UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
|
x
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
|
|
For
the quarterly period ended July 31, 2007
|
|
|
|
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
x
No o
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 x Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o
No x
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
|
|
|
Sept.
10, 2007
|
|
Common
stock, $.10 par value
|
|
9,329,000
|
|
CREDO
PETROLEUM CORPORATION AND SUBSIDIARIES
Quarterly
Report on Form 10-Q For the Period Ended July 31, 2007
TABLE
OF CONTENTS
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
|
|
|
July 31,
|
|
October 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,702,000
|
|
$
|
4,577,000
|
|
|
Short-term
investments
|
|
6,301,000
|
|
5,624,000
|
|
|
Receivables:
|
|
|
|
|
|
|
Accrued
oil and gas sales
|
|
1,783,000
|
|
1,963,000
|
|
|
Trade
|
|
406,000
|
|
777,000
|
|
|
Derivative
Assets
|
|
1,320,000
|
|
897,000
|
|
|
Other
current assets
|
|
229,000
|
|
71,000
|
|
|
Total
current assets
|
|
16,741,000
|
|
13,909,000
|
|
|
|
|
|
|
|
|
|
Long-term
assets:
|
|
|
|
|
|
|
Oil
and gas properties, at cost, using full cost method:
|
|
|
|
|
|
|
Unevaluated
oil and gas properties
|
|
9,071,000
|
|
7,060,000
|
|
|
Evaluated
oil and gas properties
|
|
48,200,000
|
|
43,588,000
|
|
|
Less:
accumulated depreciation, depletion and amortization of oil and
gas properties
|
|
(21,417,000
|
)
|
(18,556,000
|
)
|
|
Net
oil and gas properties, at cost, using full cost method
|
|
35,854,000
|
|
32,092,000
|
|
|
|
|
|
|
|
|
|
Exclusive
license agreement, net of amortization of $466,000 in 2007 and
$431,000 in 2006
|
|
216,000
|
|
268,000
|
|
|
|
|
|
|
|
|
|
Compressor
and tubular inventory to be used in development
|
|
1,137,000
|
|
1,293,000
|
|
|
|
|
|
|
|
|
|
Other
(net)
|
|
282,000
|
|
197,000
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
54,230,000
|
|
$
|
47,759,000
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,245,000
|
|
$
|
1,581,000
|
|
|
Revenue
distribution payable
|
|
1,180,000
|
|
1,273,000
|
|
|
Other
accrued liabilities
|
|
406,000
|
|
808,000
|
|
|
Income
taxes payable
|
|
400,000
|
|
174,000
|
|
|
Total
current liabilities
|
|
3,231,000
|
|
3,836,000
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities:
|
|
|
|
|
|
|
Deferred
income taxes, net
|
|
9,605,000
|
|
8,039,000
|
|
|
Exclusive
license obligation, less current obligations of $70,000 in 2007
and 2006
|
|
163,000
|
|
163,000
|
|
|
Asset
retirement obligation
|
|
1,016,000
|
|
954,000
|
|
|
Total
liabilities
|
|
14,015,000
|
|
12,992,000
|
|
|
|
|
|
|
|
|
|
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 2007 and in 2006
|
|
951,000
|
|
951,000
|
|
|
Capital
in excess of par value
|
|
15,204,000
|
|
14,794,000
|
|
|
Treasury
stock at cost, 181,000 shares in 2007 and 249,000 in 2006
|
|
—
|
|
—
|
|
|
Accumulated
other comprehensive income
|
|
951,000
|
|
650,000
|
|
|
Retained
earnings
|
|
23,109,000
|
|
18,372,000
|
|
|
Total
stockholders’ equity
|
|
40,215,000
|
|
34,767,000
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
54,230,000
|
|
$
|
47,759,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
3
CREDO
PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Operations
(Unaudited)
|
|
|
Nine Months Ended
|
|
Three Months Ended
|
|
|
|
|
July 31,
|
|
July 31,
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas sales
|
|
$
|
12,308,000
|
|
$
|
11,809,000
|
|
$
|
3,814,000
|
|
$
|
3,966,000
|
|
|
Investment
income and other
|
|
685,000
|
|
446,000
|
|
233,000
|
|
3,000
|
|
|
|
|
12,993,000
|
|
12,255,000
|
|
4,047,000
|
|
3,969,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas production
|
|
2,546,000
|
|
2,604,000
|
|
837,000
|
|
861,000
|
|
|
Depreciation,
depletion and amortization
|
|
2,782,000
|
|
2,568,000
|
|
883,000
|
|
939,000
|
|
|
General
and administrative
|
|
1,020,000
|
|
940,000
|
|
376,000
|
|
361,000
|
|
|
Interest
|
|
20,000
|
|
27,000
|
|
6,000
|
|
9,000
|
|
|
|
|
6,368,000
|
|
6,139,000
|
|
2,102,000
|
|
2,170,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
