SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Check One
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2002
or
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 from _______ to ______
Commission file number 0-12500
ISRAMCO, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3145265
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
11767 Katy Freeway, Houston, TX 77079
(Address of Principal Executive Offices)
713-621-3882
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) filed all reports required
to be filed by Section 13 or 15(d) of the 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 |_|
The number of shares outstanding of the registrant's Common Stock as of
August 14, 2002, was 2,639,853.
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2002 and December 31, 2001 1
Consolidated Statements of Operations for the three and six months
ended June 30, 2002 and 2001 2
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001 3
Notes to Consolidated Financial Statements 4
Item 2. Management's discussion and analysis of financial statements 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities & Use of Proceeds 15
Item 3. Defaults upon senior securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except for share information)
(Unaudited)
June 30, December 31,
2002 2001
-------- -----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 715 $ 4,280
Marketable securities, at market 4,156 2,847
Accounts receivable 572 455
Prepaid expenses and other current assets 401 112
-------- --------
Total current assets 5,844 7,694
Property and equipment (successful efforts method for oil and gas
properties) 3,474 4,180
Real Estate 1,887 --
Marketable securities, at market 7,713 7,611
Investment in affiliates 8,716 6,227
Deferred tax asset 1,338 732
Other 221 171
-------- --------
Total assets $ 29,193 $ 26,615
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 2,725 1,160
-------- --------
Total current liabilities 2,725 1,160
-------- --------
Commitments, contingencies and other matters
Shareholders' equity:
Common stock $.0l par value; authorized 7,500,000
shares; issued 2,669,120 shares; outstanding
2,639,853 at June 30,2002 27 27
and December 31,2001
Additional paid-in capital 26,240 26,240
Accumulated deficit 1,202 (784)
Accumulated other comprehensive income (837) 136
Treasury stock, 29,267 shares at
June 30, 2002 and December 31, 2001 (164) (164)
-------- --------
Total shareholders' equity 26,468 25,455
-------- --------
Total liabilities and shareholders' equity $ 29,193 $ 26,615
======== ========
See notes to the consolidated financial statements.
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ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for share information)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
REVENUES:
Operator fees from related party 64 $ 67 147 $ 135
Oil and gas sales 625 770 1,141 1,834
Interest income 105 190 296 308
Office services to related party 227 226 513 451
Gain on Marketable securities -- 92 -- --
Equity in net income of investees -- 210 -- --
----------- ----------- ----------- -----------
Total revenues 1,021 1,555 2,097 2,728
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Financial expenses 84 -- 188 --
Depreciation, depletion and
amortization 962 118 1,080 221
Lease operating expenses and
severance taxes 257 145 437 328
Exploration costs 841 33 843 48
Operator expense 155 173 342 324
General and administrative 292 319 702 579
Loss on marketable securities 88 -- 193 42
Equity in net loss of investees 176 -- 306 67
----------- ----------- ----------- -----------
Total expenses 2,855 788 4,091 1,609
----------- ----------- ----------- -----------
Income (loss) before income taxes (1,834) 767 (1,994) 1,119
Income taxes 464 (243) 464 (400)
----------- ----------- ----------- -----------
Net income (loss) from continuing operation (1,370) 524 (1,530) 719
=========== =========== =========== ===========
Cumulative Effect of Accounting change -- -- 3,516 --
----------- ----------- ----------- -----------
Net income (Loss) $ (1,370) $ 524 $ 1,986 $ 719
=========== =========== =========== ===========
Earnings per common share-basic
continuing operation $ (0.52) $ 0.20 $ (0.58) $ 0.27
Cumulative Effect of Accounting change -- -- $ 1.33 --
----------- ----------- ----------- -----------
$ (0.52) $ 0.20 $ 0.75 $ 0.27
=========== =========== =========== ===========
Weighted average number of shares
outstanding-basic 2,639,853 2,639,853 2,639,853 2,639,853
=========== =========== =========== ===========
Earnings per common share-diluted
continuing operation $ (0.52) $ 0.20 $ (0.58) $ 0.27
Cumulative Effect of Accounting change -- -- $ 1.33 --
----------- ----------- ----------- -----------
$ (0.52) $ 0.20 $ 0.75 $ 0.27
=========== =========== =========== ===========
Weighted average number of shares
outstanding-diluted 2,639,853 2,659,328 2,639,853 2,666,990
=========== =========== =========== ===========
See notes to the consolidated financial statements.
