600,923
Accrued interest ....................... 1,154,134 893,755
Foreign tax credit carryforward ........ 358,507 491,862
Equity loss and impairment of investment
in Symskaya Exploration, Inc. ........ 2,909,230 2,844,742
Net operating loss carryforward ........ -- 2,104,119
----------- -----------
5,113,612 7,267,683
Valuation allowance .................... (358,507) (491,862)
----------- -----------
Total deferred tax asset ............... 4,755,105 6,775,821
----------- -----------
Deferred tax liabilities:
Deferred income ........................ -- 42,719
Property and equipment ................. 8,227,404 8,342,487
Other assets ........................... 36,380 38,631
----------- -----------
Total deferred tax liability ........... 8,263,784 8,423,837
----------- -----------
Net deferred tax liability ............... $ 3,508,679 $ 1,648,016
=========== ===========
The net deferred tax liability as of December 31, 2000 and 1999 is
reflected in the balance sheet as follows:
Current deferred tax asset ............... $ (79,896) $ (19,632)
Long-term deferred tax liability ......... 3,588,575 1,667,648
----------- -----------
$ 3,508,679 $ 1,648,016
=========== ===========
Continued
34
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. Income Taxes, Continued:
------------
The provision for (benefit from) income taxes differs from the amount that
would be provided by applying the statutory U.S. Federal income tax rate to the
income (loss) before income taxes for the following reasons:
2000 1999 1998
----------- ----------- -----------
Expected federal statutory
tax expense (benefit) ................ $ 2,653,323 $ 216,452 $(2,970,461)
Increase (reduction) in taxes
resulting from:
State taxes (net of federal
benefit) .......................... 211,225 6,733 (255,742)
Canadian taxes (net of foreign
tax credits) .................... 136,988 221,870 208,046
Excess allowable percentage
depletion ......................... (319,803) (124,638) (54,059)
Investment tax and other credits ... (31,000) -- --
Changes in prior years' taxes ...... (9,320) (87,314) 150,450
----------- ----------- -----------
Provision for (benefit from) income taxes $ 2,641,413 $ 233,103 $(2,921,766)
=========== =========== ===========
At December 31, 2000, the Company had approximately $269,221 of alternative
minimum tax credit carryforwards which can be carried forward indefinitely, and
approximately $358,507 of foreign tax credit carryforwards which begin to expire
in 2001.
Continued
35
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
4. Stock-Based Compensation Plan:
-----------------------------
At December 31, 2000, the Company had two stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for these plans. Accordingly, no compensation cost
has been recognized for options granted to employees under its fixed stock
option plans. Had compensation cost for the Company's stock- based compensation
plan been determined based on the fair value at the grant dates consistent with
the method of SFAS No. 123, Accounting for Stock Based Compensation, the
Company's net income (loss) and net income (loss) per share would have been
changed to the pro forma amounts indicated below:
2000 1999 1998
---------- -------- -----------
Net income (loss) As reported $5,164,071 $403,521 $(5,814,884)
Pro forma $4,966,286 $239,924 $(5,991,191)
Net income (loss)
per share As reported $ .41 $ .03 $ (.46)
Pro forma $ .39 $ .02 $ (.47)
Under the 2000 and 1993 Equity Oil Company Incentive Stock Option Plans,
the Company may grant options to its employees for up to 1.2 million and 1.4
million shares, respectively, of common stock. The options may take the form of
incentive stock options, non-qualified stock options, and non-qualified stock
options with tandem stock appreciation rights. The exercise price of each option
equals the market price of the Company's stock on the date of grant, and an
option's maximum term is 10 years. Options are granted from time to time at the
discretion of the Board of Directors, and vest over periods of one to five years
from the grant date.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998 respectively: expected
volatility of 95, 112 and 138 percent, risk-free interest rates of 6.8, 5.1 and
5.5 percent; expected life of 5 to 7 years and dividend yield of zero for all
three years.
