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Reserve Petroleum Co (RSRV) SEC Filing 10-Q Quarterly report for the period ending Wednesday, September 30, 2020

Reserve Petroleum Co

CIK: 83350 Ticker: RSRV
Document And Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 06, 2020
Document Information [Line Items]  
Entity Registrant NameRESERVE PETROLEUM CO 
Entity Central Index Key0000083350 
Current Fiscal Year End Date--12-31 
Entity Filer CategoryNon-accelerated Filer 
Entity Current Reporting StatusYes 
Entity Emerging Growth Companyfalse 
Entity Small Businesstrue 
Entity Interactive Data CurrentYes 
Entity Common Stock, Shares Outstanding (in shares) 156,595
Entity Shell Companyfalse 
Document Type10-Q 
Document Period End DateSep. 30, 2020 
Document Fiscal Year Focus2020 
Document Fiscal Period FocusQ3 
Amendment Flagfalse 
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2020

 

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-08157

 

THE RESERVE PETROLEUM COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

DELAWARE

73-0237060

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

 

6801 Broadway ext., Suite 300

Oklahoma City, Oklahoma 73116-9037

(405) 848-7551

(Address and telephone number, including area code, of registrant’s principal executive offices)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

None

None

 

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 ☐No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑Yes ☐No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐

 Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☑

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 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

 

As of November 6, 2020, 156,595 shares of the Registrant’s $0.50 par value common stock were outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

Page
     

Item 1.

Financial Statements

2

 

Index to Financial Statements  

 

Balance Sheets – September 30, 2020 and December 31, 2019

2

 

Statements of Operations – Three and Nine Months Ended September 30, 2020 and 2019

4

 

Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, 2020 and 2019

5

 

Condensed Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019

6

 

Notes to Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

16

Item 4.

Controls and Procedures

16

     
     

PART II – OTHER INFORMATION

     

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 3.

Defaults Upon Senior Securities

17

Item 4.

Mine Safety Disclosures

17

Item 5.

Other Information

17

Item 6.

Exhibits

17

 

1

 

 

PART I FINANCIAL INFORMATION

 

 

ITEM 1.

FINANCIAL STATEMENTS

 

 

THE RESERVE PETROLEUM COMPANY

BALANCE SHEETS

ASSETS

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
   

(Unaudited)

         
                 

Current Assets:

               

Cash and Cash Equivalents

  $ 17,917,425     $ 2,738,338  

Available-for-Sale Debt Securities

    1,515,234       18,517,910  

Equity Securities

    780,509       545,075  

Refundable Income Taxes

    298,595       109,999  

Accounts Receivable

    650,408       968,382  

Notes Receivable

    98,087       ---  
                 

Total Current Assets

    21,260,258       22,879,704  
                 

Investments:

               

Equity Method Investments

    672,757       744,798  

Other Investments

    2,400,214       1,898,347  
                 

Total Investments

    3,072,971       2,643,145  
                 

Property, Plant and Equipment:

               

Oil and Gas Properties, at Cost,

               

Based on the Successful Efforts Method of Accounting – Unproved Properties

    2,975,845       2,727,857  

Proved Properties

    55,237,369       54,451,862  
                 

Oil and Gas Properties, Gross

    58,213,214       57,179,719  
                 

Less – Accumulated Depreciation, Depletion, Amortization and Valuation Allowance

    50,445,736       47,852,157  
                 

Oil and Gas Properties, Net

    7,767,478       9,327,562  
                 

Other Property and Equipment, at Cost

    466,728       466,728  
                 

Less – Accumulated Depreciation

    312,834       279,892  
                 

Other Property and Equipment, Net

    153,894       186,836  
                 

Total Property, Plant and Equipment

    7,921,372       9,514,398  
                 

Other Assets

    139,525       687,048  
                 

Total Assets

  $ 32,394,126     $ 35,724,295  

 

See Accompanying Notes

 

2

 

THE RESERVE PETROLEUM COMPANY

BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
   

(Unaudited)

         
                 

Current Liabilities:

               

Accounts Payable

  $ 140,499     $ 156,768  

Other Current Liabilities

    63,243       25,243  
                 

Total Current Liabilities

    203,742       182,011  
                 

Long-Term Liabilities:

               

Asset Retirement Obligation

    1,855,957       1,821,527  

Dividends Payable

    138,625       676,148  

Deferred Tax Liability, Net

    658,771       917,365  
                 

Total Long-Term Liabilities

    2,653,353       3,415,040  
                 

Total Liabilities

    2,857,095       3,597,051  
                 
                 
                 
                 

Stockholders’ Equity:

               

Common Stock

    92,368       92,368  

Additional Paid-in Capital

    65,000       65,000  

Retained Earnings

    31,069,956       33,660,169  
                 

Stockholders’ Equity Before Treasury Stock

    31,227,324       33,817,537  
                 

Less – Treasury Stock, at Cost

    1,690,293       1,690,293  
                 

Total Stockholders’ Equity

    29,537,031       32,127,244  
                 

Total Liabilities and Stockholders’ Equity

  $ 32,394,126     $ 35,724,295  

 

See Accompanying Notes

     

