TABLE OF CONTENTS PART I – FINANCIAL INFORMATION | | Page | | | | | | | | | Page | PART I – FINANCIAL INFORMATION
| | | | Item 1. | Financial Statements | 2 | | | | | Index to Financial Statements | | | Balance Sheets – March 31, 20182019 and December 31, 20172018 | 2 | | Statements of Income – Three Months Ended March 31, 20182019 and 20172018 | 4 | | Statements of Stockholders’ Equity – Three Months Ended March 31, 2019 and 2018 | 5 | | Condensed Statements of Cash Flows – Three Months Ended March 31, 20182019 and 20172018 | 56
| | Notes to Financial Statements | 67
| | | | Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 910
| | | | Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 1213
| | | | Item 4. | Controls and Procedures | 1213
| | | | | | | PART II – OTHER INFORMATION | | | | Item 1. | Legal Proceedings | 1314
| | | | Item 1A. | Risk Factors | 1314
| | | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 1314
| | | | Item 3. | Defaults Upon Senior Securities | 1314
| | | | Item 4. | Mine Safety Disclosures | 1314
| | | | Item 5. | Other Information | 1314
| | | | Item 6. | Exhibits | 1415
|
PART I – FINANCIAL INFORMATION ITEM 1. | FINANCIAL STATEMENTS |
THE RESERVE PETROLEUM COMPANY | BALANCE SHEETS | | ASSETS |
| | March 31, | | | December 31, | | | March 31, | | | December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | (Unaudited) | | | (Derived from | | | (Unaudited) | | | (Derived from | | | | | | | | audited financial | | | | | | | audited financial | | | | | | | | statements) | | | | | | | statements) | | Current Assets: | | | | | | | | | | | | | | | | | Cash and Cash Equivalents | | $ | 4,682,958 | | | $ | 4,767,810 | | | $ | 3,025,623 | | | $ | 6,428,499 | | Available-for-Sale Securities | | | 16,371,544 | | | | 16,371,544 | | | Trading Securities | | | 589,448 | | | | 559,936 | | | Available-for-Sale Debt Securities | | | | 19,702,622 | | | | 16,249,414 | | Equity Securities | | | | 543,102 | | | | 454,058 | | Refundable Income Taxes | | | 392,737 | | | | 326,830 | | | | --- | | | | 16,387 | | Accounts Receivable | | | 843,068 | | | | 829,824 | | | | 904,696 | | | | 846,419 | | Note Receivable | | | 175,000 | | | | 175,000 | | | Notes Receivable | | | | 218,158 | | | | 218,158 | | | | | | | | | | | | | | | | | Total Current Assets | | | 23,054,755 | | | | 23,030,944 | | | | 24,394,201 | | | | 24,212,935 | | | | | | | | | | | | | | | | | Investments: | | | | | | | | | | | | | | | | | Equity Investments | | | 992,579 | | | | 991,094 | | | Other, at Cost | | | 1,682,031 | | | | 1,633,300 | | | Equity Method Investments | | | | 811,384 | | | | 881,860 | | Other Investments | | | | 1,691,116 | | | | 1,689,249 | | | | | | | | | | | | | | | | | Total Investments | | | 2,674,610 | | | | 2,624,394 | | | | 2,502,500 | | | | 2,571,109 | | | | | | | | | | | | | | | | | Property, Plant and Equipment: | | | | | | | | | | | | | | | | | Oil and Gas Properties, at Cost, | | | | | | | | | | Based on the Successful Efforts Method of Accounting – | | | | | | | | | | Oil and Gas Properties, at Cost, Based on the Successful Efforts Method of Accounting – | | | | | | | | | | Unproved Properties | | | 2,271,406 | | | | 2,296,686 | | | | 2,415,455 | | | | 2,249,113 | | Proved Properties | | | 54,369,717 | | | | 53,536,453 | | | | 55,045,718 | | | | 54,789,836 | | | | | | | | | | | | | | | | | Oil and Gas Properties, Gross | | | 56,641,123 | | | | 55,833,139 | | | | 57,461,173 | | | | 57,038,949 | | | | | | | | | | | | | | | | | | | Less – Accumulated Depreciation, Depletion, Amortization and Valuation Allowance | | | 45,720,904 | | | | 45,335,894 | | | | 46,235,754 | | | | 46,008,467 | | | | | | | | | | | | | | | | | Oil and Gas Properties, Net | | | 10,920,219 | | | | 10,497,245 | | | | 11,225,419 | | | | 11,030,482 | | | | | | | | | | | | | | | | | Other Property and Equipment, at Cost | | | 456,789 | | | | 404,256 | | | | 403,718 | | | | 403,718 | | | | | | | | | | | | | | | | | | | Less – Accumulated Depreciation | | | 261,047 | | | | 253,239 | | | | 256,887 | | | | 249,333 | | | | | | | | | | | | | | | | | Other Property and Equipment, Net | | | 195,742 | | | | 151,017 | | | | 146,831 | | | | 154,385 | | | | | | | | | | | | | | | | | Total Property, Plant and Equipment | | | 11,115,961 | | | | 10,648,262 | | | | 11,372,250 | | | | 11,184,867 | | | | | | | | | | | | | | | | | Total Assets | | $ | 36,845,326 | | | $ | 36,303,600 | | | $ | 38,268,951 | | | $ | 37,968,911 | |
See Accompanying Notes THE RESERVE PETROLEUM COMPANY | BALANCE SHEETS | | LIABILITIES AND STOCKHOLDERS’ EQUITY |
| | March 31, | | | December 31, | | | March 31, | | | December 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | (Unaudited) | | | (Derived from | | | (Unaudited) | | | (Derived from | | | | | | | | audited financial | | | | | | | audited financial | | | | | | | | statements) | | | | | | | statements) | | Current Liabilities: | | | | | | | | | | | | | | | | | Accounts Payable | | $ | 389,207 | | | $ | 235,007 | | | $ | 168,032 | | | $ | 318,387 | | Income Taxes Payable | | | | 27,718 | | | | --- | | Other Current Liabilities | | | 37,743 | | | | 25,243 | | | | 42,743 | | | | 25,243 | | | | | | | | | | | | | | | | | | | Total Current Liabilities | | | 426,950 | | | | 260,250 | | | | 238,493 | | | | 343,630 | | | | | | | | | | | | | | | | | | | Long-Term Liabilities: | | | | | | | | | | | | | | | | | Asset Retirement Obligation | | | 1,791,827 | | | | 1,774,634 | | | | 1,793,393 | | | | 1,774,114 | | Dividends Payable | | | 1,179,267 | | | | 1,228,648 | | | | 1,034,183 | | | | 1,057,483 | | Deferred Tax Liability, Net | | | 1,067,624 | | | | 918,050 | | | | 1,332,725 | | | | 1,210,271 | | | | | | | | | | | | | | | | | | | Total Long-Term Liabilities | | | 4,038,718 | | | | 3,921,332 | | | | 4,160,301 | | | | 4,041,868 | | | | | | | | | | | | | | | | | | | Total Liabilities | | | 4,465,668 | | | | 4,181,582 | | | | 4,398,794 | | | | 4,385,498 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stockholders’ Equity: | | | | | | | | | | | | | | | | | Common Stock | | | 92,368 | | | | 92,368 | | | | 92,368 | | | | 92,368 | | Additional Paid-in Capital | | | 65,000 | | | | 65,000 | | | | 65,000 | | | | 65,000 | | Retained Earnings | | | 33,768,057 | | | | 33,497,463 | | | | 35,355,997 | | | | 35,023,662 | | | | | | | | | | | | | | | | | | | Stockholders’ Equity Before Treasury Stock | | | 33,925,425 | | | | 33,654,831 | | | | 35,513,365 | | | | 35,181,030 | | | | | | | | | | | | | | | | | | | Less – Treasury Stock, at Cost | | | 1,545,767 | | | | 1,532,813 | | | | 1,643,208 | | | | 1,597,617 | | | | | | | | | | | | | | | | | | | Total Stockholders’ Equity | | | 32,379,658 | | | | 32,122,018 | | | | 33,870,157 | | | | 33,583,413 | | | | | | | | | | | | | | | | | | | Total Liabilities and Stockholders’ Equity | | $ | 36,845,326 | | | $ | 36,303,600 | | | $ | 38,268,951 | | | $ | 37,968,911 | |