Continued
36
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
4. Stock-Based Compensation Plan, Continued:
-----------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
Fixed Options (000) Exercise Price (000) Exercise Price (000) Exercise Price
------------- ------ ---------------- ------ ---------------- ------ ----------------
Outstanding at beginning of year 1,434 $3.45 1,203 $4.14 1,141 $4.33
Granted 219 1.55 323 1.06 150 2.50
Exercised (15) 1.06 - - - -
Forfeited (49) 5.66 (92) 4.08 (88) 3.87
----- ----- -----
Outstanding at end of year 1,589 3.14 1,434 3.45 1,203 4.14
===== ===== =====
Options exercisable at year-end 1,149 973 900
===== ===== =====
Weighted-average fair value of
options granted during the year $1.18 $.88 $2.21
The following table summarizes information about fixed stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/00 Contractual Life Exercise Price at 12/31/00 Exercise Price
------------------- --------------- -------------------- ------------------ --------------- -----------------
$1.063-$1.063 307,600 8.25 $1.063 170,800 $1.063
$1.500-$2.500 355,000 8.35 $1.914 92,000 $2.500
$3.563-$3.875 306,500 3.83 $3.621 282,500 $3.626
$4.000-$4.250 304,000 2.05 $4.127 304,000 $4.127
$5.000-$5.500 315,500 3.85 $5.127 299,300 $5.127
------- ---- ------ ------- ------
1,588,600 5.36 $3.140 1,148,600 $3.678
5. Geographic Segment Information:
------------------------------
The Company follows SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. The Company operates in the exploration and
production segment of the oil and gas industry. The Company's operations are
located in the following geographical areas.
Revenues Long-lived Assets
for the years ended December 31, as of December 31,
------------------------------- -----------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
United States $21,746,294 $13,625,811 $11,199,836 $ 96,017,461 $ 94,104,683 $ 95,009,887
Canada 2,570,075 1,808,726 1,521,040 10,014,344 9,469,943 9,397,928
----------- ----------- ----------- ------------ ------------ ------------
Total $24,316,369 $15,434,537 $12,720,876 $106,031,805 $103,574,626 $104,407,815
=========== =========== =========== ============ ============ ============
Continued
37
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
5. Geographic Segment Information, Continued:
------------------------------
Revenue from a major U.S. oil company accounted for approximately 47
percent of total revenues in 2000, 31 percent of total revenues in 1999 and 32
percent of total revenues in 1998. The Company believes this purchaser could be
replaced, if necessary, without a loss in revenue.
6. Symskaya Exploration:
--------------------
Symskaya Exploration, Incorporated, a company in the development stage and
a Texas corporation (Symskaya), was formed on November 25, 1991, and is engaged
in oil and gas exploration in Russia. Symskaya holds a Combined License
(License) which grants it the exclusive right to explore, develop and produce
hydrocarbons on a contract area totaling approximately 1,100,000 acres in the
Yenisysk District of the Krasnoyarsk Krai in the Russian Federation. The License
has a primary term of 25 years from November 15, 1993.
The work to be performed and the obligations and rights of Symskaya are set
forth in the License and a Production Sharing Agreement (PSA) which is an
integral part of the License. Under the License and PSA, Symskaya will provide
funding for all exploration and development and will recover these costs from
80% of hydrocarbon production after payment of an 8% royalty. The remaining 20%
of any hydrocarbon production, net of royalty, will be shared by Symskaya and
the Russian government based on the rate of production. As of December 31, 2000,
the Symskaya area had not received approval by the Russian federal government as
a production sharing area.
Minimum expenditures required under the License and PSA total $12,000,000
during the first five years of the License term, which began on November 15,
1993. Symskaya satisfied all of the minimum expenditures in the time required
under the license.
Symskaya is owned 50% each by Equity Oil Company (Equity) and Leucadia
National Corporation, (Leucadia). Leucadia acquired 50% of the stock of Symskaya
effective January 1, 1994, in exchange for their commitment to spend up to
$6,000,000, in an amount equal to that spent by Equity, towards the Symskaya
project through the drilling, completion and/or plugging and abandonment of the
initial test well, the Lemok #1. Pursuant to a Shareholders' Agreement, Leucadia
was not required to pay any part of the amounts previously advanced by Equity
under a Loan Agreement with Symskaya, with the exception of one-half (1/2) of
the interest on a $1,740,519 loan between Equity and Symskaya. The loan reflects
the initial investment by Equity in Symskaya prior to Leucadia's ownership.