 

3

 

 

THE RESERVE PETROLEUM COMPANY

STATEMENTS OF OPERATIONS

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Operating Revenues:

                               

Oil and Gas Sales

  $ 1,196,134     $ 1,274,761     $ 2,993,027     $ 4,712,970  

Lease Bonuses and Other

    803       2,031       83,024       91,379  
                                 

Total Operating Revenues

    1,196,937       1,276,792       3,076,051       4,804,349  
                                 

Operating Costs and Expenses:

                               

Production

    432,403       549,478       1,370,699       1,733,325  

Exploration

    77,803       15,684       152,973       60,549  

Depreciation, Depletion, Amortization and Valuation Provisions

    1,253,044       581,716       2,869,968       1,132,718  

General, Administrative and Other

    376,855       403,344       1,265,858       1,259,873  
                                 

Total Operating Costs and Expenses

    2,140,105       1,550,222       5,659,498       4,186,465  
                                 

Income/(Loss) from Operations

    (943,168 )     (273,430 )     (2,583,447 )     617,884  
                                 

Other Income, Net

    75,137       29,229       329,125       292,296  
                                 

Income/(Loss) Before Income Taxes

    (868,031 )     (244,201 )     (2,254,322 )     910,180  
                                 

Income Tax Provision/(Benefit):

                               

Current

    (202,801 )     (12,409 )     (188,592 )     66,285  

Deferred

    71,818       (52,254 )     (258,594 )     (31,524 )
                                 

Total Income Tax Provision/(Benefit)

    (130,983 )     (64,663 )     (447,186 )     34,761  
                                 

Net Income/(Loss)

  $ (737,048 )   $ (179,538 )   $ (1,807,136 )   $ 875,419  
                                 

Per Share Data

                               

Net Income/(Loss), Basic and Diluted

  $ (4.71 )   $ (1.15 )   $ (11.54 )   $ 5.58  
                                 

Cash Dividends Declared and/or Paid

  $ ---     $ ---     $ 5.00     $ 7.00  
                                 

Weighted Average Shares Outstanding, Basic and Diluted

    156,615       156,617       156,615       156,820  

 

See Accompanying Notes

 

4

 

 

THE RESERVE PETROLEUM COMPANY

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

   

 

Common

Stock

   

Additional

Paid-in

Capital

   

 

Retained

Earnings

   

 

Treasury

Stock

   

 

 

Total

 
                                         

Three Months Ended September 30, 2020

                                       

Balance as of June 30, 2020

  $ 92,368     $ 65,000     $ 31,807,004     $ (1,690,293 )   $ 30,274,079  

Net Loss

    ---       ---       (737,048 )     ---       (737,048 )

Dividends Declared

    ---       ---       ---       ---       ---  

Purchase of Treasury Stock

    ---       ---       ---       ---       ---  

Balance as of September 30, 2020

  $ 92,368     $ 65,000     $ 31,069,956     $ (1,690,293 )   $ 29,537,031  
                                         

Three Months Ended September 30, 2019

                                       

Balance as of June 30, 2019

  $ 92,368     $ 65,000     $ 34,981,889     $ (1,689,956 )   $ 33,449,301  

Net Loss

    ---       ---       (179,538 )     ---       (179,538 )

Dividends Declared

    ---       ---       ---       ---       ---  

Purchase of Treasury Stock

    ---       ---       ---       (337 )     (337 )

Balance as of September 30, 2019

  $ 92,368     $ 65,000     $ 34,802,351     $ (1,690,293 )   $ 33,269,426  
                                         

Nine Months Ended September 30, 2020

                                       

Balance as of December 31, 2019

  $ 92,368     $ 65,000     $ 33,660,169     $ (1,690,293 )   $ 32,127,244  

Net Loss

    ---       ---       (1,807,136 )     ---       (1,807,136 )

Dividends Declared

    ---       ---       (783,077 )     ---       (783,077 )

Purchase of Treasury Stock

    ---       ---       ---       ---       ---  

Balance as of September 30, 2020

  $ 92,368     $ 65,000     $ 31,069,956     $ (1,690,293 )   $ 29,537,031  
                                         

Nine Months Ended September 30, 2019

                                       

Balance as of December 31, 2018

  $ 92,368     $ 65,000     $ 35,023,662     $ (1,597,617 )   $ 33,583,413  

Net Income

    ---       ---       875,419       ---       875,419  

Dividends Declared

    ---       ---       (1,096,730 )     ---       (1,096,730 )

Purchase of Treasury Stock

    ---       ---       ---       (92,676 )     (92,676 )

Balance as of September 30, 2019

  $ 92,368     $ 65,000     $ 34,802,351     $ (1,690,293 )   $ 33,269,426  

 

See Accompanying Notes

 

5

 

 

THE RESERVE PETROLEUM COMPANY

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 
   

2020

   

2019

 
                 
                 

Net Cash Provided by Operating Activities

  $ 873,884     $ 2,174,640  
                 

Cash Provided by/(Applied to) Investing Activities:

               

Maturity of Available-for-Sale Debt Securities

    25,082,211       22,176,226  

Purchase of Available-for-Sale Debt Securities

    (8,079,535 )     (25,677,995 )