6,625,000
|
|
6,116,000
|
|
1,945,000
|
|
1,799,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
(1,888,000
|
)
|
(1,743,000
|
)
|
(554,000
|
)
|
(513,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
4,737,000
|
|
$
|
4,373,000
|
|
$
|
1,391,000
|
|
$
|
1,286,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE OF COMMON STOCK BASIC
|
|
$
|
.51
|
|
$
|
.48
|
|
$
|
.15
|
|
$
|
.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE OF COMMON STOCK DILUTED
|
|
$
|
.50
|
|
$
|
.46
|
|
$
|
.15
|
|
$
|
.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of Common Stock and dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
9,268,000
|
|
9,191,000
|
|
9,282,000
|
|
9,231,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
9,402,000
|
|
9,512,000
|
|
9,406,000
|
|
9,498,000
|
|
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
(Unaudited)
For
the Nine Months Ended July 31, 2007
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital In
|
|
Other
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
Excess Of
|
|
Comprehensive
|
|
Retained
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
Amount
|
|
Par Value
|
|
Income
|
|
Earnings
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2006
|
|
9,510,000
|
|
$
|
951,000
|
|
$
|
14,794,000
|
|
$
|
650,000
|
|
$
|
18,372,000
|
|
$
|
34,767,000
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,737,000
|
|
4,737,000
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivatives, net of tax
|
|
—
|
|
—
|
|
—
|
|
301,000
|
|
—
|
|
301,000
|
|
|
Exercise
of common stock options
|
|
—
|
|
—
|
|
272,000
|
|
—
|
|
—
|
|
272,000
|
|
|
Compensation
expense associated with unvested portion of previously granted
stock options
|
|
—
|
|
—
|
|
138,000
|
|
—
|
|
—
|
|
138,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 31, 2007
|
|
9,510,000
|
|
$
|
951,000
|
|
$
|
15,204,000
|
|
$
|
951,000
|
|
$
|
23,109,000
|
|
$
|
40,215,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
5
CREDO
PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
Nine Months Ended
|
|
|
|
|
July 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,737,000
|
|
$
|
4,373,000
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
2,782,000
|
|
2,568,000
|
|
|
Deferred
income taxes
|
|
1,566,000
|
|
1,409,000
|
|
|
Compensation
expense related to stock options granted
|
|
138,000
|
|
165,000
|
|
|
Other
|
|
63,000
|
|
(98,000
|
)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Proceeds
from short-term investments
|
|
1,492,000
|
|
193,000
|
|
|
Purchase
of short-term investments
|
|
(2,169,000
|
)
|
(556,000
|
)
|
|
Accrued
oil and gas sales
|
|
180,000
|
|
658,000
|
|
|
Trade
receivables
|
|
371,000
|
|
(123,000
|
)
|
|
Other
current assets
|
|
(281,000
|
)
|
336,000
|
|
|
Accounts
payable and accrued liabilities
|
|
(831,000
|
)
|
623,000
|
|
|
Income
taxes payable
|
|
226,000
|
|
(199,000
|
)
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
8,274,000
|
|
9,349,000
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Additions
to oil and gas properties
|
|
(6,794,000
|
)
|
(9,054,000
|
)
|
|
Proceeds
from sale of oil and gas properties
|
|
171,000
|
|
824,000
|
|
|
Changes
in other long-term assets
|
|
202,000
|
|
(26,000
|
)
|
|
|
|
|
|
|
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
(6,421,000
|
)
|
(8,256,000
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds
from exercise of stock options (67,000 options in 2007 and
130,000 options in 2006)
|
|
272,000
|
|
756,000
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
272,000
|
|
756,000
|
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
|
2,125,000
|
|
1,849,000
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
Beginning
of period
|
|
4,577,000
|
|
1,935,000
|
|
|
|
|
|
|
|
|
|
End
of period
|
|
$
|
6,702,000
|
|
$
|
3,784,000
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$
|
207,000
|
|
$
|
615,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
6
CREDO
PETROLEUM CORPORATION AND SUBSIDIARIES
Notes
To Consolidated Financial Statements (Unaudited)
July
31, 2007
1.
BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements have been
prepared in accordance with U. S. generally accepted accounting
principles for interim financial information and with the instructions
for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.
S. generally accepted accounting principles for complete financial
statements. In the opinion of management, the consolidated financial
statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the
company’s results for the periods presented. These consolidated
financial statements should be read in conjunction with the company’s
Annual Report on Form 10-K for the fiscal year ended October 31,
2006.
2.
SIGNIFICANT ACCOUNTING POLICIES
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The company
bases its estimates on historical experience and on various other
assumptions it believes to be reasonable under the circumstances.
Although actual results may differ from these estimates under different
assumptions or conditions, the company believes that its estimates are
reasonable and that actual results will not vary significantly from the
estimated amounts.
The
company has changed its estimate with respect to estimated salvage value
of lease and well equipment. This change in estimate resulted in a
decrease in depreciation, depletion and amortization of approximately
$65,000 and $195,000 for the three and nine month periods ended July 31,
2007.
3.
STOCK-BASED COMPENSATION
The
company previously had one stock-based employee compensation plan, the
CREDO Petroleum Corporation 1997 Stock Option Plan (the 1997 Plan) which
is described in the Notes to Consolidated Financial Statements in the
company’s Annual Report on Form 10-K for the year ended October 31, 2006.
This Plan expired on July 29, 2007. The CREDO Petroleum
Corporation 2007 Stock Option Plan (the 2007 Plan), which is similar in
all respects to the 1997 Plan, was approved by the shareholders at the
Annual Meeting of Shareholders on March 22, 2007. No additional
options can be granted under the 1997 Plan. However, all
outstanding options granted under the 1997 Plan will continue to be
governed by the rules of the 1997 Plan.
The
company recognized compensation expense related to its stock option plan
of $138,000 and $165,000 for the nine months ended July 31, 2007
and 2006 respectively. For the three months ended July 31, 2007
and 2006, the company recognized compensation expense of $28,000 and
$46,000, respectively.
No
options were granted during fiscal year 2006 and the fair value of the
40,000 options granted during the nine months ended July 31, 2007 was
estimated as of the grant date using the Black-Scholes option pricing
model with the following assumptions: volatility, 50.84%; expected
option term, 2 to 3 years; risk-free interest rate, 4.58% and;
expected dividend yield, 0%. If option grants are made in the
future, compensation expense for all such share-based payments granted,
based upon the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123(R) will also be included in
compensation expense.
7
Plan
activity for the nine months ended July 31, 2007 is set forth below:
|
|
|
Nine Months Ended July 31,2007
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
at October 31, 2006
|
|
315,002
|
|
$
|
5.52
|
|
|
Granted
|
|
40,000
|
|
12.78
|
|
|
Exercised
|
|
(67,937
|
)
|
4.02
|
|
|
Cancelled
or forfeited
|
|
(564
|
)
|
5.93
|
|
|
Outstanding
at July 31, 2007
|
|
286,501
|
|
$
|
6.89
|
|
|
|
|
|
|
|
|
|
Exercisable
at July 31, 2007
|
|
253,168
|
|
$
|
6.11
|
|
|
|
|
|
|
|
|
|
Weighted
average contractual life at July 31, 2007
|
|
|
|
6.36
|
years
|
|
|
|
|
|
|
|
|
Weighted
average market price at date of exercise for options exercised
|
|
|
|
$
|
13.47
|
|
The
following table summarizes information about stock options currently
outstanding and exercisable at July 31, 2007:
|
|
|
Outstanding
|
|
Exercisable
|
|
|
Range of
Exercise
Prices
|
|
Number
Outstanding
at July 31,
2007
|
|
Weighted Average
Remaining
Contractual
Life in Years
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
July 31,
2007
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 5.93
|
|
246,501
|
|
5.87
|
|
$
|
5.93
|
|
246,501
|
|
|