Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2010
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-24778
TEXAS VANGUARD OIL COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-2075344
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9811 Anderson Mill Rd., Suite 202, Austin, Texas 78750
(Address of Principal Executive Offices)
Registrant telephone number, including area code: (512) 331-6781
Securities Registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.05 per share
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.Yes [X] or No [ ].
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definition of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [ X ] Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] or No [X]
The aggregate market value of the voting common equity held by non-affiliates
of the registrant, based on that days trading range on the Over-the-Counter
Bulletin Board, as of June 30, 2010 (the last business day of the registrants
most recently completed second fiscal quarter) was $2,240,431.
On March 1, 2011, there were 1,416,587 shares of the registrants common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The registrants definitive proxy statement regarding the election of directors
at the registrants 2010 Annual Stockholders' Meeting filed or to be filed with
the Commission on or before April 30, 2011, has been incorporated by reference
in Part III of this report.
PART I
FORWARD-LOOKING STATEMENTS
This annual report contains various forward-looking statements within
the meaning of the Section 27A of the Securities Exchange Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts,
included in the Form 10-K that address activities, events or developments
of the Company are forward-looking statements and represent managements
expectations or beliefs concerning future events, and may be signified by
the words expect, estimate, believe, anticipate, predict or other
similar expressions. Forward-looking statements appear throughout this
Form 10-K with respect to, among other things: estimates of future oil and
natural gas production; estimates of future oil and natural gas prices;
estimates of oil and natural gas reserves; future drilling and operations;
future capital expenditures; future net cash flows; our future financial
condition or results of operations; and our business strategy and other
plans and objectives for future operations. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Accordingly,
such forward-looking statements do not purport to be predictions of future
events or circumstances and may not be realized. For these reasons, you
should not place undue reliance on forward-looking statements. We
undertake no obligation to publicly update or revise them.
ITEM 1. BUSINESS
General
Texas Vanguard Oil Company (the "Company" or "Registrant") was incorporated
under the laws of the state of Texas on December 4, 1979. The business of the
Company is to engage in the acquisition, exploration, development, and
operation of onshore oil and natural gas properties in the United States,
principally in Texas. The Company also engages in oil and natural gas
exploration, development and production in New Mexico, Oklahoma, Nebraska and
Wyoming. The Company business plan is to expand its reserve base, increase
production, and to increase cash flow through acquisition of producing oil
and natural gas properties. Along with operated producing properties, the
Company acquires non operated interests, leasehold interests and participates
in re-entries and low risk drilling projects.
The executive offices of the Company are located at 9811 Anderson Mill Rd.,
Suite 202, Austin, Texas 78750 and its telephone number is (512) 331-6781.
Markets for Oil and Natural Gas
The market for the Company's primary products, oil and natural gas depends
upon a number of factors, including the availability of other domestic
production, crude oil imports, the proximity and size of oil and natural gas
pipelines and general fluctuations in the supply and demand for oil and
natural gas. At present, the Company sells all of its production to
traditional industry purchasers, such as pipeline and crude oil companies,
who have the facilities to transport the oil and natural gas from the well site.
The Company has recorded revenues in excess of 10% of total revenue from
DCP Midstream (15% in 2010 and 15% in 2009) and Plains Marketing (49% in 2010
and 52% in 2009). The Company does not believe that the loss of a major
purchaser would have a materially adverse effect on its operations as it
could sell its production to other gathering companies at comparable prices.
Oil sales are made under a written contract generally not more than one year
in length. The nature of the Company's business is not seasonal except to the
extent that adverse weather conditions could affect oil and natural gas
exploration and production activities. The Company currently has no intention
of refining or marketing its own oil and natural gas. Since the Company
engages independent contractors for the drilling of any wells, it does not
plan to own any significant amount of drilling equipment. The Company does
not contemplate any material product research and development, any material
acquisition of plants or equipment, or any material changes in its number of
employees in the near future.
Competition
The oil and natural gas industry is highly competitive in all aspects. The
Company competes with major oil companies, numerous independent oil and natural
gas producers, individual proprietors, and investment programs. Many of these
competitors possess financial and personnel resources substantially in excess
of those which are available to the Company and may, therefore, be able to pay
greater amounts for desirable leases and to define, evaluate, bid for, and
purchase a greater number of potential producing prospects than the Company's
own resources permit. The Company's ability to generate reserves will depend
not only on its ability to develop existing properties, but also on its ability
to identify and acquire proven and unproven acreage and prospects for future
exploration.
Environmental Matters
The Company's operations are subject to numerous federal, state and local
laws and regulations controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment. Such matters have
not had a material effect on operations of the Company to date, but the Company
cannot predict whether such matters will have any material effect on its capital
expenditures, earnings or competitive position in the future.
Regulation
The production and sale of crude oil and natural gas are currently subject
to extensive regulation of both federal and state authorities. At the federal
level there are price regulations and income tax laws. At the state level,
there are severance taxes, proration of production, spacing of wells,
prevention and clean-up of pollution and permits to drill and produce oil
and natural gas. Although compliance with their laws and regulations has not
had a materially adverse effect on the Company's operations, the Company
cannot predict whether its future operations will be adversely affected
thereby.
Employees
The Company's officers actively manage the Company's activities. There are
no employment contracts with any officers. At December 31, 2010, the Company
had two full-time salaried employees. From time to time the Company engages
independent petroleum engineers, geologists and landmen on a fee basis.
Both William Watson and Linda Watson are directors of other companies that have
oil and gas interests. Due to this a conflict may arise. In 2009, a company
owned by William Watson participated in one drilling project in which
the Company also had an interest. In 2010, William Watsons company and a
company owned by Linda Watson each participated in one drilling project in
which the Company also had an interest. The terms of the participation for
both companies were the same as the terms for the Company.
ITEM 1A. RISK FACTORS
There are many factors that affect our business and results of operations,
some of which are beyond our control. The following is a description of
some of the important factors that may cause results of operations in future
periods to differ materially from those currently expected or desired.
RISKS RELATED TO BUSINESS
Industry Competition
Competition for oil and natural gas reserves is significant. We compete
with major oil and gas companies, independent oil and gas companies and
individual producers and operators. Most of our competitors have substantially
greater financial and other resources than we do. These competitors may be
able to pay more for properties and prospects and be able to define, evaluate,
bid for , and purchase a greater number of properties and prospects than we
can. These competitors may have technological advantages and may be able to
implement new technologies more rapidly than we can. Our ability to explore
for oil and natural gas prospects and to acquire additional properties in the
future will depend on our ability to evaluate, select and acquire suitable
producing properties and prospects for future development activities.
Commodity Price Volatility
Our future financial condition and results of operations are dependent
upon the prices we receive for our oil and natural gas production.
Historically, the markets for oil and natural gas have been volatile,
and they are likely to continue to be volatile. We cannot predict future
oil and natural gas prices with any degree of certainty. Factors that
cause price fluctuations include the level of global demand for petroleum
products, domestic and foreign supply of oil and natural gas, storage
and refining capacities, weather conditions, the price of foreign oil
and natural gas, the price and availability of alternative fuels,
domestic and foreign governmental regulations, and overall political
and economic conditions in oil producing countries.
