UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021MARCH 31, 2022
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-18774
SPINDLETOP OIL & GAS CO.
(Exact name of registrant as specified in its charter)
| Texas | 75-2063001 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 12850 Spurling Rd., Suite 200, Dallas, TX | 75230 |
| (Address of principal executive offices) | (Zip Code) |
| (972) 644-2581 | |
| (Registrant's telephone number, including area code) | |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | SPND | OTC Markets - Pink |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated | Smaller reporting company [ X ] |
| Emerging growth company [] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [ X ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's classes of common, as of the latest practicable date.
| Common Stock, $0.01 par value | |
| (Class) | (Outstanding at |
DOCUMENTS INCORPORATED BY REFERENCE
None
2
| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||||
| FORM 10-Q | ||||
| For the quarter ended | ||||
| Index to Consolidated Financial Statements and Schedules | ||||
| Part I – Financial Information: | Page | |||
| Item 1. – Financial Statements | ||||
| Consolidated Balance Sheets | ||||
| 4 - 5 | ||||
| Consolidated Statements of Operations (Unaudited) | ||||
Three Months Ended | 6 | |||
| Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) | 7 | |||
| Consolidated Statements of Cash Flow (Unaudited) | ||||
| 8 | |||
| Notes to Consolidated Financial Statements | 9 | |||
| Item 2. – Management’s Discussion and Analysis of Financial | ||||
| Condition and Results of Operations | 10 | |||
| Item 4. – Controls and Procedures | ||||
| Part II – Other Information: | ||||
| Item 5. – Other Information | ||||
| Item 6. – Exhibits | ||||
3
Part I - Financial Information
Item 1. - Financial Statements
| SPINDLETOP OIL & GAS Co. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| SPINDLETOP OIL & GAS Co. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 11,482,000 | $ | 7,480,000 | ||||
| Restricted cash | 295,000 | 295,000 | ||||||
| Accounts receivable | 3,001,000 | 2,613,000 | ||||||
| Income tax receivable | 23,000 | 274,000 | ||||||
| Total Current Assets | 14,801,000 | 10,662,000 | ||||||
| Property and Equipment - at cost | ||||||||
| Oil and gas properties (full cost method) | 25,346,000 | 26,928,000 | ||||||
| Rental equipment | 412,000 | 412,000 | ||||||
| Gas gathering system | 115,000 | 115,000 | ||||||
| Other property and equipment | 315,000 | 315,000 | ||||||
| 26,188,000 | 27,770,000 | |||||||
| Accumulated depreciation and amortization | (26,067,000 | ) | (26,061,000 | ) | ||||
| Total Property and Equipment | 121,000 | 1,709,000 | ||||||
| Real Estate Property - at cost | ||||||||
| Land | 688,000 | 688,000 | ||||||
| Commercial office building | 1,624,000 | 1,624,000 | ||||||
| Accumulated depreciation | (1,090,000 | ) | (1,047,000 | ) | ||||
| Total Real Estate Property | 1,222,000 | 1,265,000 | ||||||
| Other Assets | ||||||||
| Deferred Income Tax Asset | 18,000 | 205,000 | ||||||
| Other long-term investments | 8,866,000 | 8,825,000 | ||||||
| Other | 4,000 | 4,000 | ||||||
| Total Other Assets | 8,888,000 | 9,034,000 | ||||||
| Total Assets | $ | 25,032,000 | $ | 22,670,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
4
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 8,718,000 | $ | 10,673,000 | ||||
| Restricted cash | 370,000 | 370,000 | ||||||
| Accounts receivable, related parties | 564,000 | — | ||||||
| Accounts receivable | 3,567,000 | 3,104,000 | ||||||
| Prepaid Expenses | — | — | ||||||
| Intercompany | — | — | ||||||
| Income tax receivable | 389,000 | 450,000 | ||||||
| Total Current Assets | 13,608,000 | 14,597,000 | ||||||
| Property and Equipment - at cost | ||||||||
| Oil and gas properties (full cost method) | 25,757,000 | 26,305,000 | ||||||
| Rental equipment | 412,000 | 412,000 | ||||||
| Gas gathering system | 115,000 | 115,000 | ||||||
| Other property and equipment | 395,000 | 317,000 | ||||||
| 26,679,000 | 27,149,000 | |||||||
| Accumulated depreciation and amortization | (26,127,000 | ) | (26,127,000 | ) | ||||
| Total Property and Equipment | 552,000 | 1,022,000 | ||||||
| Real Estate Property - at cost | ||||||||
| Land | 688,000 | 688,000 | ||||||
| Commercial office building | 1,624,000 | 1,624,000 | ||||||
| Accumulated depreciation | (1,118,000 | ) | (1,102,000 | ) | ||||
| Total Real Estate Property | 1,194,000 | 1,210,000 | ||||||
| Other Assets | ||||||||
| Deferred Income Tax Asset | 271,000 | 311,000 | ||||||
| Other long-term investments | 11,600,000 | 8,941,000 | ||||||
| Other | 4,000 | 4,000 | ||||||
| Total Other Assets | 11,875,000 | 9,256,000 | ||||||
| Total Assets | $ | 27,229,000 | $ | 26,085,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
| SPINDLETOP OIL & GAS Co. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 7,048,000 | $ | 5,714,000 | ||||
| Notes payable, Paycheck Protection Program | 403,000 | — | ||||||
| Income tax payable | 111,000 | — | ||||||
| Total Current Liabilities | 7,562,000 | 5,714,000 | ||||||
| Noncurrent Liabilities | ||||||||
| Asset retirement obligation | 1,454,000 | 1,434,000 | ||||||
| Total Noncurrent Liabilities | 1,454,000 | 1,434,000 | ||||||
| Shareholders' Equity | ||||||||
| Common stock, $ par value, shares authorized; shares issued and outstanding at September 30, 2021 and at December 31, 2020. | 77,000 | 77,000 | ||||||
| Additional paid-in capital | 943,000 | 943,000 | ||||||
| Treasury stock, at cost | (1,874,000 | ) | (1,874,000 | ) | ||||
| Retained earnings | 16,870,000 | 16,376,000 | ||||||
| Total Shareholders' Equity | 16,016,000 | 15,522,000 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 25,032,000 | $ | 22,670,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