See Accompanying Notes THE RESERVE PETROLEUM COMPANY | STATEMENTS OF INCOME | (Unaudited) |
| | Three Months Ended | | | Three Months Ended | | | | March 31, | | | March 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | Operating Revenues: | | | | | | | | | | | | | | | | | Oil and Gas Sales | | $ | 1,579,281 | | | $ | 1,581,476 | | | $ | 1,592,711 | | | $ | 1,579,281 | | Lease Bonuses and Other | | | 145,862 | | | | --- | | | | 7,528 | | | | 145,862 | | | | | | | | | | | | | | | | | | | Total Operating Revenues | | | 1,725,143 | | | | 1,581,476 | | | | 1,600,239 | | | | 1,725,143 | | | | | | | | | | | | | | | | | | | Operating Costs and Expenses: | | | | | | | | | | | | | | | | | Production | | | 606,767 | | | | 526,699 | | | | 558,707 | | | | 606,767 | | Exploration | | | 77,645 | | | | 149,506 | | | | 3,219 | | | | 77,645 | | Depreciation, Depletion, Amortization and Valuation Provisions | | | 326,332 | | | | 447,598 | | | | 234,841 | | | | 326,332 | | General, Administrative and Other | | | 450,534 | | | | 385,430 | | | | 452,860 | | | | 450,534 | | | | | | | | | | | | | | | | | | | Total Operating Costs and Expenses | | | 1,461,278 | | | | 1,509,233 | | | | 1,249,627 | | | | 1,461,278 | | | | | | | | | | | | | | | | | | | Income from Operations | | | 263,865 | | | | 72,243 | | | | 350,612 | | | | 263,865 | | | | | | | | | | | | | | | | | | | Other Income, Net | | | 90,399 | | | | 525,330 | | | | 140,558 | | | | 90,399 | | | | | | | | | | | | | | | | | | | Income Before Income Tax Provision | | | 354,264 | | | | 597,573 | | | | 491,170 | | | | 354,264 | | | | | | | | | | | | | | | | | | | Income Tax Provision/(Benefit): | | | | | | | | | | | | | | | | | Current | | | (65,904 | ) | | | 72,427 | | | | 36,381 | | | | (65,904 | ) | Deferred | | | 149,574 | | | | (2,348 | ) | | | 122,454 | | | | 149,574 | | | | | | | | | | | | | | | | | | | Total Income Tax Provision | | | 83,670 | | | | 70,079 | | | | 158,835 | | | | 83,670 | | | | | | | | | | | | | | | | | | | Net Income | | $ | 270,594 | | | $ | 527,494 | | | $ | 332,335 | | | $ | 270,594 | | | | | | | | | | | | | | | | Per Share Data: | | | | | | | | | | | | | | | | | Net Income, Basic and Diluted | | $ | 1.72 | | | $ | 3.34 | | | $ | 2.12 | | | $ | 1.72 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted Average Shares Outstanding, Basic and Diluted | | | 157,623 | | | | 157,880 | | | | 157,114 | | | | 157,623 | |
See Accompanying Notes THE RESERVE PETROLEUM COMPANY |
STATEMENTS OF STOCKHOLDERS’ EQUITY | (Unaudited) |
| | | | | | Additional | | | | | | | | | | | | | | | | Common | | | Paid-in | | | Retained | | | Treasury | | | | | | | | Stock | | | Capital | | | Earnings | | | Stock | | | Total | | Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2018 | | $ | 92,368 | | | $ | 65,000 | | | $ | 35,023,662 | | | $ | (1,597,617 | ) | | $ | 33,583,413 | | Net Income | | | --- | | | | --- | | | | 332,335 | | | | --- | | | | 332,335 | | Dividends Declared | | | --- | | | | --- | | | | --- | | | | --- | | | | --- | | Purchase of Treasury Stock | | | --- | | | | --- | | | | --- | | | | (45,591 | ) | | | (45,591 | ) | Balance as of March 31, 2019 | | $ | 92,368 | | | $ | 65,000 | | | $ | 35,355,997 | | | $ | (1,643,208 | ) | | $ | 33,870,157 | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance as of December 31, 2017 | | $ | 92,368 | | | $ | 65,000 | | | $ | 33,497,463 | | | $ | (1,532,813 | ) | | $ | 32,122,018 | | Net Income | | | --- | | | | --- | | | | 270,594 | | | | --- | | | | 270,594 | | Dividends Declared | | | --- | | | | --- | | | | --- | | | | --- | | | | --- | | Purchase of Treasury Stock | | | --- | | | | --- | | | | --- | | | | (12,954 | ) | | | (12,954 | ) | Balance as of March 31, 2018 | | $ | 92,368 | | | $ | 65,000 | | | $ | 33,768,057 | | | $ | (1,545,767 | ) | | $ | 32,379,658 | |
THE RESERVE PETROLEUM COMPANY | CONDENSED STATEMENTS OF CASH FLOWS | (Unaudited) |
| | Three Months Ended | | | Three Months Ended | | | | March 31, | | | March 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Cash Provided by Operating Activities | | $ | 845,649 | | | $ | 1,117,674 | | | $ | 692,487 | | | $ | 845,649 | | | | | | | | | | | | | | | | | | | Cash Provided by/(Applied to) Investing Activities: | | | | | | | | | | | | | | | | | Proceeds from Disposal of Property, Plant and Equipment | | | --- | | | | 16,498 | | | Maturity of Available-for-Sale Debt Securities | | | | 2,473,604 | | | | --- | | Purchase of Available-for-Sale Debt Securities | | | | (5,926,812 | ) | | | --- | | Purchase of Property, Plant and Equipment | | | (818,594 | ) | | | (443,742 | ) | | | (570,260 | ) | | | (818,594 | ) | Cost Investments | | | (48,731 | ) | | | 24,750 | | | Other Investments | | | | (1,867 | ) | | | (48,731 | ) | | | | | | | | | | | | | | | | | | Net Cash Applied to Investing Activities | | | (867,325 | ) | | | (402,494 | ) | | | (4,025,335 | ) | | | (867,325 | ) | | | | | | | | | | | | | | | | | | Cash Applied to Financing Activities: | | | | | | | | | | | | | | | | | Dividends Paid to Stockholders | | | (50,222 | ) | | | (7,322 | ) | | | (24,437 | ) | | | (50,222 | ) | Purchase of Treasury Stock | | | (12,954 | ) | | | (10,262 | ) | | | (45,591 | ) | | | (12,954 | ) | | | | | | | | | | | | | | | | | | Total Cash Applied to Financing Activities | | | (63,176 | ) | | | (17,584 | ) | | | (70,028 | ) | | | (63,176 | ) | | | | | | | | | | | | | | | | | | Net Change in Cash and Cash Equivalents | | | (84,852 | ) | | | 697,596 | | | | (3,402,876 | ) | | | (84,852 | ) | | | | | | | | | | | | | | | | | | Cash and Cash Equivalents, Beginning of Period | | | 4,767,810 | | | | 8,071,854 | | | | 6,428,499 | | | | 4,767,810 | | | | | | | | | | | | | | | | | | | Cash and Cash Equivalents, End of Period | | $ | 4,682,958 | | | $ | 8,769,450 | | | $ | 3,025,623 | | | $ | 4,682,958 | |
