1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
/ / For the quarterly period ended June 30, 2007
OR
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 0-5525
PYRAMID OIL COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-0787340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2008 - 21ST. STREET,
BAKERSFIELD, CALIFORNIA 93301
(Address of principal executive offices) (Zip Code)
(661) 325-1000
(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 periods 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
COMMON STOCK WITHOUT PAR VALUE 3,741,721
(Class) (Outstanding at June 30, 2007)
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PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
PYRAMID OIL COMPANY
BALANCE SHEETS
ASSETS
June 30, December 31,
2007 2006
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 767,142 $ 619,001
Short-term investments 1,274,226 1,450,910
Trade accounts receivable 458,654 324,495
Interest receivable 2,226 --
Employee loan receivable 1,500 --
Crude oil inventory 60,106 56,539
Prepaid expenses 76,873 152,899
Income taxes receivable 150,910 193,130
------------ ------------
TOTAL CURRENT ASSETS 2,791,637 2,796,974
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oil and gas properties and equipment
(successful efforts method) 13,482,304 12,891,756
Capitalized asset retirement costs 306,359 304,199
Drilling and operating equipment 2,019,759 2,008,397
Land, buildings and improvements 981,404 978,702
Automotive, office and other
property and equipment 1,063,529 1,068,670
------------ ------------
17,853,355 17,251,724
Less: accumulated depletion,
depreciation, amortization
and valuation allowance (13,830,344) (13,620,171)
------------ ------------
4,023,011 3,631,553
------------ ------------
OTHER ASSETS
Deposits 250,000 250,000
Other assets 7,380 7,380
Assets held for resale 9,633 9,633
------------ ------------
$7,081,661 $6,695,540
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
3
PYRAMID OIL COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2007 2006
(Unaudited) (Audited)
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 78,241 $ 69,060
Accrued professional fees 12,759 50,114
Accrued taxes, other than income taxes -- 45,570
Accrued payroll and related costs 57,834 60,374
Accrued royalties payable 158,568 136,826
Accrued insurance 27,149 62,857
Accrued termination costs 142,157 142,157
Current maturities of long-term debt 16,419 25,965
------------ ------------
TOTAL CURRENT LIABILITIES 493,127 592,923
------------ ------------
LONG-TERM DEBT, net of current maturities 1,293 11,334
------------ ------------
LIABILITY FOR SHARE BASED COMPENSATION 67,400 --
------------ ------------
LIABILITY FOR ASSET RETIREMENT OBLIGATION 995,669 982,389
------------ ------------
COMMITMENTS (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock - no par value;
10,000,000 authorized shares;
no shares issued or outstanding -- --
Common stock - no par value;
50,000,000 authorized shares;
3,741,721 shares issued and
outstanding 1,071,610 1,071,610
Retained earnings 4,452,562 4,037,284
------------ ------------
5,524,172 5,108,894
------------ ------------
$7,081,661 $6,695,540
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
4 PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2007 2006 2007 2006
--------- --------- --------- ---------
REVENUES $1,110,413 $1,096,664 $1,936,593 $2,008,875
--------- --------- --------- ---------
COSTS AND EXPENSES:
Operating expenses 408,650 335,703 771,313 680,203
Exploration costs 816 -- 5,651 --
General and administrative 175,775 145,929 450,929 262,306
Taxes, other than income
and payroll taxes 21,455 15,781 48,611 33,128
Provision for depletion,
depreciation and
amortization 120,907 75,571 218,577 136,163
Accretion expense 5,490 5,199 11,121 10,008
Other costs and expenses 15,360 15,581 24,052 24,039
--------- --------- --------- ---------
748,453 593,764 1,530,254 1,145,847
--------- --------- --------- ---------
OPERATING INCOME 361,960 502,900 406,339 863,028
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 18,391 9,015 42,180 15,933
Other income 8,381 5,419 11,981 9,019
Interest expense (1,783) (1,905) (1,797) (2,123)
--------- --------- --------- ---------
24,989 12,529 52,364 22,829
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAX PROVISION 386,949 515,429 458,703 885,857
Income tax provision 29,600 144,200 43,425 236,025
--------- --------- --------- ---------
NET INCOME $ 357,349 $ 371,229 $ 415,278 $ 649,832
========= ========= ========= =========
BASIC INCOME PER
COMMON SHARE $0.10 $0.10 $0.11 $0.17
========= ========= ========= =========
DILUTED INCOME PER
COMMON SHARE $0.10 $0.10 $0.11 $0.17
========= ========= ========= =========
Weighted average number of
common shares outstanding 3,741,721 3,741,721 3,741,721 3,741,721
(Basic and Diluted) ========= ========= ========= =========
The Accompanying Notes Are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
---------------------------
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 415,278 $ 649,832
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Provision for depletion,
depreciation and amortization 218,577 136,163
Accretion expense 11,121 10,008
Exploration costs 5,651 --
Severance award agreement 67,400 --
Changes in assets and liabilities:
Increase in trade accounts
and interest receivable (117,481) (89,786)
Increase in crude oil inventories (3,567) (6,175)
Decrease in prepaid expenses 76,026 48,631
Increase (decrease) in accounts
Payable and accrued liabilities (90,250) 102,817
-------- --------
Net cash provided by operating activities 582,755 851,490
-------- --------
The Accompanying Notes Are an Integral Part of These Financial Statements.