Proceeds from Disposal of Property, Plant and Equipment

    15,012       9,423  

Purchase of Property, Plant and Equipment

    (1,441,743 )     (1,505,293 )

Equity Method Investments

    24,750       24,750  

Other Investments

    (512,415 )     (3,733 )
                 

Net Cash Provided by/(Applied to) Investing Activities

    15,088,280       (4,976,622 )
                 

Cash Applied to Financing Activities:

               

Dividends Paid to Stockholders

    (783,077 )     (1,084,571 )

Purchase of Treasury Stock

    ---       (92,676 )
                 

Total Cash Applied to Financing Activities

    (783,077 )     (1,177,247 )
                 

Net Change in Cash and Cash Equivalents

    15,179,087       (3,979,229 )
                 

Cash and Cash Equivalents, Beginning of Period

    2,738,338       6,428,499  
                 

Cash and Cash Equivalents, End of Period

  $ 17,917,425     $ 2,449,270  

 

See Accompanying Notes

 

6

 

THE RESERVE PETROLEUM COMPANY

NOTES TO FINANCIAL STATEMENTS

 

September 30, 2020

(Unaudited)

 

 

 

 

Note 1 – BASIS OF PRESENTATION

 

The accompanying balance sheet as of December 31, 2019, 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-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (hereinafter, the “2019 Form 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 – REVENUE RECOGNITION

 

A portion of oil and gas sales recorded in the statements of operations are the result of estimated volumes and pricing for oil and gas product not yet received for the period. For the nine months ended September 30, 2020 and 2019, that estimate represented approximately $288,799 and $278,006, respectively, of oil and gas sales included in the statements of operations.

 

The Company’s disaggregated revenue has two primary revenue sources which are oil sales and natural gas sales. The following is an analysis of the components of oil and gas sales:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Oil Sales

  $ 766,035     $ 922,052     $ 1,952,859     $ 3,239,602  

Natural Gas Sales

    397,623       318,717       947,653       1,336,748  

Miscellaneous Oil and Gas Product Sales

    32,476       33,992       92,515       136,620  
    $ 1,196,134     $ 1,274,761     $ 2,993,027     $ 4,712,970  

 

 

Note 3 – OTHER INCOME, NET

 

The following is an analysis of the components of Other Income, Net:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net Realized and Unrealized Gain/(Loss) on Equity Securities

  $ 85,724     $ (50,791 )   $ 235,113     $ 37,111  

Gain on Asset Sales

    5,072       6,959       19,025       9,422  

Interest Income

    9,380       123,832       145,282       412,946  

Equity Losses in Investees

    (19,325 )     (44,849 )     (57,839 )     (140,573 )

Other Income

    5,860       5,618       22,274       8,008  

Interest and Other Expenses

    (11,574 )     (11,540 )     (34,730 )     (34,618 )

Other Income, Net

  $ 75,137     $ 29,229     $ 329,125     $ 292,296  

 

7

 

 

Note 4 – EQUITY METHOD AND OTHER INVESTMENTS AND RELATED COMMITMENTS AND CONTINGENT LIABILITIES, INCLUDING GUARANTEES

 

The Company’s Equity Method Investments include:

 

Broadway Sixty-Eight, LLC (“Broadway”), an Oklahoma limited liability company, with a 33% ownership. Broadway owns and operates an office building in Oklahoma City, Oklahoma. The Company leases its corporate office from Broadway on a month-to-month basis under the terms of the modified lease agreement. Rent expense for lease of the corporate office from Broadway was approximately $26,100 and $25,200 during the nine months ended September 30, 2020 and 2019, respectively. The Company’s investment in Broadway totaled $170,801 and $157,911 at September 30, 2020 and December 31, 2019, respectively.

 

Grand Woods Development, LLC (the “LLC”), an Oklahoma limited liability company, with a 47% ownership, was acquired in 2015. The LLC owns approximately 26.56 acres of undeveloped real estate in northeast Oklahoma City. The Company has guaranteed $1,200,000 of a $1,755,000 loan for which the proceeds were used to purchase a portion of the undeveloped real estate acreage. The loan matures February 23, 2021. The Company also holds notes receivable of $58,852 and $39,235 from the LLC. The Company’s investment in the LLC totaled $232,537 and $316,384 at September 30, 2020 and December 31, 2019, respectively.

 

QSN Office Park, LLC (“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 $269,419 and $270,503 at September 30, 2020 and December 31, 2019, respectively.

 

The Company’s Other Investments primarily include:

 

Bailey Hilltop Pipeline, LLC (“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 at September 30, 2020 and December 31, 2019.

 

Cloudburst International, Inc. (“Cloudburst”), with an 13.39% ownership, was acquired with an initial investment of $1,294,375 in 2019 through the conversion of Cloudburst Solutions (“Solutions”) equity. See Note 7 on page 28 of the Company’s 2019 10-K for details of the conversion. Cloudburst owns exclusive rights to a water purification process technology that is being developed and currently tested. The Company’s investment in Cloudburst totaled $1,496,007 at September 30, 2020 and December 31, 2019.