See Accompanying Notes THE RESERVE PETROLEUM COMPANY NOTES TO FINANCIAL STATEMENTS March 31, 20182019 (Unaudited) Note 1 – BASIS OF PRESENTATION The accompanying balance sheet as of December 31,2017, 2018, which has been derived from audited financial statements, the unaudited interim financial statements and these notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures normally included in financial statements prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K10-K for the year ended December 31,2017 2018 as filed with the Securities and Exchange Commission (hereinafter, the “2017“2018 Form 10-K”10-K”). In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring accruals), which are necessary for a fair statement of the results of the interim periods presented. The results of operations for the current interim periods are not necessarily indicative of the operating results for the full year. Note 2 – OTHER INCOME, NET The following is an analysis of the components of Other Income, Net: | | Three Months Ended | | | Three Months Ended | | | | March 31, | | | March 31, | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Net Realized and Unrealized Gain/(Loss) on Trading Securities | | $ | 28,724 | | | $ | 42,872 | | | Net Realized and Unrealized Gain on Equity Securities | | | $ | 88,738 | | | $ | 28,724 | | Gain on Asset Sales | | | 1,215 | | | | 15,591 | | | | --- | | | | 1,215 | | Interest Income | | | 53,617 | | | | 18,096 | | | | 132,527 | | | | 53,617 | | Equity Earnings in Investees | | | 1,485 | | | | 14,363 | | | Equity Earnings/(Losses) in Investees | | | | (70,476 | ) | | | 1,485 | | Other Income | | | 17,284 | | | | 446,199 | | | | 1,309 | | | | 17,284 | | Interest and Other Expenses | | | (11,926 | ) | | | (11,791 | ) | | | (11,540 | ) | | | (11,926 | ) | Other Income, Net | | $ | 90,399 | | | $ | 525,330 | | | $ | 140,558 | | | $ | 90,399 | |
Note 3 – | EQUITY METHOD AND COST METHODOTHER INVESTMENTS AND RELATED COMMITMENTS AND CONTINGENT LIABILITIES, INCLUDING GUARANTEES |
The Company’s Equity Method Investments include: Broadway Sixty-Eight, Ltd. (the “Partnership”LLC (“Broadway”), an Oklahoma limited partnership,liability company, with a 33% ownership. The PartnershipBroadway owns and operates an office building in Oklahoma City, Oklahoma. Although the Company invested as a limited partner, it agreed, jointly and severally, with all other limited partners to reimburse the general partner for any losses suffered from operating the Partnership. The indemnity agreement provides no limitation to the maximum potential future payments. To date, no monies have been paid with respect to this agreement. The Company leases its corporate office from the Partnership. The operating lease, under which the space was rented, expired February 28,1994, and the space is currently rentedBroadway on a year-to-yearmonth-to-month basis under the terms of the expired lease.modified lease agreement. Rent expense for lease of the corporate office from the PartnershipBroadway was approximately $7,500 at $7,800 and $7,500 during the three months ended March 31,2018 2019 and 2017.2018, respectively. The Company’s investment in the PartnershipBroadway totaled $191,093$182,687 and $171,243$172,722 at March 31,2018 2019 and December 31,2017, 2018, respectively. Grand Woods Development, LLC (the “LLC”), an Oklahoma limited liability company, with a 47% ownership, was acquired in 2015. The LLC owns approximately 26.326.56 acres of undeveloped real estate in northeast Oklahoma City. The Company has guaranteed $1,000,000 of a $1,595,750 loan for which the proceeds were used to purchase a portion of the undeveloped real estate acreage. The loan matures October 31, 2020. The Company’s investment in the LLC totaled $528,218$360,408 and $544,603$438,303 at March 31,2018 2019 and December 31,2017, 2018, respectively. The Company also holds a note receivable of $43,158 from the LLC. QSN Office Park (“QSN”), an Oklahoma limited liability company, with a 20% ownership, was acquired in 2016. QSN is constructing and selling office buildings in a new office park. The Company has guaranteed a $1,300,000 loan for which a portion of the proceeds were used to build a speculative office building. The loan matures March 26, 2021. The Company’s investment in QSN totaled $273,268$268,289 and $275,248$270,835 at March 31,2018 2019 and December 31,2017, 2018, respectively. The Company’s Cost MethodOther Investments primarily include: OKC Industrial Properties (“OKC”), with a 10% ownership, was acquired in 1992. OKC originally owned approximately 260 acres of undeveloped land in north Oklahoma City and over time has sold all but approximately 46 acres. The Company’s investment in OKC totaled $56,164$56,164 at March 31,2018 2019 and December 31,2017. 2018. Bailey Hilltop Pipeline (“Bailey”), with a 10% ownership, was acquired in 2008. Bailey is a gas gathering system pipeline for the Bailey Hilltop Prospect oil and gas properties in Grady County, Oklahoma. The Company’s investment in Bailey totaled $80,377$80,377 at March 31,2018 2019 and December 31,2017. 2018. Cloudburst Solutions (“Solutions”), with a 10.62%10.625% ownership, was acquired with an initial investment of $500,000$500,000 in 2014, and additional investments of $750,000$750,000 and $44,375$44,375 in 2016 and 2018, respectively. Solutions owns exclusive rights to a water purification process technology that is being developed and currently tested. The Company’s investment in Solutions totaled $1,294,375$1,294,375 at March 31, 2019 and $1,250,000 at March 31,2018 and December 31,2017, respectively. 