| SPINDLETOP OIL & GAS Co. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 8,113,000 | $ | 7,601,000 | ||||
| Total Current Liabilities | 8,113,000 | 7,601,000 | ||||||
| Noncurrent Liabilities | ||||||||
| Asset retirement obligation | 2,048,000 | 1,925,000 | ||||||
| Total Noncurrent Liabilities | 2,048,000 | 1,925,000 | ||||||
| Total Liabilities | 10,161,000 | 9,526,000 | ||||||
| Shareholders' Equity | ||||||||
| Common stock, par value, shares authorized; shares issued and outstanding at March 31, 2022 and at December 31, 2021. | 77,000 | 77,000 | ||||||
| Additional paid-in capital | 943,000 | 943,000 | ||||||
| Treasury stock, at cost | (1,874,000 | ) | (1,874,000 | ) | ||||
| Retained earnings | 17,922,000 | 17,413,000 | ||||||
| Total Shareholders' Equity | 17,068,000 | 16,559,000 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 27,229,000 | $ | 26,085,000 | ||||
| The accompanying notes are an integral part of these statements. | ||||||||
5
| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||
| (Unaudited) | ||
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Oil and gas revenues | $ | 3,582,000 | $ | 2,025,000 | $ | 1,624,000 | $ | 933,000 | ||||||||
| Revenues from lease operations | 169,000 | 168,000 | 53,000 | 49,000 | ||||||||||||
| Gas gathering, compression, equipment rental | 69,000 | 57,000 | 30,000 | 12,000 | ||||||||||||
| Real estate rental revenue | 169,000 | 204,000 | 55,000 | 70,000 | ||||||||||||
| Interest Income | 115,000 | 164,000 | 34,000 | 61,000 | ||||||||||||
| Debt forgiveness income | — | — | — | — | ||||||||||||
| Other revenues | 28,000 | 29,000 | 10,000 | 10,000 | ||||||||||||
| Total Revenues | 4,132,000 | 2,647,000 | 1,806,000 | 1,135,000 | ||||||||||||
| Expenses | ||||||||||||||||
| Lease operating expenses | 787,000 | 727,000 | 265,000 | 265,000 | ||||||||||||
| Production taxes, gathering and marketing expenses | 607,000 | 468,000 | 272,000 | 212,000 | ||||||||||||
| Pipeline and rental expenses | 14,000 | 6,000 | 5,000 | 2,000 | ||||||||||||
| Real estate expenses | 99,000 | 106,000 | 34,000 | 39,000 | ||||||||||||
| Depreciation and amortization expenses | 48,000 | 261,000 | 126,000 | |||||||||||||
| Depreciation and amortization expenses | (167,000 | ) | ||||||||||||||
| ARO accretion expense | 104,000 | 90,000 | 34,000 | 30,000 | ||||||||||||
| General and administrative expenses | 1,541,000 | 1,723,000 | 549,000 | 332,000 | ||||||||||||
| Total Expenses | 3,200,000 | 3,381,000 | 992,000 | 1,006,000 | ||||||||||||
| Income (Loss) before income tax | 932,000 | (734,000 | ) | 814,000 | 129,000 | |||||||||||
| Current income tax provision (benefit) | 251,000 | (131,000 | ) | 229,000 | 43,000 | |||||||||||
| Deferred income tax provision (benefit) | 187,000 | (12,000 | ) | 182,000 | (17,000 | ) | ||||||||||
| Total income tax provision (benefit) | 438,000 | (143,000 | ) | 411,000 | 26,000 | |||||||||||
| Net income (Loss) | $ | 494,000 | $ | (591,000 | ) | $ | 403,000 | $ | 103,000 | |||||||
| Earnings (Loss) per Share of Common Stock | ||||||||||||||||
| Earnings (Loss) per Share of Common Stock Basic and Diluted | $ | 0.07 | $ | (0.09 | ) | $ | 0.06 | $ | 0.02 | |||||||
| Weighted Average Shares Outstanding | ||||||||||||||||
| Weighted Average Shares Outstanding Basic and Diluted | 6,776,392 | 6,776,392 | 6,776,392 | 6,776,392 | ||||||||||||
| The accompanying notes are an integral part of these statements. | ||||||||||||||||
| Three Months Ended , | ||||||||
| March 31 , | March 31 , | |||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Oil and gas revenues | $ | 1,672,000 | $ | 894,000 | ||||
| Revenue from lease operations | 44,000 | 57,000 | ||||||
| Gas gathering, compression, equipment rental | 18,000 | 34,000 | ||||||
| Real estate rental income | 53,000 | 59,000 | ||||||
| Interest Income | 25,000 | 46,000 | ||||||
| Other | 12,000 | 9,000 | ||||||
| Total Revenues | 1,824,000 | 1,099,000 | ||||||
| Expenses | ||||||||
| Lease operations | 244,000 | 123,000 | ||||||
| Production taxes, gathering and marketing | 181,000 | 129,000 | ||||||
| Pipeline and rental operations | 2,000 | 3,000 | ||||||
| Real estate operations | 38,000 | 32,000 | ||||||
| Depreciation and amortization | 17,000 | 119,000 | ||||||
| ARO accretion expense | 143,000 | 35,000 | ||||||
| General and administrative | 590,000 | 537,000 | ||||||
| Total Expenses | 1,215,000 | 978,000 | ||||||
| Income Before Income Tax | 609,000 | 121,000 | ||||||
| Current income tax provision | 60,000 | 17,000 | ||||||
| Deferred income tax provision | 40,000 | 7,000 | ||||||
| Total income tax provision | 100,000 | 24,000 | ||||||
| Net Income | $ | 509,000 | $ | 97,000 | ||||
| Earnings per Share of Common Stock | ||||||||
| Earnings per Share of Common Stock Basic and diluted | $ | 0.08 | $ | 0.01 | ||||
| Weighted Average Shares Outstanding | ||||||||
| Weighted Average Shares Outstanding Basic and diluted | 6,755,318 | 6,755,318 | ||||||
| The accompanying notes are an integral part of these statements. | ||||||||
6
| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY | ||||||
| For the Three Months Ended March 31, 2022 and March 31, 2021 | ||||||
| (Unaudited) | ||||||
| Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Treasury Stock Shares | Treasury Stock Amount | Retained Earnings | |||||||||||||||||||
| Balance December 31, 2021 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 17,413,000 | |||||||||||||
| Net Income | — | — | — | — | — | 509,000 | ||||||||||||||||||
| Balance March 31, 2022 | 7,677,471 | 77,000 | 943,000 | 922,153 | (1,874,000 | ) | 17,922,000 | |||||||||||||||||
| Balance December 31, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,376,000 | |||||||||||||