Continued
38
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. Symskaya Exploration, Continued:
--------------------
Amounts advanced by Equity and Leucadia after January 1, 1994 are treated
as interest-bearing notes payable or equity, as mutually agreed upon by the
respective companies. The Shareholder Agreement with Leucadia also requires that
Leucadia share equally in the payment of the one (1%) percent royalty obligation
in favor of Coastline Exploration, Inc. on future revenues from the Symskaya
project. The Company's President serves on Leucadia's Board of Directors.
The Company's investment in Symskaya is being accounted for using the
equity method of accounting.
In 1996, Symskaya plugged and abandoned the Lemok #1 well, and charged all
capitalized costs to expense. Subsequent to the plugging of the Lemok #1 well,
the Company and Leucadia agreed to suspend interest payments on Symskaya's notes
with the Company. The Company has no current plans to fund future exploratory
drilling by Symskaya. The Company's 50% share of Symskaya's net loss, excluding
losses related to interest payable to the Company, was $174,432, $169,933 and
$446,758 in 2000, 1999 and 1998, respectively.
7. Note Payable:
------------
In September of 1999, the Company obtained a $50 million Reducing Revolving
Credit Facility (the Facility), with a commitment of $17 million as of December
31, 2000, which replaced its prior credit facility. The terms of the Facility
call for interest payments only, at the lower of prime or LIBOR plus 2.00%,
until September 9, 2002, at which time the principal amount becomes due. An
unused commitment fee of 1/2% will be charged to the Company based on the
average daily unused portion of the Facility. The Facility is collateralized by
essentially all oil and gas assets of the Company. As of December 31, 2000, the
outstanding balance under the Facility was $8,500,000 at a weighted average
interest rate of 8.57%.
The Facility contains provisions relating to maintenance of certain
financial ratios, as well as restrictions governing its use. Under covenants
contained in the Facility, the Company has agreed, among other things, not to
advance any proceeds from the Facility to Symskaya, not to pay dividends, and
not to merge with or acquire any other company without the prior approval of the
bank. As of December 31, 2000, the Company was in compliance with all covenants
in the Facility. Facility fees, which are reflected as other assets in the
accompanying balance sheet, are being amortized on a straight line basis over
the original 36 month term of the agreement.
Continued
39
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
8. Quarterly Financial Data (Unaudited):
-----------------------------------
Quarterly financial information for the years ended December 31, 2000 and
1999 is as follows:
2000 Quarter Ended: ....... December 31 September 30 June 30 March 31
----------- ----------- ----------- -----------
Net revenues .............. $ 7,497,944 $ 6,027,006 $ 5,403,396 $ 5,388,023
Gross margin .............. 4,626,159 3,279,220 2,786,801 2,720,100
Net income ................ 1,588,512 1,214,027 1,108,782 1,252,750
Basic income
per common share ...... $ .13 $ .10 $ .09 $ .10
=========== =========== =========== ===========
Diluted income
per common share ...... $ .12 $ .09 $ .09 $ .10
=========== =========== =========== ===========
1999 Quarter Ended: ....... December 31 September 30 June 30 March 31
----------- ----------- ----------- -----------
Net revenues .............. $ 4,995,330 $ 4,311,235 $ 3,515,233 $ 2,618,352
Gross margin .............. 2,032,571 1,645,306 1,195,995 232,194
Net income (loss) ......... 441,743 422,532 111,945 (572,699)
Basic and diluted income
(loss) per common share $ .03 $ .03 $ .01 $ (.05)
=========== =========== =========== ===========
Continued
40
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities:
--------------------------------------------------
