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 September 30, 2004
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 2,494,430
(Class) (Outstanding at September 30, 2004)
2
FINANCIAL STATEMENTS
PYRAMID OIL COMPANY
BALANCE SHEETS
ASSETS
September 30, December 31,
2004 2003
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 855,324 $ 606,799
Short-term investments 850,000 850,000
Trade accounts receivable 303,457 217,460
Interest receivable 68,052 63,430
Crude oil inventory 61,675 48,417
Prepaid expenses 32,743 114,411
Deferred income taxes 27,927 27,927
------------ ------------
TOTAL CURRENT ASSETS 2,199,178 1,928,444
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Oil and gas properties and equipment
(successful efforts method) 11,042,997 10,769,838
Capitalized asset retirement costs 290,450 290,450
Drilling and operating equipment 1,696,253 1,819,360
Land, buildings and improvements 947,426 947,426
Automotive, office and other
property and equipment 992,840 967,244
------------ ------------
14,969,966 14,794,318
Less: accumulated depletion,
depreciation, amortization
and valuation allowance (12,936,260) (12,925,901)
------------ ------------
2,033,706 1,868,417
------------ ------------
OTHER ASSETS
Deposits 250,000 --
Assets held for resale 36,819 38,237
------------ ------------
286,819 38,237
------------ ------------
$4,519,703 $3,835,098
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
3
PYRAMID OIL COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2004 2003
(Unaudited) (Audited)
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 53,776 $ 95,651
Accrued professional fees 21,197 33,972
Accrued taxes, other than income taxes 11,372 19,785
Accrued payroll and related costs 44,325 38,727
Accrued royalties payable 86,320 78,084
Accrued insurance -- 47,825
Current maturities of long-term debt 39,222 44,049
Line of credit -- --
Deferred income taxes 27,927 27,927
------------ ------------
TOTAL CURRENT LIABILITIES 284,139 386,020
------------ ------------
LONG-TERM DEBT, net of current maturities 49,631 59,248
------------ ------------
LIABILITY FOR ASSET RETIREMENT OBLIGATION 931,178 930,306
------------ ------------
COMMITMENTS (note 3)
STOCKHOLDERS' EQUITY:
Common stock-no par value;
10,000,000 authorized shares;
2,494,430 shares issued and
outstanding 1,071,610 1,071,610
Retained earnings 2,183,145 1,387,914
------------ ------------
3,254,755 2,459,524
------------ ------------
$4,519,703 $3,835,098
============ ============
The Accompanying Notes Are an Integral Part of These Financial Statements.
4 PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
REVENUES $702,899 $506,801 $1,969,066 $1,532,631
--------- --------- --------- ---------
COSTS AND EXPENSES:
Operating expenses 298,350 268,408 939,751 777,757
General and administrative 89,142 83,693 279,779 256,234
Taxes, other than income
and payroll taxes 14,824 13,798 40,278 41,536
Provision for depletion,
depreciation and
amortization 43,789 35,657 133,489 112,506
Accretion expense 4,545 4,800 13,635 14,411
Other costs and expenses 3,052 2,066 14,308 12,819
--------- --------- --------- ---------
453,702 408,422 1,421,240 1,215,263
--------- --------- --------- ---------
OPERATING INCOME 249,197 98,379 547,826 317,368
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 4,413 4,712 10,681 14,216
Gain on sale of other assets 83,703 -- 221,485 --
Other income 9,727 3,600 16,927 10,800
Interest expense ( 500) -- ( 563) (2,081)
--------- --------- --------- ---------
97,343 8,312 248,530 22,935
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAX PROVISION 346,540 106,691 796,356 340,303
Income tax provision -- -- 1,125 1,125
--------- --------- --------- ---------
NET INCOME BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 346,540 106,691 795,231 339,178
Cumulative effect on prior
years of change in method
of accounting for asset
retirement obligation -- -- -- (810,115)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 346,540 $ 106,691 $ 795,231 $(470,937)
========= ========= ========= =========
The Accompanying Notes Are an Integral Part of These Financial Statements.