-2-
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
2002 2001
------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,986 719
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 232 221
Dry hole costs 1,657
Loss (gain) on marketable securities 258 42
Equity in net loss (gain) of investees 305 67
Cumulative effect of an Accounting change (3,516) --
Deferred taxes (464) --
Changes in assets and liabilities:
Accounts receivable (117) 48
Prepaid expenses and other current assets (289) 441
Other assets -- (67)
Accounts payable and accrued liabilities 149 315
------ -------
Net cash provided by operating activities 201 1,786
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to property and equipment (450) (1,297)
Purchase of Real Estate (1,202) --
Purchase of marketable securities (2,768) (3,203)
Proceeds from sale of marketable securities 704 236
Purchase of convertible from promissory note (50) --
------ -------
Net cash used in investing activities (3,766) (4,264)
------ -------
NET INCREASE (Decrease) IN CASH AND CASH EQUIVALENTS (3,565) (2,478)
Cash and cash equivalents-beginning of year 4,280 12,706
------ -------
Cash and cash equivalents-end of period 715 10,228
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest -- --
====== =======
Cash paid during the period for taxes -- --
====== =======
In June 2002, the Company purchased real estate in Israel for a purchase price
(inclusive of all taxes) of $1,887,000. As of June 30, 2002 the Company paid in
cash $1,202,000 of the purchase price.
See notes to the consolidated financial statements.
-3-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
As used in these financial statements, the term "Company" refers to Isramco,
Inc. and subsidiaries.
NOTE 2
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included. Results for the
six month and three month period ended June 30, 2002, are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001. Certain re-classification of prior year
amounts have been made to conform to current presentation.
NOTE 3 - Consolidation
The consolidated financial statements include the accounts of the Company, its
direct and indirect non U.S. based wholly-owned subsidiaries Isramco Oil and Gas
Ltd. (Oil and Gas), Isramco B.V., a Netherlands company and Isramco Resources
Inc., a British Virgin Islands company, and its wholly owned subsidiaries, Jay
Petroleum, L.L.C. (Jay), Jay Management L.L.C. (Jay Management) and IsramTec
Inc. (IsramTec). Intercompany balances and transactions have been eliminated in
consolidation.
NOTE 4 - New Accounting Pronouncements
A. In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and
Intangible Assets. Statement 141 requires that the purchase method of accounting
be used for all business combinations completed from July 1, 2001. Statement 141
also specifies that types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those acquired intangible
assets that are required to be included in goodwill. Statement 142 will require
that goodwill no longer be amortized, but instead tested for impairment at least
annually. Statement 142 will also require that recognized intangible assets be
amortized over their respective estimated useful lives. Any recognized
intangible asset determined to have an indefinite useful life will not be
amortized, but instead tested for impairment in accordance with Statement 142
until its life is determined to no longer be indefinite.
The Company adopted Statement 141 and Statement 142 on January 1, 2002.
Statement 141 requires the Company to evaluate its existing intangible assets
and goodwill and to make any necessary reclassifications in order to conform to
the new separation requirements at the date of adoption. Upon adoption of
Statement 142, the Company will be required to reassess the useful lives and
residual values of all intangible assets.
In connection with the transitional impairment evaluation, Statement 142
requires the Company to perform an assessment of whether there is an indication
that goodwill is impaired as of January 1, 2002. To accomplish this, the Company
must (1) identify its reporting units, (2) determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units, and (3) determine the
fair value of each reporting unit. This first step of the transitional
assessment is required to be completed by June 30, 2002. If the carrying value
of any reporting unit exceeds its fair value, then detailed fair values for each
of the assigned assets (excluding goodwill) and liabilities will be determined
to calculate the amount of goodwill impairment, if any. The difference
-4-
between total fair value as defined above and carrying value of all the
reporting segments is defined as the 'fair value' of the goodwill. If the fair
value of the goodwill is lower than its carrying value, the Statement requires
that the difference be included in goodwill. This is the second step in
assessing the impairment and it must be completed as soon as possible, but no
later than December 31, 2002. Any transitional impairment loss will be
recognized as the effect of a change in accounting principle in the Company's
statement of earnings and will be recorded retroactively to January 1, 2002.
In the current period the Company applied the instructions of SFAS 141.
