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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 March 31, 2004
or
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
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)
713-621-5946
(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 |_|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). | | Yes |X| No
The number of shares outstanding of the registrant's Common Stock as of
May 14, 2004 was 2,639,853.
INDEX
Page
----
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2004 and
December 31, 2003 1
Consolidated Statements of Operations for the three
months ended March 31, 2004 and 2003 2
Consolidated Statements of Cash Flows for the three
months ended March 31, 2004 and 2003 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon senior securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS MADE IN THIS QUARTERLY REPORT ON FORM 10-Q ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY
TERMINOLOGY SUCH AS "MAY", "WILL", "SHOULD", "EXPECTS", "INTENDS",
"ANTICIPATES", "BELIEVES", "ESTIMATES", "PREDICTS", OR "CONTINUE" OR THE
NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY AND INCLUDE, WITHOUT
LIMITATION, STATEMENTS BELOW REGARDING EXPLORATION AND DRILLING PLANS, FUTURE
GENERAL AND ADMINISTRATIVE EXPENSES, FUTURE GROWTH, FUTURE EXPLORATION, FUTURE
GEOPHYSICAL AND GEOLOGICAL DATA, GENERATION OF ADDITIONAL PROPERTIES, RESERVES,
NEW PROSPECTS AND DRILLING LOCATIONS, FUTURE CAPITAL EXPENDITURES, SUFFICIENCY
OF WORKING CAPITAL, ABILITY TO RAISE ADDITIONAL CAPITAL, PROJECTED CASH FLOWS
FROM OPERATIONS, OUTCOME OF ANY LEGAL PROCEEDINGS, DRILLING PLANS, THE NUMBER,
TIMING OR RESULTS OF ANY WELLS, INTERPRETATION AND RESULTS OF SEISMIC SURVEYS OR
SEISMIC DATA, FUTURE PRODUCTION OR RESERVES, LEASE OPTIONS OR RIGHTS,
PARTICIPATION OF OPERATING PARTNERS, CONTINUED RECEIPT OF ROYALTIES, AND ANY
OTHER STATEMENTS REGARDING FUTURE OPERATIONS, FINANCIAL RESULTS, OPPORTUNITIES,
GROWTH, BUSINESS PLANS AND STRATEGY. BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT EXPECTATIONS
REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR
ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF
THESE FORWARD-LOOKING STATEMENTS. THE COMPANY IS UNDER NO DUTY TO UPDATE ANY
FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH
STATEMENTS TO ACTUAL RESULTS.
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except for share information)
March 31, December 31,
2004 2003
-------- --------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents 699 2,429
Marketable securities, at market 5,140 4,064
Accounts receivable - Trade 710 503
Account receivable - other -- 609
Prepaid FIT expenses 274 407
Prepaid expenses and other current assets 274 197
-------- --------
Total current assets 7,097 8,209
Property and equipment (successful efforts method for oil and gas
properties) 3,562 3,264
Real Estate 1,887 1,887
Marketable securities, at market 10,163 8,572
Investment in affiliates 10,751 10,520
Investment in Vessel 8,095 --
Other 162 162
-------- --------
Total assets 41,717 32,614
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 957 798
-------- --------
Total current liabilities 957 798
Asset Retirement Obligations 777 766
Deferred tax liability 1,406 1,169
Bank loan 7,501 --
Commitments, contingencies and other matters
Common stock $.0l par value; authorized 7,500,000
shares; issued 2,669,120 shares; outstanding
2,639,853 at March 31,2003
and December 31,2003 27 27
Additional paid-in capital 26,240 26,240
Retained Earnings 4,034 3,189
Accumulated other comprehensive income (loss) 939 589
Treasury stock, 29,267 shares at
March 31, 2003 and December 31, 2003 (164) (164)
-------- --------
Total shareholders' equity 31,076 29,881
-------- --------
Total liabilities and shareholders' equity $ 41,717 $ 32,614
======== ========
See notes to the consolidated financial statements.