5 PYRAMID OIL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
EARNINGS PER COMMON SHARE
Basic:
Income Before
Cumulative Effect of
Change in Accounting
Principle $0.14 $ 0.04 $ 0.32 $ 0.13
Cumulative effect on
prior years of change
in method of accounting
for asset retirement
obligation -- -- -- (0.32)
--------- --------- --------- ---------
Net Income (Loss) $0.14 $ 0.04 $ 0.32 $(0.19)
========= ========= ========= =========
Diluted:
Income Before
Cumulative Effect of
Change in Accounting
Principle $0.14 $ 0.04 $ 0.32 $ 0.13
Cumulative effect on
prior years of change
in method of accounting
for asset retirement
obligation -- -- -- (0.32)
--------- --------- --------- ---------
Net Income (Loss) $0.14 $ 0.04 $ 0.32 $(0.19)
========= ========= ========= =========
Weighted average number of
common shares outstanding 2,494,430 2,494,430 2,494,430 2,494,430
========= ========= ========= =========
The Accompanying Notes Are an Integral Part of These Financial Statements.
6 PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
---------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 795,231 $(470,937)
Adjustments to reconcile net income (loss)
to cash provided by (used in)
operating activities:
Cumulative effect on prior years
of change in method of accounting
for asset retirement obligation -- 810,115
Provision for depletion,
depreciation and amortization 133,489 112,506
Accretion expense 13,635 14,411
Decrease in asset retirement obligation ( 12,763) (3,975)
Gain on sale of fixed assets (221,485) --
Changes in assets and liabilities:
(Decrease) increase in trade accounts
and interest receivable ( 90,619) 15,759
Increase in crude oil inventories ( 13,258) (2,799)
Decrease in prepaid expenses 81,668 72,326
Decrease in accounts payable
and accrued liabilities (97,054) (56,786)
-------- --------
Net cash provided by operating activities 588,844 490,620
-------- --------
The Accompanying Notes Are an Integral Part of These Financial Statements.
7
PYRAMID OIL COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
---------------------------
2004 2003
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash deposit with state of California
Division of Oil and Gas $(250,000) $ --
Proceeds from sale of fixed assets 226,500 --
Capital expenditures (302,375) (303,912)
-------- --------
Net cash used in investing activities (325,875) (303,912)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 100,000 --
Payments on line of credit (100,000) --
Proceeds from issuance of long-term debt 20,690 40,117
Principal payments on long-term debt ( 35,134) (127,489)
-------- --------
Net cash used in financing activities ( 14,444) ( 87,372)
-------- --------
Net increase in cash 248,525 99,336
Cash at beginning of period 606,799 502,839
-------- --------
Cash at end of period $855,324 $602,175
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the nine months for interest $ 563 $7,387
======== ========
Cash paid during the nine months for income taxes $1,125 $1,125
======== ========
The Accompanying Notes Are an Integral Part of These Financial Statements.
8 PYRAMID OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(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, 2003 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, 2003 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 September 30, 2004 and the results of its operations
and its cash flows for the nine month periods ended September 30, 2004 and
2003. The results of operations for an interim period are not necessarily
indicative of the results to be expected for a full year.
(2) DIVIDENDS
No cash dividends were paid during the nine months ended September 30, 2004
and 2003.
(3) COMMITMENTS AND CONTINGENCIES
In April 2004, the Company entered into a Joint Venture Agreement with two oil
companies, Prime Natural Resources, LLC of Houston, Texas and North Arm
Resources, Inc. Of Wayzata, Minnesota for the drilling of a 5,500 foot
exploratory well in the Blackwell's Corner area of Kern Country California.
This drilling prospect contains approximately 1,100 acres and was developed by
employing 3-D seismic technology and geology. The Company purchased a 25%
position in the prospect for approximately $53,000 and will be the Operator.
The new well was drilled in May of 2004, with an estimated cost of
approximately $400,000 for a dry-hole look and $560,000 to complete as a
producer. The Company's share of these costs would be 25%. As of September
30, 2004, the Company's share of costs for drilling and competing the new well
was approximately $146,000. If this well is successful, additional wells may
be drilled within this prospect area.
9
The Company has entered into various employment agreements with key executive
employees. In the event the key executives are dismissed, the Company would
incur approximately $1,042,000 in costs.
(4) OTHER INCOME
The Company sold a well servicing hoist in the first quarter of 2004 for a
gain of approximately $134,000 and a minor piece of production equipment in
the second quarter of 2004 for a gain of $4,000. The Company sold another
well servicing hoist in the third quarter of 2004 for a gain of approximately
$56,000. The Company also sold another piece of equipment in the third
quarter from the category, assets held for resale, for a gain of $28,000. All
of the assets sold in 2004 had little or no net book values.
(5) INCOME TAX PROVISION
The Company's income tax provision consists mainly of current minimum taxes
for California and New York. The Company is utilizing its significant net
operating loss carryforwards to offset Federal income taxes.