Accordingly the company recognized a gain of $3,516,000 as the effect of a
change in accounting principle. The gain was included as a cumulative effect of
a change in accounting policy.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No.144). SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future cash flows
expected to be generated by the asset or used in its disposal. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized. In addition, SFAS 144 requires the Company to show separately
operations which have been disposed of (sold, abandoned or liquidated) or
classified as held for sale. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. The Company adopted
SFAS No. 144 from January 1, 2002.
NOTE 5 - Oil and Gas Properties
Although the company continues to seek to acquire oil and gas properties, no
such purchases were made in the first six months of 2002.
In the six month period ended June 30, 2002, drilling costs in the amount of
$449,000 were capitalized.
In December 2001, drilling commenced on the Read 1 well in Texas. Based on the
completed Production tests, in May 2002 the Company decided to plug and abandon
the well. The aggregate drilling expenditures with respect to the Read 1 well
were approximately $848,000.
The operator of Marine 9 completed geological and geophysical studies for the
purpose of identifying and confirming the existence of oil prospects. Based on
the results of the electrical logging survey,, in June 2002 the operator
recommended that the well be plugged and abandoned, which recommendation was
accepted. The Company expended approximately $809,000 in connection with the
drilling in Marine 9 In the Congo.
NOTE 6 - Real Estate
In June 2002, the Company purchased non-oil and gas producing real estate in
Israel for a purchase price (inclusive of all taxes) of $1,887,000. As of June
30, 2002 the Company paid $1,202,000 of the purchase price. Concurrently with
the purchase of the real estate, the Company entered into a lease agreement with
seller to let the entirety of such property for a 24-month period at a monthly
rent of $7,000.
-5-
NOTE 7 - Earnings Per Share Computation
SFAS No. 128 requires a reconciliation of the numerator (income) and denominator
(shares) of the basic earnings per share ("EPS") computation to the numerator
and denominator of the diluted EPS computation. The Company's reconciliation is
as follows:
For the Three Months Ended June 30,
------------------------------------
2002 2001
---- ----
Loss Shares Income Shares
----------- ---------- ---------- ---------
Earnings per common share-Basic $(1,370,000) 2,639,853 $ 524,000 2,639,853
Effect of dilutive securities:
Stock Options -- -- -- 19,475
----------- ---------- ---------- ---------
$(1,370,000) 2,639,853 $ 524,000 2,659,328
=========== ========== ========== =========
For the Six Months Ended June 30,
------------------------------------
2002 2001
---- ----
Income Shares Income Shares
---------- ---------- ---------- ---------
Earnings per common share-Basic $1,986,000 2,639,853 $ 719,000 2,639,853
Effect of dilutive securities:
Stock Options -- -- -- 27,137
---------- ---------- ---------- ---------
$1,986,000 2,639,853 $ 719,000 2,666,990
========== ========== ========== =========
NOTE 8 - Geographical Segment Information
The Company's operations involve a single industry segment--the exploration,
development, production and transportation of oil and natural gas. Its current
oil and gas activities are concentrated in the United States, Israel, and the
Republic of Congo, Africa. Operating in foreign countries subjects the Company
to inherent risks such as a loss of revenues, property and equipment from such
hazards as exploration, nationalization, war and other political risks, risks of
increases of taxes and governmental royalties, renegotiation of contracts with
government entities and changes in laws and policies governing operations of
foreign-based companies.