-1-
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for share information)
(Unaudited)
Three Months Ended
March 31,
-------------------------------
2004 2003
----------- -----------
REVENUES:
Operator fees from related party $ 36 $ 53
Oil and gas sales 834 807
Interest income 210 168
Office services to affiliate and other 195 200
Gain on Marketable securities -- 135
Equity in net income of investees 588 238
Other Income 30 373
----------- -----------
Total revenues $ 1,893 $ 1,974
----------- -----------
COSTS AND EXPENSES:
Financial expenses 7 2
Depreciation, depletion and
amortization 155 154
Accretion expenses 11 --
Lease operating expenses and
severance taxes 191 219
Exploration costs -- 22
Operator expense 219 247
General and administrative 336 279
Loss on marketable securities 59 --
Impairment of oil and gas assets -- 150
----------- -----------
Total expenses $ 978 $ 1,073
----------- -----------
Income before income taxes 915 901
Income taxes (70) --
----------- -----------
Net income from continuing operation $ 845 $ 901
=========== ===========
Cumulative Effect of Accounting change -- --
----------- -----------
Net income 845 901
=========== ===========
Earnings per common share-basic
continuing operation $ 0.32 $ 0.34
Cumulative Effect of Accounting change --
----------- -----------
$ 0.32 $ 0.34
=========== ===========
Weighted average number of shares
outstanding-basic and diluted 2,639,853 2,639,853
=========== ===========
See notes to the consolidated financial statements.
-2-
ISRAMCO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended March 31,
2004 2003
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 845 901
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 155 154
Accretion expenses 11 --
Loss (gain) on marketable securities 59 135
Equity in net loss (gain) of investees (588) (238)
Deferred taxes 56 --
------- -------
Changes in assets and liabilities:
Accounts receivable 402 (71)
Prepaid expenses and other current assets 56 170
Accounts payable and accrued liabilities 159 (580)
------- -------
Net cash provided by operating activities 1,155 351
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to property and equipment (453) (107)
Purchase of Real Estate -- (100)
Purchase of Vessel (8,095) --
Purchase of marketable securities (2,446) 84
Proceeds from sale of marketable securities 608 --
------- -------
Net cash used in investing activities (10,386) (123)
Net cash from financing activities:
Proceeds from Bank loan 7,501 --
------- -------
Net cash provided by financing activities 7,501 --
------- -------
NET INCREASE (Decrease) IN CASH AND CASH EQUIVALENTS (1,730) 228
Cash and cash equivalents-beginning of year 2,429 1,616
------- -------
Cash and cash equivalents-end of period 699 1,844
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for taxes -- --
======= =======
See notes to the consolidated financialstatements.
-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
three month period ended March 31, 2004, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2004. 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, 2003. Certain re-classification of prior year amounts has
been made to conform to current presentation.
]
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46. Consolidation of
Variable Interest Entities, and subsequently revised the interpretation in
December 2003 (FIN 46R). This interpretation of Accounting Research Bulletin No.
51, Consolidated Financial Statements, addresses consolidation by business
enterprises of variable interest entities, which have certain characteristics.
As revised, FIN 46R is now generally effective for financial statements for
interim or annual periods ending on or after March 15, 2004. We adopted FIN 46R
effective January 1, 2004, with no material effect on our consolidated financial
statements.
Stock-Based Compensation
We account for employee stock-based compensation granted under our
long-term incentive plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The company did not have any
compensation expense for the three months periods ended March 31, 2004 and 2003,
as there were no options granted in either of the periods and options
historically granted were fully vested the date of grant. The following table
illustrates the effect on net income and earning per share if we had applied the
fair value recognition provisions of SFAS 123 to stock-based employee
compensation:
THREE MONTH ENDED MARCH 31,
------------------------------
2004 2003
---------- -----------
Net income, as reported $ 845,000 $ 901,000
Deduct: Total stock-based employee compensation
Expense determined under fair value based method
For all awards, net of related tax effects -- --
---------- -----------
Pro forma net income $ 845,000 $ 901,000
---------- -----------
Net income per share:
Basic - as reported $ 0.32 $ 0.34
---------- -----------
Basic - pro forma $ 0.32 $ 0.34
---------- -----------
Diluted - as reported $ 0.32 $ 0.34
---------- -----------
Diluted - pro forma $ 0.32 $ 0.34
---------- -----------
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) and Magic 1 Cruise Line Corp. and it's U.S based wholly-owned
subsidiaries: Jay Petroleum, L.L.C. (Jay), Jay Management L.L.C. (Jay
Management) and IsramTec Inc. (IsramTec). Inter-company balances and
transactions have been eliminated in consolidation.
-4-
NOTE 4 - ACCOUNTING CHANGES
Effective January 1, 2003, the Company adopted SFAS No. 143 "Accounting for
Asset Retirement obligations".. SFAS No. 143 requires entities to record a
liability for asset retirement obligations at fair value in the period in which
it is incurred and a corresponding increase in the carrying amount of the
related long-lived asset. Accretion expense for the quarter ended March 31, 2004
were approximately $ 11,000.