 

Genlith, Inc. (“Genlith”), with a 2% ownership, was acquired in July 2020. Genlith identifies and structures investments in the new energy economy through corporate ventures, advisory and fund management. The Company’s investment in Genlith totaled $500,000 at September 30, 2020.

 

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 $227,351 and $225,485 at September 30, 2020 and December 31, 2019, respectively.

 

OKC Industrial Properties, LC (“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 at September 30, 2020 and December 31, 2019.

 

 

Note 5 – PROVISION FOR INCOME TAXES

 

In 2020 and 2019, 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 properties.

 

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 year 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 may be significant.

 

8

 

 

Note 6 – 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, 2019

  $ 1,821,527  

Liabilities incurred for new wells (net of revisions)

    4,206  

Liabilities settled (wells sold or plugged)

    (4,013 )

Accretion expense

    34,237  

Balance at September 30, 2020

  $ 1,855,957  

 

 

Note 7 – 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 September 30, 2020 and December 31, 2019, the Company’s assets reported at fair value on a recurring basis are summarized as follows:

 

   

September 30, 2020

 
   

Level 1 Inputs

   

Level 2 Inputs

   

Level 3 Inputs

 

Financial Assets:

                       

Available-for-Sale Debt Securities – U.S. Treasury Bills Maturing in 2021

  $ ---     $ 1,515,234     $ ---  

Equity Securities:

                       

Domestic Equities

    572,719       ---       ---  

International Equities

    66,988       ---       ---  

Others

    140,802       ---       ---  
    $ 780,509     $ 1,515,234     $ ---  

 

 

   

December 31, 2019

 
   

Level 1 Inputs

   

Level 2 Inputs

   

Level 3 Inputs

 

Financial Assets:

                       

Available-for-Sale Debt Securities – U.S. Treasury Bills Maturing in 2020

  $ ---     $ 18,517,910     $ ---  

Equity Securities:

                       

Domestic Equities

    364,171       ---       ---  

International Equities

    110,629       ---       ---  

Others

    70,275       ---       ---  
    $ 545,075     $ 18,517,910     $ ---  

 

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 nine months ended September 30, 2020 and 2019 was $4,206 and $42,419, respectively, and was calculated using Level 3 inputs. See Note 6 above for more information about this liability and the inputs used for calculating fair value.

 

9

 

The impairment loss in the nine months ended September 30, 2020 and 2019 of $2,418,898 and $366,791, respectively, also represents non-recurring fair value expenses using the income approach and Level 3 inputs. See Note 8 below 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 September 30, 2020 and December 31, 2019, 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 8 - LONG-LIVED ASSETS IMPAIRMENT LOSS

 

Certain oil and gas producing properties have been deemed to be impaired because the assets, evaluated on a property-by-property basis, are not expected to recover their entire carrying value through future cash flows. Impairment losses totaling $2,418,898 for the nine months ended September 30, 2020 are included in the statements of operation in the line item Depreciation, Depletion, Amortization and Valuation Provisions. The impairments were calculated by reducing the carrying value of the individual properties to an estimated fair value equal to the discounted present value of the future cash flow from these properties. Forward pricing was used for calculating future revenue and cash flow.

 

 

Note 9 – NEW ACCOUNTING PRONOUNCEMENTS

 

See the “New Accounting Pronouncements” disclosures on page 25 of the 2019 Form 10-K. There were no other accounting pronouncements issued or that have become effective since December 31, 2019.

 

 

 

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 2019 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 7 of the 2019 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 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

 

COVID-19

 

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions and stay-at-home orders, which have caused a significant decrease in activity in the global economy and the demand for oil and to a lesser extent natural gas and NGLs. As a result, the price for oil decreased significantly. While oil prices have recovered to a limited degree, there is still ongoing volatility in the market.

 

10

 

We are unable to predict the impact that the ongoing COVID-19 pandemic will have on us, including on our financial position, operating results, liquidity and ability to obtain financing, in future reporting periods, due to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental or other actions taken to combat the virus (which could include limitations on our operations or the operations of our customers and vendors and other business partners), operators deciding to slow down, shut in or defer maintenance on producing wells, and the effect that the COVID-19 pandemic will have on the demand for natural gas, NGLs and oil. Drilling and capital expenditures have been greatly reduced

 

The health of our employees, customers, contractors and vendors, and our ability to meet staffing needs in our operations and certain critical functions, are vital to our operations, and the effect of the pandemic on these persons and our staffing needs cannot be predicted. Currently, our workforce has been largely unaffected. Employees are working in the corporate office with adequate social distancing measures in place, wearing face coverings as needed in common areas and utilizing telework options as needed. We do not anticipate any significant impact on liquidity due to workforce safety. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets as well as other unanticipated consequences remain unknown. In addition, we cannot predict the impact that COVID-19 will have on our customers, vendors and contractors; however, any material effect on these parties could adversely impact us.

 

Collectively, these factors have contributed to significant negative global economic impacts, including a significant drop in demand for hydrocarbon products, potentially causing the US and other global economies to fall into a recession that could extend throughout 2020 and beyond. A recession could likely extend the time for the current crude oil markets to absorb excess supplies, resulting in suppressed crude oil prices for a number of future quarters.