6
PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
---------------------------
2007 2006
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of
certificate of deposit $ 200,000 $ 100,000
Increase in deposits -- (1,380)
Capital expenditures (613,527) (1,674,197)
-------- ---------
Net cash used in investing activities (413,527) (1,575,577)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 150,000 252,000
Principal payments on line of credit (150,000) (252,000)
Loans to employees (2,000) (3,300)
Principal payments on loans to employees 500 6,570
Proceeds from issuance of long-term debt -- 32,393
Principal payments on long-term debt ( 19,587) ( 24,113)
-------- --------
Net cash (used in) provided by
financing activities (21,087) 11,550
-------- --------
Net increase (decrease) in cash 148,141 (712,537)
Cash at beginning of period 619,001 1,300,475
-------- ---------
Cash at end of period $ 767,142 $ 587,938
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the six months for interest $ 1,797 $ 2,173
======== ========
Cash paid during the six months for income taxes $ 1,125 $281,825
======== ========
The Accompanying Notes Are an Integral Part of These Financial Statements.
7 PYRAMID OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements include the accounts of Pyramid Oil Company (the
Company). Such financial statements included herein have been prepared by the
Company, without an audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
A summary of the Company's significant accounting policies is contained in its
December 31, 2006 Form 10-KSB which is incorporated herein by reference. The
financial data presented herein should be read in conjunction with the
Company's December 31, 2006 financial statements and notes thereto, contained
in the Company's Form 10-KSB.
In the opinion of the Company, the unaudited financial statements, contained
herein, include all adjustments necessary to present fairly the Company's
financial position as of June 30, 2007 and the results of its operations and
its cash flows for the six month periods ended June 30, 2007 and 2006. The
results of operations for an interim period are not necessarily indicative of
the results to be expected for a full year.
Income taxes: When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the position taken
or the amount of the position that would be ultimately sustained. The benefit
of a tax position is recognized in the financial statements in the period
during which, based on all available evidence, management believes it is more
likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. Tax
positions that meet the more-likely-than-not recognition threshold are
measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken that exceeds
the amount measured as described above is reflected as a liability for
unrecognized tax benefits in the accompanying balance sheets along with any
associated interest and penalties that would be payable to the taxing
authorities upon examination.
Interest associated with unrecognized tax benefits are classified as interest
expense and penalties are classified in selling, general and administrative
expenses in the statements of income.
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(2) IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115 (SFAS No. 159). SFAS No. 159 permits us to choose to
measure certain financial assets and liabilities at fair value that are not
currently required to be measured at fair value (i.e. the Fair Value Option).
Election of the Fair Value Option is made on an instrument-by-instrument basis
and is irrevocable. At the adoption date, unrealized gains and losses on
financial assets and liabilities for which the Fair Value Option has been
elected would be reported as a cumulative adjustment to beginning retained
earnings. If we elect the Fair Value Option for certain financial assets and
liabilities, we will report unrealized gains and losses due to changes in
their fair value in earnings at each subsequent reporting date. SFAS No. 159
is effective for the Company as of January 1, 2008. We are currently
evaluating the potential impact of adopting SFAS No. 159 on our financial
statements.
On December 31, 2006, the Company adopted the recognition requirements of SFAS
Statement No. 158, Employers' Accounting for Defined Benefit Pension and Other
Post-retirement Plans (an amendment of FASB Statements No. 87, 88, 106, and
132R). Issued in September 2006, SFAS No. 158 completed the first phase of
FASB's comprehensive project to improve the accounting and reporting for
defined benefit pension and other post-retirement plans. FAS No. 158 requires
an employer to:
Recognize the funded status of a benefit plan - measured as the
difference between plan assets at fair value (with limited exceptions) and the
benefit obligation - in its consolidated balance sheet. For a pension plan,
the benefit obligation is the projected benefit obligation; for any other
post-retirement benefit plan, such as a retiree health care plan, the benefit
obligation is the accumulated post-retirement benefit obligation.