NOTE 5 - OIL AND GAS PROPERTIES
The Company follows the "successful efforts" method of accounting for its oil
and gas properties. Under this method of accounting, all property acquisition
costs and costs of exploratory and development wells are capitalized when
incurred, pending determination of whether the well has found proved reserves.
If an exploratory well has not found proved reserves, the costs of the well are
charged to expense. The costs of development wells are capitalized whether
successful or unsuccessful. Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties are expensed as incurred.
Management estimates that the salvage value of lease and well equipment will
approximately offset the future liability for plugging and abandonment of the
related wells. Although the company continues to seek to acquire oil and gas
properties, no such purchases were made in the first three months of 2004.
NOTE 6 - INVESTMENT IN VESSEL
In March 2004, the Company completed the purchase of a luxury cruise liner for
aggregate consideration of $8,050,000. The Vessel, a Bahamas flagged ship,
contains 270 passenger cabins spread out over nine decks. The Company has
secured commercial bank loans for approximately $7.5 million of the purchase
price, to be secured by a lien on the Vessel, marketable securities which are
not restricted for trading and a Company guarantee. The terms of the loan are as
follows: Principal amount of $2.7 million at an annual rate of Libor + 0.75% for
a duration of twelve months and principal amount of $4.8 million at an annual
rate of Libor + 1%, revolving every week.
The Company is currently in discussions with several luxury cruise operators for
the purpose of commercially leasing the Vessel as a luxury cruise liner. No
assurance can be given that the Company will be able to conclude any leasing
arrangement on commercially acceptable terms.
NOTE 6 - 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 March 31,
------------------------------------
2004 2003
---- ----
Income Shares Income Shares
------ ------ ------ ------
Earnings per common share-Basic $ 845,000 2,639,853 $ 901,000 2,639,853
Effect of dilutive securities of
stock options -- -- -- --
========= ========= ========== =========
$ 845,000 2,639,853 $ 901,000 2,639,853
NOTE 7 - 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 and Israel.
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.
-5-
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
United Consolidated
States Israel Africa Total
------ ------ ------ ------
Identifiable assets at March 31, 2004 3,481 81 $ 3,562
Cash and corporate assets 38,155
---------
$ 41,717
Total Assets at March 31, 2004 =========
Identifiable assets at December 31, 2003 $ 2,987 $ 81 $ -- $ 3,068
Cash and corporate assets 29,167
---------
Total Assets at December 31, 2003 $ 32,614
=========
Three Months Ended March 31, 2004
Sales and other operating revenue $ 881 $ 184 -- $ 1,065
Costs and operating expenses $ (328) $ (226) -- $ (565)
======== ======== ======== =========
Operating profit $ 542 $ (42) $ 500
Interest income 199
Financial Income, net (7)
General corporate expenses (336)
Loss on marketable securities and (59)
equity in net income of investees 588
Other income 30
Income Texas (70)
---------
$ 845
Net Income from continuing operations =========
Three Months Ended March 31, 2003
Sales and other operating revenue $ 825 $ 235 $ -- $ 1,060
Costs and operating expenses $ (389) $ (253) $ (150) $ (792)
-------- -------- -------- ---------
Operating profit $ 436 $ (18) $ (150) $ 268
======== ======== ======== =========
Interest Income 168
Financial Income, net (2)
General corporate expenses (279)
Gain on marketable securities 135
equity in net Income of investees 238
Other income 373
---------
Net Income from continuing operations $ 901
=========
-6-
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
The Company's comprehensive income (loss) for the three month period ended March
31, 2004 and 2003 was as follows:
Three months
ended March 31,
2004 2003
---- ----
Net Income $ 845 $ 901
Other comprehensive gain (loss)
- -available - for - sale securities 587 $ 35
- -foreign currency translation adjustments of
the Israeli Branch and the limited partnerships $ (236) $ 63
------- -------
Comprehensive income 1,196 $ 909
======= =======
NOTE 9 - CONTINGENCIES
The Company is also involved in various other legal proceedings arising in the
normal course of business. In the opinion of management, the Company's ultimate
liability, if any, in these pending actions would not have a material adverse
effect on the financial position, operating results or liquidity of the Company.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS
REPORT ON FORM 10-Q. THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR
FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE
FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECT," "PLAN," "ANTICIPATE," "BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL,"
"INTEND," OR "CONTINUE," AND SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY
PREDICTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A VARIETY OF FACTORS, INCLUDING,
BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
REPORT ON FORM 10-Q.
