UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Amendment No. 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
or
[ ] TRANSITION REPORT PURSUANT OT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-18774
SPINDLETOP OIL & GAS CO.
(Exact name of registrant as specified in its charter)
Texas 75-2063001
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
12850 Spurling Rd., Suite 200, Dallas, TX 75230
(Address of principal executive offices) (Zip Code)
(972) 644-2581
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer", "accelerated filer", and
"smaller reporting company" in Rule 12b-2 of the Exchange Act .
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act. Yes [ ] No [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common, as of the latest practicable date.
Common Stock, $0.01 par value 7,610,803
(Class) (Outstanding at November 14, 2008)
EXPLANATORY NOTE
We are filing this Amendment No.1 on Form 10-Q/A to the Spindletop Oil & Gas
Co. Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 in
response to comments received by us from the Securities and Exchange
Commission's staff pursuant to its review of our Form 10-Q for the quarter
ended September 30, 2008. Pursuant to the Commission's comments, we have
amended our Form 10-Q for the quarter ended September 30, 2008 to modify the
language in Item 4 - Controls and Procedures to state that the Company's
disclosure controls and procedures were effective as of the end of the period
covered by the report.
All other information contained in the original Form 10-Q remains unchanged.
However, the entire report with all Items is included in this Form 10-Q/A for
the convenience of the reader. This Amendment No.1 on Form 10-Q/A does not
reflect events occurring after the filing of our Quarterly Report on Form 10-Q
on November 14, 2008 or include, or otherwise modify or update, the disclosures
contained therein in any way except as expressly indicated above.
- 2 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
FORM 10-Q
For the quarter ended September 30, 2008
Index to Consolidated Financial Statements and Schedules
Page
Part I - Financial Information:
Item 1. - Financial Statements
Consolidated Balance Sheets
September 30, 2008 (Unaudited) and December 31, 2007 4-5
Consolidated Statements of Income or Loss (Unaudited)
Nine Months Ended September 30, 2008 and 2007 and
Three Months Ended September 30, 2008 and 2007 6
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2008 and 2007 7
Notes to Consolidated Financial Statements 8
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4. - Controls and Procedures 10
Part II - Other Information:
Item 1A - Risk Factors 10
Item 5. - Other Information 14
Item 6. - Exhibits 15
- 3 -
Part I - Financial Information
Item 1. - Financial Statements
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
-------------------------
September 30 December 31
2008 2007
(Unaudited)
----------- -----------
ASSETS
Current Assets
Cash $12,033,000 $ 6,325,000
Accounts receivable, trade 1,473,000 1,413,000
----------- -----------
Total Current Assets 13,506,000 7,738,000
----------- -----------
Property and Equipment, at cost
Oil and gas properties (full cost method) 11,522,000 11,041,000
Rental equipment 399,000 399,000
Gas gathering systems 145,000 145,000
Other property and equipment 170,000 183,000
----------- -----------
12,236,000 11,768,000
Accumulated depreciation and amortization (6,387,000) (5,902,000)
----------- -----------
Total Property and Equipment, net 5,849,000 5,866,000
----------- -----------
Real Estate Property, at cost
Land 688,000 688,000
Commercial office building 1,580,000 1,542,000
Accumulated depreciation (276,000) (204,000)
----------- -----------
Total Real Estate Property, net 1,992,000 2,026,000
----------- -----------
Other Assets 2,000 1,000
----------- -----------
Total Assets $21,349,000 $15,631,000
=========== ===========
The accompanying notes are an integral part of these statements.