The Company's oil and gas business is subject to operating risks associated with
the exploration, and production of oil and gas, including blowouts, pollution
and acts of nature that could result in damage to oil and gas wells, production
facilities or formations. In addition, oil and gas prices have fluctuated
substantially in recent years as a result of events, which were outside of the
Company's control. Financial information, summarized by geographic area, is as
follows (in thousands): Geographic Segment
-6-
Geographic Segment
United Consolidated
States Israel Africa Total
-------- -------- -------- --------
Identifiable assets at June 30, 2002 $ 3,130 $ 72 $ 150 $ 3,352
Cash and corporate assets $ 26,093
--------
Total Assets at June 30, 2002 $ 29,445
========
Identifiable assets at December 31, 2001 $ 3,818 $ 72 $ 150 $ 4,040
Cash and corporate assets $ 22,575
--------
Total Assets at December 31, 2001 $ 26,615
========
Six Month Ended June 30, 2002
Sales and other operating revenue $ 1,214 $ 587 $ -- $ 1,801
Costs and operating expenses $ 1,537) $ (356) $ (809) $ (2,702)
-------- -------- -------- --------
Operating profit $ (323) $ 231 $ -- $ (901)
======== ======== ========
Financial Income, net $ 108
General corporate expenses $ (702)
Loss on marketable securities and
equity in net loss of investees $ (499)
Income taxes $ 464
--------
Net Loss from continuing operations $ (1,530)
========
United Consolidated
States Israel Africa Total
-------- -------- -------- --------
Three Months Ended June 30, 2002
Sales and other operating revenue $ 687 $ 259 $ -- $ 916
Costs and operating expenses $ (1,244) $ (162) $ (809) $ (2,215)
-------- -------- -------- --------
Operating profit $ (587) $ 97 $ (809) $ (1,299)
======== ======== ========
Interest Income $ 20
General corporate expenses $ (292)
Loss on marketable securities and equity in net loss of investee $ (264)
Income taxes $ 464
--------
Net Income from continuing operations $ (1,370)
========
-7-
United Consolidated
States Israel Africa Total
-------- -------- -------- --------
Six Months Ended June 30, 2001
Sales and other operating revenue $ 1,875 $ 545 $ -- $ 2.420
Costs and operating expenses $ (538) $ (334) $ (49) $ (921)
-------- -------- -------- --------
Operating profit $ 1,337 $ 211 $ (49) $ 1,499
======== ======== ========
Financial Income, net $ 308
General corporate expenses $ (579)
Loss on marketable securities and
equity in net loss of investees $ (109)
Income taxes $ (400)
--------
Net Income from continuing operations $ 719
========
United Consolidated
States Israel Africa Total
-------- -------- -------- --------
Three Months Ended June 30, 2001
Sales and other operating revenue $ 791 $ 272 $ -- $ 1,063
Costs and operating expenses $ (258) $ (177) $ (34) $ (469)
-------- -------- -------- --------
Operating profit $ 805 $ 116 $ (15) $ 594
======== ======== ========
Interest Income $ 190
Loss on marketable securities and equity in net loss of investee $ 302
General corporate expenses $ (319)
Income taxes $ (243)
--------
Net Income from continuing operations $ 524
========
-8-
NOTE 9 - Comprehensive income (loss)
The Company's comprehensive income (loss) for the Three and Six month periods
ended June 30, 2002 and 2001 was as follows:
Six months
ended June 30,
2002 2001
------- -----
Net Income $ 1,986 $ 719
Other comprehensive gain (loss)
- -available - for - sale securities $ (252) $(193)
- -foreign currency translation adjustments $ (721) $ (61)
------- -----
Comprehensive income (loss) $ 1,013 $ 465
======= =====
Three months
ended June 30,
2002 2001
------- -----
Net Income $(1,370) $ 524
Other comprehensive gain (loss)
- -available - for - sale securities $ (103) $ (61)
- -foreign currency translation adjustments $ (380) $ 20
------- -----
Comprehensive income (loss) $(1,853) $ 483
======= =====
NOTE 10 - Contingencies
The Company is involved in a dispute with a contractor relating to drilling
costs of the Tilapia well in Congo during 2000. The Company believes that it has
adequately accrued for all amounts due to this contractor as of June 30, 2002.
-9-
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this document as well as
statements made in press releases and oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the
Company's behalf that are not statements of historical or current fact
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown factors that could cause the actual results of the
Company to be materially different from the historical results or from any
future results expressed or implied by such forward looking statements.
Liquidity and Capital Resources
The decrease in the Company's consolidated cash and cash equivalents of
$3,565,000 from $4,280,000 at December 31, 2001 to $715,000 at June 30, 2002, is
primarily attributable to the purchase of non-oil and gas real estate located in
Israel and investing activities.
Net cash used in investing activities for the six months period ended June
30, 2002 was $3,766,000 compared to $4,264,000 used for the comparable six month
period in 2001. Net cash used during the six month period ended June 30, 2002
was used primarily for the purchase of marketable securities, capitalization of
drilling costs expended during the period and purchase in June 2002 of non oil
and gas producing real estate located in Israel at an aggregate cost of
$1,887,000. The real estate is located in an area that is currently zoned for
agricultural purposes. Concurrently with the purchase of the real estate, the
Company entered into a lease agreement with an unaffiliated third party to let
the entirety of such property for a 24 month period at a monthly rent of $7,000.