OVERVIEW
Isramco, Inc., a Delaware company, is active in the exploration of oil
and gas in Israel and the United States. The Company acts as an operator of
certain leases and licenses and also holds participation interests in certain
other interests. The Company also holds certain non-oil and gas properties. See
"Business".
CRITICAL ACCOUNTING POLICIES
In response to the Release No. 33-8040 OF THE Securities and Exchange
Commission, "CAUTIONARY ADVICE REGARDING DISCLOSURE AND CRITICAL ACCOUNTING
POLICIES", the Company identified the accounting principles which it believes
are most critical to the reported financial status by considering accounting
policies that involve the most complex of subjective decisions or assessments.
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of customers to make required payments. If
the financial condition of customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
The Company records an investment impairment charge when it believes an
investment has experienced a decline in value that is other than is temporary.
Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investment that may not be reflected in an investment's
current carrying value, thereby possibly requiring an impairment charge in the
future.
The Company records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized. While the
Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance, in
the event that the Company were to determine that it would be able to realize
its deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase net income in the period
such determination was made.
The Company does not participate in, nor has it created, any off-balance
sheet special purpose entities or other off-balance sheet financing. In
addition, the Company does not enter into any derivative financial instruments.
The Company records a liability for asset retirement obligation at fair
value in the period in which it is incurred and a corresponding increase in the
carrying amount of the related long live assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations primarily from cash generated by
operations.
The decrease in the Company's consolidated cash and cash equivalents of
$1,730,000 from $2,429,000 at December 31, 2003 to $699,000 at March 31, 2004,
is primarily attributable to purchase of the cruise liner (the "Vessel") in a
sum of $8.05 million. See Note 6. The Company secured commercial bank loans in
the principal amount of approximately $7.5 million, secured by liens on the
vessel, Company marketable securities and a Company guarantee. The Company is
currently in discussions with several luxury cruise operators for the purpose of
commercially leasing the Vessel as a luxury cruise liner. No assurance can be
given that the Company will be able to conclude any leasing arrangement on
commercially acceptable terms.
-8-
Net cash used in investing activities for the three-month period ended
March 31, 2004 was $10,355,000 as compared to $ 123,000 used during the
three-month period ended March 31, 2003. In March 2004, the Company concluded
the purchase of the Vessel for aggregate consideration of approximately
$8,050,000.
Capital expenditures for property and equipment during the three months
ended March 31, 2004 were $425,000 compared to $ 107,000 for the same period in
2003. Capital expenditures are primarily attributable to the cost of drilling of
a new well in Oklahoma.
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
Three Months Ended March 31, 2004 Compared to the Three Months Ended
March 31, 2003.
The Company reported net income of $845,000 ($ 0.32 per share) for the
three-month period ended March 31, 2004 compared to net income of $901,000 ($
0.34 per share) for the same period in 2003.
Set forth below is a break-down of these results.
United States
Oil and Gas Revenues (in thousands)
Three Months ended March 31,
2004 2003
Oil Volume Sold (Bbl) 4 5
Gas Volume Sold (MCF) 132 134
Oil Sales ($) 137 142
Gas Sales ($) 697 665
Average Unit Price
Oil ($/Bbl) * $ 32.13 $ 29.90
$ 5.27 $ 4.94
Gas ($/MCF) **
o Bbl - Stock Market Barrel Equivalent to 42 U.S. Gallons
** MCF - 1,000 Cubic Feet
SUMMARY OF EXPLORATION EFFORTS IN ISRAEL
MED YAVNE LEASE
The Med Yavne Lease covers approximately 53 square kilometers
(approximately 12,000 acres). The Company's participation share of the Med Yavne
Lease is 0.4585%.
MED ASHDOD LEASE
The Med Ashdod Lease covers approximately 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.
-9-
On February 15, 2004, the operator presented the partners with two
drilling prospect (a) Nizanim 1 Well (b) Yam 3 Well to a total depth of 5,700
meter (18,700 feet), with a total budget of $ 40 million. The Company has
received notice from partners representing approximately 38.5% interest in the
lease of their readiness to invest in Yam 3 Well. As of the filing of this
report on Form 10-Q, no decision has been made to drill the Yam-3 Well.