- 4 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
As of
-------------------------
September 30 December 31
2008 2007
(Unaudited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable, current portion $ 120,000 $ 120,000
Accounts payable and accrued liabilities 2,829,000 2,272,000
Income tax payable 829,000 8,000
Tax savings benefit payable 97,000 97,000
----------- -----------
Total current liabilities 3,875,000 2,497,000
----------- -----------
Non-current Liabilities
Notes payable, long-term portion 1,110,000 1,200,000
Asset retirement obligation 798,000 564,000
----------- -----------
1,908,000 1,764,000
----------- -----------
Deferred income tax payable 2,179,000 1,855,000
----------- -----------
Shareholders' Equity
Common stock, $.01 par value; 100,000,000
Shares authorized; 7,677,471 shares issued
And 7,610,803 shares outstanding at
September 30, 2008; 7,677,471 shares issued
And 7,610,803 shares outstanding at
December 31, 2007 77,000 77,000
Additional paid-in capital 874,000 874,000
Treasury Stock (32,000) (32,000)
Retained earnings 12,468,000 8,596,000
----------- -----------
Total Shareholders' Equity 13,387,000 9,515,000
----------- -----------
Total Liabilities and Shareholders' Equity $21,349,000 $15,631,000
=========== ===========
The accompanying notes are an integral part of these statements.
- 5 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Revenues
Oil and gas revenue $10,460,000 $ 4,618,000 $ 4,071,000 $ 1,642,000
Revenue from lease
operations 186,000 160,000 80,000 62,000
Gas gathering, compression
and Equipment rental 139,000 135,000 65,000 63,000
Real estate rental income 383,000 381,000 126,000 131,000
Interest income 181,000 221,000 84,000 65,000
Other 96,000 50,000 56,000 25,000
----------- ----------- ----------- -----------
Total revenue 11,445,000 5,565,000 4,482,000 1,988,000
----------- ----------- ----------- -----------
Expenses
Lease operations 2,609,000 1,467,000 963,000 631,000
Pipeline and rental operations 27,000 36,000 19,000 22,000
Real estate operations 181,000 213,000 38,000 111,000
Depreciation, depletion and
amortization 571,000 414,000 199,000 124,000
Asset retirement obligation
accretion 18,000 25,000 6,000 8,000
General and administrative 2,063,000 1,504,000 730,000 523,000
Interest expense 60,000 76,000 20,000 21,000
----------- ----------- ----------- -----------
Total Expenses 5,529,000 3,735,000 1,975,000 1,440,000
----------- ----------- ----------- -----------
Income Before Income Tax 5,916,000 1,830,000 2,507,000 548,000
----------- ----------- ----------- -----------
Current tax provision 1,720,000 298,000 859,000 10,000
Deferred tax provision 324,000 411,000 (30,000) 147,000
----------- ----------- ----------- -----------
2,044,000 709,000 829,000 157,000
----------- ----------- ----------- -----------
Net Income $ 3,872,000 $ 1,121,000 $ 1,678,000 $ 391,000
=========== =========== =========== ===========
Earnings per Share of
Common Stock
Basic and diluted $ 0.51 $ 0.15 $ 0.22 $ 0.05
=========== =========== =========== ===========
Weighted Average Shares
Outstanding
Basic and diluted 7,610,803 7,602,067 7,610,803 7,607,433
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
- 6 -
SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------------------
2008 2007
----------- -----------
Cash Flows from Operating Activities
Net Income $ 3,872,000 $ 1,121,000
Reconciliation of net income
to net cash provided by
Operating Activities
Depreciation, depletion and amortization 571,000 414,000
Employee compensation paid with
treasury stock - 32,000
Changes in prepaid expense - 60,000
Changes in accounts receivable (60,000) 26,000
Changes in prepaid income taxes - 297,000
Changes in accounts payable 557,000 (587,000)
Changes in current taxes payable 821,000 -
Changes in deferred tax payable 324,000 410,000
Changes in asset retirement obligation 234,000 9,000
Other (1,000) (1,000)
----------- -----------
Net cash provided by operating activities 6,318,000 1,781,000
----------- -----------
Cash flows from Investing Activities
Capitalized acquisition, exploration
and development costs (480,000) (929,000)
Purchase of property and equipment (1,000) -
Capitalized tenant improvements and broker fees (39,000) (33,000)
----------- -----------
Net cash used for investing activities (520,000) (962,000)
----------- -----------
Cash Flows from Financing Activities
Decrease in notes payable (90,000) (90,000)
----------- -----------
Net cash used for financing activities (90,000) (90,000)
----------- -----------
Increase in cash 5,708,000 729,000
Cash at beginning of period 6,325,000 5,759,000
----------- -----------
Cash at end of period $12,033,000 $ 6,488,000
=========== ===========
Interest paid in cash $ 60,000 $ 65,000
=========== ===========
Income tax payments $ 900,000 -
=========== ===========
The accompanying notes are an integral part of these statements.