Changes in oil and natural gas prices affect the amount of cash flow
available for capital expenditures, our ability to borrow money, and
impact both estimated future net revenue and the estimated quantity of
proved reserves. Lower prices may also reduce the amount of oil and
natural gas that can be produced economically. Thus, we may experience
material increases or decreases in reserve quantities solely as a result
of price changes and not as a result of drilling or well performance.
Operational Risks
Our operations are subject to hazards and risk inherent in drilling
for and producing oil and natural gas. Risks include well blowouts, cratering,
explosions, fires, formations with abnormal pressures, pollution, releases
of toxic gases, and other environmental hazards. Any of these operational
hazards could result in substantial losses to us.
Insurance
Our operations are subject to the usual hazards incident to drilling
for and producing oil and natural gas. We maintain insurance coverage customary
for operations, but losses could arise in excess of our existing insurance
coverage. The occurrence of a significant adverse event, the risks of which
are not fully covered by insurance, could have a materially adverse affect
on the Company financial condition and results of operations.
Drilling May Not Result In Reserves
New wells or re-entries in which we participate may not be productive or
we may not recover all or any portion of our investment in such wells.
Drilling for oil and natural gas often involves unprofitable results, not
only from dry holes but also from wells that are productive but do not
produce sufficient quantities to return a profit at current commodity
prices. The cost associated with drilling, completing and operating a well
is often uncertain and rising costs or declining commodity prices can
adversely affect the economics of a project.
Acquisitions Subject To Risks And Uncertainties
A significant portion of our business plan includes acquisition of
producing properties. During the review of potential acquisitions, the future
production, operation costs, recoverable reserves, production difficulties,
potential environmental and other liabilities must be assessed. Generally,
it is not feasible to conduct a detailed review of each property. In addition,
our financial resources may not allow us to evaluate properties in a manner
consistent with industry practices and therefore may not reveal all existing
potential problems.
Transportation Facilities Owned By Others
The marketability of our production depends in part on the availability,
proximity, and capacity of natural gas gathering systems, pipelines and
processing facilities owned by third parties. Federal and state regulation
of oil and natural gas production and transportation, tax and energy
policies, changes in supply and demand and general economic conditions
could adversely affect our ability to produce, gather and market our oil
and natural gas.
Limited Control of Non-Operated Properties
A portion of our business plan includes our participation as a minority
owner in working interests of oil and natural gas properties operated by
other companies. We have a limited ability to exercise influence over
operating procedures, expenditures or future development of non-operated
properties. The failure of an operator to adequately perform operations
could reduce our production and revenue and increase our costs in these
properties.
Estimation of Reserves
Estimates of oil and natural gas reserves, by necessity, are projections
based on geologic and engineering data, and there are uncertainties inherent
in the interpretation of such data as well as the projection of future
rates of production and the timing of development expenditures. Estimates
of economically recoverable oil and natural gas reserves and of future net
cash flows depend upon a number of variable factors and assumptions, such
as future production, oil and natural gas prices, operating costs, development
costs and workover costs, all of which may vary considerably from actual
results. Moreover, there can be no assurance that our reserves will
ultimately be produced or that any undeveloped reserves will be developed.
For this reason, estimates of the economically recoverable quantities of
oil and natural gas and of future net cash flows expected therefrom may
vary substantially. The estimated discounted future net cash flows from
proved reserves are based on the average of the closing price for light
sweet crude oil and natural gas traded on the New York Mercantile Exchange
(NYMEX) on the first day of the month for each month in 2010. Costs were
based on actual lease expenses, adjusted for non-recurring items, and
averaged for the months included. Actual future prices and costs may be
materially higher or lower.
Loss of Key Personnel
Daily operation of our Company depends on a small group of key personnel.
These individuals have extensive experience and expertise in analyzing and
evaluating producing properties and drilling prospects, executing acquisitions,
maximizing production from our existing properties and running the financial
and administrative areas of the Company in an efficient manner. The unexpected
loss of service of one or more of these individuals could significantly and
adversely affect our operations. Competition for highly qualified individuals
is intense and we may be unable to find or attract qualified replacements for
our key personnel on acceptable terms.
Environmental Regulations
Our operations are subject to extensive federal, state and local
environmental laws and regulations, which impose limitations on the discharge
of pollutants into the environment, establish standards for the management,
treatment, storage, transportation and disposal of hazardous materials,
and impose obligations to investigate and remediate contamination in certain
circumstances. Liabilities to investigate or remediate contamination, may
arise at many locations, including properties in which we have an ownership
interest but no operational control, properties we formerly owned or operated,
as well as properties that we currently own and operate. Such liabilities
may arise even where the contamination does not result from any noncompliance
with applicable environmental laws. Under a number of environmental laws, such
liabilities may also be joint and several, meaning that we could be held
responsible for more than our share of the liability involved, or even the
entire share.
Governmental Regulations
Domestic oil and natural gas exploration, production, and marketing are
extensively regulated by federal, state and local agencies. The heavy regulatory
burden on the oil and natural gas industry increases its costs of doing business
and consequently affects its profitability. Historically, there has been an
on-going consideration by federal, state and local officials concerning a
variety of energy tax proposals. Such matters are beyond the Companys
ability to accurately predict or control.
RISK RELATED TO OUR COMMON STOCK
No Cash Dividends
We have paid no cash dividends on our common stock to date and it is
not anticipated that any will be paid to holders of our common stock in the
foreseeable future. We currently intend to retain all future earnings to fund
the development and growth of our business. Any payment of future dividends
will be at the discretion of our board of directors and will depend on, among
other things, our earnings, financial condition, capital requirements, level
of indebtedness, statutory and contractual restrictions applying to the payment
of dividends and other considerations that our board of directors deems
relevant. Stockholders must rely on sales of their common stock, after
price appreciation, which may never occur, as the only way to realize a
return on their investment.
Issuance of Additional Stock Could Cause Dilution
We may seek to use Treasury stock along with cash to purchase
producing properties in the future. Any issuance of additional
shares of our common stock will dilute the percentage ownership interest
of all shareholders and may dilute the book value per share of our common stock.
Control By Executive Officers And Directors
As of December 31, 2010, our executive officers and directors
beneficially owned approximately 78% of our common stock. These
shareholders, if acting together, would be able to influence significantly
all matters requiring approval by our shareholders, including the
election of our board of directors and the approval of mergers and
other business transactions.
Small Amount of Float
Our company has a small amount of common stock in the market.
Accordingly, shareholders may find a liquidity problem when selling our
stock and may find selling our stock at a particular price to be difficult.
Common Stock Volatility
Our common stock is traded over-the counter (OTC). The market
price of our common stock has been volatile and could fluctuate
substantially due to fluctuations in commodity prices, variations
in results of operations, legislative or regulatory changes, general
trends in the industry, market conditions and other events in the oil
and natural gas industry.