The Company believes that existing cash balances and cash flows from
activities will be sufficient to meet its financing needs. The Company intends
to finance its ongoing oil and gas exploration activities from working capital.
Results of Operations
Six Months Ended June 30, 2002 (the "2002 Period") Compared to Six Months Ended
June 30, 2001 (the "2001 Period") and the Three Months Ended June 30, 2002
Compared to the Three Months Ended June 30, 2001
The Company reported net income of $1,986,000 ($0.75 per share) for the
2002 Period compared to net income of $719,000 ($0.27 per share) for the 2001
Period and a loss of ($1,370,000) ($0.52 per share) for the three months ended
June 30, 2002 compared to net income of $524,000 ($0.20 per share) for the
comparable period in 2001. The relatively higher net income for the 2002 Period
compared to the income for the 2001 Period is primarily attributable to non-cash
income in the amount of $3,516,000 booked in the 2002 Period as a result of the
cumulative effect of accounting changes deriving from the Company's adoption, as
of January 1st 2002, of SFAS 141 "Business Combination" and SFAS 142 "Goodwill
and Intangible Assets". The loss for the three months ended June 30, 2002
compared to the net income three months ended June 30, 2001 is primarily
attributable to outlays incurred in connection with the drilling of the Read
well in Texas and an additional well in the Congo (Marine 9 Permit), both of
which were plugged and abandoned and a corresponding charge was recorded in the
amount of $1,657,000.
Set forth below is a break-down of these results.
-10-
United States
Oil and Gas Revenues (in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
Oil Volume Sold (Bbl) 5 6 11 10
Gas Volume Sold (MCF) 192 165 370 291
Oil Sales ($) 120 149 223 268
Gas Sales ($) 503 621 917 1,566
Average Unit Price
Oil ($/Bbl) * $22.98 $24.8 $19.77 $26.8
Gas ($/MCF) ** $ 2.62 $ 3.8 $ 2.48 $ 5.4
* Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MCF - 1,000 Cubic Feet
Summary of Exploration Efforts in Israel
To date, three gas fields were discovered offshore Israel known
respectively as Or, Or South and Nir. Based on the gas finds, a 30 year lease
(including the area of the Or gas discovery) was granted in June 2000
(hereinafter, the "Med Yavne Lease") and an additional 30 year lease (including
the area of the Nir gas discovery) was granted in January 2002 (hereinafter, the
"Med Ashdod Lease").
Med Yavne Lease
The Med Yavne Lease covers 145 square kilometers (approximately 35,000
acres). The grant of the Med Yavne Lease provided that the commencement of a
drilling by July 1, 2002 of at least one well. If drilling is not commenced by
such date, then approximately 92 kilometers (approximately 23,000 acres) of the
lease area will be forfeited. The processing and interpretation of a 3D seismic
survey covering the Med Yavne Lease were performed and, based on these results,
a detailed mapping of the gas discoveries, as well as a number of additional gas
prospects in the Med Yavne Lease, were drawn up. However, subsequent tests with
respect to the additional identified prospects established that these prospects
are highly uncertain and, accordingly, BG International Limited, a member of the
British Gas Group ("BG") and the operator of the Med Yavne Lease, recommended
not to commence any drilling with respect to such prospects, which
recommendation was accepted. Accordingly, approximately 92 kilometers
(approximately 23,000 acres) were forfeited.
The Company's participation share of the Med Yavne Lease is 0.4585%.
Med Ashdod Lease
Based on the Nir I discovery, in January 2002 the Israel Petroleum
Commissioner advised the license participants that they had been granted the Med
Ashdod Lease covering 250 square kilometers (approximately 62,000 acres). The
Company serves as the operator of the Med Ashdod Lease and holds a 0.3625%
interest therein.
-11-
Exploration efforts are currently focused on the southern part of the
lease, where three potential prospects have been identified on the 3D seismic
survey. Special processing of part of the 3D survey have been recently performed
to better evaluate the prospects and the results thereof have been furnished to
expert consultants for further analysis and for purpose of examining the
possibility of identifying additional prospects.
Marine North Licenses
In June 1999, the Company was awarded a preliminary permit referred to as
the Marine North/164 covering an area of 575 square kilometers offshore Israel.