- 7 -
SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND ORGANIZATION
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's annual Form 10-K filing. Accordingly, the
reader of this Form 10-Q may wish to refer to the Company's Form 10-K for the
year ended December 31, 2007 for further information.
The consolidated financial statements presented herein include the accounts of
Spindletop Oil & Gas Co., a Texas corporation ("the Company") and its wholly
owned subsidiaries, Prairie Pipeline Co., a Texas corporation and Spindletop
Drilling Company, a Texas Corporation. All significant inter-company
transactions and accounts have been eliminated.
In the opinion of management, the accompanying unaudited interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial condition, the
results of operations and changes in cash flows of the Company and its
consolidated subsidiaries for the interim periods presented. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including a description of significant accounting policies normally included in
financial statements prepared in accordance with generally accepted accounting
principles generally accepted in the United States of America, have been
condensed or omitted pursuant to such rules and regulations.
2. NEW ACCOUNTING PRONOUCEMENTS
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of SFAS 133. SFAS 161 seeks to
improve financial reporting for derivative instruments and hedging activities
by requiring enhanced disclosures regarding the impact on financial position,
financial performance, and cash flows. To achieve this increased transparency,
SFAS 161 requires: (1) the disclosure of the fair value of derivative
instruments and gains and losses in a tabular format; (2) the disclosure of
derivative features that are credit risk-related; and (3) cross-referencing
within the footnotes. SFAS 161 is effective for us on January 1, 2009.
Management does not expect this adoption to have a material impact on the
consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, as
amended in February 2008 by FASB Staff Position ("FSP") FAS 157-2, Effective
Date of FASB Statement No. 157. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. FSP FAS 157-2 defers the effective date of SFAS 157 for all
nonfinancial assets and liabilities, except those items recognized or disclosed
at fair value on an annual or more frequently recurring basis, until January 1,
2009. As such, management partially adopted the provisions of SFAS 157
- 8 -
effective January 1, 2008. The partial adoption of this statement did not have
a material impact on the financial statements. Management expects to adopt the
remaining provisions of SFAS 157 beginning in 2009. Management does not expect
this adoption to have a material impact on the consolidated financial
statements.
In February 2007, FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities-including an Amendment of FASB Statement No.
115. This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions in
SFAS 159 are elective; however the amendment to SFAS 115, Accounting for
Certain Investments in Debt and Equity Securities, applies to all entities with
available-for-sale securities. The fair value option established by SFAS 159
permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity will report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election
date occurs); and (c) is applied only to entire instruments and not to portions
of instruments. Management has adopted this statement as of January 1, 2008.
The adoption created no impact to the consolidated financial statements.
In December 2007, the FASB issued SFAS 141R, Business Combinations. SFAS 141R
continues to require the purchase method of accounting to be applied to all
business combinations, but it significantly changes the accounting for certain
aspects of business combinations. Under SFAS 141R, an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value with limited exceptions. SFAS
141R will change the accounting treatment for certain specific acquisition
related items including: (1) expensing acquisition related costs as incurred;
(2) valuing noncontrolling interests at fair value at the acquisition date; and
(3) expensing restructuring costs associated with an acquired business. SFAS
141R also includes a substantial number of new disclosure requirements. SFAS
141R is to be applied prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. Management expects SFAS 141R
will have an impact on the accounting for future business combinations once
adopted but the effect is dependent upon the acquisitions that are made in the
future.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary (minority interest) is an ownership interest in the consolidated
entity that should be reported as equity in the Consolidated Financial
Statement and separate from the parent company's equity. Among other
requirements, this statement requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of the
Consolidated Statement of Operations, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. This statement
is effective for us on January 1, 2009. Management does not expect this
adoption to have a material impact on the consolidated financial statements.