Recognize as a component of other comprehensive income (loss), net of
tax, the gains or losses and prior service costs or credits that arise during
the period but are not recognized as components of net periodic benefit cost
pursuant to FASB Statement No. 87, Employers Accounting for Pensions, or No.
106, Employers Accounting for Post-retirement Benefits Other Than Pensions.
Amounts recognized in accumulated other comprehensive income, including the
gains or losses, prior service costs or credits, and the transition assets or
obligations remaining from the initial application of Statements 87 and 106,
are adjusted as they are subsequently recognized as components of net periodic
benefit cost pursuant to the recognition and amortization provisions of those
Statements.
Measure defined benefit plan assets and obligations as of the date of the
employers fiscal year-end consolidated balance sheet (with limited
exceptions).
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Disclose in the notes to financial statements additional information about
certain effects on net periodic benefit cost for the next fiscal year that
arise from delayed recognition of the gains or losses, prior service costs or
credits, and transition assets or obligations.
An employer with publicly traded equity securities is required to
initially recognize the funded status of a defined benefit post-retirement
plan and to provide the required disclosures as of the end of the fiscal year
ending after December 15, 2006. The Company does not expect the adoption to
have a material impact on the Company's financial position or results of
operations, since the Company has not participated in such activities covered
under this pronouncement.
(3) DIVIDENDS
No cash dividends were paid during the six months ended June 30, 2007 and
2006.
(4) INCOME TAXES
The Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on January 1, 2007. As a result of the
implementation of FIN 48, the company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards
established by FIN 48. As a result of the implementation of Interpretation
48, the Company recognized no material adjustments to liabilities or
stockholders equity.
The Company files income tax returns in the U.S. federal jurisdiction,
California and New York states. With few exceptions, the Company is no longer
subject to U.S. federal tax examination for the years before 2003. State
jurisdictions that remain subject to examination range from 2002 to 2006. The
Company does not believe there will be any material changes in its
unrecognized tax positions over the next 12 months.
The Company policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the
date of adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized during the quarter.
(5) COMMITMENTS
In February 2002, the Company entered into an employment agreement with
John H. Alexander pursuant to which Mr. Alexander agreed to serve as the
Company's Vice President. On June 3, 2004, Mr. Alexander was appointed as the
Company's President and Chief Executive Officer. The employment agreement is
for an initial term of six years, which term automatically renews annually if
written notice is not tendered.
10
Pursuant to the employment agreement, the Company may terminate Mr.
Alexander's employment with or without cause at any time before its term
expires upon providing written notice. In the event the Company terminates
Mr. Alexander's employment without cause, Mr. Alexander would be entitled to
receive a severance amount equal to his annual base salary and benefits for
the balance of the term of his employment agreement. In the event of
termination by reason of Mr. Alexander's death or permanent disability, his
legal representative will be entitled to receive his annual salary and
benefits for the remaining term of his employment agreement. In the event of,
or termination following, a change in control of the Company, as defined in
the agreement, Mr. Alexander would be entitled to receive his annual salary
and benefits for the remainder of the term of his agreement. In the event
that Mr. Alexander is terminated the Company would incur approximately
$600,000 in costs.
(6) INCOME TAX PROVISION
The Company's income tax provision consists mainly of the current provision
for Federal and California income taxes.
(7) STOCK SPLIT
On March 28, 2006, the Company's Board of Directors approved a 3 for 2 stock
split payable on May 1, 2006, to shareholders of record as of April 17, 2006.
Common Stock
---------
Shares outstanding at December 31, 2005 2,494,430
Shares issued 3 for 2 stock split May 1, 2006 1,247,291
---------
Shares outstanding at June 30, 2007 3,741,721
=========
(8) CHANGE IN AUTHORIZED SHARES
At the Annual Meeting of Shareholders held on June 1, 2006, the Shareholders
approved an amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000 to 50,000,000
and to authorize the issuance of up to 10,000,000 shares of a newly created
class of Preferred Stock.