Costs Incurred As A Public Company
As a public company, we incur legal, accounting and other
expenses under the Sarbanes-Oxley Act of 2002, together with rules
implemented by the SEC and applicable market regulators. These rules
impose various requirements on public companies, including requiring
certain corporate governance practices. Our management and other
personnel devote a substantial amount of time to these new compliance
requirements. Moreover, these rules and regulations will increase our
legal and financial compliance costs and make some activities more
time-consuming and costly.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Company owns no significant properties other than oil and natural gas
properties. It leases approximately 2,000 square feet of space for its
executive offices at 9811 Anderson Mill Rd., Suite 202, Austin, Texas 78750.
The Company currently has a month-to-month lease with a company owned by the
Chairman of the Company for these facilities. The rent for these facilities
is $2,200 per month.
Well Activity
During early 2010, the Company participated in the completion of one oil
producer which had been drilled at the end of 2009. The Company also
participated in the drilling of five new wells, resulting in five oil
producers. The Company also acquired interest in and operations of one
gas well. In operated wells, the Company acquired additional interest in
24 oil and 3 gas wells. One wildcat well was drilled by a third party on
farmout acreage from Texas Vanguard in west Texas. The wildcat resulted in
a dry hole. All of the Company's oil and natural gas working and royalty
interests, reserves and activities are located onshore in the continental
United States. The following table sets forth the drilling and acquisition
activity of the Company, for the years ended December 31, 2008, 2009 and
2010.
Fiscal years Oil Gas Dry
ended
December 31, Gross Net Gross Net Gross Net
2008 17 1.30 9 0.46 0 0
2009 4 0.37 1 0.13 0 0
2010 30 2.06 4 1.04 1 0
(1) A gross well is a well in which the Company has an interest.
(2) A net well is made up of 100% of the working interest in a well. If the
Company has a 12.5% working interest in a well, .125 is shown in the net
well column.
(3) A dry well is a well found to be incapable of producing oil or natural
gas in sufficient quantities to justify completion of the well.
(4) In 2008, the Company participated in the drilling of two new wells.
One well was completed as an oil producer and the other well was
completed as an oil producer in early 2009.
(5) In 2009, the Company participated in the completion of one oil producer
which had begun drilling 2008. The Company participated in the reentry
of two wells, resulting in one oil producer and one gas producer. The
Company also participated in the drilling of one new well which was
waiting to be completed at yearend.
The Company is not obligated to provide a fixed and determinable quantity of
oil or natural gas in the future under existing contracts or agreements.
Significant Properties
Over the past two years, the Company has made investments in proven oil
and natural gas properties that in the aggregate have been significant to the
Company. None of the individual properties has cost more than 15% of
the average balance in oil and natural gas properties at the time of
purchase. These investments have been made in different fields and areas,
primarily in south, central and west Texas, and southeast New Mexico.
As of December 31, 2010, the Company does not have any single
property that is significant enough to materially affect its operations.
As of December 31, 2010, the Company has pledged its interest in certain
properties and well equipment against a line of credit. None of the
individual properties are significant.
Productive Wells and Acreage
The following table sets forth by county the Company's gross and net
productive wells and developed acreage in Texas, Wyoming, New Mexico,
Oklahoma and Nebraska counties as of December 31, 2010.
Producing Wells (a) Developed
Oil Gas Acreage (a)
County Gross Net Gross Net Gross Net
Andrews 1 .04 0 .00 80.00 3.00
Bastrop (b) 84 65.78 47 41.26 3,208.46 2,710.03
Bee 5 .31 12 1.20 685.70 60.92
Burleson 1 .62 0 .00 280.00 173.31
Chaves (c) 0 .00 1 .50 160.00 80.00
Crane (b) 13 11.04 0 .00 160.00 110.97
Crockett 0 .00 2 2.00 160.00 160.00
Eastland (b) 0 .00 4 .09 122.00 1.30
Eddy (c) 4 .88 1 .11 440.00 65.50
Fayette (b) 22 13.03 2 .75 5,847.10 1,852.60
Garza (b) 3 .05 0 .00 30.00 .47
Grimes 1 1.00 0 .00 652.85 652.85
Haskell (f) 0 .00 1 .13 640.00 83.39
Hemphill 0 .00 1 .13 700.00 87.50
Hidalgo 0 .00 2 .25 417.86 20.00
Kent (b) 27 .67 0 .00 1,411.65 29.49
Kimball (d) 1 .05 0 .00 40.00 2.00
Lea (b)(c) 4 .38 1 .07 614.45 70.87
Lee (b) 111 92.43 5 4.55 2,873.40 2,126.76
Lipscomb 1 .03 0 .00 80.00 2.50
Martin 4 3.76 0 .00 320.19 300.74
Midland 4 .16 0 .00 200.00 10.50
Parker (b) 0 .00 1 .01 136.91 .83
Schleicher 2 .50 0 .00 80.00 20.00
Sterling 1 .13 0 .00 80.00 10.00
Terry 1 .10 0 .00 80.00 8.00
Ward (b) 1 .03 1 .13 720.00 19.20
Washington (b) 3 .21 0 .00 1,032.92 103.29
Weston (e) 3 .94 0 .00 120.00 37.42
Wilson 1 .95 0 .00 80.00 76.00
Woodward (f) 1 .01 0 .00 640.00 3.32
------ ------- ----- ----- -------- --------
299 193.10 81 51.18 22,093.49 8,882.76
(a) A gross well is a well in which the Company owns either a working
interest or a royalty interest. Gross acres are the total acres in a
lease. Net acres are the gross acres multiplied by the Company interest
in the lease.
(b) The Company owns overriding royalty interest in these counties.
(c) Chaves, Eddy and Lea Counties are located in New Mexico.
(d) Kimball County is located in Nebraska.
(e) Weston County is located in Wyoming.
(f) Haskell and Woodward Counties are located in Oklahoma.
Reserve Quantity Information
For information required by FASB Accounting Standards Codification topic,
Extractive Activities Oil and Gas, see the Supplemental Oil and Gas
Information section included in Item 7. This section also includes
estimates of proven oil and natural gas reserves.
OIL AND GAS STATISTICS
The following summarizes the net oil and natural gas production, average sales
prices and production costs per unit for the years ended December 31, 2010, 2009
and 2008.
2010 2009 2008
Oil:
Production volume (barrels) 57,672 56,080 56,467
Average sales price per barrel $ 75.17 $ 55.48 $103.66
Gas:
Production volume (MCF) 278,549 311,377 345,512
Average sales price per MCF $ 5.65 $ 4.34 $ 9.36
Average production costs per
equivalent barrel $ 39.57 $33.30 $38.12
The worldwide crude oil prices of 2010 continue to fluctuate in 2011.
The Company cannot predict how prices will vary during 2011 and what
effect they will ultimately have on the Company.
UNDEVELOPED ACREAGE
The following table sets forth by county the Company's gross and net
undeveloped acreage as of December 31, 2010. All counties are in Texas
unless otherwise noted.
