UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended July 31, 2005

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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
September 9, 2005		Common stock, $.10 par value		6,076,696

 

 

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Quarterly Report on Form 10-Q For the Period Ended July 31, 2005

TABLE OF CONTENTS

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets As of July 31, 2005 (Unaudited) and October 31, 2004			3
Consolidated Statements of Operations For the Three and Nine Months Ended July 31, 2005 and 2004 (Unaudited)			4
Consolidated Statement of Stockholders’ Equity and Comprehensive Loss For the Nine Months Ended July 31, 2005 (Unaudited)			5
Consolidated Statements of Cash Flows For the Nine Months Ended July 31, 2005 and 2004 (Unaudited)			6
Notes to Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3. Quantitative and Qualitative Disclosures About Market Risk			17
Item 4. Controls and Procedures			17
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			18
Item 3. Defaults Upon Senior Securities			18
Item 4. Submission of Matters to a Vote of Security Holders			18
Item 5. Other Information			18
Item 6. Exhibits			18
Signatures			19
Certification by CEO Pursuant to Section 302
Certification by CFO Pursuant to Section 302
Certification by 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.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

		July 31,				October 31,
		2005				2004
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	892,000			$	518,000
Short term investments			5,512,000				6,371,000
Receivables:
Accrued oil and gas sales			2,810,000				2,051,000
Trade			356,000				1,019,000
Other current assets			1,260,000				58,000
Total current assets			10,830,000				10,017,000
Oil and gas properties, at cost, using full cost method:
Evaluated oil and gas properties			34,004,000				30,072,000
Unevaluated oil and gas properties			3,731,000				2,174,000
Less: accumulated depreciation, depletion and amortization of oil and gas properties			(14,232,000	)			(12,737,000	)
Net oil and gas properties, at cost, using full cost method			23,503,000				19,509,000
Exclusive license agreement, net of amortization of $344,000 in 2005 and $291,000 in 2004			355,000				408,000
Other, net			745,000				1,042,000
		$	35,433,000			$	30,976,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	2,996,000			$	4,394,000
Income taxes payable			144,000				12,000
Total current liabilities			3,140,000				4,406,000
LONG-TERM LIABILITIES:
Deferred income taxes, net			6,021,000				4,605,000
Exclusive license obligation, less current obligations of $58,000			297,000				297,000
Asset retirement obligation			862,000				748,000
Total liabilities			10,320,000				10,056,000
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, 6,340,000 shares issued in 2005 and 2004			634,000				634,000
Capital in excess of par value			12,577,000				12,463,000
Treasury stock, at cost, 279,000 shares in 2005 and 303,000 in 2004			(275,000	)			(452,000	)
Accumulated other comprehensive loss			(36,000	)			(437,000	)
Retained earnings, net of $6,272,000 related to 20% stock dividend in 2003			12,213,000				8,712,000
Total stockholders’ equity			25,113,000				20,920,000
		$	35,433,000			$	30,976,000

The accompanying notes are an integral part of these consolidated financial statements.

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

		Nine Months Ended								Three Months Ended
		July 31,								July 31,
		2005				2004				2005				2004
REVENUES:
Oil and gas sales		$	8,785,000			$	6,932,000			$	3,396,000			$	2,226,000
Operating			487,000				444,000				164,000				152,000
Investment and other income			201,000				186,000				105,000				61,000
			9,473,000				7,562,000				3,665,000				2,439,000
COSTS AND EXPENSES:
Oil and gas production			1,920,000				1,464,000				790,000				532,000
Depreciation, depletion and amortization			1,610,000				1,227,000				568,000				436,000
General and administrative			1,052,000				1,011,000				337,000				344,000
Interest			28,000				30,000				9,000				7,000
			4,610,000				3,732,000				1,704,000				1,319,000
INCOME BEFORE INCOME TAXES			4,863,000				3,830,000				1,961,000				1,120,000
INCOME TAXES			(1,362,000	)			(1,073,000	)			(549,000	)			(314,000	)
NET INCOME		$	3,501,000			$	2,757,000			$	1,412,000			$	806,000
EARNINGS PER SHARE OF COMMON STOCK — BASIC		$	.58			$	.46			$	.23			$	.14
EARNINGS PER SHARE OF COMMON STOCK — DILUTED		$	.56			$	.45			$	.22			$	.13
Weighted average number of shares of Common Stock and dilutive securities:
Basic			6,046,000				6,020,000				6,058,000				6,038,000
Diluted			6,221,000				6,186,000				6,226,000				6,222,000

The accompanying notes are an integral part of these consolidated financial statements.

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Statement of Stockholders’ Equity and Comprehensive Income

(Unaudited)

For the Nine Months Ended July 31, 2005

																		Accumulated
										Capital In								Other												Total
		Common Stock								Excess Of				Treasury				Comprehensive				Comprehensive				Retained				Stockholders’
		Shares				Amount				Par Value				Stock				Loss				Income				Earnings				Equity
Balance, October 31, 2004			6,340,000			$	634,000			$	12,463,000			$	(452,000	)		$	(437,000	)						$	8,712,000			$	20,920,000
Comprehensive income:
Net income			—				—				—				—				—			$	3,501,000				3,501,000				3,501,000
Other comprehensive income:
Change in fair value of derivatives, net of tax			—				—				—				—				401,000				401,000				—				401,000
Total comprehensive income																						$	3,902,000
Purchase of treasury stock			—				—				—				(8,000	)			—								—				(8,000	)
Exercise of common stock options			—				—				—				185,000				—								—				185,000
Tax benefit from the exercise of common stock options			—				—				114,000				—				—								—				114,000
Balance, July 31, 2005			6,340,000			$	634,000			$	12,577,000			$	(275,000	)		$	(36,000	)						$	12,213,000			$	25,113,000

The accompanying notes are an integral part of these consolidated financial statements.

CREDO PETROLEUM CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

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		Nine Months Ended
		July 31,
		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	3,501,000			$	2,757,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization			1,610,000				1,227,000
Deferred income taxes			1,250,000				931,000
Other			76,000				—
Changes in operating assets and liabilities:
Proceeds from short term investments			2,500,000				509,000
Purchase of short term investments			(1,641,000	)			(1,849,000	)
Accrued oil and gas sales			(759,000	)			(319,000	)
Trade receivables			663,000				(339,000	)
Other current assets			(1,138,000	)			(59,000	)
Accounts payable and accrued liabilities			(853,000	)			682,000
Income taxes payable			132,000				(10,000	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			5,341,000				3,530,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties			(5,064,000	)			(3,980,000	)
Proceeds from sale of oil and gas properties			118,000				—
Changes in other long-term assets			(198,000	)			(388,000	)
NET CASH USED IN INVESTING ACTIVITIES			(5,144,000	)			(4,368,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options (24,000 options in 2005 and 78,000 options in 2004)			185,000				291,000
Purchase of treasury stock (500 shares in 2005 and 2,000 shares in 2004)			(8,000	)			(39,000