(9) SEVERANCE AWARD AGREEMENT
On January 9, 2007, the Company and John Alexander entered into a Severance
Award Agreement pursuant to which the Company awarded Mr. Alexander a
supplemental payment in connection with his future severance of employment
with the Company. Mr. Alexander serves as the Company's Chief Executive
Officer. Pursuant to the Severance Award Agreement and following the
termination of Mr. Alexander's employment, he will be entitled to receive (at
11
the Company's option) 20,000 shares of the Company's common stock or the
then-fair market value of the shares. The closing price of a share of the
Company's common stock on June 30, 2007 was $3.37.
(10) INCENTIVE AND RETENTION PLAN
On January 9, 2007, the Company's Board of Directors adopted an Incentive and
Retention Plan pursuant to which the Company's officers and other employees
selected by the Company's Compensation Committee are entitled to receive
payments if they are employed by the Company as of the date of a 'Corporate
Transaction,' as defined in the Incentive and Retention Plan. A 'Corporate
Transaction' includes certain mergers involving the Company, sales of Company
assets, and other changes in the control of the Company, as specified in the
Incentive and Retention Plan. In general, the amount that is payable to each
plan participant will equal the number of plan units that have been granted to
him or her, multiplied by the increase in the value of the Company between
January 9, 2007 and the date of a Corporate Transaction.
(11) RELATED-PARTY TRANSACTION
Effective January 1, 1990, John H. Alexander, an officer and director of the
Company participated with a group of investors that acquired the mineral and
fee interest on one of the Company's oil and gas leases (Santa Fe Energy
lease) in the Carneros Creek field after the Company declined to participate.
The thirty-three percent interest owned by Mr. Alexander represents a minority
interest in the investor group. Royalties on oil and gas production from this
property paid to the investor group approximated $149,000 during the first six
months of 2007.
(12) SUBSEQUENT EVENTS
Effective July 9, 2007, the Company entered into an escrow agreement with a
third-party for the sale of real property (160 acres of grazing land). The
closing date for the sale is scheduled for August 17, 2007. Estimated
proceeds from the sale are $448,300 with a projected gain on the sale of the
real property before taxes of $440,300. Upon successful completion of the
transaction, the gain will be recognized in the third quarter of 2007.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPACT OF CHANGING PRICES
The Company's revenue is affected by crude oil prices paid by the major oil
companies. Average crude oil prices for the second quarter of 2007 decreased
by approximately $3.14 when compared with the same period for 2006. Average
crude oil prices for the first six months of 2007 decreased by approximately
$2.52 per equivalent barrel when compared with the same period for 2006. At
the end of the second quarter of 2007, crude oil prices had increased by
approximately $12.15 per barrel when compared with crude oil prices at
December 31, 2006.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased by $148,141 for the six months ended June 30, 2007. During the
first half of 2007, operating activities provided cash of $582,755. This was
offset by capital expenditures of $613,527 and principal payments on long-term
debt totaling $19,587 during the first six months of 2007. Additional funds
were provided by the redemption of a certificate of deposit in the amount of
$200,000. See the Statements of Cash Flows for additional detailed
information. A $500,000 line of credit and short-term investments of
$1,274,266 provided additional liquidity during the six months ended June 30,
2007.
FORWARD LOOKING INFORMATION
Crude oil prices have increased by approximately $1.40 per barrel as of August
10, 2007, when compared to prices at June 30, 2007.
The Company plans to drill a well during the third quarter of 2007 on its
Anderson property located in the Carneros Creek Field. During the first
quarter of 2007, the Company drilled and completed a well on the Anderson
property whose initial production averaged approximately 35 barrels per day of
clean 31 gravity oil.
Effective July 9, 2007, the Company entered into an escrow agreement with a
third-party for the sale of real property (160 acres of grazing land). The
closing date for the sale is scheduled for August 17, 2007. Estimated
proceeds from the sale are $448,300 with a projected gain on the sale of the
real property before taxes of $440,300. Upon successful completion of the
transaction, the gain will be recognized in the third quarter of 2007. The
Company will utilize some of the proceeds from the sale for the costs of
drilling the new Anderson well in the third quarter.
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The Company's growth in 2007 will be highly dependant on the amount of success
the Company has in its operations and capital investments, including the
outcome of wells that have not yet been drilled. The Company's capital
investment program may be modified during the year due to explorations and
development successes or failures, market conditions and other variables. The
production and sales of oil and gas involves many complex processes that are
subject to numerous uncertainties, including reservoir risk, mechanical
failures, human error and market conditions.
