FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 1-12108
GULFWEST OIL COMPANY
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(Exact name of Registrant as specified in its charter)
Texas 87-0444770
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
397 North Sam Houston Parkway East
Suite 375
Houston, Texas 77060
(Address of principal executive offices) (zip code)
(281) 820-1919
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ____
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The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, May 10, 2001, was 18,462,541 shares of
Class A Common Stock, $.001 par value.
GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2001
Page of
Form 10-Q
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Part I: Financial Statements
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 2001,
and December 31, 2000 3
Consolidated Statements of Operations-for the three
months ended March 31, 2001, and 2000 5
Consolidated Statements of Cash Flows-for the three
months ended March 31, 2001, and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on 8-K 10
Signatures 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
ASSETS
March 31, December 31,
2001 2000
------------------ ------------------
CURRENT ASSETS:
Cash and cash equivalents $ 43,919 663,032
Accounts Receivable - trade, net of allowance for doubtful
accounts of -0- in 2001 and 2000 1,723,543 2,188,421
Prepaid expenses 241,769 83,351
------------------ ------------------
Total current assets 2,009,231 2,934,804
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OIL AND GAS PROPERTIES,
using the successful efforts method of accounting 32,653,372 30,895,049
OTHER PROPERTY AND EQUIPMENT 2,205,161 1,961,203
Less accumulated depreciation, depletion,
and amortization (4,456,267) (4,049,510)
------------------ ------------------
Net oil and gas properties and
other property and equipment 30,402,266 28,806,742
------------------ ------------------
OTHER ASSETS
Deposits 27,638 27,638
Investments - 122,785
Debt issue cost 451,086 482,159
------------------ ------------------
Total other assets 478,724 632,582
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TOTAL ASSETS $ 32,890,221 $ 32,374,128
================== ==================
The Notes to Consolidated Financial Statements are an integral part of these statements.
3
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2001 2000
------------------ -----------------
CURRENT LIABILITIES
Notes payable $ 840,300 $ 935,300
Notes payable - related parties 700,000 700,000
Current portion of long-term debt 2,601,749 3,111,120
Current portion of long-term debt - related parties 228,763 303,296
Accounts payable - trade 2,951,054 2,189,656
Accrued expenses 450,123 355,614
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Total current liabilities 7,771,989 7,594,986
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LONG-TERM DEBT, net of current portion 17,876,110 17,960,455
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LONG-TERM DEBT, RELATED PARTIES 293,338 116,916
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 80 80
Common stock 18,445 18,445
Additional paid-in capital 23,537,900 23,537,900
Retained deficit (16,607,641) (16,854,654)
Long-term accounts and notes receivable - related parties,
net of allowance for doubtful accounts of $740,478 in 2001
and 2000 ------------------ -----------------
Total stockholders' equity 6,948,784 6,701,771
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 32,890,221 $ 32,374,128
================== =================
The Notes to Consolidated Financial Statements are an integral part of these statements.
4
GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
---------------- -----------------
---------------- -----------------
OPERATING REVENUES
Oil and gas sales $ 2,959,753 $ 1,500,437
Well servicing revenues 4,030 74,010
Operating overhead and other income 93,956 44,009
---------------- -----------------
Total operating revenues 3,057,739 1,618,456
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OPERATING EXPENSES
Lease operating expenses 1,271,683 673,877
Cost of well servicing operations 23,612 87,446
Depreciation, depletion and amortization 448,551 182,071
General and administrative 383,109 366,837
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Total operating expenses 2,126,955 1,310,231
---------------- -----------------
INCOME FROM OPERATIONS 930,784 308,225
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OTHER INCOME AND EXPENSE
Interest expense (681,117) (383,380)
Gain (loss) on sale of assets (2,654) 4,827
---------------- -----------------
Total other income and expense (683,771) (378,553)
---------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES 247,013 (70,328)
INCOME TAXES - -
---------------- -----------------
NET INCOME (LOSS) 247,013 (70,328)
DIVIDENDS ON PREFERRED STOCK
(PAID 2001 - $-0-; 2000 - $4,691) - -
---------------- -----------------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS 247,013 (70,328)
================ =================
================ =================
INCOME (LOSS) PER COMMON SHARE -
BASIC AND DILUTED $ .01 $ (.00)
================ =================
The Notes to Consolidated Financial Statements are an integral part of these statements.