- 9 -
3. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash. The Company places its cash with
various financial institutions. The Company's exposure to loss should any of
these financial institutions fail would be limited to any amount in excess of
the amount insured by the Federal Deposit Insurance Corporation. At September
30, 2008, management represents the amount in excess of Federal Deposit
Insurance Corporation ("FDIC") limits is approximately $10,726,000. Subsequent
to September 30, 2008, the Company has opened additional accounts at other
banking institutions as well as initiated participation in the Certificate of
Deposit Account Registry Service ("CDARS") in order to mitigate the risk
associated with deposits in excess of FDIC insured amounts.
4. SUBSEQUENT EVENT
Subsequent to September 30, 2008, the oil and condensate price per barrel and
the price per mcf for gas production decreased significantly. The Company will
continue to monitor the subsequent event activity and the impact that the
significant decline in commodity prices will have on the Company's business
model.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
WARNING CONCERNING FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
This Report on Form 10-Q may contain forward-looking statements within the
meaning of the federal securities laws, principally, but not only, under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations." We caution investors that any forward-looking
statements in this report, or which management may make orally or in writing
from time to time, are based on management's beliefs and on assumptions made
by, and information currently available to, management. When used, the words
"anticipate," "believe," "expect," "intend," "may," "might," "plan,"
"estimate," "project," "should," "will," "result" and similar expressions which
do not relate solely to historical matters are intended to identify forward-
looking statements. These statements are subject to risks, uncertainties, and
assumptions and are not guarantees of future performance, which may be affected
by known and unknown risks, trends, uncertainties, and factors, that are beyond
our control. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. We caution you
that, while forward-looking statements reflect our good faith beliefs when we
make them, they are not guarantees of future performance and are impacted by
actual events when they occur after we make such statements. We expressly
disclaim any responsibility to update our forward-looking statements, whether
as a result of new information, future events or otherwise. Accordingly,
investors should use caution in relying on past forward-looking statements,
which are based on results and trends at the time they are made, to anticipate
future results or trends.
- 10 -
Some of the risks and uncertainties that may cause our actual results,
performance, or achievements to differ materially from those expressed or
implied by forward-looking statements include, among others, the factors listed
and described at Item 1A "Risk Factors" in the Company's Annual Report on Form
10-K, which investors should review. There have been no changes from the risk
factors previously described in the Company's Form 10-K for the fiscal year
ended December 31, 2007 (the "Form 10-K").
Other sections of this report may also include suggested factors that could
adversely affect our business and financial performance. Moreover, we operate
in a very competitive and rapidly changing environment. New risks may emerge
from time to time and it is not possible for management to predict all such
matters; nor can we assess the impact of all such matters on our business or
the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. Given these uncertainties, investors should not place undue
reliance on forward-looking statements as a prediction of actual results.
Investors should also refer to our quarterly reports on Form 10-Q for future
periods and current reports on Form 8-K as we file them with the SEC, and to
other materials we may furnish to the public from time to time through
Forms 8-K or otherwise.
Results of Operations
Nine months ended September 30, 2008 compared to nine months ended
September 30, 2007
Total oil and gas revenues reported for the first nine months ended September
30, 2008 were $10,460,000 while total oil and gas revenues reported for the
same period in 2007 were $4,618,000, an overall increase of approximately
$5,842,000 or 126.5%.
Oil sales for the first nine months of 2008 were $1,733,000 compared to
$1,185,000 for the same period in 2007, an increase of approximately $548,000
or 46.2%. Barrels (bbl) of oil sold during the first nine months of 2008 were
approximately 19,000 compared to approximately 20,000 bbls sold during the same
period in 2007, a decrease of 5.0%. Average oil prices for production sold in
the first nine months of 2008 were $ 91.46 per barrel compared to $59.86 per
barrel for the first nine months of 2007, an increase of 52.8%. As oil
production experienced a slight decline, the increase in overall oil revenue is
attributed directly to the increased price of oil received in 2008 compared to
2007.