County Gross Net
Andrews 384.00 192.00
Bastrop 2,306.18 1,829.40
Crane 593.64 564.14
Crosby 1,118.77 559.38
Eastland 199.30 2.37
Eddy (a) 480.00 65.00
Fayette 647.64 283.04
Garza 2,771.10 548.51
Kent 4,037.44 1,471.31
Lea (a) 880.00 326.56
Lee 1,930.11 1,629.13
Midland 180.00 10.08
Sterling 883.36 110.42
Terry 240.00 24.00
Weston (b) 840.00 379.75
Wilson 129.51 123.03
--------- --------
17,621.05 8,118.12
========= ========
Of the 8,118.12 net undeveloped acres under lease, 7,960.22 net acres
are being held by production.
a) Eddy and Lea Counties are located in New Mexico
b) Weston County is located in Wyoming.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material litigation pending, threatening or
contemplated, or unsatisfied judgments against it, or any other proceeding in
which the Company is a party. The Company knows of no material legal actions
pending or threatening or judgments entered against any officers on the board
of directors of the Company in their capacity as such.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is quoted on the OTC Bulletin Board with the
symbol (TVOC.OB). The range of high and low sales price for each quarterly
period during the past two years is as follows:
Sales Price
High Low
Fiscal 2010
First Quarter $ 8.00 $ 5.66
Second Quarter 8.00 6.60
Third Quarter 7.50 6.55
Fourth Quarter 8.90 6.90
Fiscal 2009
First Quarter $ 6.95 $ 5.25
Second Quarter 7.50 6.00
Third Quarter 7.95 5.30
Fourth Quarter 10.01 5.50
At December 31, 2010, the approximate number of holders of record of the
Company's common stock was 405. The Company has not paid any dividends and
has no plans to do so in the immediate future. The Company issued no equity
securities in 2010. The Company has no equity compensation plans for its
directors, officers or employees.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
During the years ended December 31, 2010 cash increased by $428,462,
while cash increased for the year ended December 31, 2009 by $50,397.
The cash flow from operating activities in 2010 was $1,436,812, an
increase of $917,495 from 2009. The cash flow from operating activities
in 2009 was $519,317, a decrease of $3,312,225 from 2008.
The significant use of cash, other than for operating expenses,
has been investments in oil and natural gas projects. Investments in oil
and natural gas projects were $1,001,857 and $428,771 in 2010 and 2009,
respectively. As of December 31, 2010, the Company had a cash balance of
$7,621,018, and notes payable of $150,000 as compared to the December 31,
2009, cash balance of $7,192,556, and notes payable of $150,000.
During the last two years, the Companys investment in producing
oil and natural gas properties and low risk drilling projects was provided
by cash flow from operating activities. Investments may also be funded
by sales of other oil and natural gas properties, and/or from borrowings
on notes payable to banks. The Company sells selected properties when it
is more economical to sell rather than produce them.
Working capital at December 31, 2010, decreased to 9.90 to 1 from 9.96 to 1
at December 31, 2009. The Company continued its policy of making strategic
investments in producing oil and natural gas properties and investing in
low risk drilling projects in the same or similar fields to properties
already operated by the Company, which are primarily financed with
cash from operations and/or short term notes payable.
LIQUIDITY AND CAPITAL RESOURCES
During the current fiscal year, the Companys liquidity has remained strong
enough to meet its short-term cash needs. The sources of liquidity and capital
resources are generated from cash on hand, cash provided by operations and from
credit available from financial institutions. Management believes the Company
will be able to meet its current operating needs through internally generated
cash from operations. Management believes that oil and natural gas property
investing activities in 2011 can be financed through cash on hand, cash from
operating activities, and bank borrowings. The Company anticipates continued
investments in proven oil and natural gas properties in 2011 when they can be
purchased at prices that will provide a short payback period. If bank credit
is not available, the Company may not be able to continue its policy of
continued investment in strategic oil and natural gas properties. The Company
cannot predict how oil and natural gas prices will fluctuate during 2011 and
what effect they will ultimately have on the Company, but management believes
that the Company will be able to generate sufficient cash from operations to
service its bank debt and provide for maintaining current production of its oil
and natural gas properties. The Company had no significant commitments for
capital expenditures at December 31, 2010.
At the end of 2010, the Company was holding a substantial cash reserve.
In late 2009, commodity prices began to rebound from their mid-year lows. In
2010, however, oil prices stalled and natural gas prices began a slow and
steady drop. Operated properties coming to market were resource plays for
the non discriminating industrial investor. The Company continued participating
in low risk drilling projects. As commodity prices and prospects fluctuate,
the Company will continue to adjust to best match our criteria.
As of December 31, 2010, the Company had a $5,000,000 line of credit
collateralized by producing oil and natural gas properties and well equipment
owned by the Company. The borrowing base of this line of credit at
December 31, 2010 was $1,000,000. The line credit matures on May 16, 2011.
The Company also maintains a $1,000,000 line of credit collateralized by a
certificate of deposit. The line of credit matures on May 4, 2011
(see note 3 of notes to financial statements for further explanation).
RESERVE ESTIMATES
At the end of 2010, the Company oil reserves were 461,711 barrels of oil, an
increase of 7% from the prior year. The Company natural gas reserves were
2,217,881 MCF of natural gas, an increase of 5% from the prior year. The
increase in oil reserves is due to both our successful low risk drilling
projects and higher commodity prices. The increase in natural gas reserves
is due to our successful drilling projects.
Estimates of oil and natural gas reserves, by necessity, are projections
based on geologic and engineering data, and there are uncertainties inherent
in the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Estimates of economically
recoverable oil and natural gas reserves and of future net cash flows depend
upon a number of variable factors and assumptions, such as future production,
oil and natural gas prices, operating costs, severance taxes, development
costs and workover costs, all of which may vary considerably from actual
results. Any significant variance in the assumptions could materially affect
the estimated quantity and value of the reserves. Moreover, there can be no
assurance that our reserves will ultimately be produced or that any
undeveloped reserves will be developed. For these reasons, estimates of
the economically recoverable quantities of oil and natural gas and estimates
of the future net cash flows expected therefrom may vary substantially.
Actual production, revenue and expenditures with respect to our reserves
will likely vary from estimates, and such variances may be material.
The estimated discounted future net cash flows from proved reserves are based
on the average of the closing price for light sweet crude oil and natural
gas traded on the New York Mercantile Exchange (NYMEX) on the first day of
the month for each month in 2010. Costs were based on actual lease expenses,
adjusted for non-recurring items, and averaged for the months included.
ANALYSIS OF RESULTS OF OPERATIONS
Oil and natural gas sales revenue increased in 2010 by 32% and decreased
in 2009 by 51%. The Companys total revenue for the fiscal year ended
December 31, 2010, was $6,399,831 as compared to $5,007,217 as of
December 31, 2009.
In 2010, oil production volume increased by 3% at the same time as the
average price per barrel increased by 35% to $75.17. Also, in 2010,
the natural gas production volume decreased by 11% while the average
price per MCF increased by 30% to $5.65. In 2009, oil production
volume decreased by less than 1% at the same time as the average price
per barrel decreased by 46% to $55.48. Also, in 2009, the natural gas
production volume decreased by 10% at the same time as the average
price per MCF decreased by 54% to $4.34. The fluctuation in oil and
natural gas prices is solely attributable to commodity market change.