The permit included a preferential right to obtain a license. In December 2000
two licenses were issued in respect of the area covered by the permit
(hereinafter, respectively, "Marine North A" and "Marine North B" and
collectively, the "Marine North Licenses"), which licenses continue in effect
through December 3, 2003. The Company holds a 1% interest in each of the Marine
North Licenses and the remaining interests are held by affiliated entities. In
April 2002, the Marin North Licenses were abandoned as the identifiable
prospects appeared highly uncertain.
Marine Center License
In September 1999, the Company was awarded a preliminary permit, Marine
Center, covering an area of 194 square kilometers. The permit included a
preferential right to obtain a license. In December 2000, the Israeli Petroleum
Commissioner issued a license in respect of the area covered by the permit
(hereinafter, the "Marine Center License"), which license continues in effect
through December 3, 2003. The Company holds a 1% participation interest in the
Marine Center License and the remaining interests are held by affiliated
entities.
The Company serves as operator of the Marine Center License.
Marine South License
In January 2000, the Company was awarded an offshore preliminary permit
known as Marine South, covering an area of approximately 142 square kilometers
offshore Israel known as "Marine South" and an additional permit known as
"Marine South B", covering an area of approximately 40 square kilometers
offshore Israel. The permits include a preferential right to obtain a license.
In January 2002, Israeli Petroleum Commissioner issued a license in respect of
the area covered by the Marine South permit (hereinafter, the "Marine South
License"), which license continues in effect through January 15, 2005 and is
subject to (i) the performance of a seismic 3D survey and the processing of the
results thereof no later than January 15, 2003, (ii) the preparation of an oil
drilling prospect by July 15, 2003 and (iii) the drilling of a well no later
than January 15, 2004. The Company serves as operator of the License and holds a
1% participation interest in the License; the remaining participation interests
are held by affiliated entities.
A 2D seismic survey covering the Marine South License area was performed
and the survey results were processed and interpreted. Preliminary results
indicated the possible presence of gas. It is anticipated that a 3D seismic
survey will be undertaken with respect to Marine South to enable a more accurate
mapping of gas prospects.
Summary of Exploration Efforts in the United States
The Company, through its wholly-owned subsidiaries, Jay Petroleum LLC
("Jay Petroleum") and Jay Management LLC ("Jay Management"), is involved in oil
and gas production in the United States. Jay Petroleum owns varying working
interests in oil and gas wells in Louisiana, Texas, Oklahoma and Wyoming.
Independent estimates of the reserves held by Jay Petroleum as of December 31,
2001 are approximately 140,000 net barrels of proved
-12-
developed producing oil and 4,424 MMCFs of proved developed producing natural
gas. Jay Management acts as the operator of certain of the producing oil and gas
interests owned or acquired by Jay Petroleum.
In December 2001, drilling commenced on the Read 1 well in Texas. Based on
the completed production tests, in May 2002 the Company decided to plug and
abandon the well. The aggregate drilling expenditures with respect to the Read 1
well were approximately $848,000.
Summary of Exploration Efforts in the Congo
The oil and gas properties in the Congo consist of the Marine III
Exploration Permit and the Marine 9 Exploration Permit. The Company holds 25%
participation interest in the Marine III Exploration Permit (through Naphtha
Congo Ltd). The Company's participation interest in the Marine 9 Exploration
Permit is 5% (through Naphtha Congo Limited Partnership). The remaining
participants in the Marine 9 License are recognized widely-known oil companies.
In the course of 2001, the operator of Marine 9 completed geological and
geophysical studies for the purpose of identifying and confirming the existence
of oil prospects. In October 2001, the operator recommended to drill a well at
an estimated budget of $12.8 million (not including production tests). Drilling
commenced in May 2002. Based on the results of the electrical logging survey, in
June 2002 the operator recommended that the well be plugged and abandoned, which
recommendation was accepted.
Operator's Fees
During the 2002 Period, the Company earned $147,000 in operator fees
compared to $135,000 for the 2001 Period and $64,000 for the three months ended
June 30, 2002 compared to $67,000 for the comparable period in 2001.
Oil and Gas Revenues
For the 2002 Period, the Company had oil and gas revenues of $1,141,000
compared to $1,834,000 for the 2001 Period and $625,000 for the three months
ended June 30, 2002 compared to $770,000 for the comparable period in 2001. The
decrease in the 2002 Period is primarily attributable to decreased oil & gas
prices.