(6) CHANGE IN ACCOUNTING PRINCIPLE
In accordance with Statement of Financial Accounting Standards No. 143,
''Accounting for Assets Retirement Obligations'', effective January 1, 2003,
the Company changed its method of accounting for asset retirement obligations
(ARO) relating to well abandonment costs from expensing such costs in the year
the wells are abandoned to recording a liability when such costs are incurred
in order to provide a better matching of revenue and expenses and to improve
interim financial reporting.
Upon adoption of SFAS 143, the Company was required to recognize a liability
for the present value of all legal obligations associated with the retirement
of tangible long-lived assets and an asset retirement cost was capitalized as
part of the carrying value of the associated asset. Upon initial application
of SFAS 143, a cumulative effect of a change in accounting principle was also
required in order to recognize a liability for any existing ARO's adjusted for
cumulative accretion, an increase to the carrying amount of the associated
long-lived asset and accumulated depreciation on the capitalized cost.
Subsequent to initial measurement, liabilities are required to be accreted to
their present value each period and capitalized costs are depreciated over the
estimated useful life of the related assets. Upon settlement of the liability,
the Company will settle the obligation against its recorded amount and will
record any resulting gain or loss. As a result of the adoption of SFAS 143 on
January 1, 2003, the Company recorded a $272,649 increase in the net
capitalized cost of its oil and gas properties.
10
The effect of these changes for the nine months ending September 30, 2004,
resulted in a decrease in income from continuing operations of $17,910. The
cumulative effect of these changes on years prior to January 1, 2003,
approximately $810,115 ($0.23 per common share), has been charged to
operations in 2003.The effect on net income of this change in accounting
methods is as follows:
Amount Per Share
-------- ---------
Cumulative effect to January 1, 2003 $(810,115) $(0.23)
Effect on nine months ended September 30, 2004 (17,910) --
Effect on nine months ended September 30, 2003 (17,795) --
There are no legally restricted assets for the settlement of asset retirement
obligations. No income tax is applicable to the asset retirement obligation
as of September 30, 2004, because the Company records a valuation allowance on
net operating losses and deductible temporary differences due to the
uncertainty of its realization.
A reconciliation of the Company's asset retirement obligations from the
periods presented are as follows:
Amount
-------
Beginning Balance, January 1, 2004 $930,306
Incurred during the period (12,763)
Settled during the period --
Accretion expense 13,635
Revisions in estimates --
-------
Ending Balance, September 30, 2004 $931,178
=======
(7) DEPOSITS
In April 2004, the Company replaced its $250,000 state of California oil and
gas blanket performance surety bond, with a cash bond in the form of an
irrevocable certificate of deposit in the amount of $250,000.
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(8) CHANGE IN REGISTRANT'S OFFICERS
Effective June 3, 2004, J. Ben Hathaway retired as President and Chief
Executive Officer of Pyramid Oil Company. Mr. Hathaway will remain on the
Company's Board of Directors and will retain the title of Chairman of the
Board of Directors. Mr. Hathaway's decision to retire automatically triggered
non-renewal of his employment contract with the Company effective June 3,
2004.
The Board of Directors has elected John H. Alexander as the new President of
Pyramid Oil Company. Mr. Alexander had previously served as Vice President of
the Company since 1986. Mr. Alexander has also been a Director of the Company
since 1986. The Board of Directors has elected J. Ben Hathaway, Jr. as Vice
President of the Company to succeed Mr. Alexander. Mr. Hathaway has been an
employee of the Company since 1986.
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 third quarter of 2004 increased
by approximately $12.20 when compared with the same period for 2003. Average
crude oil prices for the first nine months of 2004 increased by approximately
$7.70 per equivalent barrel when compared with the same period for 2003. At
the end of the third quarter of 2004, crude oil prices had increased by
approximately $13.20 per barrel when compared with crude oil prices at
December 31, 2003. The Company cannot predict the future course of crude oil
prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $248,525 for the nine months ended
September 30, 2004. During the first nine months of 2004, operating
activities provided cash of $588,844. Additional liquidity was provided by
proceeds from the sale of fixed assets of $226,500. This was offset by
capital expenditures of $302,375, the Company depositing a $250,000 cash
bond with the state of California (see Deposits, Note 7) and principal
payments on long-term debt totaling $35,134 during the first nine months of
2004. Capital expenditures for the first nine months of 2004 included
approximately $146,000 for the drilling and completion of a new well in
partnership with two other oil Companies. See the Statements of Cash Flows
for additional detailed information.