5
GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 247,013 $ (70,328)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization 448,551 182,071
Common stock and warrants issued and charged to operations 13,600
(Gain) loss on sale of assets 2,654 (4,827)
(Increase) decrease in accounts receivable - trade, net 435,147 (378,321)
(Increase) decrease in prepaid expenses (158,418) (15,899)
Increase (decrease) in accounts payable and accrued expenses 855,907 774,357
---------------- ----------------
Cash provided by operating activities 1,830,854 500,653
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 21,423 7,750
Purchase of property and equipment (1,682,125) (830,716)
---------------- ----------------
Net cash used in investing activities (1,660,702) (822,966)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (1,014,126) (291,581)
Proceeds from debt issuance 230,000 680,000
Debt issue cost (5,139) (232,422)
---------------- ----------------
Net cash provided (used) by financing activities (789,265) 155,997
---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (619,113) (166,316)
CASH AND CASH EQUIVALENTS, beginning of period 663,032 287,300
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 43,919 $ 120,984
================ ================
CASH PAID FOR INTEREST $ 729,483 $ 198,912
================ ================
The Notes to Consolidated Financial Statements are an integral part of these statements.
6
GULFWEST OIL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
(UNAUDITED)
1. During interim periods, we follow the accounting policies set forth in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Users of financial information produced for interim periods are encouraged to
refer to the footnotes contained in the Annual Report when reviewing interim
financial results.
2. The accompanying financial statements include the Company and its
wholly-owned subsidiaries: RigWest Well Service, Inc., formerly VanCo Well
Service, Inc., formed September 5, 1996; GulfWest Texas Company formed September
23, 1996; DutchWest Oil Company formed July 28, 1997; Southeast Texas Oil and
Gas Company, L.L.C. acquired September 1, 1998; SETEX Oil and Gas Company formed
August 11, 1998; GulfWest Oil & Gas Company formed February 8, 1999; LTW
Pipeline Co. formed April 19, 1999; and GulfWest Development Company ("GWD")
formed November 9, 2000. All material intercompany transactions and balances are
eliminated upon consolidation.
3. In management's opinion, the accompanying 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 the statements of cash flows of GulfWest Oil Company for the
interim periods.
4. Non-cash Investing and Financing
During the three month period ended March 31, 2001, we acquired $197,299 of
other property and equipment through notes payable to financial institutions and
related parties.
5. We entered into an agreement with an energy lender, commencing in May 2000,
to hedge a portion of our oil and gas sales for the period of May 2000 through
April 2004. The agreement calls for initial volumes of 7,900 barrels of oil and
52,400 Mcf of gas per month, declining monthly thereafter. As a result of this
agreement, we realized a reduction in revenues of $726,077 for the three-month
period ended March 31, 2001, which is included in oil and gas sales.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Overview
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We are engaged primarily in the acquisition, development, exploitation,
exploration and production of crude oil and natural gas. Our focus is on
increasing production from our existing crude oil and natural gas properties
through the further exploitation, development and optimization of those
properties, and on acquiring additional crude oil and natural gas properties.
Our gross revenues are derived from the following sources:
1. Oil and gas sales that are proceeds from the sale of crude oil and
natural gas production to midstream purchasers;
2. Operating overhead and other income that consists of earnings from
operating crude oil and natural gas properties for other working
interest owners, and marketing and transporting natural gas. This also
includes earnings from other miscellaneous activities.
3. Well servicing revenues that are earnings from the operation of well
servicing equipment under contract to third party operators.
Results of Operations
---------------------
The factors which most significantly affect our results of operations are
(1) the sales price of crude oil and natural gas, (2) the level of total sales
volumes of crude oil and natural gas, (3) the level of and interest rates on
borrowings and, (4) the level and success of new acquisitions and development of
existing properties.
Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended March 31, 2001 compared to Three Month Period
Ended March 31, 2000.
Revenues
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas for
the first quarter increased 97% from $1,500,400 in 2000 to $2,959,800 in 2001.