2018. The Company also holds a note receivable of $175,000$175,000 from Solutions. Ocean’s NG (“Ocean”), with a 12.44% ownership, was acquired in 2015. Ocean is developing an underground Compressed Natural Gas (“CNG”) storage and delivery system for retail sales of CNG. The Company’s investment in Ocean totaled $210,800$219,885 and $206,444$218,018 at March 31,2018 2019 and December 31,2017, 2018, respectively. Note 4 – PROVISION FOR INCOME TAXES On December 22,2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Act”), which substantially revised numerous areas of U.S. federal income tax law, including reducing the tax rate for corporations from a maximum rate of 35% to a flat rate of 21% and eliminating the corporate alternative minimum tax (AMT). The various estimates included in determining our tax provision as of December 31,2017 2018 remain provisional through the three months ended March 31,2018 2019 and may be adjusted through subsequent events such as the filing of our 20172018 federal income tax return and the issuance of additional guidance such as new Treasury Regulations. Moreover, we are still in the process of evaluating the full impact of the Tax Act at both the federal and state level. In 2017,2019 and 2018, the effective tax rate differed from the statutory rate, primarily as a result of allowable depletion for tax purposes in excess of the cost basis in oil and gas propertiesproperties. Excess federal percentage depletion, which is limited to certain production volumes and by certain income levels, reduces estimated taxable income projected for any year. The federal excess percentage depletion estimates will be updated throughout the corporate graduatedyear until finalized with the detail well-by-well calculations at year-end. When a provision for income taxes is recorded, federal excess percentage depletion benefits decrease the effective tax rate. When a benefit for income taxes is recorded, federal excess percentage depletion benefits increase the effective tax rate. The benefit of federal excess percentage depletion is not directly related to the amount of pre-tax income recorded in a period. Accordingly, in periods where a recorded pre-tax income is relatively small, the proportional effect of these items on the effective tax rate structure. There was no allowable depletion as of March 31, 2018, therefore no difference in effective statutory rates.may be significant. Note 5 – ASSET RETIREMENT OBLIGATION The Company records the fair value of its estimated liability to retire its oil and natural gas producing properties in the period in which it is incurred (typically the date of first sale). The estimated liability is calculated by obtaining current estimated plugging costs from the well operators and inflating it over the life of the property. Current year inflation rate used is 4.08%. When the liability is first recorded, a corresponding increase in the carrying amount of the related long-lived asset is also recorded. Subsequently, the asset is amortized to expense over the life of the property and the liability is increased annually for the change in its present value which is currently 3.25%. A reconciliation of the Company’s asset retirement obligation liability is as follows: Balance at December 31, 2017 | | $ | 1,774,634 | | | Balance at December 31, 2018 | | | $ | 1,774,114 | | Liabilities incurred for new wells (net of revisions) | | | 5,408 | | | | 8,352 | | Liabilities settled (wells sold or plugged) | | | --- | | | | --- | | Accretion expense | | | 11,785 | | | | 11,398 | | Balance at March 31, 2018 | | $ | 1,791,827 | | | Revision to estimate | | | | (471 | ) | Balance at March 31, 2019 | | | $ | 1,793,393 | |
Note 6 – FAIR VALUE MEASUREMENTS Inputs used to measure fair value are organized into a fair value hierarchy based on the observability of the inputs. Level 1 inputs consist of quoted prices in active markets for identical assets. Level 2 inputs are inputs, other than quoted prices, for similar assets that are observable. Level 3 inputs are unobservable inputs. Recurring Fair Value Measurements Certain of the Company’s assets are reported at fair value in the accompanying balance sheets on a recurring basis. The Company determined the fair value of the available-for-sale debt securities using quoted market prices for securities with similar maturity dates and interest rates. At March 31,2018 2019 and December 31,2017, 2018, the Company’s assets reported at fair value on a recurring basis are summarized as follows: | | March 31, 2018 | | | March 31, 2019 | | | | Level 1 Inputs | | | Level 2 Inputs | | | Level 3 Inputs | | | Level 1 Inputs | | | Level 2 Inputs | | | Level 3 Inputs | | Financial Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-Sale Securities – | | | | | | | | | | | | | | U.S. Treasury Bills Maturing in 2018 | | $ | --- | | | $ | 16,371,544 | | | $ | --- | | | Trading Securities: | | | | | | | | | | | | | | Available-for-Sale Debt Securities – | | | | | | | | | | | | | | U.S. Treasury Bills Maturing in 2019 | | | $ | --- | | | $ | 19,702,622 | | | $ | --- | | Equity Securities: | | | | | | | | | | | | | | Domestic Equities | | | 144,460 | | | | --- | | | | --- | | | | 337,010 | | | | --- | | | | --- | | International Equities | | | 306,080 | | | | --- | | | | --- | | | | 193,672 | | | | --- | | | | --- | | Others | | | 138,908 | | | | --- | | | | --- | | | | 12,420 | | | | --- | | | | --- | |
| | December 31, 2017 | | | December 31, 2018 | | | | Level 1 Inputs | | | Level 2 Inputs | | | Level 3 Inputs | | | Level 1 Inputs | | | Level 2 Inputs | | | Level 3 Inputs | | Financial Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-Sale Securities – | | | | | | | | | | | | | | U.S. Treasury Bills Maturing in 2018 | | $ | --- | | | $ | 16,371,544 | | | $ | --- | | | Trading Securities: | | | | | | | | | | | | | | Available-for-Sale Debt Securities – | | | | | | | | | | | | | | U.S. Treasury Bills Maturing in 2019 | | | $ | --- | | | $ | 16,249,414 | | | $ | --- | | Equity Securities: | | | | | | | | | | | | | | Domestic Equities | | | 249,210 | | | | --- | | | | --- | | | | 259,843 | | | | --- | | | | --- | | International Equities | | | 271,921 | | | | --- | | | | --- | | | | 179,083 | | | | --- | | | | --- | | Others | | | 38,805 | | | | --- | | | | --- | | | | 15,132 | | | | --- | | | | --- | |
Non-Recurring Fair Value Measurements The Company’s asset retirement obligation annually represents a non-recurring fair value liability. The fair value of the non-financial liability incurred in the quarter ended March 31,2018 2019 was $5,408$8,352 with none$5,408 in 2017,2018, and was calculated using Level 3 inputs. See Note 5 above for more information about this liability and the inputs used for calculating fair value. There was no long-lived asset impairment loss for the first quarter for either 20182019 or 2017.2018. This also represents non-recurring fair value expense calculated using Level 3 inputs. See Note 10 – LONG-LIVED ASSETS IMPAIRMENT LOSS on page 3031 of the 20172018 Form 10-K10-K for a description of the impairment loss calculation. Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, marketable securities, trade payables and dividends payable. At March 31,2018 2019 and December 31,2017, 2018, the historical cost of cash and cash equivalents, trade receivables, trade payables and dividends payable are considered to be representative of their respective fair values due to the short-term maturities of these items. Note 7 – NEW ACCOUNTING PRONOUNCEMENTS See the “New Accounting Pronouncements” disclosures on page 25 of the 2017 Form 10-K. There were no other accounting pronouncements issued or that have become effective since December 31,2017, other than Topic 606 discussed in Note 8, which were directly applicable toOn January 1, 2019, the Company adopted ASU No. 2016-02, Leases. The Company currently has no significant capital or willoperating leases. The new guidance is not applicable for leases with a term of 12 months or less, nor is it applicable for oil and gas leases. The Company’s building lease is a month to month contract. The new guidance does not have any material impact on the Company’s financial position, results of operations or cash flows.