The Company has positioned itself, over the past several years, to withstand
various types of economic uncertainties, with a program of consolidating
operations on certain producing properties and concentrating on properties
that provide the major revenue sources. The drilling of a new well and
several limited work-overs of certain wells have allowed the Company to
maintain its crude oil reserves for the last three years. The Company expects
to maintain its reserve base in 2007, by drilling new wells and routine
maintenance of its existing wells.
The Company may be subject to future costs necessary for compliance with the
new implementation of air and water environmental quality requirements of the
various state and federal governmental agencies. The requirements and costs
are unknown at this time, but management believes that costs could be
significant in some cases. As the scope of the requirements become more
clearly defined, management may be better equipped to determine the true costs
to the Company.
The Company continues to absorb the costs for various state and local fees and
permits under new environmental programs, the sum of which were not material
during 2006. The Company retains outside consultants to assist the Company in
maintaining compliance with these regulations. The Company is actively
pursuing an ongoing policy of upgrading and restoring older properties to
comply with current and proposed environmental regulations. The costs of
upgrading and restoring older properties to comply with environmental
regulations have not been determined. Management believes that these costs
will not have a material adverse effect upon its financial position or results
of operations.
Portions of the Quarterly Report, including Management's Discussion and
Analysis, contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual results
and performance in future periods to be materially different from any future
results or performance suggested in forward-looking statements in this
release. Such forward-looking statements speak only as of the date of this
report and the Company expressly disclaims any obligation to update or revise
any forward-looking statements found herein to reflect any changes in Company
expectations or results or any change in events. Factors that could cause
results to differ materially include, but are not limited to: the timing and
extent of changes in commodity prices of oil, gas and electricity,
environmental risk, drilling and operational costs, uncertainties about
estimates of reserves and government regulations.
14
Item 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based
on their evaluation as of the end of the period covered by this report, that
our disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that
information required to be disclosed in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures.
There was no change in our internal control over financial reporting that
occurred during the quarter ended June 30, 2007 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2007
COMPARED TO THE QUARTER ENDED JUNE 30, 2006
REVENUES
Oil and gas revenues increased by 1.3% for the three months ended June 30,
2007 when compared with the same period for 2006. Oil and gas revenues
decreased by 5.2% due to lower average crude oil prices for the second quarter
of 2007. The average price of the Company's oil and gas for the second
quarter of 2007 decreased by approximately $3.14 per equivalent barrel when
compared to the same period of 2006. Revenues increased by 6.5% due to higher
crude oil production/shipments. The Company's net revenue share of crude oil
production/sales increased by approximately 1,100 barrels for the second
quarter of 2007. The increase in sales volumes is due primarily to the
drilling and completion of a new well on the Anderson lease that was placed
into production in March of 2007.
OPERATING EXPENSES
Operating expenses increased by approximately 22% for the second quarter of
2007. The cost to produce an equivalent barrel of crude oil increased by
approximately $2.78 (total cost of approximately $22.24 per equivalent barrel)
for the second quarter of 2007 when compared with the second quarter of 2006.
The increase in operating expenses for the second quarter of 2007 was due
primarily to an adjustment to the June 30, 2007, ending crude oil inventory
value. The Company adjusts the carrying value of its crude oil inventory at
the end of each quarter based on quarter ending volumes and year-to-date costs
of production. The difference between the inventory adjustment at the end of
15
the second quarter of 2007 compared with the adjustment recorded at the end of
the second quarter of 2006 resulted in an increase of approximately 11% in
operating expenses.
Labor costs increased by approximately 7.5% due to an increase in hourly wages
that was effective July 1, 2006, and a bonus payment of $20,000 that was made
to the Company's field supervisor during the first quarter of 2007.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by approximately 20% for the
second quarter of 2007 when compared with the same period for 2006.
Accounting services increased by 27% for the three months ended June 30, 2007.
The Company has retained an outside consulting firm to provide assistance and
guidance for its efforts to comply with Sarbanes-Oxley's requirements for
management's assessment of internal controls. The fees paid for this project
have increased accounting services by 18% during the second quarter of 2007.
The Company's audit fees also increased by 9% due to both an increase in those
fees and the timing of billings related to those fees. This was offset by
lower costs for legal and consulting services.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 60%
for the second quarter of 2007, when compared with the same period for 2006.
The increase is due primarily to a 55% increase in depletion of the Companies
oil and gas properties. The increase in depletion is due primarily to an
increase in the depletable base of oil and gas properties which is due to the
drilling of three new wells in 2006 and one new well in 2007.