| Net Income | — | — | — | — | — | 97,000 | ||||||||||||||||||
| Balance March 31, 2021 | 7,677,471 | 77,000 | 943,000 | 922,153 | (1,874,000 | ) | 16,473,000 | |||||||||||||||||
| The accompanying notes are an integral part of these statements. | ||||||||||||||||||||||||
| SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES | ||||||||||||||||||||||||
| Common Stock Shares | Common Stock Amount | Additional Paid-In Capital | Treasury Stock Shares | Treasury Stock Amount | Retained Earnings | |||||||||||||||||||
| Balance December 31, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,376,000 | |||||||||||||
| Purchase of 54,284 shares of Common Stock as Treasury Stock | ||||||||||||||||||||||||
| Purchase of 54,284 shares of Common Stock as Treasury Stock | ||||||||||||||||||||||||
| Net Income | — | — | — | — | — | 97,000 | ||||||||||||||||||
| Balance March 31, 2021 | 7,677,471 | 77,000 | 943,000 | 922,153 | (1,874,000 | ) | 16,473,000 | |||||||||||||||||
| Net (Loss) | — | — | — | — | — | (6,000 | ) | |||||||||||||||||
| Balance June 30, 2021 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,467,000 | |||||||||||||
| Net Income | — | — | — | — | — | 403,000 | ||||||||||||||||||
| Balance September 30, 2021 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,870,000 | |||||||||||||
| Balance December 31, 2019 | 7,677,471 | $ | 77,000 | $ | 943,000 | 867,869 | ($ | 1,806,000 | ) | $ | 17,271,000 | |||||||||||||
| Net Loss | — | — | — | — | — | (272,000 | ) | |||||||||||||||||
| Balance March 31, 2020 | 7,677,471 | 77,000 | 943,000 | 867,869 | (1,806,000 | ) | 16,999,000 | |||||||||||||||||
| Purchase of shares of Common Stock as Treasury Stock | — | — | — | 54,284 | (68,000 | ) | — | |||||||||||||||||
| Net (Loss) | — | — | — | — | — | (422,000 | ) | |||||||||||||||||
| Balance June 30, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,577,000 | |||||||||||||
| Net Income | — | — | — | — | — | 103,000 | ||||||||||||||||||
| Balance September 30, 2020 | 7,677,471 | $ | 77,000 | $ | 943,000 | 922,153 | ($ | 1,874,000 | ) | $ | 16,680,000 | |||||||||||||
| The accompanying notes are an integral part of these statements. | ||||||||||||||||||||||||
7
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (Unaudited) | ||
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | March 31, | March 31, | |||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Cash Flows from Operating Activities | ||||||||||||||||
| Net Income (Loss) | $ | 494,000 | $ | (591,000 | ) | |||||||||||
| Reconciliation of net Income (Loss) to net cash | ||||||||||||||||
| Reconciliation of net Income (Loss) to net cash provided by operating activities | ||||||||||||||||
| Net Income | $ | 509,000 | $ | 97,000 | ||||||||||||
| Reconciliation of net Income to net cash | ||||||||||||||||
| Reconciliation of net Income to net cash provided by operating activities | ||||||||||||||||
| Depreciation and amortization | 48,000 | 261,000 | 17,000 | 119,000 | ||||||||||||
| Impairment of oil and gas properties | — | — | ||||||||||||||
| Accretion of asset retirement obligation | 84,000 | 90,000 | 143,000 | 35,000 | ||||||||||||
| Changes in accounts receivable, related party | (564,000 | ) | — | |||||||||||||
| Changes in accounts receivable | (388,000 | ) | 383,000 | (463,000 | ) | (182,000 | ) | |||||||||
| Changes in income tax receivable | 251,000 | (131,000 | ) | 61,000 | 17,000 | |||||||||||
| Changes in accounts payable and accrued liabilities | 1,334,000 | (356,000 | ) | 512,000 | 249,000 | |||||||||||
| Changes in current tax payable | 111,000 | — | ||||||||||||||
| Changes in asset retirement obligation | 20,000 | — | ||||||||||||||
| Changes in deferred Income tax asset | 187,000 | (12,000 | ) | 40,000 | — | |||||||||||
| Changes in other assets | — | (1,000 | ) | — | 7,000 | |||||||||||
| Net cash provided (used) for operating activities | 2,141,000 | (357,000 | ) | |||||||||||||
| Net cash provided for operating activities | 255,000 | 342,000 | ||||||||||||||
| Cash Flows from Investing Activities | ||||||||||||||||
| Capitalized acquisition, exploration and development | 1,498,000 | (174,000 | ) | 527,000 | (11,000 | ) | ||||||||||
| Purchase of other property and equipment | 1,000 | — | (77,000 | ) | — | |||||||||||
| Changes in other long-term investments | (41,000 | ) | (7,575,000 | ) | (2,659,000 | ) | (41,000 | ) | ||||||||
| Proceeds from sale of oil and gas properties | — | 250,000 | ||||||||||||||
| Capitalized tenant improvements and broker fees | — | (44,000 | ) | (1,000 | ) | (5,000 | ) | |||||||||
| Net cash provided (used) for investing activities | 1,458,000 | (7,543,000 | ) | |||||||||||||
| Net cash (used) for investing activities | (2,210,000 | ) | (57,000 | ) | ||||||||||||
| Cash Flows from Financing Activities | ||||||||||||||||
| Changes in notes payable | 403,000 | 403,000 | — | 403,000 | ||||||||||||
| Purchase of shares of treasury stock | — | (68,000 | ) | |||||||||||||
| Net cash used for financing activities | 403,000 | 335,000 | — | 403,000 | ||||||||||||
| Increase (Decrease) in cash, cash equivalents, and restricted cash | 4,002,000 | (7,565,000 | ) | (1,955,000 | ) | 688,000 | ||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 7,775,000 | 16,024,000 | 11,043,000 | 7,775,000 | ||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 11,777,000 | $ | 8,459,000 | $ | 9,088,000 | $ | 8,463,000 | ||||||||
| The accompanying notes are an integral part of these statements. | ||||||||||||||||
8
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND ORGANIZATION
The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in the Company's annual Form 10-K filing. Accordingly, the reader of this Form 10-Q may wish to refer to the Company's Form 10-K for the year ended December 31, 2020,2021, for further information.