See the “New Accounting Pronouncements” disclosures on page 26 of the 2018 Form 10-K. There were no other accounting pronouncements issued or that have become effective since December 31, 2018. Note 8 – REVENUE RECOGNITION The Financial Accounting Standards Board (FASB) issued Revenue from Contracts with Customers (Topic 606)606) superseding virtually all existing revenue recognition guidance. We adopted this new standard in the first quarter of 2018 using the modified retrospective approach. Adoption of the new standard did not require an adjustment to the opening balance of equity and did not have an impact on income/(loss)income from operations, earnings per share or cash flows. The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. Each barrel of oil or thousand cubic feet of natural gas delivered is considered a separate performance obligation. The Company recognizes revenue from its interests in the sales of oil and natural gas in the period that its performance obligations to provide oil and natural gas to customers are satisfied. Performance obligations are satisfied when the Company has no further obligations to perform related to the sale and the customer obtains control of product. The sales of oil and natural gas are made under contracts which the third-partythird-party operators of the wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month. The Company receives payment from the sale of oil and natural gas production from one to three months after delivery. At the end of each month as performance obligations are satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in accounts receivable in the balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received, however, differences have been and are insignificant. Accordingly, the variable consideration is not constrained. A portion of oil and gas sales recorded in the statements of income are the result of estimated volumes and pricing for oil and gas product not yet received for the period. For the periods ending March 31,2018 2019 and 2017,2018, that estimate represented approximately $264,543$293,653 and $208,619,$264,543, respectively, of oil and gas sales included in the statements of income. The Company’s contracts with customers originate at or near the time of delivery and transfer of control of oil and natural gas to the purchasers. As such, the Company does not have significant unsatisfied performance obligations. The Company’s oil is typically sold at delivery points under contractscontract terms that are common in our industry. The Company's natural gas produced is delivered by the well operators to various purchasers at agreed upon delivery points under a limited number of contract types that are also common in our industry. However, under these contracts, the natural gas may be sold to a single purchaser or may be sold to separate purchasers. Regardless of the contract type, the terms of these contracts compensate the well operators for the value of the oil and natural gas at specified prices, and then the well operators will remit payment to the Company for its share in the value of the oil and natural gas sold. The Company’s disaggregated revenue has two primary revenue sources which are oil sales and natural gas sales. Oil sales for the three months ended March 31,2018 2019 and 20172018 were $980,786$981,931 and $908,700,$980,786, respectively. Natural gas sales for the three months ended March 31,2018 2019 and 20172018 were $541,273$565,112 and $623,544,$541,273, respectively. Miscellaneous oil and gas product sales for the three months ended March 31, 2019 and 2018 were $45,668 and $57,222, respectively. ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion and analysis should be read with reference to a similar discussion in the 20172018 Form 10-K, as well as the financial statements included in this Form 10-Q. Forward-Looking Statements This discussion and analysis includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give the Company’s current expectations of future events. They include statements regarding the drilling of oil and gas wells, the production that may be obtained from oil and gas wells, cash flow and anticipated liquidity and expected future expenses. Although management believes the expectations in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that would cause actual results to differ materially from expected results are described under “Forward-Looking Statements” on page 8 of the 20172018 Form 10-K. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q, and we undertake no obligation to update this information.information because of new information, future developments, or otherwise. You are urged to carefully review and consider the disclosures made in this and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business. Financial Conditions and Results of Operations Liquidity and Capital Resources Please refer to the Balance Sheets and the Condensed Statements of Cash Flows in this Form 10-Q to supplement the following discussion. In the first quarter of 2018,2019, the Company continued to fund its business activity through the use of internal sources of cash. The Company had net cash provided by operations of $845,649.$692,487 and cash provided by the maturities of available-for-sale debt securities of $2,473,604 for total cash provided of $3,166,091. The Company utilized cash for the purchase of available-for-sale debt securities of $5,926,812, property additions of $818,594, equity investments$570,260, other investment activity of $48,731$1,867 and financing activities of $63,176$70,028 for total cash applied of $930,501.$6,568,967. Cash and cash equivalents decreased $84,852$3,402,876 (53%) to $4,682,958.$3,025,623. Discussion of Significant Changes in Working Capital. In addition to the changes in cash and cash equivalents discussed above, there were other changes in working capital line items from December 31, 2017.2018. A discussion of these items follows. TradingEquity securities increased $29,512 (5%$89,044 (20%) to $543,102 as of March 31, 2019 from $559,936 to $589,448.$454,058 at December 31, 2018. The increase was the result of a $7,278 decrease$150,324 increase in the tradingequity securities’ market value plus $36,790offset by $61,280 of net gainloss from these securities.