Gas Sales in the first nine months of 2008 were $8,727,000 while gas sales
reported for the same period in 2007 were $3,433,000, an increase of
approximately $5,294,000 or 154.2%. Gas sales during the first nine months of
2008 were approximately 946,000 mcf compared to approximately 518,000 mcf sold
during the same period in 2007, an increase of 428,000 mcf, or 82.6%. Average
gas prices for production sold in the first nine months of 2008 were $ 9.23 per
mcf compared to $6.63 per mcf in 2007, an increase of 39.2%. The increase in
volume of gas sold was due primarily to eight new horizontal Barnett Shale gas
wells which were drilled beginning in the last quarter of 2007. These new
wells account for approximately 400,000 mcf of gas from new properties not in
the 2007 third quarter report. In addition to sales from new properties, the
- 11 -
increased price of gas received in 2008 compared to 2007 helped increase total
gas sales revenue.
Interest income for the nine months ended September 30, 2008 was $181,000 as
compared to $221,000 for the same period in 2007, a decrease of $40,000 or
18.1%. The amount of cash invested in certificates of deposit over the nine
month period in 2008 was not as large as the amount invested over the same
period in 2007. In addition, interest rates paid by banks were generally lower
in 2008 than in 2007.
In 2008, the cost of lease operations for the nine months ended September 30
was $2,609,000 as compared to $1,467,000 for the same period in 2007, an
increase of $1,142,000, or 77.9%. Lease operating costs in general have
increased due to an increase in remedial repair on older wells as well as cost
increases seen across the board in oilfield equipment and services.
Approximately $500,000 of additional operating expense has been incurred in
2008 as a result of these eight new horizontal Barnett Shale wells. The
Company did not operate these wells in 2007. In addition, approximately
$400,000 has been accrued as operating expense for an unsuccessful attempt to
deepen and recomplete a well in Ward County, Texas. Another $150,000 of the
increase was due to remedial activity on our Titus County, Texas wells in 2008
to return several shut-in oil wells to production.
Depreciation and amortization for the first nine months of 2008 was $571,000
compared to $414,000 for the same period in 2007, an increase of $157,000, or
37.9%. The Company re-evaluated its proved oil and gas reserves as of December
31, 2007, and increased its depletion rate for 2008 to 5.883% as compared to
the 5.041% used in 2007. In addition, the undepleted amount of the full cost
pot increased from $8,332,000 at the end of the 9 months ended September 30,
2007 to $10,820,000 at the end of September 30, 2008, an increase of $2,488,000
or 29.9%. The increased basis of the full cost pot and the increased rate of
depletion caused the increase in the provision for amortization of our oil and
gas properties.
General and administrative costs for the first nine months of 2008 were
$2,063,000 compared to $1,504,000 for the same period in 2007, an increase of
$559,000 or 37.2%. This increase is due mainly to payroll costs and associated
employee benefit costs. Personnel costs and benefits accounted for $1,561,000
of the total general and administrative cost in 2008 compared to $1,040,000 in
2007, an increase of $521,000 or 50.1%. This increase was due to the addition
of several full-time employees during 2008 and the last half of 2007.
Three months ended September 30, 2008 compared to three months ended September
30, 2007
Total oil and gas revenues reported for the three months ended September 30,
2008 were $4,071,000 while total oil and gas revenues reported for the same
period in 2007 were $1,642,000, an overall increase of approximately $2,429,000
or147.9%.