The consolidated financial statements presented herein include the accounts of Spindletop Oil & Gas Co., a Texas corporation ("the Company") and its wholly owned subsidiaries, Prairie Pipeline Co., a Texas corporation and Spindletop Drilling Company, a Texas corporation. All significant inter-company transactions and accounts have been eliminated.
In the opinion of management, the accompanying unaudited interim financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, the results of operations and changes in cash flows of the Company and its consolidated subsidiaries for the interim periods presented. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations.
2. NOTES PAYABLE
During the first quarter of 2021, the Company applied for and was granted a loan in the amount of $402,573 pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which was enacted March 27, 2020.
On March 18, 2021, the loan (the “Loan”) was funded and matures twenty-four months from the date of the loan and bears interest at the rate of 0.98% per annum, payable monthly commencing after the loan forgiveness determination has been made by the Small Business Administration. The Loan may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties.
The PPP provides that loan principal and accrued interest may be forgiven after a twenty-four-week period if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. Under the CARES Act, the amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the period set forth in the CARES Act.
The Company believes it will use the loan proceeds from the loan for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds should meet the conditions for forgiveness of at least a portion of the loan, we cannot assure you that the Company will be eligible for forgiveness of the loan, in whole or in part.
9
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. COMMON STOCK
Effective April 6, 2020, and June 20, 2020, the Company repurchased shares and shares of its common stock from a non-controlling, unaffiliated shareholder of the Company for a negotiated purchase price of $56,295 and $11,560 respectively, or $ per share. The repurchased shares are held as Treasury stock.
4. CONTINGENCIES
On July 23, 2020, a subsidiary of the Company received notice of a lawsuit filed in Louisiana against the Company’s subsidiary and numerous other oil and gas companies alleging a pollution claim for properties operated by the defendants in Louisiana, and the Company’s subsidiary filed an answer. The Plaintiffs filed a First Supplemental and Amending Petition for Damages on January 21, 2021. The litigation is currently in the discovery phase. Management has regular litigation reviews, including updates from corporate and outside counsel, to assess the need for accounting recognition or disclosure of contingencies for litigation. The Company will continue to defend its subsidiary vigorously in this matter.
Subsequent Events
The Company has evaluated subsequent events through November 22, 2021,May 23, 2022, the date on which the financial statements were available to be issued.
Effective January 1, 2022, the Company sold its interest in two operated natural gas wells and two shut-in wells along with its associated leasehold acreage located in Hood County, Texas, to Giant NRG Co., LP, a related entity. The terms of the transaction are no less favorable than could be obtained from unaffiliated third parties and have been approved by a majority of our Board of Directors.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
WARNING CONCERNING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
This Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors, that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the factors listed and described at Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K, which investors should review. There have been changes to the risk factors previously described in the Company’s Form 10-K. for the fiscal year ended December 31, 2020 (the “Form 10-K”), including significant global economic and pandemic factors occurring during the first six months of 2021 and continuing into the third quarter of 2021 which are described in the following two paragraphs.
The COVID-19 pandemic and the measures being taken to address and limit the spread of the virus adversely affected the economies and financial markets of the world, resulting in an economic downturn beginning in early 2020 that negatively impacted global demand and prices for crude oil and condensate, natural gas liquids (NGLs) and natural gas. The effects of COVID-19 mitigation efforts, including the wide availability of vaccines, combined with the waning intensity of the pandemic, have resulted in increased demand and prices for crude oil and condensate. In the first nine months of 2021, demand and prices for crude oil and condensate returned to near pre-pandemic levels. Uncertainty related to variants of the COVID-19 virus may cause a fluctuation in demand and prices for crude oil and condensate for the remainder of 2021 and beyond.
In early 2021, the members of the Organization of Petroleum Exporting Countries and Russia (OPEC+) met and agreed to taper off certain of their production curtailments (agreed to in April 2020) through March 2021. Subsequent to the meeting, Saudi Arabia announced that it would unilaterally cut its production by an additional one million barrels per day in February 2021 and March 2021. In April 2021, OPEC+ indicated it would continue to ease production curtailments starting in May 2021 as it expected the intensity of the COVID-19 pandemic would subside and containment measures would be scaled back, leading to expected increases in demand for crude oil production in the second half of 2021.
Other uncertainties regarding the global economic and financial environment could lead to an extended national or global economic recession. A slowdown in economic activity caused by a recession would likely reduce national and worldwide demand for oil and natural gas and result in lower commodity prices for long periods of time. Costs of exploration, development and production have not yet adjusted to current economic conditions, or in proportion to the significant reduction in product prices. Prolonged, substantial decreases in oil and natural gas prices would likely have a material adverse effect on the Company’s business, financial condition, and results of operations, and could further limit the Company's access to liquidity and credit and could hinder its ability to satisfy its capital requirements.
11
In the past several years, capital and credit markets have experienced volatility and disruption. Given the levels of market volatility and disruption, the availability of funds from those markets may diminish substantially. Further, arising from concerns about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards, or altogether ceased to provide funding to borrowers.
Due to these potential capital and credit market conditions, the Company cannot be certain that funding will be available in amounts or on terms acceptable to the Company. The Company is evaluating whether current cash balances and cash flow from operations alone would be sufficient to provide working capital to fully fund the Company's operations. Accordingly, the Company is evaluating alternatives, such as joint ventures with third parties, or sales of interest in one or more of its properties. Such transactions, if undertaken, could result in a reduction in the Company's operating interests or require the Company to relinquish the right to operate the property. There can be no assurance that any such transactions can be completed or that such transactions will satisfy the Company's operating capital requirements. If the Company is not successful in obtaining sufficient funding or completing an alternative transaction on a timely basis on terms acceptable to the Company, the Company would be required to curtail its expenditures or restructure its operations, and the Company would be unable to continue its exploration, drilling, and recompletion program, any of which would have a material adverse effect on its business, financial condition, and results of operations.
There could be adverse legislation which if passed, would significantly curtail our ability to attract investors and raise capital. Proposed changes in the Federal income tax laws which would eliminate or reduce the percentage depletion deduction and the deduction for intangible drilling and development costs for small independent producers, will significantly reduce the investment capital available to those in the industry as well as our Company. Lengthening the time to expense seismic costs will also have an adverse effect on our ability to explore and find new reserves.