Refundable income taxes increased $65,907 (20%) to $392,737 from $326,830.decreased $16,387. This increasedecrease was due to the $65,904 current$16,387 tax benefit at December 31, 2018 with none at March 31, 2019. Accounts payable decreased $150,355 (47%) to $168,032 as of March 31, 2018. Accounts payable increased $154,200 (66%) to $389,2072019 from $235,007$318,387 at December 31, 2018 due to an increasea decrease in the drilling and exploration activity in the quarter endedat March 31, 2018 compared to the quarter ended2019 versus December 31, 2017.2018.
Discussion of Significant Changes in the Condensed Statements of Cash Flows. As noted in the first paragraph above, net cash provided by operating activities was $845,649$692,487 in 2018,the three months ended March 31, 2019, a decrease of $272,025 (24%$153,162 (18%) from the comparable period in 2017.2018 of $845,649. The decrease was primarily due to $440,000 of investment incomea decrease in 2017, offset by lease bonus income in 2018.income. For more information see “Operating Revenues” and “Other Income, Net” below. Cash applied to the purchase of property additions in 2018the three months ended March 31, 2019 was $818,594, an increase$570,260, a decrease of $374,852 (84%$248,334 (30%) from cash applied in 2017the comparable period in 2018 of $443,742.$818,594. For both 20182019 and 2017,2018, cash applied to property additions was mostly related to oil and gas exploration and development activity. See the subheading “Exploration Costs” in the “Results of Operations” section below for additional information. Cash applied to other investments in the three months ended March 31, 2019 was $1,867, a decrease of $46,864 (96%) from cash applied in the comparable period in 2018 of $48,731. Cash applied to financing activities in the three months ended March 31, 2019 was $70,028, an increase of $6,852 (11%) from cash applied in the comparable period in 2018 of $63,176. Conclusion. Management is unaware of any additional material trends, demands, commitments, events or uncertainties, which would impact liquidity and capital resources to the extent that the discussion presented in the 20172018 Form 10-K would not be representative of the Company’s current position. Material Changes in Results of Operations Three Months Ended March 31, 2018,2019, Compared with Three Months Ended March 31, 20172018 Net income decreased $256,900 (49%increased $61,741 (23%) to $332,335 in the three months ended March 31, 2019 from $270,594 in 2018 from $527,494the comparable period in 2017.2018. Net income per share, basic and diluted, decreased $1.62increased $0.40 to $2.12 in the three months ended March 31, 2019 from $1.72 in 2018 from $3.34the comparable period in 2017.2018. A discussion of revenue from oil and gas sales and other significant line items in the statements of income follows. Operating Revenues.Revenues. Revenues from oil and gas sales decreased $2,195increased $13,430 (1%) to $1,592,711 in the three months ended March 31, 2019 from $1,579,281 in 2018 from $1,581,476 in 2017.2018. Of the $2,195 decrease,$13,430 increase, crude oil sales increased $72,086;$1,145; natural gas sales decreased $82,271;increased $23,839; and miscellaneous oil and gas product sales increased $7,990.decreased $11,554. The $72,086 (8%)$1,145 increase in oil sales to $981,931 in the three months ended March 31, 2019 from $980,786 in the comparable period in 2018 was the net result of a decrease in the average price per barrel (Bbl) offset by an increase in the volume sold. The volume of oil sold increased 2,077 Bbls to 18,744 Bbls in the three months ended March 31, 2019, resulting in a positive volume variance of $122,231 compared to the comparable period in 2018. The average price per Bbl decreased $6.46 to $52.39 per Bbl in the three months ended March 31, 2019, resulting in a negative price variance of $121,086 compared to the comparable period in 2018. The increase in oil volumes sold was due to production of 3,600 Bbls from $908,700new wells partially offset by production declines from older wells. The $23,839 (4%) increase in 2017gas sales to $565,112 in the three months ended March 31, 2019 from $541,273 in the comparable period in 2018 was the net result of an increase in the average price per barrel (Bbl)thousand cubic feet (MCF) offset by a decrease in the volume sold. The volume of oilgas sold decreased 2,732 Bbls6,545 MCF to 16,667 Bbls192,133 MCF in the three months ended March 31, 2019 from 198,678 MCF in the comparable period in 2018, resulting infor a negative volume variance of $128,014.$17,802 compared to the comparable period in 2018. The average price per BblMCF increased $12.01$0.22 to $58.85$2.94 per BblMCF in the three months ended March 31, 2019 from $2.72 per MCF in the comparable period in 2018, resulting in a positive price variance of $200,100.$41,641 compared to the comparable period in 2018. The decrease in oil volumes sold was mostly due to production declines from older wells partially offset by production of 1,114 Bbls from new wells. The $82,271 (13%) decrease in gas sales to $541,273 in 2018 from $623,544 in 2017 was the net result of a decrease in the average price per thousand cubic feet (MCF) offset by an increase in the volume sold. The volume of gas sold increased 2,124 MCF to 198,678 MCF in 2018 from 196,554 MCF in 2017, for a positive volume variance of $6,733. The increase in gas volumes sold was mostly due to production of 6,0859,700 MCF from new wells offset by production declines from older wells. The average price per MCF decreased $0.45 to $2.72 per MCF in 2018 from $3.17 per MCF in 2017, resulting in a negative price variance of $89,004.