Capitalized Costs:
-----------------
United States Canada Total
------------- ------------- -------------
2000:
Unproved oil and gas
properties ...................................... $ 2,571,276 $ 30,038 $ 2,601,314
Proved oil and gas
properties ...................................... 92,334,569 9,984,303 102,318,872
------------- ------------- -------------
94,905,845 10,014,341 104,920,186
Accumulated depreciation,
depletion and amortization ...................... (59,502,298) (7,007,271) (66,509,569)
------------- ------------- -------------
Net capitalized costs .............................. $ 35,403,547 $ 3,007,070 $ 38,410,617
============= ============= =============
1999:
Unproved oil and gas
properties ...................................... $ 2,358,084 $ 30,735 $ 2,388,819
Proved oil and gas
properties ...................................... 90,779,602 9,439,208 100,218,810
------------- ------------- -------------
93,137,686 9,469,943 102,607,629
Accumulated depreciation,
depletion and amortization ...................... (56,070,950) (6,729,150) (62,800,100)
------------- ------------- -------------
Net capitalized costs .............................. $ 37,066,736 $ 2,740,793 $ 39,807,529
============= ============= =============
1998:
Unproved oil and gas
properties ...................................... $ 2,969,999 $ 33,224 $ 3,003,223
Proved oil and gas
properties ...................................... 91,206,116 9,364,704 100,570,820
------------- ------------- -------------
94,176,115 9,397,928 103,574,043
Accumulated depreciation,
depletion and amortization ...................... (54,247,539) (6,418,467) (60,666,006)
------------- ------------- -------------
Net capitalized costs .............................. $ 39,928,576 $ 2,979,461 $ 42,908,037
============= ============= =============
Continued
41
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
--------------------------------------------------
Costs Incurred in Oil and Gas Property Acquisition, Exploration
and Development Activities:
---------------------------------------------------------------
2000: United States Canada Russia Total
---------- ---------- ------ ----------
Acquisition of properties:
Proved ................ $ 0,500 $ 20,500
Unproved .............. 519,660 519,660
Exploration costs ........ 3,447,209 $ 17,924 3,465,133
Development costs ........ 1,793,824 679,736 2,473,560
Symskaya, equity method .. $174,432 174,432
1999:
Acquisition of properties:
Proved ................ $ 946,665 $ 946,665
Unproved .............. 200,541 200,541
Exploration costs ........ 1,863,875 $ 30,073 1,893,948
Development costs ........ 1,062,408 110,521 1,172,929
Symskaya, equity method .. $169,933 169,933
1998:
Acquisition of properties:
Proved ................
Unproved .............. $ 124,066 $ 124,066
Exploration costs ........ 4,423,128 $ 27,529 4,450,657
Development costs ........ 2,270,849 267,392 2,538,241
Symskaya, equity method .. $446,758 446,758
Continued
42
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
--------------------------------------------------
Results of Operations (Unaudited):
---------------------------------
2000: United States Canada Russia Total
------------ ------------ ------------ ------------
Oil and gas sales ............................. $ 21,746,294 $ 2,570,075 $ 24,316,369
Production costs .............................. (6,122,894) (603,875) (6,726,769)
Exploration expenses .......................... (3,493,390) (14,374) (3,507,764)
Depreciation, depletion and amortization ...... (3,684,117) (124,661) (3,808,778)
Impairment of proved
oil and gas properties .................... (368,543) -- (368,543)
Equity loss in Symskaya Exploration, Inc. ..... -- -- $ (174,432) (174,432)
------------ ------------ ------------ ------------
8,077,350 1,827,165 (174,432) 9,730,083
Imputed income tax benefit (expense) .......... (2,604,092) (344,352) 65,412 (2,883,032)
------------ ------------ ------------ ------------