Oil and natural gas production expenses increased in 2010 by 15% and
decreased in 2009 by 17%. The increased production costs for 2010 is
largely associated with an increase in workover expenses while the
decreased production costs for 2009 is largely associated with a decrease
in workover expenses as compared to the prior year as well as the
Companys efforts to reduce field expenses where possible.
The Company participated in the drilling of 5 wells in 2010 and
4 wells in 2009, and the costs associated therewith were capitalized.
In 2010 and 2009, interest expense decreased 24% and 26%, respectively,
over the prior years due to a reduction of interest rates on outstanding
balances.
Depreciation, depletion and amortization varies from year to year because of
changes in reserve estimates, changes in quantities of oil and natural gas
produced, changes in price of oil and natural gas sold, as well as the
acquisition, discovery or sale of producing properties. Depletion increased
2% in 2010 as compared to a 13% decrease in depletion in 2009.
In 2010, total general and administrative expenses remained almost constant,
decreasing $358 while total general and administrative expenses decreased
$44,796 in 2009.
In 2010 and 2009, the Company recorded an allowance of $172,534 and
$133,521, respectively, for trade accounts receivable that were deemed
uncollectible and thus classified as doubtful accounts.
In 2010 and 2009, the Company recognized $125,000 and $15,086,
respectively, for the impairment of value of oil and natural gas
properties due to less than expected production performance of
specific wells and for wells that were plugged and abandoned.
Inflation is not anticipated to have a significant impact on the Company's
operations.
CONTRACTUAL OBLIGATIONS OF COMPANY
The Companys contractual obligations as of December 31, 2010 are as follows:
Contractual Obligations: 2011 Thereafter Total
Debt Obligations $ 150,000 --- $150,000
======= ========= ========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not engage in hedging activities and does not use commodity
futures nor forward contracts in its cash management functions.
Oil and Natural Gas Prices
Our financial condition, results of operations and capital resources are
highly dependent upon the prevailing market prices of, and demand for,
oil and natural gas. These commodity prices are subject to wide fluctuations
and market uncertainties due to a variety of factors that are beyond our
control. We cannot predict future oil and natural gas prices with any
degree of certainty. Sustained declines in oil and natural gas prices may
adversely affect our financial condition and results of operations, and
may also reduce the amount of net oil and natural gas reserves that we
can produce economically.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Texas Vanguard Oil Company:
We have audited the accompanying balance sheets of Texas Vanguard Oil
Company (the Company) as of December 31, 2010 and 2009, and the
related statements of earnings, stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged
to perform an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Texas Vanguard Oil
Company as of December 31, 2010 and 2009, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Padgett, Stratemann & Co., L.L.P.
San Antonio, Texas
March 25, 2011
TEXAS VANGUARD OIL COMPANY
Balance Sheets
December 31, 2010 and 2009
ASSETS
2010 2009
Current assets:
Cash (including certificates of deposit of
$1,250,000, pledged, in 2010 and 2009,
respectively) $ 7,621,018 $ 7,192,556
Trade accounts receivable, net of allowance
for doubtful accounts of $172,534 and
$133,521 in 2010 and 2009, respectively 155,191 98,896
Prepaid expense 10,277 66,656
Prepaid federal income tax 202,545 145,037
---------- ---------
Total current assets 7,989,031 7,503,145
---------- ---------
Oil and gas properties, partially pledged,
successful efforts method of accounting:
Proven properties 8,336,400 7,468,672
Unproven properties 160,441 151,312
Office furniture and equipment 233,035 226,542
--------- ---------
8,729,876 7,846,526
Less accumulated depreciation, depletion and
amortization (4,393,245) (3,896,502)
--------- ---------
4,336,631 3,950,024
--------- ---------
Other assets 1,000 1,000
--------- ---------
TOTAL ASSETS $ 12,326,662 $11,454,169
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 436,008 $ 419,956
Taxes payable 36,454 28,792
Asset retirement obligation, current portion 184,800 154,931
Notes payable 150,000 150,000
--------- ---------
Total current liabilities 807,262 753,679
--------- ---------
Deferred federal income tax liability 292,895 250,664
Asset retirement obligation, less current portion 353,210 260,312
--------- ---------
Total Liabilities 1,453,367 1,264,655
--------- ---------
Commitments
Stockholders' equity:
Common stock, par value $.05; authorized
12,500,000 shares; 1,416,587 issued and
outstanding in 2010 and 2009, respectively 70,828 70,828
Additional paid-in capital 1,888,528 1,888,528
Retained earnings 8,913,939 8,230,158
--------- ---------
Total stockholders' equity 10,873,295 10,189,514
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,326,662 $11,454,169
========= =========
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Statements of Earnings
Years ended December 31, 2010 and 2009
2010 2009
Revenues:
Oil and gas sales $ 5,904,704 $ 4,488,427
Well operation fees 114,627 121,383
Other, net 327,826 337,614
Interest income 52,674 59,793
--------- ---------
Total revenues 6,399,831 5,007,217
--------- ---------
Expenses:
Production cost 4,118,940 3,595,395
Depreciation, depletion
and amortization 496,743 488,866
Interest expense 4,408 5,797
General and administrative 542,285 542,643
Impairment in value of
oil and gas property 125,000 15,086
Doubtful accounts expense 39,013 28,203
--------- ---------
Total expenses 5,326,389 4,675,990
--------- ---------
Earnings before income tax 1,073,442 331,227
Federal and State taxes:
Provision for federal income tax 310,975 63,771
Deferred federal income tax 42,231 39,057
Provision for state margin tax 36,455 28,792
-------- ---------
Net earnings $ 683,781 $ 199,607
========= =========
Weighted average number of
shares outstanding 1,416,587 1,416,587
========= =========
Basic and diluted earnings
per share $ 0.48 $ 0.14
========= =========
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Statements of Stockholders' Equity
Years ended December 31, 2010 and 2009
Total
Common Stock Additional Stock-
Shares Amount Paid-In Retained holders
Capital Earnings Equity
Balances at Dec. 31, 2008 1,416,587 $70,828 $1,888,528 $8,030,551 $ 9,989,907
Net earnings --- --- --- 199,607 199,607
--------- -------- --------- --------- -----------
Balances at Dec. 31, 2009 1,416,587 $70,828 $1,888,528 $8,230,158 $10,189,514
Net earnings --- --- --- 683,781 683,781
--------- -------- --------- --------- -----------
Balances at Dec. 31, 2010 1,416,587 $70,828 $1,888,528 $8,913,939 $10,873,295
========= ========= ========== ========== ===========
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Statements of Cash Flows
Years ended December 31, 2010 and 2009
2010 2009
Cash flows from operating activities:
Net earnings $ 683,781 $ 199,607
Adjustments to reconcile net earnings
to cash provided by operating
activities:
Depreciation, depletion
and amortization 496,743 488,866
Impairment in value of oil and
gas property 125,000 15,086
Doubtful accounts expense 39,013 28,203
Increase (decrease) in deferred
federal income tax liability 42,231 50,970
Changes in assets and liabilities:
(Increase) decrease in receivables (95,308) (4,799)
(Increase) decrease in prepaid
expense 56,379 (58,106)
(Increase) decrease in prepaid taxes (57,508) (143,142)
Increase (decrease) in payables
and accrued expenses 146,481 (57,368)
--------- ---------
Net cash provided by
operating activities 1,436,812 519,317
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (1,001,857) (428,771)
Purchases of equipment (6,493) (40,149)
--------- ---------
Net cash used in investing activities (1,008,350) (468,920)
--------- ---------
Cash flows from financing activities:
Net cash used in
financing activities --- ---
--------- ---------
Net increase in cash and cash
equivalents 428,462 50,397
Cash and cash equivalents at
beginning of year 7,192,556 7,142,159
--------- ---------
Cash and cash equivalents at
end of year $ 7,621,018 $ 7,192,556
========== ==========
Supplemental disclosure of
cash flow information:
Interest paid $ 4,408 $ 5,797
========== ==========
Cash paid for income taxes $ 498,597 $ 249,563
========== ==========
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Financial Statements
December 31, 2010 and 2009
(1) Significant Accounting Policies
Description of Business - Texas Vanguard Oil Company (the Company) engages in
the acquisition, exploration, development, and operation of onshore oil and
natural gas properties in the United States, principally in Texas.