 

Our profitability has been and will likely continue to be significantly affected by this decreased demand and lower commodity price environment. The decline in commodity prices and our future estimated production levels could lead to additional material impairments of our long-lived assets, right of use, equity method investments and right-of-use assets. It is likely that additional impairments could be triggered if the COVID-19 pandemic leads to a continued and sustained reduction in global economic activity and demand for energy. We continue to evaluate all cash management strategies, maintaining conservative choices in short-term investments to protect cash reserves and liquidity.

 

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Included in the act was the Paycheck Protection Program (“PPP”) implemented by the Small Business Administration (“SBA”) to provide small businesses with funds to pay up to eight weeks of payroll costs. Based on the understanding of the guidelines and information provided at the time, the Company applied for and received a PPP loan in the amount of $174,600 from the SBA to cover payroll costs. Subsequent to receiving the funds, the Company evaluated additional guidance issued by the SBA, and on May 7, 2020, the Company repaid the loan in full together with accrued interest.

 

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 nine months of 2020, 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 $873,884 and cash provided by the maturities of available-for-sale debt securities of $25,082,211. Additional cash of $39,762 was provided by property dispositions and equity method investments for total cash provided of $25,995,857. The Company utilized cash for the purchase of available-for-sale debt securities of $8,079,535; property additions of $1,441,743; other investments activity of $512,415; and financing activities of $783,077 for total cash applied of $10,816,770. Cash and cash equivalents increased $15,179,087 to $17,917,425.

 

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, 2019. A discussion of these items follows.

 

Available-for-sale debt securities decreased $17,002,676 (92%) to $1,515,234 as of September 30, 2020 from $18,517,910 at December 31, 2019. The decrease was due to the decision to free up capital for new investments as a result of significant decreases in interest rates.

 

Refundable income taxes increased $188,596 (171%) to $298,595 as of September 30, 2020 from $109,999 at December 31, 2019. This increase was primarily due to reduced revenues and an increase in long-lived assets impairments for the nine months ended September 30, 2020.

 

11

 

During the period, the Company added a $58,852 note receivable in January and a $39,235 note receivable in July from Grand Woods, LLC, (the LLC), an equity method investee. See Note 4 to the accompanying financial statements for additional information about the investment.

 

Accounts payable decreased $16,269 (10%) to $140,499 as of September 30, 2020 from $156,768 at December 31, 2019. This decrease was primarily due to a decrease in drilling activity at September 30, 2020 versus December 31, 2019.

 

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 $873,884 in the nine months ended September 30, 2020, a decrease of $1,300,756 (60%) from the comparable period in 2019. The decrease was primarily due to decreased operating revenues and other income for the nine months ended September 30, 2020 compared to 2019. For more information see “Operating Revenues” and “Operating Costs and Expenses” below.

 

Cash applied to the purchase of property, plant and equipment in the nine months ended September 30, 2020 was $1,441,743, a decrease of $63,550 (4%) from cash applied in the comparable period in 2019 of $1,505,293. In both 2020 and 2019, cash applied to property, plant and equipment 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 purchase of available-for-sale debt securities in the nine months ended September 30, 2020 was $8,079,535, a decrease of $17,598,460 (69%) from cash applied in the comparable period in 2019 of $25,677,995. The decrease was to provide access to capital for use in other projects and investments as a result of the decreased interest revenue brought on by the depressed interest rates resulting from COVID-19.

 

Cash applied to other investments in the nine months ended September 30, 2020 was $512,415, an increase of $508,682 from cash applied in the comparable period of 2019 of $3,733. The increase was primarily due to a new $500,000 investment in Genlith, Inc. (“Genlith”), which is approximately 2% ownership. Genlith identifies and structures investments in the new energy economy through corporate ventures, advisory and fund management. For details on other investments, see Note 4 – EQUITY METHOD AND OTHER INVESTMENTS AND RELATED COMMITMENTS AND CONTINGENT LIABILITIES, INCLUDING GUAR-ANTEES.

 

Cash applied to financing activities in the nine months ended September 30, 2020 was $783,077, a decrease of $394,170 (33%) from cash applied in the comparable period in 2019 of $1,177,247. This category is made up of dividends paid to stockholders and purchase of treasury stock. Dividends decreased from $7.00 per share in 2019 to $5.00 per share in 2020, resulting in a decrease of $301,494 in dividends paid. The Company purchased $92,676 of treasury stock through the nine months ended September 30, 2019, with none in the comparable period of 2020.

 

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 2019 Form 10-K would not be representative of the Company’s current position.

 

Material Changes in Results of Operations Nine Months Ended September 30, 2020, Compared with Nine Months Ended September 30, 2019

 

Net income/(loss) decreased $2,682,555 to a loss of $1,807,136 in the nine months ended September 30, 2020 from income of $875,419 in the comparable period in 2019. Net income/(loss) per share, basic and diluted, decreased $17.12 to a loss of $11.54 in the nine months ended September 30, 2020 from income of $5.58 in the comparable period in 2019.