This was due to increased oil and gas production, higher oil and gas prices and
acquisitions of additional properties.
Well Servicing Revenues. Revenues from well servicing operations decreased
95% from $74,000 in 2000 to $4,000 in 2001. In 2001, we primarily used our rigs
to develop the properties that we operate and did significantly less work for
third parties than in 2000.
Operating Overhead and Other Income. Revenues from these activities
increased 114% from $44,000 in 2000 to $94,000 in 2001. This was due to an
increase in Other Income from natural gas gathering and marketing fees.
Costs and Expenses
Lease Operating Expenses. Lease operating expenses increased 89% from
$673,900 in 2000 to $1,271,700 in 2001. This was primarily due to the
acquisition of additional properties and increased costs related to oil and gas
production; and, to a lesser extent, higher vendor and contractor costs, as well
as additional field activity to increase production on existing and acquired
properties under the favorable product price environment.
8
Cost of Well Servicing Operations. Well servicing expenses decreased 73%
from $87,400 in 2000 to $23,600 in 2001. In 2001, we primarily used our rigs to
develop the properties that we operate and did significantly less work for third
parties than in 2000.
Depreciation, Depletion and Amortization (DD&A). DD&A increased
146% from $182,100 in 2000 to $448,600 in 2001, due to significantly higher
production as a result of successful field development activities and
acquisitions.
General and Administrative (G&A) Expenses. Our G&A expenses
increased 4% from $366,800 in 2000 to $383,100 in 2001 due to expenses
associated with an increase in the number of oil and natural gas assets that we
manage.
Interest Expense. Interest expense increased 78% from $383,400 in 2000 to
$680,700 in 2001, primarily due to interest on debt associated with additional
acquisitions and our capital development program.
Financial Condition and Capital Resources
-----------------------------------------
At March 31, 2001, our current liabilities exceeded our current assets by
$5,762,758. We had a profit of $247,000 for the quarter compared to a loss of
$70,300 for the period in 2000. The increased profit was a result of
significantly increased production and higher oil and natural gas prices.
During the first quarter of 2001, we sold 53,176 barrels of crude oil and
318,082 Mcf of natural gas compared to 35,262 barrels of crude oil and 210,851
Mcf of natural gas in the first quarter of 2000. Revenue for crude oil sales for
the quarter was $1,284,200 in 2001 compared to $924,800 in 2000 and for natural
gas sales was $1,675,600 in 2001 compared to $575,600 in 2000.
During the first quarter of 2001, we received a distribution of oil and
natural gas properties from a partnership in which we had invested. The value of
the distributed assets was $152,516, which included $29,731 in receivables due
us from the partnership.
In a subsequent event on April 26, 2001, we secured a $2,500,000 line of
credit from a bank, guaranteed by two of our directors. The line of credit bears
interest at the prime rate less one fourth of one percent and is due May 1,
2002. $2,100,000 of the line was used to retire existing debt and pay down
accounts payable. The remainder will be used for the development of our oil and
natural gas properties.
9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matter was submitted to a vote of our security holders during the first
quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits -
Number Description
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*3.1 Articles of Incorporation of the Registrant and Amendments thereto.
*3.2 Bylaws of the Registrant.
#10.1 GulfWest Oil Company 1994 Stock Option and Compensation Plan,
amended and restated as of April 15, 1998 and approved by the
shareholders on May 28,1998.
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* Previously filed with the Company's Registration Statement (on Form
S-1, Reg. No. 33-53526), filed with the Commission on October 21,
1992.
# Previously filed with the Company's Definitive Proxy Statement
dated April 24, 1998, filed with the Commission on April 24, 1998.
(b) Form 8-K - None.
10
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GULFWEST OIL COMPANY
(Registrant)
Date: May 10, 2001 By: /s/ Thomas R. Kaetzer
------------------------
Thomas R. Kaetzer
President
Date: May 10, 2001 By: /s/ Jim C. Bigham
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Jim C. Bigham
Executive Vice President and Secretary
Date: May 10, 2001 By: /s/ Richard L. Creel
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Richard L. Creel
Vice President of Finance