The Company owns interests in producing properties and undeveloped oil and
gas leases in Texas, Wyoming, Nebraska, Oklahoma and New Mexico. The Company
sells all of its production to traditional industry purchasers who have the
facilities to transport the oil and natural gas from the well site.
Oil and Natural Gas Properties - The Company follows the "successful efforts"
method of accounting for oil and natural gas exploration and production
operations. Accordingly, costs incurred in the acquisition and exploratory
drilling of oil and natural gas properties are initially capitalized and
either subsequently expensed if the properties are determined not to have
proved reserves, or reclassified as a proven property if proved reserves are
discovered. Costs of drilling development wells are capitalized. Geological,
geophysical, carrying and production costs are charged to expense as incurred.
Financial Accounting Standards Board (FASB) Accounting Standards Codification
Topic - Property, Plant, and Equipment 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. It establishes
guidelines for determining recoverability based on future net cash flows from
the use of the asset and for the measurement of the impairment loss. Impairment
loss is calculated as the difference between the carrying amount of the asset
and its fair value. Any impairment loss is recorded in the current period in
which the recognition criteria are first applied and met. Under the successful
efforts method of accounting for oil and gas operations, the Company
periodically assesses its proved properties for impairments by comparing the
aggregate net book carrying amount of all proved properties with their
aggregate future net cash flows. The statement requires that the impairment
review be performed on the lowest level of asset groupings for which there
are identifiable cash flows.
The Company performs a periodic review for impairment of proved properties.
The Company determines if impairment has occurred through either adverse
changes or as a result of its periodic review for impairment. Upon
abandonment of properties, the reserves are deemed fully depleted and any
unamortized costs are recorded in the statement of income under impairment
expense. Upon the sale of oil and natural gas reserves in place, costs less
accumulated amortization of such property are removed from the accounts
and resulting gain or loss on sale is reflected in operations.
Impairment of unproved properties is assessed periodically and any
impairment in value is currently charged to expense. Loss is recognized
to the extent that such impairment is indicated. When an entire interest
in an unproved property is sold, gain or loss is recognized, taking into
consideration any recorded impairment.
Impairment is measured on discounted cash flows utilizing a discount rate
appropriate for risks associated with the related properties or based on
fair market values. Impairment and abandonment losses of $125,000 and
$15,086 were recorded in 2010 and 2009, respectively.
Depreciation, depletion and amortization of proved oil and natural gas
property costs, including related equipment and facilities, are provided
using the units-of-production method on a property by property basis.
Office Furniture and Equipment - Office furniture and equipment is stated at
cost. Depreciation is computed using the straight-line method, based on the
following estimated useful lives:
Office furniture and equipment 7 years
Automotive equipment 5 years
Accounts Receivable - The Company provides for uncollectible accounts using
the allowance method of accounting for bad debts. Under this method of
accounting, a provision for uncollectible accounts is charged to earnings.
The allowance account is increased or decreased based on past collection
history and managements evaluation of accounts receivable. All amounts
considered uncollectible are charged against the allowance and recoveries
are added to the allowance.
Federal Income taxes - The Company uses the "asset and liability method" of
income tax accounting, which bases the amount of current and future taxes
payable on the events recognized in the financial statements and on tax laws
existing at the balance sheet date. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes enactment date.
Cash and Cash Equivalents - The Company considers cash and cash equivalents to
consist of demand deposits and certificates of deposit.
Concentration of Credit Risk - The Company sells all of its production
to traditional industry purchasers. Oil sales are made under a written
contract, generally not more than one year in length. The Company has recorded
revenues in excess of 10% of total revenue from two purchasers in 2010 and two
purchasers in 2009 as follows: 2010 - 49%, 15%; and 2009 - 52%, 15%. The
Company does not believe the loss of these purchasers would have a materially
adverse effect on its operations as it could sell its production to other
gathering companies.
The Company maintains cash in depository institutions that are guaranteed by
the Federal Deposit Insurance Corporation (FDIC). Effective December 31,2010,
the FDIC ruled that all non-interest bearing deposit accounts at an FDIC
insured institution are fully insured for the entire amount in the deposit
account. This unlimited insurance coverage is temporary and will remain in
effect for participating institutions until December 31, 2012. In addition,
interest bearing accounts are insured up to at least $250,000 per account.
At December 31, 2010, cash in one interest bearing account exceeded the FDIC
limits. The Company has not experienced any losses on deposits.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
The most significant estimates pertain to proved oil and natural gas reserve
volumes and the future development costs. Actual results could differ from
those estimates.
(2) Recently Issued Accounting Standards
In January 2010, the FASB issued ASU 2010-03, Extractive Activities-Oil
and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. The
objective of the amendments included in this Update is to align the oil
and gas reserve estimation and disclosure requirements of Extractive
Activities-Oil and Gas (Topic 932) with the requirements in the
Securities and Exchange Commissions final rule, Modernization of the Oil
and Gas Reporting Requirements, issued on December 31, 2008. The amendments
to Topic 932 are effective for annual reporting periods ending on or after
December 31, 2009. The adoption of the provisions of this pronouncement
did not have a material impact on the Company financial statements.
(3) Notes Payable and Long-term Debt
The Company had notes payable debt to banks as follows at December 31:
2010 2009
Line of credit with a bank in the amount of
$5,000,000. Borrowing base of $1,000,000 at
December 31, 2010 and 2009. Interest payable
monthly at prime plus 1.0%, collateralized by
oil and gas properties. The line of credit
matures on May 16, 2011. $ --- $ ---
Line of credit with a bank in the amount of
$1,000,000. Interest payable monthly at 2.54%,
collateralized by a $1,000,000 certificate
of deposit. The line of credit matures on
May 4, 2011. 150,000 ---
Line of credit with a bank in the amount of
$1,000,000. Interest payable monthly at 3.50%,
collateralized by a $1,000,000 certificate
of deposit. The line of credit matured on
April 27, 2010. --- 150,000
--------- ---------
Total debt $ 150,000 $ 150,000
Less current installments (150,000) (150,000)
--------- ---------
Long-term debt, excluding current installments $ --- $ ---
========= =========
As of December 31, 2010 and 2009, respectively, the Company had no long term
debt.