Sales from the Robertson County, Texas royalty interest properties provided approximately 29%32% of the Company’s first quarter gas sales volumes for 2018the three months ended March 31, 2019 and 22%29% of the first quarter gas sales volumes for 2017.the comparable period in 2018. See discussion on page 11 of the 20172018 Form 10-K under the subheading “Operating Revenues” for more information about these properties. Sales from Arkansas working interest properties provided approximately 10%12% of the Company’s first quarter 2018 gas sales volumes for the three months ended March 31, 2019 and about 12%11% of the first quarter 2017 gas sales volumes.volumes for the comparable period in 2018. For both oil and gas sales, the price change was mostly the result of a change in the spot market prices upon which most of the Company’s oil and gas sales are based. These spot market prices have had significant fluctuations in the past and these fluctuations are expected to continue. Sales of miscellaneous oil and gas products were $45,668 in the three months ended March 31, 2019 compared to $57,222 in 2018 compared to $49,232the comparable period in 2017.2018. The Company received lease bonuses of $145,862$7,528 in the first quarter of 2018three months ended March 31, 2019 for leases on its owned minerals with nonecompared to $145,862 in the first quarter of 2017.comparable period in 2018. Operating Costs and Expenses.Expenses. Operating costs and expenses decreased $47,955 (3%$211,651 (14%) to $1,249,627 in the three months ended March 31, 2019 from $1,461,278 in 2018 from $1,509,233the comparable period in 2017.2018. Production Costs. Production costs increased $80,068 (15%decreased $48,060 (8%) to $558,707 in 2018 tothe three months ended March 31, 2019 from $606,767 from $526,699 in 2017.the comparable period in 2018. This increasedecrease was primarily the result of an increasea decrease of $89,203$53,000 in lease operating expenses offset by a decrease of $15,982 in handling expenses. Exploration Costs. Total exploration expense decreased $71,861 (48%$74,426 (96%) to $3,219 in the three months ended March 31, 2019 from $77,645 in 2018 from $149,506the comparable period in 2017.2018. The decrease was mostly due to a decrease of $132,904 in dry hole costs and an increase$109,484 in geological and geophysical expenseexpenses, offset by an increase in other expenses of $89,297.$35,058. The following is a summary as of May 2, 2018,3, 2019, updating both exploration and development activity from December 31, 2017,2018, for the period ended March 31, 2018.2019. The Company participatedis participating with its 8.4%a 9.5% working interest in the drillingcompletion of an exploratorya development well on a ThomasWoods County, KansasOklahoma prospect. The well was completed as a dry hole. No additional drilling is planned on the prospect. Dry holedrilled in 2018. Capitalized costs for the period were $2,056 and an impairment expense of $19,258 was taken against the leasehold. The Company participated with its 10.5% working interest in the drilling of an exploratory well on a Thomas County, Kansas prospect. The well was completed as a dry hole. No additional drilling is planned on the prospect. Dry hole costs for the period were $2,904 and an impairment expense of $684 was taken against the leasehold.
The Company participated with its 18% working interest in the drilling of two step-out wells (one a re-entry) on a Kiowa County, Kansas prospect. Both wells have been completed and are being tested. Actual costs of $77,883 for the period were offset by prepaid costs from 2017 for a net capitalized amount of $0.
The Company participated with its 14% working interest in the drilling of two injection wells on a Hansford County, Texas waterflood unit. One well has been completed and is injecting water and the other missed the reservoir and was plugged. There are three other injection wells and two producing wells in the unit. Actual costs of $168,472 for the period were offset by $103,936 of prepaid costs from 2017 for a net capitalized amount of $64,536.$37,762.
The Company is participating with its 14% interest in the reworking of previously acquired 3-D seismic and in the acquisition of additional leasehold on a Creek County, Oklahoma 3-D seismic prospect. CapitalizedIt is likely that one or more exploratory wells will be drilled on the prospect in 2019. Leasehold costs for the period were $3,901 and seismic costs were $1,632.$1,458. The Company owns a 35% interest in 16,472.55 net acres of leasehold on a Crockett and Val Verde Counties, Texas prospect. The Company is participating in the development of the prospect and is currently engaged in efforts to sellits partners have entered into an agreement whereby a portion of its interest. The Company owns a 12.25% interest in 4,882.5 net acres of leasehold on a Crockett County, Texas prospect. An exploratory well was drilledthird party would drill two strat tests on the prospect, earning the option to drill three additional wells, purchase a 50% interest in 2017.the acreage and conduct a thermal recovery pilot test. The wellstrat tests have been drilled and the third party has been completed and is being tested. Capitalized costs fordecided to proceed with the period were $1,974.drilling of the additional wells.