Other factors that may affect the demand for oil and natural gas, and therefore impact our results, include technological improvements in energy efficiency; seasonal weather patterns; increased competitiveness of, or government policy support for, alternative energy sources; changes in technology that alter fuel choices, such as technological advances in energy storage that make wind and solar more competitive for power generation; changes in consumer preferences for our products, including consumer demand for alternative fueled or electric transportation or alternatives to plastic products; and broad-based changes in personal income levels.
Commodity prices and margins also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil and gas supply sources and technologies to enhance recovery from existing sources tend to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand.
Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks may emerge from time to time, and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.
12
Results of Operations
WARNING CONCERNING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
This Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,”
“should,” “will,” “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors, that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the factors listed and described at Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K, which investors should review. There have been changes to the risk factors previously described in the Company’s Form 10-K. for the fiscal year ended December 31, 2021 (the “Form 10-K”), including significant global economic and pandemic factors occurring during the first quarter of 2021 and continuing into the second quarter of 2021 which are described in the following two paragraphs.
The COVID-19 pandemic and the measures being taken to address and limit the spread of the virus adversely affected the economies and financial markets of the world, resulting in an economic downturn beginning in early 2020 that negatively impacted global demand and prices for crude oil and condensate, natural gas liquids (NGLs) and natural gas. The effects of COVID-19 mitigation efforts, including the wide availability of vaccines, combined with the waning intensity of the pandemic, have resulted in increased demand and prices for crude oil and condensate. During 2021, the demand and prices for crude oil and condensate returned to pre-pandemic levels, but uncertainty related to COVID-19 may continue to cause a fluctuation in demand and prices for crude oil and condensate. The continuing COVID-19 pandemic, related economic repercussions, and any future outbreak of any other highly infectious or contagious diseases may negatively affect the Company, our financial condition, results of operations, and cash flows. However, the duration and extent of the impact of the COVID-19 pandemic on the Company and our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, is uncertain and depends on various factors that we cannot predict or quantify, including: the severity and duration of the pandemic; governmental, business and other actions in response to the pandemic; the impact of the pandemic on economic activity; the response of the overall economy and the financial markets; the demand for oil and natural gas, which may be reduced on a prolonged or permanent basis due to a structural shift in the global economy or in connection with a global recession or depression; any impairment in the value of the Company’s assets which could be recorded as a result of a weaker economic conditions or commodity prices. There are no comparable recent events that provide guidance as to the effect the COVID-19 pandemic may have, and as a result, the ultimate impact of the pandemic is highly long-term uncertain and subject to change.
Rising inflation and other uncertainties regarding the global economy, financial environment, and global conflict could lead to an extended national or global economic recession. A slowdown in economic activity caused by a recession would likely reduce national and worldwide demand for oil and natural gas and result in lower commodity prices. Prolonged, substantial decreases in oil and natural gas prices would likely have a material adverse effect on the Company’s business, financial condition, and results of operations, and could further limit the Company's access to liquidity and credit and could hinder its ability to satisfy its capital requirements.
In the past several years, capital and credit markets have experienced volatility and disruption. Given the levels of market volatility and disruption, the availability of funds from those markets may diminish substantially. Further, arising from concerns about the stability of financial markets generally and the solvency of borrowers specifically, the cost of accessing the credit markets has increased as many lenders have raised interest rates, enacted tighter lending standards, or altogether ceased to provide funding to borrowers.
Due to these potential capital and credit market conditions, the Company cannot be certain that funding will be available in amounts or on terms acceptable to the Company. The Company is evaluating whether current cash balances and cash flow from operations alone would be sufficient to provide working capital to fully fund the Company's operations. Accordingly, the Company is evaluating alternatives, such as joint ventures with third parties, or sales of interest in one or more of its properties. Such transactions, if undertaken, could result in a reduction in the Company's operating interests or require the Company to relinquish the right to operate the property. There can be no assurance that any such transactions can be completed or that such transactions will satisfy the Company's operating capital requirements. If the Company is not successful in obtaining sufficient funding or completing an alternative transaction on a timely basis on terms acceptable to the Company, the Company would be required to curtail its expenditures or restructure its operations, and the Company would be unable to continue its exploration, drilling, and recompletion program, any of which would have a material adverse effect on its business, financial condition, and results of operations.
A negative shift in some of the public’s attitudes toward the oil and natural gas industry could adversely affect the Company’s ability to raise debt and equity capital. Certain segments of the investment community have developed negative sentiments about investing in the oil and natural gas industry. Equity returns in the sector versus other industry sectors from 2020 and the first three quarters of 2021 led to lower oil and natural gas representation in certain key equity market indices. In addition, some investors, including investment advisors and certain wealth funds, pension funds, university endowments and family foundations, have stated policies to disinvest in the oil and natural gas sector based on their social and environmental considerations. Certain other stakeholders have also pressured commercial and investment banks to halt financing oil and natural gas production and related infrastructure projects. Such developments, including environmental, social and governance (“ESG”) activism and initiatives aimed at limiting climate change and reducing air pollution, could result in downward pressure on the stock prices of oil and natural gas companies. The Company’s stock price could be adversely affected by these developments. This may also potentially result in a reduction of available capital funding for potential development projects, impacting the Company’s future financial results.
The Company faces various risks associated with increased negative attitudes toward oil and natural gas exploration and development activities. Opposition to oil and natural gas drilling and development activities has been growing globally and is expanding in the United States. Companies in the oil and natural gas industry are often the target of efforts from both individuals and nongovernmental organizations regarding safety, human rights, climate change, environmental matters, sustainability, and business practices. Anti-development groups are working to reduce access to federal and state government lands and delay or cancel certain operations such as drilling and development along with other activities. Opposition to oil and natural gas activities could materially and adversely impact the Company’s ability to operate our business and raise capital.
There could be adverse legislation which if passed, would significantly curtail our ability to attract investors and raise capital. Proposed changes in the Federal income tax laws which would eliminate or reduce the percentage depletion deduction and the deduction for intangible drilling and development costs for small independent producers, will significantly reduce the investment capital available to those in the industry as well as our Company. Lengthening the time to expense seismic costs will also have an adverse effect on our ability to explore and find new reserves.