(4) Related Party Transactions
The Company and an entity owned by the Chairman of the Company have an
agreement whereby the latter provides the Company general corporate
management services. The affiliated company received $246,000 and $246,000
as compensation for performance of those services during the years ended
December 31, 2010 and 2009, respectively. Effective January 1, 2011,
the agreement was continued with terms of $21,500 per month through December
31, 2011.
The Company leases office space from a company owned by the Chairman
of the Company under a month-to-month operating lease. Rent expense
incurred under this lease was $26,400 and $26,400 for the years
ended December 31, 2010 and 2009, respectively.
Certain officers and directors of the Company own small interests
in a number of the properties that the Company has interests in as well
as other similar properties in which the Company does not have an interest.
For the years ended December 31, 2010 and 2009 these individuals
received $27,951 and $15,175, respectively, from properties operated by
the Company.
During the years ended December 31, 2010 and 2009, a Director of the
Company received $71,400 and $69,000, respectively for engineering
consultant work.
The Company purchases materials and services from two businesses
in which the Chairman of the Company owns an interest. These purchases
represent less than 10% of the Company's total oil field purchases.
(5) Federal Income Taxes
The federal income tax expense for 2010 and 2009 does not differ from
the expected tax expense by applying the U.S. Federal corporate income tax
rate of 34% to earnings before income taxes. The provision for income taxes
for the year ended December 31, 2010 and 2009, consists of:
2010 2009
Current tax expense $ 310,975 $ 63,771
Deferred tax expense 42,231 39,057
_________ _ ________
$ 353,206 $ 102,828
========= ==========
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 2010 and 2009 is presented below:
2010 2009
Deferred tax liability:
Office furniture and equipment and oil
and gas property, due to differences in
depreciation and abandonment $ (292,895) $ (250,664)
--------- ----------
Total deferred tax liability $ (292,895) $ (250,664)
========= ==========
The Company has no accumulated losses for Federal income tax purposes as of
December 31, 2010 and 2009, which may be carried forward and used to
reduce taxable income in future years.
We adopted additional provisions from the Income Taxes topic of the
FASB Accounting Standards Codification, which clarifies the accounting
for uncertainty in income taxes recognized in an entity financial statements
and prescribes a recognition threshold and measurement attribute for
financial statement disclosure of tax positions taken or expected to be
taken on a tax return. As a result of our implementation of these additional
provisions at the time of adoption and at December 31, 2010, the Company
did not recognize a liability for uncertain tax positions. As a result,
the only differences between our financial statements and our income tax
returns relate to normal timing differences such as depreciation, depletion
and amortization, which are recorded as deferred taxes on our balance sheets.
The tax years 2006 through 2009 remain open to examination by the taxing
jurisdictions in which we file income tax returns.
(6) Fair Value of Financial Instruments
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of notes payable
approximates market value at December 31, 2010 and 2009.
(7) Asset Retirement Obligation
The Asset Retirement and Environmental Obligations topic of the FASB
Accounting Standards Codification requires that an asset retirement
obligation (ARO)associated with the retirement of a tangible long-lived
asset be recognized as a liability in the period in which it is incurred
or becomes determinable (as defined by the standard), with an associated
increase in the carrying amount of the related long-lived asset. The cost
of the tangible asset, including the initially recognized asset retirement
cost, is depreciated over the useful life of the asset. The ARO is recorded
at fair value, and accretion expense will be recognized over time as the
discounted liability is accreted to its expected settlement value. The fair
value of the ARO is measured using expected future cash outflows discounted
at the Companys credit-adjusted risk-free interest rate. The provisions of
this statement apply to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, development, and operation
of a long-lived asset.
2010 2009
Asset retirement obligation
Beginning of year $ 415,243 $ 447,343
Liabilities incurred during the period 27,792 26,904
Settlements (275) (23,013)
Accretion expense 11,349 11,349
Revisions in estimated cash flow 83,901 (47,340)
------- --------
Asset retirement obligation
End of year $ 538,010 $ 415,243
======= =======
TEXAS VANGUARD OIL COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION
Years ended December 31, 2010 and 2009
(Unaudited)
Reserve Quantity Information (Unaudited)
The following reserve related information is based on estimates prepared by
an independent third party petroleum engineer in 2010 and 2009. Reserve
estimates are inherently imprecise and are continually subject to revisions
based on production history, results of additional exploration and
development, price of oil and natural gas and other factors. All of the
Companys oil and natural gas reserves are located in the United States.
2010 2009
Oil Gas Oil Gas
BBLS MCF BBLS MCF
Proved developed
reserves:
Beginning of year 431,638 2,108,346 358,119 2,330,534
Revisions of
previous
estimates 65,715 286,169 124,709 85,153
Extensions
and Discoveries 18,440 9,637 4,804 3,092
Purchase of
minerals in place 3,590 92,278 86 944
Sale of minerals --- --- --- ---
Production (57,672) (278,549) (56,080) (311,377)
--------- --------- -------- ---------
End of year 461,711 2,217,881 431,638 2,108,346
========= ========= ======== =========
Proved developed
reserves:
Beginning of year 431,638 2,108,346 358,119 2,330,534
End of year 461,711 2,217,881 431,638 2,108,346
Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
The following is a standardized measure of discounted future net cash flows and
changes therein relating to proved oil and natural gas reserves. Future net
cash flows as related to existing proved oil and natural gas reserves were
computed using an average of the closing price for oil and natural gas on the
New York Mercantile Exchange (NYMEX) on the first day of each month during 2010
and 2009, respectively. Costs were based on actual lease expenses, adjusted
for non-recurring items, and averaged for the months included. Future
income tax expenses were provided after estimated utilization of any
available Federal income tax loss carryforwards. The Company cannot
predict price fluctuations, which may occur in the future.
December 31,
2010 2009
Future cash inflows $ 47,550,160 $ 33,172,680
Future production
and development costs (25,022,280) (18,583,300)
Future income tax expenses (7,770,433) (4,980,240)
------------ ------------
Future net cash flows 14,757,447 9,609,140
10% annual discount for
estimated timing of cash flows (5,698,029) (3,662,364)
------------ ------------
Standardized measure of
discounted future net cash flows $ 9,059,418 $ 5,946,776
============ ============
TEXAS VANGUARD OIL COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION, CONTINUED
(Unaudited)
The following are the principal sources of change in the standardized measure
of discounted future net cash flows:
2010 2009
Changes:
Sale of oil and gas produced, net of
production costs $ (1,785,764) $ (893,032)
Net changes in prices and production
costs 4,005,566 1,512,495
Purchase of minerals in place 134,997 1,876
Extensions and discoveries 521,709 97,604
Sales of minerals --- ---
Revisions of previous quantity estimates 1,294,357 1,250,262
Accretion of discount 803,389 624,133
Change in income taxes (1,661,849) (671,449)
Timing differences and other (199,763) (626,816)
---------- ----------
Net changes 3,112,642 1,295,073
Beginning balance - standardized measure
of discounted future net cash flows 5,946,776 4,651,703
---------- ----------
Ending balance - standardized measure
of discounted future net cash flows $ 9,059,418 $ 5,946,776
========== ==========
In the above referenced Supplemental Schedules for Standardized Measure of
Discounted Future Net Cash Flows (Unaudited) for the years December 31, 2010
and 2009, the Company has revised its methodology and the balances have been
updated accordingly.
