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 January 31, 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 o 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 o                 Accelerated filer o                 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 o 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
 
March 16, 2006   Common stock, $.10 par value   9,205,115
 
 

 

 

 

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q For the Period Ended January 31, 2006
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  Certification of CEO Pursuant to Section 302
  Certification of CFO Pursuant to Section 302
  Certification of CEO & CFO Pursuant to Section 906
The terms “CREDO”, “Company”, “we”, “our”, and “us” refer to CREDO Petroleum Corporation and its subsidiaries unless the context suggests otherwise.
 

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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
                 
    January 31,     October 31,  
    2006     2005  
    (Unaudited)          
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 3,155,000     $ 1,935,000  
Short-term investments
    5,706,000       5,495,000  
Receivables:
               
Accrued oil and gas sales
    2,354,000       2,776,000  
Trade
    1,705,000       1,003,000  
Other current assets
    233,000       245,000  
 
           
Total current assets
    13,153,000       11,454,000  
 
           
 
               
Long-term assets:
               
Oil and gas properties, at cost, using full cost method:
               
Unevaluated oil and gas properties
    4,339,000       3,452,000  
Evaluated oil and gas properties
    38,599,000       36,121,000  
Less: accumulated depreciation, depletion and amortization of oil and gas properties
    (15,730,000 )     (15,022,000 )
 
           
Net oil and gas properties, at cost, using full cost method
    27,208,000       24,551,000  
 
           
Exclusive license agreement, net of amortization of $379,000 in 2006 and $361,000 in 2005
    320,000       338,000  
Inventory
    1,097,000       1,288,000  
Other assets
    220,000       213,000  
 
           
Total assets
  $ 41,998,000     $ 37,844,000  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current Liabilities:
               
Accounts payable and accrued liabilities
  $ 4,769,000     $ 3,426,000  
Income taxes payable
    420,000       331,000  
 
           
Total current liabilities
    5,189,000       3,757,000  
 
               
Long Term Liabilities:
               
Deferred income taxes, net
    6,395,000       5,978,000  
Exclusive license obligation, less current obligations of $64,000 in 2006 and 2005
    233,000       233,000  
Asset retirement obligation
    901,000       929,000  
 
           
Total liabilities
    12,718,000       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
    14,140,000       13,933,000  
Treasury stock, 347,000 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
    14,189,000       12,494,000  
 
           
Total stockholders’ equity
    29,280,000       26,947,000  
 
           
Total liabilities and stockholders’ equity
  $ 41,998,000     $ 37,844,000  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
                 
    Three Months Ended  
    January 31,  
    2006     2005  
REVENUES:
               
Oil and gas sales
  $ 4,120,000     $ 2,385,000  
Operating
    173,000       159,000  
Investment income and other
    245,000       62,000  
 
           
 
    4,538,000       2,606,000  
 
           
 
               
COSTS AND EXPENSES:
               
Oil and gas production
    1,004,000       488,000  
Depreciation, depletion and amortization
    738,000       477,000  
General and administrative
    433,000       443,000  
Interest
    9,000       9,000  
 
           
 
    2,184,000       1,417,000  
 
           
 
               
INCOME BEFORE INCOME TAXES
    2,354,000       1,189,000  
 
               
INCOME TAXES
    (659,000 )     (333,000 )
 
           
 
               
NET INCOME
  $ 1,695,000     $ 856,000  
 
           
 
               
EARNINGS PER SHARE OF COMMON STOCK BASIC
  $ .19     $ .09  
 
           
 
               
EARNINGS PER SHARE OF COMMON STOCK DILUTED
  $ .18     $ .09  
 
           
 
               
Weighted average number of shares of Common Stock and dilutive securities:
               
Basic
    9,137,000       9,056,000  
 
           
 
               
Diluted
    9,475,000       9,249,000  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Statement of Stockholders’ Equity and Comprehensive Income (Loss)
(Unaudited)
For the Three Months Ended January 31, 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
    —       —       —       —       —     $ 1,695,000       1,695,000       1,695,000  
Other comprehensive income:
                                                               
Change in fair value of derivatives, net of tax
    —       —       —       —       306,000       306,000       —       306,000  
 
                                                             
Total comprehensive income
    —       —       —       —       —     $ 2,001,000       —       —  
 
                                                             
Exercise of common stock options
    —       —       147,000       125,000       —               —       272,000  
Compensation expense associated with unvested portion of previously granted stock options
    —       —       60,000       —       —               —       60,000  
 
                                                 
Balance, January 31, 2006
    9,510,000     $ 951,000     $ 14,140,000     $ —     $ —             $ 14,189,000     $ 29,280,000  
 
                                                 
The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
                 
    Three Months Ended  
    January 31,  
    2006     2005  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 1,695,000     $ 856,000  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation, depletion and amortization
    738,000       477,000  
Deferred income taxes
    417,000       385,000  
Compensation expense related to stock options granted
    60,000       53,000  
Other
    —       30,000  
Changes in operating assets and liabilities:
               
Proceeds from short-term investments
    193,000       1,317,000  
Purchase of short-term investments
    (404,000 )     (354,000 )
Accrued oil and gas sales
    422,000       363,000  
Trade receivables
    (702,000 )     221,000  
Other current assets
    318,000       (192,000 )
Accounts payable and accrued liabilities
    1,343,000       (102,000 )
Income taxes payable
    89,000       (12,000 )
 
           
 
               
NET CASH PROVIDED BY OPERATING ACTIVITIES
    4,169,000       3,042,000  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Additions to oil and gas properties
    (3,539,000 )     (2,343,000 )
Proceeds from sale of oil and gas properties
    146,000       —  
Changes in other long-term assets
    172,000       (34,000 )
 
           
 
               
NET CASH USED IN INVESTING ACTIVITIES
    (3,221,000 )     (2,377,000 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from exercise of stock options
    272,000       —  
Purchase of treasury stock
    —       (8,000 )
 
           
 
               
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    272,000       (8,000 )
 
           
 
               
INCREASE IN CASH AND CASH EQUIVALENTS
    1,220,000       657,000  
 
               
CASH AND CASH EQUIVALENTS:
               
Beginning of period
    1,935,000       518,000  
 
           
 
               
End of period
  $ 3,155,000     $ 1,175,000  
 
           
 
               
Supplemental cash flow information:
               
Cash paid during the period for income taxes
  $ 240,000     $ —  
 
           
Cash paid during the period for interest
  $ —     $ —  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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CREDO PETROLEUM CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited)
January 3