Other factors that may affect the demand for oil and natural gas, and therefore impact our results, include technological improvements in energy efficiency; seasonal weather patterns; increased competitiveness of, or government policy support for, alternative energy sources; changes in technology that alter fuel choices, such as technological advances in energy storage that make wind and solar more competitive for power generation; changes in consumer preferences for our products, including consumer demand for alternative fueled or electric transportation or alternatives to plastic products; and broad-based changes in personal income levels.
Commodity prices and margins also vary depending on a number of factors affecting supply. For example, increased supply from the development of new oil and gas supply sources and technologies to enhance recovery from existing sources tend to reduce commodity prices to the extent such supply increases are not offset by commensurate growth in demand.
Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks may emerge from time to time, and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.
Results of Operations
NineThree months ended September 30, 2021,March 31, 2022 compared to ninethe three months ended September 30, 2020March 31, 2021
Oil and gas revenues for the first nine monthsquarter of 20212022 were $3,582,000,$1,672,000, as compared to $2,025,000$894,000 for the same period in 2020,2021, an increase of approximately $1,557,000$778,000 or 76.89%, due to higher oil and natural gas prices and increased production.87.0%.
Oil sales for the first ninethree months of 20212022 were approximately $1,414,000$865,000 compared to approximately $1,178,000 for$422,000 in the first nine monthsquarter of 2020,2021, an increase of approximately $236,000$443,000 or 20.03%105.0%. OilOf this net increase in oil sales, volumes for the first nine monthsquarter of 20212022 were approximately 24.09811,300 bbls, compared to approximately 21,9878,600 bbls during the same period in 2020,first quarter of 2021, an increase of approximately 2,1112,700 bbls, or 9.60%,31.4%.
Average oil prices received were $51.28$71.34 per bbl in the first nine monthsquarter of 20212022 compared to $40.77$49.34 per bbl in the first ninethree months of 2020,2021, an increase of approximately $10.51$22.00 per bbl or 25.78%44.6%.
Natural gas revenuerevenues for the first ninethree months of 2021 was $2,168,0002022 were $807,000 compared to $847,000$472,000 for the same period in 2020,2021, an increase of approximately $1,321,000$335,000 or 155.96%70.97%. Natural gas sales volumes for the first nine monthsquarter of 20212022 were approximately 589,000142,000 mcf compared to approximately 524,000190,000 mcf during the first nine monthsquarter of 2020, an increase2021, a decrease of approximately 65,00048,000 mcf or 12.40%25.3%.
Average gross natural gas prices received were $3.68$5.67 per mcf in the first nine monthsquarter of 20212022 as compared to $1.72$3.07 per mcf in the same time period in 2020,first quarter of 2021, an increase of approximately $1.96$2.60 per mcf or 113.95%84.7%.
In general, revenues from oil and gas producing operations experienced a significant increase for the nine months ended 2021 compared to the same period in 2020. These increases result in part from increased oil and gas prices, as well as production increases. A significant number of both operated wells and non-operated wells were shut-in due to historic low oil and gas prices and most of these wells were returned to production and producing as of September 30, 2021.
Revenues from lease operations were $169,000was $44,000 in the first nine monthsquarter of 20212022 compared to $168,000$57,000 in the first nine monthsquarter of 2020, an increase2021, a decrease of approximately $1,000$13,000 or 0.6%22.8%. Revenues from lease operations are derived from field supervision charged to operated leases along with operator overhead chargedcharges to operated leases.
Revenues from gas gathering, compression and equipment rental for the first nine monthsquarter of 2021 were $69,0002022 was $18,000 compared to $57,000 for the same period$34,000 in 2020, an increase of approximately $12,000 or 21.05%. These revenues are derived from gas volumes produced and transported through the Company owned gas gathering systems.
Real estate revenue was approximately $169,000 during the first nine months of 2021 compared to $204,000 for the first nine months of 2020, a decrease of approximately $35,000, or 17.16%. The decrease is due to lease re-negotiations and loss of tenants.
Interest income was $115,000 during the first nine months of 2021 as compared to $164,000 during the same period in 2020, a decrease of approximately $49,000 or 29.88%. Interest income is due to the Company investing its funds in both long-term and short-term certificates of depository accounts paying higher rates of interest than those received in money market accounts.
Other revenues for the first nine months of 2021 were $28,000 as compared to $29,000 for the same period in 2020, a decrease of approximately $1,000 or 3.45%.
Lease operating expenses in the first nine months of 2021 were $787,000 as compared to $727,000 in the first nine months of 2020, a net increase of $60,000, or 8.25%. Of this net increase, approximately $37,000 is due in part to net decreases in operating expenses billed by third-party operators on non-operated properties that were shut in during the first nine months of 2020. The remaining net increase of approximately $97,000 represents overall increases and decreases in well expenditures on various operated properties. A number of both operated wells and non-operated wells were shut-in during the first nine months of 2020 due to low oil and gas prices.
Production taxes, gathering and marketing expenses in the first nine months of 2021 were approximately $607,000 as compared to $468,000 for the first nine months of 2020, an increase of approximately $139,000, or 29.7%. This increase relates directly to the increase in oil and gas revenues as described in the above paragraphs.
Pipeline and rental expenses for the first nine months of 2021 were $14,000 compared to $6,000 for the same time period in 2020, an increase of approximately $8,000
Real estate expenses in the first nine months of 2021 were approximately $99,000 compared to $106,000 during the same period in 2020, a decrease of approximately $7,000 or 6.6%.
.
Depreciation, depletion, and amortization expenses for first nine months of 2021 were $48,000 as compared to $261,000 for the same period in 2020, a decrease of $213,000, or 81.6%. Amortization of the amount for the full cost pool for the first nine months of 2021 was $4,000 compared to $216,000 for the same period of 2020, a decrease of $212,000 or 98.2%. The Company re-evaluated its proved oil and natural gas reserve quantities as of December 31, 2020. This re-evaluated reserve base was reduced for oil and gas reserves that were produced or sold during the first nine months of 2021 and adjusted for newly acquired reserves or for changes in estimated production curves and future price assumptions. A depletion rate of 6.403% for the first quarter of 2021, a depletion ratedecrease of 5.432% forapproximately $16,000, or 47.1%. This was due primarily to the seconddecrease in natural gas volume sold through PPC.