Oil and condensate sales for the third quarter of 2008 were approximately
$541,000 compared to $493,000 for the same period in 2007, an increase of
approximately $48,000 or 9.7%. Barrels of oil sold during the third quarter of
2008 were approximately 6,000 bbls compared to approximately 8,000 bbls sold
-12 -
during the same period in 2007, a decrease of 25.0%. Average oil and
condensate prices for production sold in the third quarter of 2008 were $ 89.40
per barrel compared to $64.86 per barrel for the third quarter of 2007, an
increase in price of approximately 37.8%. This increase in price offset the
reduction in oil production for 2008 as compared to the same period in 2007.
Gas Sales in the third quarter of 2008 were $3,529,000 while total gas sales
reported for the same period in 2007 were $1,149,000, an increase of
approximately $2,380,000 or 207.1%. Gas sold during the third quarter of 2008
was approximately 333,000 mcf compared to approximately 168,000 mcf sold during
the same period in 2007, an increase of 165,000 mcf, or 98.2%. Approximately
110,000 mcf of this increase for the period was attributable to the eight new
horizontal Barnett Shale wells. Average gas prices for production sold in the
third quarter of 2008 were $ 10.59 per mcf compared to $6.82 per mcf in 2007,
an increase of 55.3%.
Interest income for the three months ended September 30, 2008 was $84,000 as
compared to $65,000 for the same period in 2007, an increase of $19,000 or
29.2%. This increase resulted from the Company having higher cash balances to
invest during the third quarter of 2008 as compared to the third quarter of
2007. The Company has opened accounts at additional banking institutions in
order to mitigate credit risk associated with deposits in excess of FDIC
insured amounts.
In 2008, the cost of lease operations for the three months ended September 30
was $963,000 as compared to $631,000 for the same period in 2007, an increase
of $332,000, or 52.6%. Lease operating costs in general have increased due to
an increase in remedial repair on older wells as well as cost increases seen
across the board in oilfield equipment and services. Part of the increase for
the third quarter of 2008 was due to taking over the operations of three of the
Williams wells which are located in Parker County, Texas. In addition,
approximately $245,000 has been accrued as operating expense for an
unsuccessful attempt to recomplete a well in Ward County, Texas.
Depreciation and amortization for the three months ended September 30, 2008 was
$199,000 compared to $124,000 for the same period in 2007, an increase of
$75,000, or 60.4%. The Company re-evaluated its proved oil and gas reserves as
of December 31, 2007, and increased its depletion rate for 2008 to 5.883% as
compared to the 5.041% used in 2007. In addition, the undepleted amount of the
full cost pot increased from $8,332,000 at the end of September 30, 2007 to
$10,820,000 at the end of September 30, 2008, an increase of $2,488,000 or
29.9%. The increased basis of the full cost pot and the increased rate of
depletion caused the increase in the provision for amortization of our oil and
gas properties.
General and administrative costs for the third quarter of 2008 were $730,000
compared to $523,000 for the same period in 2007, an increase of $207,000 or
39.6%. This increase is due mainly to payroll costs and associated employee
benefit costs. Personnel costs and benefits accounted for $568,000 of the
total general and administrative cost in 2008 compared to $384,000 in 2007, an
increase of $184,000 or 47.9%. This increase was due to the addition of
several full-time employees during 2008 and the last half of 2007.
- 13 -
Financial Condition and Liquidity
The Company's operating capital needs, as well as its capital spending program
are generally funded from cash flow generated by operations. Because future
cash flow is subject to a number of variables, such as the level of production
and the sales price of oil and natural gas, the Company can provide no
assurance that its operations will provide cash sufficient to maintain current
levels of capital spending. Accordingly, the Company may be required to seek
additional financing from third parties in order to fund its exploration and
development programs.
Item 4. - Controls and Procedures
(a) As of the end of the period covered by this report, Spindletop Oil & Gas
Co. carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15 and 15d-15. Based upon the evaluation, the Company's
Principal Executive Officer and Principal Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of the end of the
period covered by the report.
(b) There have been no changes in the Company's internal controls over
financial reporting during the quarter ended September 30, 2008 that have
materially affected, or are reasonably likely to materially affect the
Company's internal controls over financial reporting.