The Company has not filed with or included in reports to any Federal authority
or agency other than the Securities and Exchange Commission any estimates of
total proved net oil and gas reserves.
Capitalized Costs Relating to Oil and Gas Producing Activities
Years ended December 31,
2010 2009
Unproven oil and gas properties
(including wells in progress) $ 160,441 $ 151,312
Proven oil and gas properties 8,336,400 7,468,672
Accumulated depletion and amortization (4,256,692) (3,791,675)
---------- ----------
Net capitalized costs $ 4,240,149 $ 3,828,309
========== ==========
Costs Incurred in Oil and Gas Property
Acquisition, Exploration and Development Activities
Years ended December 31,
2010 2009
Acquisition of properties - unproven $ 9,129 $ 1,500
Acquisition of properties - proven 992,728 427,271
Exploration costs --- ---
Development costs --- ---
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Companys reports
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commissions rules and forms and that such
information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives. Management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As required by Commission Rules 13a-15(e) and 15d-15(e), the Company
carried out an evaluation, under the supervision and with the participation
of the Companys management, including the Companys Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of the end
of the quarter covered by this Report. Based on the foregoing, the Companys
Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective at the reasonable
assurance level.
There has been no change in the Companys internal control over financial
reporting during the Companys most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
MANAGEMENTS ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.
Our evaluation of internal control over financial reporting includes using
the COSO framework, an integrated framework for the evaluation of internal
controls issued by the Committee of Sponsoring Organizations of the Treadway
Commission, to identify the risks and control objectives related to the
evaluation of our control environment.
Based on our evaluation under the frameworks described above, our management
has concluded that our internal control over financial reporting was
effective as of December 31, 2010.
This annual report does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation requirements
by the Companys registered public accounting firm pursuant to the
rules of the Securities and Exchange Commission that permit the Company to
provide only managements report in this annual report.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
Items 10, 11, 12 and 13 constituting Part III of Form 10-K have been omitted
from this annual report pursuant to the provisions of Instruction G(3) to Form
10-K, as the Company will file a definitive proxy statement pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days after
the close of its fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit-Related Fees.
The aggregate fees billed to the Company by Padgett, Stratemann & Co. L.L.P.
for the audit of Texas Vanguard Oil Company annual financial statements included
in the Form 10-K and for the review of the financial statements included in
its quarterly reports on Form 10-Q for the fiscal years ended December 31,
2010 totaled $37,450. The aggregate fees billed to the Company by Padgett,
Stratemann & Co. L.L.P. for the audit of Texas Vanguard Oil Company annual
financial statements included in the Form 10-K and for the review of the
financial statements included in its quarterly reports on Form 10-Q for
the fiscal year ended December 31, 2009 totaled $38,000.
Tax Fees.
Tax services for the fiscal years ended December 31, 2010 and 2009 were
not provided by Padgett, Stratemann & Co. L.L.P.
All Other Fees.
For the fiscal year ended December 31, 2010 the fees billed to the Company
by Padgett, Stratemann & Co., L.L.P. for other services totaled $2,475. The
Company engaged Padgett, Stratemann & Co., L.L.P. to perform an analysis
of the Companys supplemental oil and gas schedules. There were no fees for
other services paid to Padgett, Stratemann & Co., L.L.P. for the fiscal
year ended December 31, 2009.
It is the audit committee policy to pre-approve all services provided by
Padgett, Stratemann & Co. L.L.P. All services provided by Padgett,
Stratemann & Co., L.L.P. during the years ended December 31, 2010 and 2009,
were pre-approved by the audit committee.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1). Financial Statements.
Independent Auditors' Report, Balance Sheets at December 31, 2010 and 2009 and
the related Statements of Earnings, Stockholders' Equity, and Cash Flows for
each of the years in the two-year period ended December 31, 2010, and notes
to financial statements are included in Item 8.
(a)(2) Financial Statement Schedules
Not applicable.
(a)(3). Exhibits
Number Description of Document
3* Copies of Articles of Incorporation and Bylaws - Incorporated by
reference to Exhibits 4a and 4b to Registration Statement No. 2-66693
filed by registrant on Form S-2.
3.1* Articles of Amendment to authorize capitalization of common stock,
previously filed as exhibits to Form 8-K dated May 27, 1983.
3.2* Certificate of Amendment dated February 20, 1990 of Articles of
Incorporation and Articles of Amendment dated February 16, 1990 to the
Articles of Incorporation. Filed as Exhibit to 1989 Form 10-K.
10.1 Management agreement between Texas Vanguard Oil Company and Robert
Watson Inc. dated January 1, 2010.
31.1 Rule 13a-14(a)/15d-14(a) Certification
32.1 18 U.S.C. Section 1350 Certification
99.1 Reserve Report
* Incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TEXAS VANGUARD OIL COMPANY
By: William G. Watson
William G. Watson, President
March 25, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
William G. Watson Robert L. Patterson
William G. Watson, President, Robert L. Patterson, Director
Director, Chief Executive March 25, 2011
Officer and Chief Financial
Officer
March 25, 2011
Linda R. Watson Teresa N. Nuckols
Linda R. Watson, Director Teresa N. Nuckols, Secretary
and Chairman of the Board March 25, 2011
March 25, 2011
THIS PAGE IS NOT PART OF OUR ANNUAL REPORT ON FORM 10-K.
OFFICERS AND DIRECTORS CORPORATE INFORMATION
Linda R. Watson CORPORATE OFFICE
Chairman of the Board 9811 Anderson Mill Road, Suite 202
and Director Austin, Texas 78750
William G. Watson INDEPENDENT ACCOUNTANTS
President, Chief Executive Padgett, Stratemann & Co., L.L.P.
Officer, Chief Financial Austin, Texas
Officer, and Director
TRANSFER AGENT
Teresa Nuckols For stock certificate transfers, address
Secretary change or lost certificates:
Computershare Trust Company, Inc.
Robert L. Patterson P.O. Box 43070
Director Providence, Rhode Island 02940
COMMON STOCK
Quoted on OTC Bulletin Board
Symbol: TVOC.OB
CORPORATE GOVERNANCE
The Company has adopted a Code of Ethics
for its executive officers, directors and
employees which is available upon request,
free of charge from:
Investor Relations
9811 Anderson Mill Road, Suite 202
Austin, Texas 78750
2010 Annual Shareholders Meeting
June 9, 2011, at 10:00 A.M. CST
Holiday Inn Northwest
8901 Business Park Drive
Austin, TX 78759
