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, and development of onshore oil and natural gas properties in the United States, principally in Texas but also in New Mexico, Oklahoma, Nebraska, and Wyoming. The Company’s business plan is to expand its reserve base, increase production, and to increase cash flow through acquisition of producing oil and natural gas properties. The Company acquires operated and 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. 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 (10% in 2013 and 12% in 2012) and Plains Marketing (55% in 2013 and 51% in 2012). 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 oil and natural gas 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 future operations will be adversely affected thereby.
Employees
The Company has two full-time salaried employees. From time to time the Company engages independent petroleum engineers, geologists and landmen on a fee basis.
ITEM 1A.
ITEM 1A. RISK FACTORS
There are many factors that affect our business 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
Operations of oil and natural gas 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
Operations of oil and natural gas are subject to the usual hazards incident to drilling for and producing oil and natural gas. We maintain insurance coverage customary for these 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’s 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
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 2013. 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, 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
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, and properties we formerly owned or operated. 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 Company’s ability to accurately predict or control.
RISK RELATED TO OUR COMMON STOCK
Cash Dividends
We have paid no cash dividends on our common stock to date. 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 one way to realize a return on their investment.
Issuance of Additional Stock Could Cause Dilution
We may seek to use unissued common 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, 2013, 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 on the OTC QB Market and quoted on the FINRA OTC Bulletin Board. Trading volume for our stock has historically been low. On many days no trades are recorded. Low trading volume may make it difficult for an investor to buy or sell a large quantity of shares in a short period of time. 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 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2.
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
At the end of 2012, the Company had participated in the drilling of two wells which were awaiting evaluation. In 2013, one of the wells was completed as an oil producer and the other well was plugged. In July, the Company purchased working interests in two producing oil wells. In September, the Company participated in two re-entry projects. Both re-entries were prepared to be plugged at yearend. In December, the Company participated in the drilling of a horizontal well. At yearend the well was awaiting completion. The Company also had two wells drilled and completed as oil producers on acreage where the Company holds a royalty interest.
In operated wells, the Company acquired additional interest in 15 oil wells and 1 gas well prior to September 2013. In October 2013, the Company sold its interests in 251 oil and gas operated wells. All of the Company’s oil and 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, 2011, 2012 and 2013.
(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 2011, the Company participated in the drilling of two new wells, resulting in two oil producers. Another well was drilled and completed as an oil producer on acreage which the Company holds a royalty interest. The Company participated in the re-entry project which at year end was awaiting completion. In operated wells, the Company acquired additional interest in 38 oil and 3 gas wells.
(5)
During 2012, the Company participated in the drilling of six new wells, of which five were oil producers and one was a gas producer. The Company had interest in two additional wells which were drilled in late 2012, but were awaiting completion at the end of the year.
(6)
In 2012, in a non-monetary exchange, a company owned by William Watson exchanged its working interest in 138 wells operated by the Company for working interests the Company held in 8 non-operated wells. A third party engineer made the valuation and determination that the properties exchanged were approximately the same fair value.
(7)
In October 2013, the Company sold its interest in 203 oil, 48 gas and 1 disposal well which it operated.
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. At December 31, 2013, the Company does not have any single property that is signifi­cant enough to materially affect its operations.
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, 2013.
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’s 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’s 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, 2013, 2012 and 2011.
The worldwide crude oil prices of 2013 continue to fluctuate in 2014. The Company cannot predict how prices will vary during 2014 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, 2013. All counties are in Texas unless otherwise noted.
a)
Eddy and Lea Counties are located in New Mexico
ITEM 3.
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.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is quoted on the FINRA OTC Bulletin Board with the symbol (TVOC). The range of high and low sales price for each quarterly period during the past two years is as follows:
At December 31, 2013, the approximate number of holders of record of the Company’s common stock was 351. The Company has not paid any dividends. The Company issued no equity securities in 2013. The Company has no equity compensation plans for its directors, officers or employees.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Analysis of Financial Condition
During the year ended December 31, 2013, cash increased by $3,176,241, while cash increased for the year ended December 31, 2012, by $460,757. The cash flow from operating activities in 2013 was $1,846,815, an increase of $676,576 from 2012. The cash flow from operating activities in 2012 was $1,170,239, a decrease of $460,349 from 2011. 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 $258,777 and $796,482 in 2013 and 2012, respectively. As of December 31, 2013, the Company had a cash balance of $12,212,690, and notes payable of $150,000 as compared to the December 31, 2012, cash balance of $9,036,449, and notes payable of $150,000. As discussed below, the Company sold a significant amount of its oil and gas properties.
During the last two years, the Company’s 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, 2013, decreased to 6.48 to 1 from 13.88 to 1 at December 31, 2012. 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 owned by the Company, which are primarily financed with cash from production and/or short term notes payable.