Part II - Other Information
Item 5 - Other Information
North Texas:
Newark E., Barnett Shale Field
During the third quarter of 2008, the Olex U.S. #8 well, located on our Krum SW
Block in Denton County, Texas was drilled to a depth of 8,827 feet and cased.
The well is currently awaiting completion. The Company owns a 50.5% working
interest in this well.
During the fourth quarter of 2008, the Poston #1 well, located on our Godley
North Block in Johnson County, Texas, was drilled to a depth of 6,754 feet and
cased. The well is currently awaiting completion.
Non-Operated Wells:
The Company participated as a working interest owner in several new non-
operated wells that were spudded during the 3rd Quarter of 2008. Three gross
- 14 -
wells (0.135491 net wells) were drilled, one gross well in Oklahoma, one gross
well (0.046875 net well) in Texas and one gross well (0.1103124 net well) in
Montana. The Company has also signed AFE's for two additional gross wells, one
gross well (0.046875 net well) in Texas and one gross well (0.0062295 net well)
in New Mexico, which have not yet been spudded.
Item 6. - Exhibits
The following exhibits are filed herewith or incorporated by reference as
indicated.
Exhibit
Designation Exhibit Description
3.1 (a) Amended Articles of Incorporation of Spindletop Oil &
Gas Co. (Incorporated by reference to Exhibit 3.1 to
the General Form for Registration of Securities on Form
10, filed with the Commission on August 14, 1990)
3.2 Bylaws of Spindletop Oil & Gas Co. (Incorporated by
reference to Exhibit 3.2 to the General Form for
Registration of Securities on Form 10, filed with the
Commission on August 14, 1990)
31.1 * Certification pursuant to Rules 13a-14 and 15d under
The Securities Exchange Act of 1934.
31.2 * Certification pursuant to Rules 13a-14 and 15d under
The Securities Exchange Act of 1934.
32.1 * Certification pursuant to 18 U.S.C. Section 1350.
____________________________
* filed herewith
- 15 -
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPINDLETOP OIL & GAS CO.
(Registrant)
Date: November 14, 2008 By: /s/ Chris G. Mazzini
Chris G. Mazzini
President, Chief Executive Officer
Date: November 14, 2008 By: /s/ Michelle H. Mazzini
Michelle H. Mazzini
Vice President, Secretary
Date: November 14, 2008 By: /s/ Robert E. Corbin
Robert E. Corbin
Controller, Principal Financial Officer
- 16 -
Exhibit 31.1
CERTIFICATION
I, Chris G. Mazzini, certify that:
1. I have reviewed this report on Form 10-Q of Spindletop Oil & Gas Co.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13-15(e) and 15d-15e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, 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
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures as of the end of the
period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
- 17 -
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Dated: December 18, 2008
/s/ Chris G. Mazzini
CHRIS G. MAZZINI
President, Chief Executive Officer
- 18 -
Exhibit 31.2
CERTIFICATION
I, Robert E. Corbin, certify that:
1. I have reviewed this report on Form 10-Q of Spindletop Oil & Gas Co.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13-15(e) and 15d-15e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, 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
(c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the controls and procedures as of the end of the
period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
- 19 -
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Dated: December 18, 2008
/s/ Robert E. Corbin
ROBERT E. CORBIN
Controller, Principal Financial Officer
- 20 -
Exhibit 32.1
Officers' Section 1350 Certifications
The undersigned officer of Spindletop Oil & Gas Co., a Texas corporation (the
"Company"), hereby certifies that (i) the Company's Report on Form 10-Q for the
quarter ended September 30, 2008 fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934, and (ii) the information
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008 fairly presents, in all material respects, the financial
condition and results of operations of the Company, at and for the periods
indicated.
Dated: December 18, 2008
/s/ Chris G. Mazzini
CHRIS G. MAZZINI
President, Chief Executive Officer
/s/ Robert E. Corbin
ROBERT E. CORBIN
Controller, Principal Financial Officer
- 21 -