 

A discussion of revenue from oil and gas sales and other significant line items in the statements of operations follows.

 

Operating Revenues. Revenues from oil and gas sales decreased $1,719,943 (36%) to $2,993,027 in the nine months ended September 30, 2020 from $4,712,970 in the comparable period in 2019. The $1,719,943 decrease is due to a decrease in crude oil sales of $1,286,743, natural gas sales of $389,095, and miscellaneous oil and gas product sales of $44,105.

 

The $1,286,743 (40%) decrease in oil sales to $1,952,859 in the nine months ended September 30, 2020 from $3,239,602 in the comparable period in 2019 was the net result of a decrease in the average price per barrel (Bbl) and a decrease in the volume sold. The average price per Bbl decreased $17.72 to $35.80 per Bbl in the nine months ended September 30, 2020, resulting in a negative price variance of $967,175 compared to 2019. The volume of oil sold decreased 5,701 Bbls to 54,557 Bbls in the nine months ended September 30, 2020, resulting in a negative volume variance of $319,568 compared to 2019. The net decrease in oil volumes sold was due to a decline of 13,400 Bbls during the period from older wells, partially offset by new production of 7,700 Bbls.

 

The $389,095 (29%) decrease in gas sales to $947,653 in the nine months ended September 30, 2020 from $1,336,748 in the comparable period in 2019 was the net result of a decrease in the average price per thousand cubic feet (MCF) and a decrease in the volume sold. The average price per MCF decreased $0.49 to $1.88 per MCF in the nine months ended September 30, 2020, resulting in a negative price variance of $246,160 compared to 2019. The volume of gas sold decreased 60,310 MCF to 503,928 MCF in the nine months ended September 30, 2020, resulting in a negative volume variance of $142,935 compared to 2019. The net decrease in gas volumes sold was due to production declines from older wells, partially offset by production of 15,000 MCF from several new working and royalty interest wells. Second quarter shut-ins contributed to the decrease in volumes for both oil and gas.

 

12

 

Sales from the Robertson County, Texas royalty interest properties provided approximately 28% of the Company’s gas sales volumes for the nine months ended September 30, 2020 and 32% of the gas sales volumes for the comparable period in 2019. See discussion on page 11 of the 2019 Form 10-K, under the subheading “Operating Revenues,” for more information about these properties. Sales from Arkansas working interest properties provided approximately 11% of the Company’s gas sales volumes for the nine months ended September 30, 2020 and 12% of the gas sales volumes for the comparable period in 2019.

 

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. Spot market prices dropped significantly in the first and second quarters primarily due to the impact of COVID-19 on demand for oil and gas products. Such lower prices will negatively affect our results of operation and financial condition and will continue to do so as long as prices remain at depressed levels.

 

Sales of miscellaneous oil and gas products were $92,515 in the nine months ended September 30, 2020 as compared to $136,620 in the comparable period in 2019.

 

The Company received lease bonuses of $82,221 in the nine months ended September 30, 2020 for leases on its owned minerals compared to $89,101 in the comparable period in 2019. In the nine months ended September 30, 2020, all of lease bonuses were for leases on owned minerals in Texas.

 

Operating Costs and Expenses. Operating costs and expenses increased $1,473,033 (35%) to $5,659,498 in the nine months ended September 30, 2020 from $4,186,465 in the comparable period of 2019. Material line item changes are discussed and analyzed in the following paragraphs.

 

Production costs decreased $362,626 (21%) to $1,370,699 in the nine months ended September 30, 2020 from $1,733,325 in the comparable period in 2019, due to decreases in lease operating expenses and gross production taxes.

 

Exploration costs increased $92,424 (153%) to $152,973 in the nine months ended September 30, 2020 from $60,549 in the comparable period in 2019, due to increases in geological and geophysical expenses and dry hole and plugging costs.

 

The following is a summary as of November 3, 2020, updating both exploration and development activity from December 31, 2019, for the period ended September 30, 2020.

 

The Company is participating with its 14% interest in the acquisition of additional leasehold and exploratory drilling on a Creek County, Oklahoma 3-D seismic project. There are currently seven active prospects within the project. Exploratory wells were drilled on two of the prospects in 2019. The two wells were completed in 2020, one as a commercial oil producer and the other as a dry hole. Three development wells have been drilled on the first prospect and exploratory wells have been drilled on two additional prospects. Completions are in progress on all five of these wells. Two additional exploratory wells are planned, and additional development drilling is likely. Leasehold costs for the period were $9,097 and additional capitalized costs were $161,149. Dry hole costs of $31,180 were written off to expense.

 

The Company owns a 35% interest in 16,472.55 net acres of leasehold on a Crockett and Val Verde Counties, Texas prospect. Most of the acreage is underlain by a shallow heavy oil zone. The Company plans to participate with a 10.5% interest in the re-entry, completion and testing of a previously drilled test well on the prospect with the intention of conducting a thermal recovery pilot test.