Real estate income was approximately $53,000 during the first quarter of 2021, and a depletion rate of 7.568% for the third quarter of 2021 was calculated and applied to the Company’s full cost pool of capitalized oil and natural gas properties2022 compared to rates of 4.184%, 0.813% and 5.269%$59,000 for the first three quarters of 2020, respectively. The provision for depletion for the nine-months ended September 30, 2021, was reduced over that computed for the six-month period ended June 30, 2021. In the third quarter of 2021, the Company sold six operated gas wells located in North Texas, for approximately $1,512,000, and as required by the full cost method of accounting, the full cost pool was reduced by this amount. This decrease in the full cost pool resulted in the depletable base of the full cost pool being reduced to approximately $22,000 after consideration of accumulated amortization. This reduction includes amounts taken in the first two quarters of 2021, which were calculated using a significantly higher depletable base. The third quarter of 2021 includes a credit in the amortization of approximately $180,000 to account for this sale and related reduction of the full cost pool.
Asset Retirement Obligation (“ARO”) expense for the first nine months of 2021, was approximately $104,000 as compared to approximately $90,000 for the same period in 2020, an increase of approximately $14,000 or 15.6%. The ARO expense is calculated to be the discounted present value of the estimated future cost to plug and abandon the Company’s producing wells.
General and administrative expenses for the first nine months of 2021 were approximately $1,541,000 as compared to approximately $1,723,000 for the same period of 2020, a decrease of approximately $182,000$6,000, or 10.5%.
Three months ended September 30, 2021 compared to three months ended September 30, 2020
Oil and natural gas revenues for the three months ended September 30, 2021, were $1,624,000, compared to $933,000 for the same period in 2020, an increase of $691,000, or 74.1%10.2%.
Oil sales forInterest income was approximately $25,000 during the thirdfirst quarter of 2021 were approximately $577,0002022, compared to approximately $570,000 for the same period of 2020, an increase of approximately $7,000 or 1.2%. Oil volumes sold for the third quarter of 2021 were approximately 10,763 bbls compared to approximately 9,687 bbls during the same period of 2020, an increase of approximately 1,076 bbl or 11.11%.
Average oil prices received were approximately $53.55 per bbl in the third quarter of 2021 compared to $36.48 per bbl during the same period of 2020, an increase of approximately $17.07 per bbl, or 46.8%.
Natural gas revenues for the third quarter of 2021 were $1,047,000 compared to $363,000 for the same period in 2020, an increase of approximately $684,000 or 188.43%. Natural gas volumes sold for the third quarter of 2021 were approximately 222,000 mcf compared to approximately 132,000 mcf during the same period of 2020, an increase of approximately 90,000 mcf, or 68.18%,
Average gross natural gas prices received were approximately $4.15 per mcf in the third quarter of 2021 as compared to approximately $1.88 per mcf$46,000 during the same period in 2020.
In general, revenues from oil and gas producing operations experienced a significant increase for the nine months ended 2021, compared to the same period in 2020. In addition, the third quarter results from operations also experienced a significant increase over the same period in 2020. These increases result in part from increased oil and gas prices, as well as production increases. A significant number of both operated wells and non-operated wells were shut-in due to historic low oil and gas prices and most of these wells were returned to production and producing as of September 30, 2021.
Revenues from lease operations for the third quarter of 2021 were approximately $53,000 compared to approximately $49,000 for the same period in 2020, an increase of approximately $4,000 or 8.2%. Revenues from lease operations are derived from field supervision charged to operated leases along with operator overhead charged to operated leases.
Revenues from gas gathering, compression and equipment rental for the third quarter of 2021 were approximately $30,000, compared to approximately $12,000 for the same period in 2020, an increase of approximately $18,000 or 150.0%. These revenues are derived from gas volumes produced and transported through our gas gathering systems.
Real estate revenue was approximately $55,000 during the third quarter of 2021 compared to $70,000 for the same period in 2020. The decrease is due to lease re-negotiations and loss of tenants.
Interest income for the third quarter of 2021 was approximately $34,000 as compared with approximately $61,000 for the same period in 2020, a decrease of approximately $27,000$21,000 or 44.3%45.7%. Interest income is derived from investments in both short-term and long-term certificates of deposit as well as money market accounts at banks. Some long-term certificates of deposit matured during 2021 and re-invested at lower interest rates offered by banks.
Other revenues for the third quarterfirst three months of 20212022 were approximately $10,000$12,000 as compared with approximately $10,000to $9,000 for the same period in 2020.2021, an increase of approximately $3,000, or 33.3%.
Lease operating expenses for both operated and non-operated wells in the thirdfirst quarter of 2022 were $244,000 as compared to $123,000 in the first quarter of 2021, were $265,000 as compareda net increase of approximately $121,000, or 98.4%. Of this net increase, approximately $6,000 is due to $265,000net decreases in the third quarteroperating expenses billed by third-party operators on non-operated properties. Approximately $127,000 of 2020.overall net increases in operating expenses are related to
various operated properties.
Production taxes, gathering transportation and marketing expenses in the first quarter of 2022 were approximately $181,000 as compared to $129,000 for the thirdfirst quarter of 2021, were approximately $272,000 as compared to $212,000 during the third quarter of 2020, a netan increase of approximately $60,000$52,000 or 28.3%. This increase relates40.3% directly related to the increase in oil and gas revenues as described in the above paragraphs.revenues.
Pipeline and rental expenses for the thirdfirst quarter of 20212022 were $5,000approximately $2,000 compared to $2,000approximately $3,000 for the same period in 2020, an increase2021, decrease of approximately $3,000.$1,000 or 33.3%.
Real estate expenses duringin the thirdfirst quarter 2021of 2022 were approximately $34,000$38,000 compared to approximately $39,000 for$32,000 during the same period in 2020, a decrease2021, an increase of approximately $5,000$6,000 or 12.8%18.8%.
