UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
     
ž   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2006
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 0-8877
CREDO PETROLEUM CORPORATION
 
(Exact name of registrant as specified in its charter)
     
Colorado   84-0772991
 
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)
     
1801 Broadway, Suite 900, Denver, Colorado   80202
 
(Address of principal executive offices)   (Zip Code)
303-297-2200
 
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       No ž
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Act.)
Large accelerated filer            Accelerated filer            Non-accelerated filer ž
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No ž
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, net of treasury stock, as of the latest practicable date.
             
Date   Class   Outstanding
June 12, 2006
  Common stock, $.10 par value       9,213,553
 
 

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q For the Period Ended April 30, 2006
TABLE OF CONTENTS
             
        Page No.
PART I — FINANCIAL INFORMATION
       
 
           
  Financial Statements     3  
 
           
    3  
 
           
    4  
 
           
    5  
 
           
    6  
 
           
    7  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     11  
 
           
  Quantitative and Qualitative Disclosures About Market Risk     21  
 
           
  Controls and Procedures     21  
 
           
PART II — OTHER INFORMATION
       
 
           
  Legal Proceedings     22  
 
           
  Risk Factors     22  
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     22  
 
           
  Defaults Upon Senior Securities     22  
 
           
  Submission of Matters to a Vote of Security Holders     22  
 
           
  Other Information     23  
 
           
  Exhibits     23  
 
           
Signatures     24  
  Certification by CEO Under Section 302
  Certification by CFO Under Section 302
  Certification by CEO and CFO Under Section 906
The terms “CREDO”, “Company”, “we”, “our”, and “us” refer to CREDO Petroleum Corporation and its subsidiaries unless the context suggests otherwise.

2

 


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
                 
    April 30,     October 31,  
    2006     2005  
    (Unaudited)          
A S S E T S
               
Current Assets:
               
Cash and cash equivalents
  $ 2,084,000     $ 1,935,000  
Short-term investments
    5,893,000       5,495,000  
Receivables:
               
Accrued oil and gas sales
    2,929,000       2,776,000  
Trade
    816,000       1,003,000  
Other current assets
    257,000       245,000  
 
           
Total current assets
    11,979,000       11,454,000  
 
           
 
               
Long-term assets:
               
Oil and gas properties, at cost, using full cost method:
               
Unevaluated oil and gas properties
    4,864,000       3,452,000  
Evaluated oil and gas properties
    40,049,000       36,121,000  
Less: accumulated depreciation, depletion and amortization of oil and gas properties
    (16,594,000 )     (15,022,000 )
 
           
Net oil and gas properties, at cost, using full cost method
    28,319,000       24,551,000  
 
           
 
               
Exclusive license agreement, net of amortization of $396,000 in 2006 and $361,000 in 2005
    303,000       338,000  
 
               
Compressor and tubular inventory to be used in development
    1,263,000       1,288,000  
 
               
Other assets
    217,000       213,000  
 
           
 
               
Total assets
  $ 42,081,000     $ 37,844,000  
 
           
 
               
L I A B I L I T I E S  A N D  S T O C K H O L D E R S ’ E Q U I T Y
               
 
               
Current Liabilities:
               
Accounts payable and accrued liabilities
  $ 2,787,000     $ 3,426,000  
Income taxes payable
    359,000       331,000  
 
           
Total current liabilities
    3,146,000       3,757,000  
 
               
Long Term Liabilities:
               
Deferred income taxes, net
    6,781,000       5,978,000  
Exclusive license obligation, less current obligations of $64,000 in 2006 and 2005
    233,000       233,000  
Asset retirement obligation
    909,000       929,000  
 
           
Total liabilities
    11,069,000       10,897,000  
 
           
 
               
Commitments
               
 
               
Stockholders’ Equity:
               
Preferred stock, no par value, 5,000,000 shares authorized, none issued
           
Common stock, $.10 par value, 20,000,000 shares authorized, 9,510,000 shares issued in 2006 and 2005
    951,000       951,000  
Capital in excess of par value
    14,480,000       13,933,000  
Treasury stock, 297,000 shares in 2006 and 393,000 in 2005
          (125,000 )
Accumulated other comprehensive income (loss)
          (306,000 )
Retained earnings, net of $6,272,000 related to 20% stock dividend in 2003
    15,581,000       12,494,000  
 
           
Total stockholders’ equity
    31,012,000       26,947,000  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 42,081,000     $ 37,844,000  
 
           
 
    The accompanying notes are an integral part of these consolidated financial statements.

3


CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
                                 
    Six Months Ended     Three Months Ended  
    April 30,     April 30,  
    2006     2005     2006     2005  
REVENUES:
                               
Oil and gas sales
  $ 7,843,000     $ 5,389,000     $ 3,723,000     $ 3,004,000  
Investment income and other
    443,000       96,000       198,000       34,000  
 
                       
 
    8,286,000       5,485,000       3,921,000       3,038,000  
 
                       
 
                               
COSTS AND EXPENSES:
                               
Oil and gas production
    1,743,000       1,130,000       739,000       642,000  
Depreciation, depletion and amortization
    1,629,000       1,042,000       891,000       565,000  
General and administrative
    579,000       540,000       319,000       255,000  
Interest
    18,000       19,000       9,000       10,000  
 
                       
 
    3,969,000       2,731,000       1,958,000       1,472,000  
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    4,317,000       2,754,000       1,963,000       1,566,000  
 
                               
INCOME TAXES
    (1,230,000 )     (771,000 )     (571,000 )     (439,000 )
 
                       
 
                               
NET INCOME
  $ 3,087,000     $ 1,983,000     $ 1,392,000     $ 1,127,000  
 
                       
 
                               
EARNINGS PER SHARE OF COMMON STOCK BASIC
  $ .34     $ .22     $ .15     $ .12  
 
                       
 
                               
EARNINGS PER SHARE OF COMMON STOCK DILUTED
  $ .33     $ .21     $ .15     $ .12  
 
                       
 
                               
Weighted average number of shares of Common Stock and dilutive securities:
                               
Basic
    9,171,000       9,059,000       9,207,000       9,063,000  
 
                       
 
                               
Diluted
    9,498,000       9,305,000       9,506,000       9,319,000  
 
                       
 
    The accompanying notes are an integral part of these consolidated financial statements.

4

 


CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Statement of Stockholders’ Equity and Comprehensive Income (Loss)
(Unaudited)

For the Six Months Ended April 30, 2006
                                                                 
                                    Accumulated                        
                    Capital In             Other                     Total  
    Common Stock     Excess Of     Treasury     Comprehensive     Comprehensive     Retained     Stockholders’  
    Shares     Amount     Par Value     Stock     Income (Loss)     Income     Earnings     Equity  
Balance, October 31, 2005
    9,510,000     $ 951,000     $ 13,933,000     $ (125,000 )   $ (306,000 )           $ 12,494,000     $ 26,947,000  
Comprehensive income:
                                                               
Net income
                                $ 3,087,000       3,087,000       3,087,000  
Other comprehensive income:
                                                               
Change in fair value of derivatives, net of tax
                            306,000       306,000             306,000  
 
                                                             
Total comprehensive income
                                $ 3,393,000              
 
                                                             
Exercise of common stock options
                428,000       125,000                           553,000  
Compensation expense associated with unvested portion of previously granted stock options
                119,000                                 119,000  
 
                                                               
 
                                                 
 
                                                               
Balance, April 30, 2006
    9,510,000     $ 951,000     $ 14,480,000     $     $             $ 15,581,000     $ 31,012,000