Results of operations from producing activities $ 5,473,258 $ 1,482,813 $ (109,020) $ 6,847,051
============ ============ ============ ============
1999:
Oil and gas sales ............................. $ 13,625,811 $ 1,808,726 $ 15,434,537
Production costs .............................. (5,422,811) (525,244) (5,948,055)
Exploration expenses .......................... (1,650,413) (20,273) (1,670,686)
Depreciation, depletion and amortization ...... (3,761,339) (310,939) (4,072,278)
Impairment of proved
oil and gas properties .................... (313,751) -- (313,751)
Equity loss in Symskaya Exploration, Inc. ..... -- -- $ (169,933) (169,933)
------------ ------------ ------------ ------------
2,477,497 952,270 (169,933) 3,259,834
Imputed income tax benefit (expense) .......... (677,741) (423,760) 63,725 (1,037,776)
------------ ------------ ------------ ------------
Results of operations from producing activities $ 1,799,756 $ 528,510 $ (106,208) $ 2,222,058
============ ============ ============ ============
1998:
Oil and gas sales ............................. $ 11,199,836 $ 1,521,040 $ 12,720,876
Production costs .............................. (5,665,047) (568,908) (6,233,955)
Exploration expenses .......................... (2,954,780) (22,212) (2,976,992)
Depreciation, depletion and amortization ...... (4,720,913) (308,206) (5,029,119)
Impairment of proved
oil and gas properties .................... (4,015,158) -- (4,015,158)
Equity loss in Symskaya Exploration, Inc. ..... -- -- $ (446,758) (446,758)
------------ ------------ ------------ ------------
(6,156,062) 621,714 (446,758) (5,981,106)
Imputed income tax benefit (expense) .......... 2,308,523 (276,663) 167,534 2,199,394
------------ ------------ ------------ ------------
Results of operations from producing activities $ (3,847,539) $ 345,051 $ (279,224) $ (3,781,712)
============ ============ ============ ============
The imputed income tax benefit (expense) is hypothetical and determined
without regard to the Company's deduction for general and administrative and
interest expense.
Continued
43
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
--------------------------------------------------
Reserves and Future Net Cash Flows (Unaudited):
----------------------------------------------
Estimates of reserve quantities and related future net cash flows are
calculated using unescalated year-end oil and gas prices and operating costs,
and may be subject to substantial fluctuations based on the prices in effect at
the end of each year. Reserve revisions occur when the economic limit of a
property is lengthened or shortened due to changes in commodity pricing. The
following table sets forth the weighted average prices used in calculating
estimated reserve quantities and future net cash flows at the end of 2000, 1999
and 1998:
United States Canada Total
------------- -------------- ---------------
Oil Gas Oil Gas Oil Gas
----- ----- ----- ----- ----- -----
December 31, 2000 $24.41 $10.42 $19.40 $10.18 $23.78 $10.39
December 31, 1999 $23.28 $ 1.95 $20.40 $ 1.71 $22.99 $ 1.93
December 31, 1998 $10.97 $ 2.06 $ 9.92 $ 1.49 $10.80 $ 1.95
Estimates of Proved Oil and Gas Reserves(Unaudited):
---------------------------------------------------
The following tables present the Company's estimates of its proved oil and
gas reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, the estimates are expected to
change as future information becomes available. Reserve estimates are prepared
by the Company and audited by the Company's independent petroleum reservoir
engineers, Fred S. Reynolds and Associates, who have issued a report expressing
their opinion that the reserve information in the following tables complies with
the applicable rules promulgated by the Securities and Exchange Commission and
the Financial Accounting Standards Board. The volumes presented on the following
pages are in thousands of barrels for oil and thousands of mcf for gas.