Depreciation, depletion, and amortization expensesexpense for thirdthe first quarter of 2022 was $31,000 as compared to $119,000 for the first quarter of 2021, was $(167,000) as compared to $126,000 for the same period in 2020, a decrease of $293,000,$88,000, or 232.5%. Amortization of the amount for the full cost pool for the first nine months of 2021 was $(180,000) compared to $216,000 for the same period of 2020, a decrease of $396,000 or 183.3%74.0%. The Company re-evaluated its proved oil and natural gas reserve quantities as of December 31, 2020.2021. This re-evaluated reserve base was reduced for oil and gas reserves that were produced or sold during the first nine months of 2021quarter and adjusted for newly acquired reserves or for changes in estimated production curves and future price assumptions. A depletion rate of 6.403% for the first quarter of 2021, a depletion rate of 5.432% for the second quarter of 2021, and a depletion rate of 7.568% for the third quarter of 2021 was calculated and applied to the Company’s full cost pool of capitalized oil and natural gas properties compared to rates of 4.184%, 0.813% and 5.269% for the third quarter of 2020 respectively. The provision for depletion for the first three quarters ended September 30, 2021, was reduced over that computed for the six-month period ended June 30,2021. In the third quarter of 2021, the Company sold six operated gas wells located in North Texas, for approximately $1,512,000, and as required by the full cost method of accounting, the full cost pool was reduced by this amount. This decrease in the full cost pool resulted in the depletable base of the full cost pool being reduced to approximately $22,000 after consideration of accumulated amortization. This reduction includes amounts taken in the first two quarters of 2021, which were calculated using a significantly higher depletable base. The third quarter of 2021 includes a credit in the amortization of approximately $180,000 to account for this sale and related reduction of the full cost pool.
Asset Retirement Obligation (“ARO”) expense for the third quarterfirst three months of 20212022 was approximately $34,000$143,000 as compared to approximately $30,000$35,000 for the same period in 2020,2021, an increase of approximately $4,000$108,000, or 13.3%308.6%. The ARO expense is calculated to be the discounted present value of the estimated future cost to plug and abandon the Company’s producing wells.
General and administrative expenses for the thirdfirst quarter of 20212022 were $549,000approximately $590,000 as compared to $332,000approximately $537,000 for the same period in 2020,first quarter of 2021, an increase of approximately $217,000$53,000 or 65.4%9.9%.
Financial Condition and Liquidity
The Company's operating capital needs, as well as its capital spending program are generally funded from cash flow generated by operations. Because future cash flow is subject to severala number of variables, such as the level of production and the sales price of oil and natural gas, the Company can provide no assurance that its operations will provide cash sufficient to maintain current levels of capital spending. Accordingly, the Company may be required to seek additional financing from third parties to fund its exploration and development programs.
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Item 4. - Controls and Procedures
(a) As of the end of the period covered by this report, Spindletop Oil & Gas Co. carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based upon the evaluation, the Company's Principal Executive Officer and Principal Financial and Accounting Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report.
(b) There have been no changes in the Company's internal controls over financial reporting during the quarter ended September 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect the Company's internal controls over financial reporting.
Part II - Other Information
Item 5. – Other Information
Alabama
Effective April 1, 2021, the Company acquired additional working interests of 6.001730% with a net revenue interest of 4.501290% in its operated Fairview Carter South Oil Unit in Lamar County, Alabama.
Effective May 5, 2021, the Company acquired additional working interests of 4.49621% with a net revenue interest of 3.366% in its operated Fairview Carter South Oil Unit located in Lamar County, Alabama.
These acquisitions bring the Company’s total interest in this property to a 70.503223% working interest with a 51.233863% net revenue interest.
Effective May 5, 2021, the Company acquired additional working interests of 10.542651% with a net revenue interest of 8.5187240% in its operated Fairview Carter North Oil Unit located in Lamar County, Alabama.
Effective August 1, 2021, the Company acquired additional working interests of 1.623630% with a net revenue interest of 1.310070% in its operated Fairview Carter North Oil Unit located in Lamar County, Alabama.
These acquisitions bring the Company’s total interest in this property to a 64.973802% working interest with a 49.4446790% net revenue interest.
Texas Panhandle
Effective April 26, 2021, the Company acquired an additional working interest of 15% with a net revenue interest of 11.25% in its operated Pope #140-4H well located in the Spearman, SE block of Ochiltree County, Texas. The acquisition brings the Company’s total interest in this property to a 60.5% working interest with a 45.375% net revenue interest.
EastWest Texas
Effective June 1, 2021,March 4, 2022, the Company acquiredsold its interest in an additional working interest of 2.5%operated oil well along with a net revenue interest of 1.875%its associated leasehold acreage, in its operated Edwards Unit #1 well located in the Leona East block of LeonMartin County, Texas. The acquisition bringsCompany is pursuing Section 1031, Like-Kind Exchange treatment for the Company’s total interest inproceeds from this property to a 75.105925% working interest with a 56.292438% net revenue interesttransaction and has not calculated the income tax implication of the divestiture.
North Texas
During the third quarter,Effective January 1, 2022, the Company sold sixits interest in two operated natural gas wells and two shut-in wells along with its associated leasehold acreage located in Hood County, Texas, to Giant NRG Co., LP, a related entity. The terms of the Newark E. Barnett Shale Fieldtransaction are no less favorable than could be obtained from unaffiliated third parties and have been approved by a majority of North Texas. Also, during the third quarter, the Company divested itselfour Board of two operated gas wells in Parker County, Texas.Directors.
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Item 6. - Exhibits
The following exhibits are filed herewith or incorporated by reference as indicated.
| Exhibit Designation | Exhibit Description | |
| 3.1 (a) | Amended Articles of Incorporation of Spindletop Oil & Gas Co. (Incorporated by reference to Exhibit 3.1 to the General Form for Registration of Securities on Form 10, filed with the Commission on August 14, 1990) | |
| 3.2 | Bylaws of Spindletop Oil & Gas Co. (Incorporated by reference to Exhibit 3.2 to the General Form for Registration of Securities on Form 10, filed with the Commission on August 14, 1990) | |
| 31.1 * | Certification pursuant to Rules 13a-14 and 15d under the Securities Exchange Act of 1934. | |
| 31.2 * | Certification pursuant to Rules 13a-14 and 15d under the Securities Exchange Act of 1934 | |
| 32.1 * | Certification pursuant to 18 U.S.C. Section 1350 | |
____________________________
* filed herewith
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SPINDLETOP OIL & GAS CO. | |
| (Registrant) | |
| Date: | By:/s/ Chris G. Mazzini |
| Chris G. Mazzini | |
| President, Principal Executive Officer | |
| Date: | By:/s/ Michelle H. Mazzini |
| Michelle H. Mazzini | |
| Vice President, Secretary | |
| Date: | By:/s/ Robert E. Corbin |
| Robert E. Corbin | |
| Principal Financial Officer and | |
| Accounting Manger | |