The Company is participating with a 13% interest in a 3-D seismic prospect covering approximately 35,000 acres in San Patricio County, Texas. A 3-D seismic survey of the prospect area has been completed and processingthirteen prospects have been identified. An exploratory well was drilled on one prospect, resulting in a commercial oil and analysis aregas producer that is awaiting pipeline connection. Lease acquisition is in progress. Exploratoryprogress on seven prospects, and additional exploratory drilling is planned this year. Leasehold costs for the period were $4,138. Actual drilling costs of $140,384 for the period were offset by prepaid costs from 2018 for a net capitalized amount of $0. The Company has been participating with a 50% interest in an attempt to develop shallow oil prospects in the Permian Basin. Lease acquisition is in progress on one prospect in Crane County, Texas. The Company will start sometimesell a portion of its interest prior to any drilling. Leasehold costs were $2,019 for the period. The Company participated with its 16% working interest in 2018.the drilling of an exploratory well on a Barber County, Kansas prospect. The well has been completed and is being tested. Capitalized costs for the period were $7,794$57,133. In October 2018, the Company entered into an agreement to acquire mineral rights in Tyler, Doddridge and seismic costsRitchie Counties, West Virginia. The Company is funding the acquisition of the mineral rights which will then be sold to a third party for a profit, with the Company retaining an interest in the minerals. Costs for the period were $107,752.$198,186. The Company participatedis participating with its 10.5% working interest in the completion of an exploratory well thaton an Oldham County, Texas prospect. The well was drilled in 2017 on a Lea County, New Mexico prospect. The well is being tested, but it appears to be a marginal oil producer.2018. Capitalized costs for the period were $52,376.$144,160, including $13,125 of additional leasehold costs. The Company participated with its 7%17.1% and 17.5% working interestinterests in the drillingsuccessful recompletions of an exploratory welltwo wells on a SummitMcClain County, UtahOklahoma prospect. A completion is in progress. CapitalizedCapital costs for the period were $553,621.$15,596. The Company is participating with its 11.2% working interest in workovers on a group of wells that were purchased in 2017 on a Tyler County, Texas prospect. The workovers performed so far have been successful in significantly increasing production and others are planned. Capitalized costs for the period were $19,694.
Depreciation, Depletion, Amortization and Valuation Provision (DD&A). DD&A decreased $121,266 (27%$91,491 (28%) to $234,841 in the three months ended March 31, 2019 from $326,332 in 2018 from $447,598the comparable period in 2017.2018. The decrease was due primarily to revisions in reserve estimates and $44,700 less impairment of non-producing leaseholds for 20182019 versus 2017.2018. Other Income, Net.Net. This line item decreased $434,931 (83%increased $50,159 (55%) to $140,558 in the three months ended March 31, 2019 from $90,399 in 2018 from $525,330the comparable period in 2017.2018. See Note 2 to the accompanying financial statements for the various components of this line item. Trading securities gains in 2018 were $28,724 compared to $42,872 in 2017, a decrease of $14,148. In 2018, the Company had realized gains of $36,002 and unrealized losses of $(7,278) from adjusting the securities to estimated fair market value. In 2017, the Company had realized losses of $(85,538) and unrealized gains of $128,410.
Other Income decreased $428,915 to $17,284 in 2018 from $446,199 in 2017 primarily due to income from an investment of $440,000 in 2017 with no similar amount in 2018.
Income Tax Provision.Provision. Income tax provision increased $13,591 (19%$75,165 (90%) to $158,835 in the three months ended March 31, 2019 from $83,670 in 2018 from $70,079the comparable period in 2017. Of2018. The increase was due to an increase in Income Before Income Tax Provision of $136,906 (39%) to $491,170 as compared to $354,264 in the 2018 income tax net provision, the estimated deferred tax provision of $149,574 was offset by an estimated current tax benefit of $(65,904). Of the 2017 income tax provision, the current tax provision and deferred tax benefit were $72,427 and $(2,348), respectively.comparable period in 2018. See Note 4 to the accompanying financial statements for additional information on income taxes. Off-Balance Sheet Arrangement The Company’s off-balance sheet arrangements relate to Broadway Sixty-Eight, Ltd.,LLC, an Oklahoma limited partnership,liability company, and Grand Woods Development, LLC, an Oklahoma limited liability company. The Company does not have actual or effective control of these entities. Management of these entities could at any time make decisions in their own best interest, which could materially affect the Company’s net income or the value of the Company’s investment. For more information about these entities and the related off-balance sheet arrangements, see Note 3 to the accompanying financial statements. ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable. ITEM 4. | CONTROLS AND PROCEDURES |
As defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. The Company’s Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, they concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018.2019. Internal Control over Financial Reporting As defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the term "internal control over financial reporting" means a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles and includes those policies and procedures that: | (1) | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
| (2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and |
| (3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the issuer's assets that could have a material effect on the financial statements. |
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 20182019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II – OTHER INFORMATION During the quarter ended March 31, 2018,2019, the Company did not have any material legal proceedings brought against it or its properties. Not applicable. ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ISSUER PURCHASES OF EQUITY SECURITIES
Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 | | January 1 to January 31, 2018 | | | 20 | | | $ | 150 | | | | --- | | | | --- | | February 1 to February 28, 2018 | | | 44 | | | $ | 150 | | | | --- | | | | --- | | March 1 to March 31, 2018 | | | 22 | | | $ | 150 | | | | --- | | | | --- | | Total | | | 86 | | | $ | 150 | | | | --- | | | | --- | |
ISSUER PURCHASES OF EQUITY SECURITIES | | Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 | | January 1 to January 31, 2019 | | | 47 | | | $ | 150 | | | | --- | | | | --- | | February 1 to February 28, 2019 | | | 164 | | | $ | 150 | | | | --- | | | | --- | | March 1 to March 31, 2019 | | | 93 | | | $ | 150 | | | | --- | | | | --- | | Total | | | 304 | | | $ | 150 | | | | --- | | | | --- | |
1The Company has no formal equity security purchase program or plan. The Company acts as its own transfer agent, and most purchases result from requests made by shareholders receiving small odd lot share quantities as the result of probate transfers. ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None. ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable. None. The following documents are exhibits to this Form 10-Q. Each document marked by an asterisk is filed electronically herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. | THE RESERVE PETROLEUM COMPANY | | | (Registrant) | | | | | | | | | | | | | | Date: May 15, 20182019 | /s/ Cameron R. McLain | | | Cameron R. McLain, | | | Principal Executive Officer | | | | | | | | | | | | | | Date: May 15, 20182019 | /s/ Lawrence R. Francis | | | Lawrence R. Francis | | | Principal Financial Officer | |
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