Continued
44
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Estimates of Proved Oil and Gas Reserves, Continued:
----------------------------------------
Reserves and Future Net Cash Flows (Unaudited):
----------------------------------------------
United States Canada Total
----------------- ----------------- -----------------
December 31, 2000: Oil Gas Oil Gas Oil Gas
------------------------------------------------------- ------ ------ ------ ------- ------ -------
Proved developed and undeveloped reserves:
Beginning of year .................................. 8,042 13,838 1,251 2,493 9,293 16,331
Revisions of previous estimates .................... 450 1,014 (247) 265 203 1,279
Extensions and discoveries ......................... 154 819 349 223 503 1,042
Acquisition of minerals in place ................... 46 -- -- -- 46 --
Sales of minerals in place ......................... (440) -- -- -- (440) --
Improved Recovery .................................. 174 -- 16 -- 190 --
Production ......................................... (590) (1,456) (76) (205) (666) (1,661)
------- ------- ------- ------- ------- -------
End of year ........................................ 7,836 14,215 1,293 2,776 9,129 16,991
======= ======= ======= ======= ======= =======
Proved developed reserves:
Beginning of year .................................. 7,808 13,663 1,017 2,318 8,825 15,981
End of year ........................................ 7,439 11,285 1,104 2,776 8,543 14,061
United States Canada Total
----------------- ----------------- -----------------
December 31, 1999: Oil Gas Oil Gas Oil Gas
------------------------------------------------------- ------- ------- ------- ------- ------- -------
Proved developed and undeveloped reserves:
Beginning of year .................................. 5,117 15,411 1,076 3,599 6,193 19,010
Revisions of previous estimates .................... 3,181 274 261 (841) 3,442 (567)
Extensions and discoveries ......................... 6 529 -- -- 6 529
Acquisition of minerals in place ................... 563 34 -- -- 563 34
Sales of minerals in place ......................... (249) (642) -- -- (249) (642)
Production ......................................... (576) (1,768) (86) (265) (662) (2,033)
------- ------- ------- ------- ------- -------
End of year ........................................ 8,042 13,838 1,251 2,493 9,293 16,331
======= ======= ======= ======= ======= =======
Proved developed reserves:
Beginning of year .................................. 4,870 12,683 1,076 3,599 5,946 16,282
End of year ........................................ 7,808 13,663 1,017 2,318 8,825 15,981
United States Canada Total
----------------- ----------------- -----------------
December 31, 1998: Oil Gas Oil Gas Oil Gas
------------------------------------------------------- ------- ------- ------- ------- ------- -------
Proved developed and undeveloped reserves:
Beginning of year .................................. 7,168 15,457 1,252 3,452 8,420 18,909
Revisions of previous estimates .................... (1,817) (459) (79) 494 (1,896) 35
Extensions and discoveries ......................... 361 2,505 -- -- 361 2,505
Production ......................................... (595) (2,092) (97) (347) (692) (2,439)
------- ------- ------- ------- ------- -------
End of year ........................................ 5,117 15,411 1,076 3,599 6,193 19,010
======= ======= ======= ======= ======= =======
Proved developed reserves:
Beginning of year .................................. 6,972 11,932 1,252 3,452 8,224 15,384
End of year ........................................ 4,870 12,683 1,076 3,599 5,946 16,282
Continued
45
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
--------------------------------------------------
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves (Unaudited):
------------------------------------------------------------
Thousands of Dollars
United States Canada Total
2000: --------- --------- ---------
Future cash inflows ........................... $ 334,675 $ 52,295 $ 386,970
Future production and development costs ....... (126,556) (15,400) (141,956)
--------- --------- ---------
Future net cash flows before income taxes ..... 208,119 36,895 245,014
10% annual discount for estimated timing
of cash flows .............................. (103,691) (19,454) (123,145)
--------- --------- ---------
Standardized measure of discounted future
net cash flows before income taxes ......... 104,428 17,441 121,869
Future income taxes, net of 10% annual discount (32,374) (7,251) (39,625)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ............................. $ 72,054 $ 10,190 $ 82,244
========= ========= =========
1999:
Future cash inflows ........................... $ 215,342 $ 27,122 $ 242,464
Future production and development costs ....... (108,395) (12,147) (120,542)
--------- --------- ---------
Future net cash flows before income taxes ..... 106,947 14,975 121,922
10% annual discount for estimated timing
of cash flows .............................. (51,627) (6,929) (58,556)
--------- --------- ---------
Standardized measure of discounted future
net cash flows before income taxes ......... 55,320 8,046 63,366
Future income taxes, net of 10% annual discount (13,951) (2,629) (16,580)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ............................. $ 41,369 $ 5,417 $ 46,786
========= ========= =========
1998:
Future cash inflows ........................... $ 88,549 $ 15,442 $ 103,991
Future production and development costs ....... (54,825) (7,811) (62,636)
--------- --------- ---------
Future net cash flows before income taxes ..... 33,724 7,631 41,355
10% annual discount for estimated timing
of cash flows .............................. (13,176) (2,969) (16,145)
--------- --------- ---------
Standardized measure of discounted future
net cash flows before income taxes ......... 20,548 4,662 25,210
Future income taxes, net of 10% annual discount (1,479) (929) (2,408)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ............................. $ 19,069 $ 3,733 $ 22,802
========= ========= =========
Continued
46
EQUITY OIL COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
9. Disclosures About Oil and Gas Producing Activities, Continued:
--------------------------------------------------
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves (Unaudited), Continued:
-----------------------------------------------------------------------
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates with consideration of future tax rates already
legislated (adjusted for permanent differences that related to proved oil and
gas reserves).