Lease Operating Expenses and Severance Taxes
Lease operating expenses and severance taxes were primarily in connection
with oil and gas fields in the United States. Oil and gas lease operating
expenses and severance taxes for the 2002 Period were $437,000 compared to
$328,000 for the 2001 Period and $257,000 for the three months ended June 30,
2002 compared to $145,000 for the comparable period in 2001. The increase in
lease operating expenses is primarily attributable to the purchase of new
producing wells in July 2001.
Interest Income
Interest income in respect of the 2002 Period was $296,000 compared to
$308,000 for the 2001 Period and $190,000 in respect of the three months ended
June 30, 2002 compared to $105,000 for the same period in 2001. The increase in
interest income earned by the company during the three months ended June 30,
2002 compared to the comparable period in 2001 is primarily attributable to
interest earned on marketable securities.
Gain (loss) on Marketable Securities
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During the 2002 Period, the Company recognized a net realized and
unrealized loss on trading securities of $193,000 compared to losses of $42,000
for the 2001 Period and a loss of $88,000 for the three months ended June 30,
2002 compared to a gain of $92,000 for the same period in 2001.
Increases or decreases in the gains and losses from marketable securities
are dependent on the market prices in general and the composition of the
portfolio of the Company.
Operator Expense
Operator expenses were incurred primarily in connection with oil and gas
fields in the United States and in connection with the offshore activities in
Israel. Operator expenses for the 2002 Period were $342,000 compared to $324,000
for the 2001 Period and $155,000 for the three months ended June 30, 2002
compared to $173,000 for the comparable period in 2001.
General and Administrative Expenses
General and administrative expenses for the 2002 Period were $702,000
compared to $579,000 for the 2001 Period and $292,000 for the three months ended
June 30, 2002 compared to $319,000 for the same period in 2001. The increase
during the 2002 Period compared to the 2001 Period is primarily attributable to
expenses incurred in the provision of professional services by related and third
parties.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to changes in interest rates and foreign currency
exchanges rates were reported in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2001. There has been no material change in
these market risks since the end of the fiscal year 2001.
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PART II
Item 1. Legal Proceedings
The Company, together with Naphtha Congo Ltd., an Israeli and related
entity ("Naphtha Congo") and Naphtah Israel Petroleum Corp., an Israeli and
related entity ("Naphtha Israel"), received notice in March 2001 from counsel
for a contractor who provided drilling services in the Tilapia permit
("Contractor") of a claim by Contractor against Naphtha Congo in the original
approximate amount of $1.2 million in respect of drilling services rendered. The
Contractor and Naphtha Congo entered into a drilling agreement in October 2000
with respect to the Tilapia 1 well. The Company held 50% participation interest
in the Tilapia 1 well. In January 2001, the Company abandoned the Tilapia
permit.
Naphtha Congo disputes the amount claimed and has claimed offsetting
damages caused to it by the Contractor. The parties have attempted to resolve
this matter and are currently examining the possibility of binding arbitration.
Item 2. Change in Securities & Use of Proceeds
Not Applicable
Item 3. Default Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 4, 2002 and
the stockholders voted as to the following: (i) to elect Haim Tsuff, Jackob
Maimon, Tina Maimon Arckens, Avihu Ginzberg, Eyal Gibor and Max Pridgeon as
directors to serve for a term of one year or until a successor is duly elected
and (ii) to ratify the appointment of Mann Frankfort Stein & Lipp CPA, LLP, as
auditors for the year ending December 31, 2002.
Voting results are as follows:
For Against Abstain
1. Directors
Haim Tsuff 2,276,485 11,413 --
Jackob Maimon 2,277,085 10,813 --
Tina Maimon Arckens 2,277,685 10,213 --
Avihu Ginzberg 2,277,785 10,113 --
Eyal Gibor 2,277,785 10,113 --
Max Pridgeon 2,277,785 10,113 --
2. Auditors 2,278,814 6,714 2,370
No other matters were submitted to a vote of stockholders during the
three-month period ended June 30, 2002.
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Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
(i) Exhibits
10.1 Agreement between Isramco and Mati Properties and Construction, Ltd. and
Boaz Avrahami dated as of June 12, 2002.
99.1 Certification of Chief Executive and Principal Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of he
Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with 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.
ISRAMCO, INC.
Registrant
Date: August 14, 2002 By /s/ Haim Tsuff
----------------------------
Chairman of the Board,
Chief Executive Officer
and Principal Financial Officer
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