INCOME TAX PROVISION
The Company's income tax provision consists mainly of current estimated taxes
for Federal and California state income taxes. The decrease in the income tax
provision is due to lower projected income tax liabilities at June 30, 2007,
compared with the same period in 2006.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2006
REVENUES
Oil and gas revenues decreased by 4% for the six months ended June 30, 2007
when compared with the same period for 2006. Oil and gas revenues decreased
due to lower average crude oil prices for the first half of 2007. The average
price of the Company's oil and gas for the first six months of 2007 decreased
16
by approximately $2.52 per equivalent barrel when compared with the same
period for 2006. The Company's net revenue share of crude oil
production/sales increased by approximately 200 barrels for the six months
ended June 30, 2007.
OPERATING EXPENSES
Operating expenses increased by approximately 13% for the six months ended
June 30, 2007, when compared with the same period for 2006. The cost to
produce an equivalent barrel of crude oil increased by approximately $2.55 per
barrel (total cost of approximately $22.72 per equivalent barrel) for the six
months ended June 30, 2007.
Labor costs increased by approximately 7.5% due to an increase in hourly wages
that was effective July 1, 2006 and a bonus payment of $20,000 that was made
to the Company's field supervisor during the first quarter of 2007. Electric
utility costs increased by approximately 2% due primarily to higher electric
rates. Produced waste water disposal costs also increased by approximately
2%.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately 72% for the
six months ended June 30, 2007, when compared with the same period for 2006.
Accounting services increased by 40% for the six months ended June 30, 2007.
The Company's audit fees increased by 28% due to both an increase in those
fees and the timing of billings related to those fees. The Company has also
retained an outside consulting firm to provide assistance and guidance for its
efforts to comply with Sarbanes-Oxley's requirements for management's
assessment of internal controls. The fees paid for this project increased
accounting services by 11% during the first half of 2007. This was offset by
lower costs for legal and consulting services.
Compensation costs increased by 26% due primarily to the approval of the
Severance Award Agreement by the Board of Directors on January 9, 2007.
Salaries also increased by 8% due to salary increases that were effective July
1, 2006.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 60.5%
for the six months ended June 30, 2007, when compared with the same period for
2006. The increase is due primarily to a 54% increase in depletion of the
Companies oil and gas properties. The increase in depletion is due primarily
to an increase in the depletable base of oil and gas properties due to the
drilling of three new wells in 2006 and one new well in 2007.
17
INCOME TAX PROVISION
The Company's income tax provision consists mainly of current estimated taxes
for Federal and California state income taxes. The decrease in the income tax
provision is due to lower projected income tax liabilities at June 30, 2007,
compared with the same period in 2006.
18
PYRAMID OIL COMPANY
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings
None
Item 2. - Changes in Securities
None
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
On June 7, 2007, the Company held its Annual Meeting of Shareholders in
Bakersfield, California. Two items were voted on during the meeting: (1)
election of Directors; and (2) approval of Auditors.
The shareholders elected John H. Alexander, Michael D. Herman, Thomas W. Ladd,
Gary L. Ronning and John E. Turco to serve as the Company's Directors until
the next scheduled Annual Meeting. The shareholders approved the selection of
Singer Lewak Greenbaum & Goldstein, LLP as auditors for 2007.
Item 5. - Other Information -
None
Item 6. - Exhibits and Reports on Form 8-K -
a. Exhibits
99.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350
99.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350
b. No Form 8-K's were filed during the three months ended June 30, 2007.
19
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.
PYRAMID OIL COMPANY
(registrant)
Dated: August 13, 2007
JOHN H. ALEXANDER
---------------------
John H. Alexander
President
Dated: August 13, 2007
LEE G. CHRISTIANSON
---------------------
Lee G. Christianson
Chief Financial Officer
PAGE <20>
Certification By Principal Executive Officer Pursuant
to Rule 13A-14 or 15D-14 of the SEC Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John H. Alexander, the President of Pyramid Oil Company (the registrant),
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Pyramid Oil
Company;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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; and
PAGE <21>
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: August 13, 2007
By: JOHN H. ALEXANDER
-----------------------
John H. Alexander
Chief Executive Officer
PAGE <22>
Certification By Principal Financial Officer Pursuant
to Rule 13A-14 or 15D-14 of the SEC Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Lee G. Christianson, the Chief Financial Officer of Pyramid Oil Company
(the registrant), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Pyramid Oil
Company;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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; and
PAGE <23>
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: August 13, 2007
By: LEE G. CHRISTIANSON
------------------------
Lee G. Christianson
Chief Financial Officer