12
FORWARD LOOKING INFORMATION
Announcements from the Company, including any updates of financial results and
SEC fillings can be found on the Company's WEB site, pyramidoil.com. The
Company uses the Web site to ''post'' information about the Company's
activities. This site also provides an e-mail address, info@pyramidoil.com,
for shareholders or prospective shareholders to contact the Company.
On October 20, 2004 the Company began drilling operations on a new well in the
Carneros Creek field, located in Kern County California. This well was
designed as a developmental well within the existing field boundaries, with a
emphases on obtaining sub-surface scientific information, to assist in future
development of this area. Specific technical information will be obtained
from the examination of core samples retrieved from the oil bearing zones
known to exist in this area. Currently Pyramid has 27 wells in the Carneros
Creek field. The estimated budgeted costs of drilling and completing this
well are approximately $322,000.
As of October 30, 2004, the new well had encountered four of the predicted oil
and gas zones and coring operations were successful in collecting
representative cores from three of these zones. The well was completed and
after review of the laboratory analysis of the cores, the well will be
perforated and tested. Further announcements about this well will be posted
on the WEB site and be included within the next 10-KSB filing.
Based upon information obtained during the drilling of this new well and
preliminary laboratory results, management is making plans for additional
wells in this area of Carneros Creek.
Production testing from the Company's Joint Venture exploratory well,
Garibaldi #1, drilled in the Blackwells Corner area of Kern County, have been
disappointing. The gas zone which was tested at approximately 5,000 feet,
proved to be non-commercial and the well was plugged at that depth. A
shallower zone at 2,100 feet, was perforated, tested and determined to be non-
commercial. The Company and it's partners, Prime Natural Resources and North
Arm Resource, are expected to make a final decision as to any additional
testing or abandonment on this well within 30 days.
In the prior 10-QSB, management discussed a July 2004, gelled water frac
treatment on one of its wells in the Carneros Creek field, to test a new crude
oil producing zone. Post treatment analysis and production testing indicated
a problem with fluid blockage in the well. Although the initial results have
been less than expected, the information gained by this procedure has become
very important in designing future frac treatments for this producing area.
The Company implemented an additional treatment procedure in this well, an
attempt to treat the fluid blockage problem, and results of the treatment are
pending.
In response to higher oil prices, the Company undertook a three month project
to refurbish certain surface facilities at one of its formerly idle properties
in Santa Maria, California. After construction activities were completed, the
property was put back into production in September 2004. With the current oil
13
prices, this property is expected to contribute both in cash flow and oil
reserves to the Company.
Management began a program to seek additional technical information on
certain of the Company's properties by using outside consultants, such as
petroleum engineers and geologists. This type of information will assist
management in the planning and development of future drilling and production
enhancement activities
Management's 2004 capital budget, has provisions for both production
enhancement activities on existing wells, the drilling of a new well in its
Carneros Creek field, and a possible follow-up well in the Blackwell's corner
area if warranted. All of these activities are governed by various factors
including economics, production rates, results from testing and geological
interpretations and boundaries.
Management also has budgeted additional funding for other properties the
Company owns, both for production stimulation, facility upgrades and returning
idle wells back to production. Management also budgets and maintains cash
reserves for capital additions and improvements, future drilling activities,
unexpected major expenses and for future oil and gas property purchases or
acquisitions.
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
ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2004
COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2003
REVENUES
Oil and gas revenues increased by 39% for the three months ended September 30,
2004 when compared with the same period for 2003. Oil and gas revenues
increased by 44% due to higher average crude oil prices for the third quarter
of 2004. The average price of the Company's oil and gas for the third quarter
of 2004 increased by approximately $12.20 per equivalent barrel when compared
to the same period of 2003. Revenues decreased by 5% due to lower production
of crude oil. The Company's net revenue share of crude oil production
decreased by approximately 900 barrels for the third quarter of 2004.
OPERATING EXPENSES
Operating expenses increased by approximately 11% for the third quarter of
2004. Operating costs for the third quarter of 2004 increased due primarily
to work performed on one of the Company's leases. The cost to produce an
equivalent barrel of crude oil increased by approximately $2.40 for the
third quarter of 2004 when compared with the third quarter of 2003.
The Company worked on a well during the third quarter of 2004 which increased
operating costs by approximately 24%. The work on this well has been done to
explore a different producing zone in an effort to increase production and to
test this zone for application on other wells on this same property. The work
on this well has not generated any additional production for this lease. The
increased costs of the work done on this well was offset by overall lower
operating costs on the other Company's other properties.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by approximately 6.5% for the
quarter ended September 30, 2004. Salaries increased by 5% during the third
quarter of 2004 due primarily to a salary increase that was effective June 1,
2004.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 23%
for the third quarter of 2004, when compared with the same period for 2003.