 

The Company has been participating with a 13% interest in a 3-D seismic project covering approximately 35,000 acres in San Patricio County, Texas. Fourteen prospects have been identified, and exploratory wells were successfully completed on two of these in 2019. Leasing is complete on six additional prospects. An exploratory well has been drilled on one of these and is awaiting completion. Also, additional processing of the 3-D seismic data is currently in progress and almost complete. Leasehold costs for the period were $32,381, additional capitalized costs were $151,334 and geophysical costs were $13,485.

 

The Company has been participating with a 50% interest in an attempt to develop oil prospects in the Permian Basin. Lease acquisition is in progress on a Nolan County, Texas prospect. The Company is currently involved in negotiations to sell a portion of its interest in the prospect. Geological costs for the period were $40,163 and leasehold costs were $175,153.

 

The Company participated in an attempt to restore commercial production from a well that was drilled and completed in 2019 on a Murray County, Oklahoma prospect. The effort was unsuccessful, as was an attempt to re-complete in another zone. The well is under evaluation.

 

13

 

In August 2020, the Company purchased a 10.5% interest in 637.58 net acres of leasehold on a Lincoln County, Oklahoma prospect for $30,126. An exploratory well was drilled on the prospect and completed as a dry hole. Dry hole costs for the period were $21,362.

 

The Company is participating in the drilling of four horizontal development wells on fee minerals located in Kingfisher County, Oklahoma. The Company has a 3.2% working interest in three of the wells and a 3.5% working interest in the fourth. All four wells have been drilled with casing set and are scheduled for completion in the first quarter of 2021. Prepaid costs for the period were $709,845

 

The Company largely curtailed its exploration and development activity due to the historic collapse of oil prices in March and April, 2020. With the recent improvement in the outlook for both oil and gas prices, it has cautiously resumed drilling activity on some of its prospects.

 

Depreciation, Depletion, Amortization and Valuation Provision (DD&A). DD&A increased $1,737,250 (153%) to $2,869,968 in the nine months ended September 30, 2020 from $1,132,718 in the comparable period in 2019, due to an increase in long-lived assets impairments of $2,052,107, which was offset by decreases in depreciation, depletion and non-producing leasehold impairments that totaled approximately $321,000. See Note 10 – LONG-LIVED ASSETS IMPAIRMENT LOSS on page 29 of the 2019 Form 10-K for a description of the impairment loss calculation.

 

Other Income, Net. This line item increased $36,829 (13%) to $329,125 in the nine months ended September 30, 2020 from $292,296 in the comparable period in 2019. See Note 3 to the accompanying financial statements for an analysis of the components of this item.

 

Equity securities gains were $235,113 in the nine months ended September 30, 2020 compared to gains of $37,111 in the comparable period in 2019. In the nine months ended September 30, 2020, the Company had unrealized gains of $147,999 from adjusting securities, held at September 30, to estimated fair market value and net realized trading gains of $87,114. In the nine months ended September 30, 2019, the Company had unrealized losses of $17,968 and net realized trading gains of $55,079.

 

Gain on the sale of assets increased $9,603 to $19,025 in the nine months ended September 30, 2020 from $9,422 in the comparable period in 2019.

 

Interest income decreased $267,664 (65%) to $145,282 in the nine months ended September 30, 2020 from $412,946 in the comparable period in 2019. This was due to decreased interest rates on available-for-sale debt securities and other interest-bearing accounts.

 

Equity losses in investees decreased $82,734 to $57,839 in the nine months ended September 30, 2020 from $140,573 in the comparable period in 2019.

 

Other income increased $14,266 to $22,274 in the nine months ended September 30, 2020 from $8,008 in the comparable period in 2019, mostly due to an increase in other investment income to $13,548 in 2020 from $2,000 in 2019.

 

Income Tax Provision/(Benefit). Income taxes decreased $481,947 to a benefit of $447,186 in the nine months ended September 30, 2020 from a provision of $34,761 in the comparable period in 2019. The income tax decrease was the result of a $3,164,502 decrease in the pre-tax income to a loss of $2,254,322 in the nine months ended September 30, 2020 from a pre-tax income of $910,180 in the comparable period in 2019. See Note 5 to the accompanying financial statements for additional information on income taxes.

 

Material Changes in Results of Operations Three Months Ended September 30, 2020, Compared with Three Months Ended September 30, 2019

 

Net loss increased $557,510 to a loss of $737,048 in the three months ended September 30, 2020 from loss of $179,538 in the comparable period in 2019. The significant changes in the statements of operations are discussed below.

 

Operating Revenues. Revenues from oil and gas sales decreased $78,627 (6%) to $1,196,134 in the three months ended September 30, 2020 from $1,274,761 in the comparable period in 2019 due to decreases in oil and other product sales of $156,017 and $1,516, respectively, offset by a $78,906 increase in gas sales.

 

The decrease in oil sales was the net result of a decrease in the average price received of $16.89 per Bbl to $35.80, for a negative price variance of $361,350, and an increase in the volume of oil sold of 3,897 Bbls to 21,397 Bbls, for a positive volume variance of $205,333. See the “Results of Operations” section above for the nine months ended September 30, 2020 for additional discussion of the oil sales variances.