Principal sources of change in the standardized measure of discounted
future net cash flow are as follows:
Thousands of Dollars
2000 1999 1998
-------- -------- --------
Sales and transfers of oil and gas produced,
net of production costs ................... $(17,590) $ (9,486) $ (6,487)
Net changes in prices and production costs ... 58,959 29,172 (10,019)
Extensions, discoveries and improved recovery
Less related costs ........................ 8,474 294 2,098
Purchases of minerals in place ............... 345 3,373 --
Sales of minerals in place ................... (2,623) (959) --
Changes in estimated future development costs (484) (3,033) 2,630
Revisions of previous quantity estimates ..... 5,792 23,747 (4,495)
Accretion of discount ........................ 6,337 2,521 3,558
Net change in income taxes ................... (21,573) (15,204) 3,315
Changes in production rates (timing) and other (2,179) (6,441) 3,303
-------- -------- --------
$ 35,458 $ 23,984 $ (6,097)
======== ======== ========
47
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF COMPANY
The information contained under the headings Election of Directors and
Continuing Directors and Executive Officers contained on pages 2 and 4 in the
definitive proxy statement to be filed in connection with the Company's annual
meeting on May 9, 2001 is incorporated herein by reference in answer to this
item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading Executive Compensation on pages
7 through 10 in the definitive proxy statement to be filed in connection with
the Company's annual meeting on May 9, 2001 is incorporated herein by reference
in answer to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the headings Security Ownership of
Management and Voting Securities & Principal Holders Thereof, contained on pages
5 and 12 in the definitive proxy statement to be filed in connection with the
Company's annual meeting on May 9, 2001 is incorporated herein by reference in
answer to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K:
Page:
(a) (1) Financial Statements:
Report of Independent Accountants 24
Financial Statements:
Balance Sheets as of December 31, 2000 and 1999 25
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 26
Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998 27
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 28
Notes to Financial Statements 29
(3) Exhibits
(3) (i) Restated Articles of Incorporation. Incorporated by reference
from the annual report on Form 10-K for the year ended December
31, 1995.
(ii) Amended By-Laws. Incorporated by reference from the annual report
on Form 10-K for the year ended December 31, 1997.
(10) Material Contracts
(i) Change in Control Compensation Agreements for Russell V. Florence.
Change in Control Compensation Agreements for Paul M. Dougan, James
B. Larson, and Clay Newton, Incorporated by reference from the
annual report on Form 10-K for the year ended December 31, 1997.
(ii) Loan agreement between Equity Oil Company and Bank One Texas, N.A.
Incorporated by reference from the quarterly report on Form 10-Q
for the period ended September 30, 1999.
(21) Subsidiaries. Incorporated by reference from the annual report on
Form 10-K for the year ended December 31, 1995.
(23) Consent of Independent Accountants. Consent of PricewaterhouseCoopers
LLP regarding Form S-8 Registrations.
(b)Reports on Form 8-K
None.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EQUITY OIL COMPANY
By Paul M. Dougan
-------------------
President
Chief Executive Officer
By Clay Newton
--------------------
Treasurer
Chief Financial Officer
Principal Accounting Officer
Date: January 31, 2001
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Douglas W. Brandrup Joseph C. Bennett
-------------------------- -------------------------
Director Director
January 31, 2001 January 31, 2001
-------------------------- -------------------------
Date Date
William D. Forster Philip J. Bernhisel
-------------------------- -------------------------
Director Director
January 31, 2001 January 31, 2001
-------------------------- -------------------------
Date Date
Randolph G. Abood W. Durand Eppler
-------------------------- -------------------------
Director Director
January 31, 2001 January 31, 2001
-------------------------- -------------------------
Date Date
William P. Hartl
--------------------------
Director
January 31, 2001
--------------------------
Date
50