The increase is due primarily to an increase of 13% in depletion charges. The
increase in depletion is due to an increase in the depletion rate due to
an increase in the depletable asset base at January 1, 2004. Depreciation of
fixed assets also increased by 9% due primarily to the replacement of fully
depreciated pickup trucks with new trucks.
15
INCOME TAX PROVISION
The Company's income tax provision consists mainly of current minimum taxes
for California and New York. The Company is utilizing its significant net
operating loss carryforwards to offset Federal income taxes.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2003
REVENUES
Oil and gas revenues increased by 29% for the nine months ended September 30,
2004 when compared with the same period for 2003. Oil and gas revenues
increased by approximately 28% due to higher average crude oil prices for the
first nine months of 2004. The average price of the Company's oil and gas for
the first nine months of 2004 increased by approximately $7.70 per equivalent
barrel when compared with the same period for 2003. Revenues increased by 1%
due to higher production of crude oil. The Company's net revenue share of
crude oil production increased by approximately 300 barrels for the nine
months ended September 30, 2004.
OPERATING EXPENSES
Operating expenses increased by approximately 21% for the nine months ended
September 30, 2004, when compared with the same period for 2003. The cost to
produce an equivalent barrel of crude oil increased by approximately $2.80 per
barrel for the nine months ended September 30, 2004. Operating costs for the
nine months ended September 30, 2004, increased due primarily to work
performed on three leases.
The Company worked on a well during the first nine months of 2004 which
increased operating costs by approximately 14%. The work on this well has been
done to explore a different producing zone in an effort to increase production
and to test this zone for application on other wells on this same property.
The work on this well has not generated any additional production for this
lease.
Costs increased by 5% on one of the Company's wells during the first nine
months of 2004 due to an effort to return the well to production. The well
had stopped producing due to mechanical problems with the tubing in the well.
The Company has been unsuccessful, so far, in returning this well back to
production. Expenses increased by 5% on an oil producing property that the
Company has attempted to return to production during the first nine months of
2004. This property has been shut-in for over two years due to problems with
economically disposing of produced waste water. The Company has found an
economic method of disposing of produced waste water and has returned this
lease to production in September of 2004.
16
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by approximately 9% for the
nine months ended September 30, 2004. Salaries increased by 4% due to salary
increases that were effective July 1, 2003 and June 1, 2004. Legal services
increased by 3% due primarily to compliance with Sarbanes-Oxley.
PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION
The provision for depletion, depreciation and amortization increased by 19%
for the nine months ended September 30, 2004, when compared with the same
period for 2003. The increase is due primarily to an increase of 13% in
depletion charges. The increase in depletion is due to an decrease in the
depletion rate due to an increase in the depletable asset base at January 1,
2004. Depreciation of fixed assets also increased by 5% due primarily to the
replacement of fully depreciated pickup trucks with new trucks.
OTHER INCOME
The Company sold a well servicing hoist in the first quarter of 2004 for a
gain of approximately $134,000. The Company sold another well servicing hoist
in the third quarter of 2004 for a gain of approximately $56,000. The Company
also sold another piece of equipment from the category of assets held for
resale for a gain of $28,000. All of the assets sold in 2004 had little or no
net book values.
INCOME TAX PROVISION
The Company's income tax provision consists mostly of current minimum taxes
for California and New York. The Company is utilizing its significant net
operating loss carryforwards to offset Federal income taxes.
Item 3. CONTROLS AND PROCEDURES
Based on their evaluation of the Company's disclosure controls and
procedures as of a date within 90 days of the filing of this Report, the Chief
Executive Officer and Chief Financial Officer have concluded that such
controls and procedures are effective. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect such controls subsequent to the date of their evaluation.
17
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
None
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
18
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: November 12, 2004
JOHN H. ALEXANDER
---------------------
John H. Alexander
President
Dated: November 12, 2004
LEE G. CHRISTIANSON
---------------------
Lee G. Christianson
Chief Financial Officer PAGE <19>
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 <20>
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: November 12, 2004
By: JOHN H. ALEXANDER
-----------------------
John H. Alexander
Chief Executive Officer PAGE <21>
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 <22>
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: November 12, 2004
By: LEE G. CHRISTIANSON
------------------------
Lee G. Christianson
Chief Financial Officer