 

14

 

The increase in gas sales was the result of an increase in the average price of $0.69 per MCF to $2.51, for a positive price variance of $108,141, and a decrease in the volume of gas sold of 16,063 MCF to 158,598 MCF, for a negative volume variance of $29,235. See the “Results of Operations” section above for the nine months ended September 30, 2020 for additional discussion of gas sales variances.

 

Operating Costs and Expenses. Operating costs and expenses increased $589,883 (38%) to $2,140,105 in the three months ended September 30, 2020 from $1,550,222 in the comparable period in 2019. The increase was the net result of an increase in depreciation, depletion, amortization and valuation provisions (DD&A) of $671,328; an increase in exploration costs charged to expense of $62,119; a decrease in production costs of $117,075; and a decrease in general administrative and other expense (G&A) of $26,489. The significant changes in these line items are discussed below.

 

Production costs decreased $117,075 (21%) to $432,403 in the three months ended September 30, 2020 from $549,478 in the comparable period in 2019 due to decreases in lease operating expenses and production taxes.

 

Exploration costs increased $62,119 to $77,803 in the three months ended September 30, 2020 from $15,684 in the comparable period in 2019. Most of the increase is due to a $45,500 increase in dry hole and abandonment costs for the three months ended September 30, 2020 compared to 2019.

 

DD&A increased $671,328 (115%) to $1,253,044 in the three months ended September 30, 2020 from $581,716 in the comparable period in 2019. Impairment losses for the three months ended September 30, 2020 were $1,106,570, versus $300,000 in the comparable period in 2019. The impairment losses were offset by decreases in depreciation, depletion and amortization provisions of $135,242. See Note 10 – LONG-LIVED ASSETS IMPAIRMENT LOSS on page 29 of the 2019 Form 10-K for a description of the impairment loss calculation.

 

Other Income, Net. See Note 3 to the accompanying financial statements for an analysis of the components of other income, net. In the three months ended September 30, 2020, this line item increased $45,908 (157%) to $75,137 from $29,229 in the comparable period in 2019.

 

Equity securities increased $136,515 in the three months ended September 30, 2020 to gains of $85,724 compared to losses of $50,791 in the comparable period in 2019. The increase was due to an increase in realized gains of $19,920 and an increase in unrealized gains of $116,595.

 

Interest income decreased $114,452 (92%) to $9,380 in the three months ended September 30, 2020 from $123,832 in the comparable period in 2019. The decrease was due to decreased interest rates on available-for-sale debt securities and other interest-bearing accounts.

 

Equity losses in investees decreased $25,524 to $19,325 in the three months ended September 30, 2020 from $44,849 in the comparable period in 2019.

 

Income Tax Provision/(Benefit). Income taxes decreased $66,320 to a benefit of $130,983 in the three months ended September 30, 2020 from a benefit of $64,663 in comparable period in 2019. The decrease was due to the decrease in income before income taxes of $623,830 to a loss of $868,031 in the three months ended September 30, 2020 from loss of $244,201 in the comparable period in 2019. See discussions above in “Results of Operations” section and Note 5 to the accompanying financial statements for additional explanation of the changes in the provision for income taxes.

 

Off-Balance Sheet Arrangements

 

The Company’s off-balance sheet arrangements relate to Broadway Sixty-Eight, LLC, an Oklahoma limited liability company, Grand Woods Development, LLC, an Oklahoma limited liability company, and QSN Office Park, 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 4 to the accompanying financial statements.

 

15

 

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 September 30, 2020.

 

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 September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

16

 

PART IIOTHER INFORMATION

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

During the quarter ended September 30, 2020, the Company did not have any material legal proceedings brought against it or its properties.

 

 

ITEM 1A.

RISK FACTORS

 

Not applicable.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

ITEM 5.

OTHER INFORMATION

 

None.

 

 

ITEM 6.

EXHIBITS

 

The following documents are exhibits to this Form 10-Q. Each document marked by an asterisk is filed electronically herewith.

 

Exhibit

Number

 

 

Description

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32*

 

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS*

 

XBRL Instance Document

101.SCH*

 

XBRL Taxonomy Extension Schema Document

101.CAL*

 

XBRL Taxonomy Calculation Linkbase Document

101.DEF*

 

XBRL Taxonomy Definition Linkbase Document

101.LAB*

 

XBRL Taxonomy Label Linkbase Document

101.PRE*

 

XBRL Taxonomy Presentation Linkbase Document

   

                                                                         

* Filed electronically herewith.

 

17

 

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:      November 16, 2020 

/s/ Cameron R. McLain

 

 

Cameron R. McLain,

Principal Executive Officer

 

     
     
     
     
Date:      November 16, 2020 /s/ Lawrence R. Francis  
 

Lawrence R. Francis

Principal Financial Officer

 

 

 

 

 

 

 

18

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Reserve Petroleum Co provided additional information to their SEC Filing as exhibits

Ticker: RSRV
CIK: 83350
Form Type: 10-Q Quarterly Report
Accession Number: 0001437749-20-023874
Submitted to the SEC: Mon Nov 16 2020 6:03:32 AM EST
Accepted by the SEC: Mon Nov 16 2020
Period: Wednesday, September 30, 2020
Industry: Crude Petroleum And Natural Gas

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