MARINE SOUTH LICENSE
Marine South License covers approximately 142 square kilometers
(approximately 35,200 acres). The Company serves as the operator and holds 1 %
interest.
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,
2003 are approximately 136,000 net barrels of proved developed producing oil and
2,785 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.
OPERATOR'S FEES
During the three months ended March 31, 2004, the Company earned $
36,000 in operator fees compared to $ 53,000 respect of the same period in 2003.
OIL & GAS REVENUES
For the three months ended March 31, 2004, the Company had oil and gas
revenues of $834,000 compared to $807,000 for the same period in 2003. The
increase in the 2004 period as compared to the same period in 2003 is primarily
attributable to increased of 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 three months ended on March 31,
2004 were $191,000 compared to $219,000 for the same period in 2003.
OIL AND GAS EXPLORATION COSTS
During the three months ended March 31, 2004, the Company did not expend
any amount in oil and gas exploration, as compared to $22,000 for the same
period in 2003.
INTEREST INCOME
Interest income during the three months ended March 31, 2004 was
$210,000 compared to $168,000 for the same period in 2003. The increase in
interest income earned by the company during the three months ended March 31,
2004 compared to the comparable period in 2003 is primarily attributable to
interest earned on marketable securities.
GAIN (LOSS) ON MARKETABLE SECURITIES
During the three months ended March 31, 2004, the Company recognized net
realized and unrealized loss on trading securities of $ 59,000 compared to net
realized and unrealized gain of $135,000 for the same period in 2003.
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.
-10-
EQUITY IN NET INCOME OF INVESTEES
At March 31, 2004, the available cash resources of INOC Dead Sea Limited
Partnership and Isramco Negev 2 Limited Partnership, investee-affiliates of the
Company, were approximately $127 million. During the three months ended March
31, 2004, the Company recognized net income of $588,000, compared to a net
income of $238,000 for the same period in 2003. The increase is primarily
attributable to the increase in the market value of these securities on the Tel
Aviv Stock Exchange, where the securities of these entities are quoted for
trading.
OPERATOR EXPENSE
Operator expenses for the 2004 period were $219,000 compared to
$247,000 for the 2003 period.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three month period ended
March 31, 2004 were $ 336,000 as compared to $279,000 for the same period in
2003.
OTHER INCOME
Other income during the 2003 period included a non-recurring gain of
$350,000, representing the settlement of a liability recorded in connection with
a well drilled in the Marine 9 Permit (Congo) and that was recorded during 2002
as exploration costs.
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, 2003. There has been no material change in
these market risks since the end of the fiscal year 2003.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company's Exchange Act reports 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 the Company's management, including its Chief
Executive Officer and Principal Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with participation of management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the
quarter ended March 31, 2004, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, these controls.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 10, 2004, the Company initiated a lawsuit in the Superior
Court of California, County of Los Angeles, against several named defendants
(collectively, the "Defendants"), alleging breach of contract and tort claims in
connection with an agreement between the Company and the Defendants to jointly
purchase and develop certain parcels of real estate outside Los Angeles. In its
lawsuit, the Company is seeking damages in excess of $50 million. The matter is
in preliminary stages and, as of the filing of this quarterly report on Form
10-Q, no trial date has been set. The parties are currently litigating
preliminary motions and commencing discovery.
ITEM 2. CHANGE IN SECURITIES & USE OF PROCEEDS
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
10.1 Asset Purchase Agreement dated as of March 22, 2004, between Isramco,
Inc. and Alberta Trading, Co. Inc.
31 Rule 13D-14(a) / 15D-14(a) Certifications
32 Section 1350 Certification
(b) Reports on Form 8-K.
(i) Isramco filed a report on Form 8-K on March 22, 2004 announcing
that it successfully bid for a luxury cruise liner at an auction held under
order of the United States Bankruptcy Court, Southern District of Florida.
(ii) Isramco filed a report on Form 8-K on March 31, 2004, announcing
the appointment of Donald D. Lovell as a director, replacing Mr. Avihu Ginzburg
who then resigned as a director of the Company, and included the related press
release.
(iii) Isramco filed a report on Form 8-K on March 31, 2004 announcing
its financial results for the year and quarter ended December 31, 2003, and
included the related press release.
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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.
DATE: MAY 14, 2004 BY /s/ Haim Tsuff
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE AND PRINCIPAL
FINANCIAL AND ACCOUNTING
OFFICER
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