Sale of Operated Properties
On October 21, 2013, Texas Vanguard Oil Company sold the oil and gas properties for which the Company serves as operator (the “operated properties”) to Trivista Energy, LLC, for $10,000,000, pursuant to the exercise by Trivista of an option to purchase the assets dated September 13, 2013. See Texas Vanguard’s Reports on Form 8-K dated October 21, 2013 and September 13, 2013.
The purchase price was paid in two installments. The first payment of $2,000,000, less fees of $411,797, was received at closing of the purchase on October 21, 2013, with the remaining $8,000,000 in the form of a note receivable to the Company, which was paid on January 6, 2014. Payment of the second installment was secured by a letter of credit issued by Toronto-Dominion Bank. At closing, Texas Vanguard also received a per diem operating fee for operating the wells on the operated properties between the effective date of October 1 and October 21, 2013.
Trivista is a recently organized company which was formed to engage in the oil and gas business. Neither Trivista nor any of its owners, officers or managers has any relationship with Texas Vanguard or its officers, directors or affiliates.
The operated properties which were sold comprised a large portion of the Company’s assets. After the sale, the Company has continued to own non-operated oil and gas properties with a net cost of approximately $2 million, as well as its existing cash reserve which increased to approximately $20 million after the Company received the second installment of the property sales price in January 2014. The Company intends to continue to own and manage the non-operated oil and gas properties for the foreseeable future. The Company will explore how to use its cash reserves after the sale, including the $10 million property sales proceeds, including possibly purchasing additional oil and gas properties, issuing a cash dividend to shareholders or making a self-tender for Company shares to enable public shareholders to realize a cash return on their investment.
Liquidity and Capital Resources
During the current fiscal year, the Company’s 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 production 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 production. Management believes that oil and natural gas property investing activities in 2014 can be financed through cash on hand, cash from production activities, and bank borrowings. The Company anticipates continued invest­ments in proven oil and natural gas properties in 2014 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 2014 and what effect they will ultimately have on the Company, but management believes that the Company will be able to generate sufficient cash from production to service its bank debt and provide for maintaining activity with its oil and natural gas properties. The Company had no significant commitments for capital expenditures at December 31, 2013.
At the end of 2013, the Company was holding a substantial cash reserve. The Company continued to participate in low-risk projects. As commodity prices and prospect quality fluctuate, the Company will continue to adjust to best meet our criteria.
As of December 31, 2013, the Company maintained a $1,000,000 line of credit collateralized by a certificate of deposit. The line of credit matures on May 1, 2014 (see note 4 of notes to financial statements for further explanation).
Reserve Estimates
At the end of 2013, the Company’s oil reserves were 60,080 barrels of oil, a decrease of 86.7% from the prior year. The Company’s natural gas reserves were 208,850 MCF of natural gas, a decrease of 89.1% from the prior year. The decrease in oil and gas reserves is primarily due to the Company’s sale of its operated properties in October, 2013.
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 2013. 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 decreased in 2013 and 2012 by 13% and 6%, respectively. The Company’s total revenue for the fiscal year ended December 31, 2013 was $5,758,536 as compared to $6,582,271 as of December 31, 2012. The decrease in total revenue is primarily due to the Company’s sale of its operated properties.
In 2013, oil production volume decreased by 27% at the same time as the average price per barrel increased by 2% to $99.77. Also, in 2013, the natural gas production volume decreased by 32% at the same time as the average price per MCF decreased by 13% to $4.67. In 2012, oil production volume increased by 2% at the same time as the average price per barrel increased by 7% to $97.46. Also, in 2012, the natural gas production volume decreased by 5% while the average price per MCF decreased by 16% to $5.38. The 2013 decrease in oil and gas production is primarily due to the Company’s sale of its operated properties in October, 2013. The fluctuation in oil and natural gas prices is solely attributable to commodity market change.
In 2013, oil and natural gas production expenses decreased by 46% and increased by 13% in 2012, over the prior years. The decrease in production costs for 2013 is primarily due to the sale of the Company’s operated properties effective October 1, 2013, while the increase in production costs for 2012 is largely associated with an increase in workover expenses.
The Company participated in the drilling of 4 wells in 2013 and 6 wells in 2012, and the costs associated therewith were capitalized.
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 decreased 19% in 2013 as compared to a 23% increase in depletion in 2012.
In 2013 and 2012, total general and administrative expenses increased $15,080 and $20,232, respectively, over the prior years.
In 2013 and 2012, the Company recorded an allowance of $-0- and $209,554, respectively, for trade accounts receivable that were deemed uncollectible and thus classified as doubtful accounts. In 2013, the Company sold the properties associated with the doubtful accounts and wrote off the $252,205 balance of trade accounts receivable deemed uncollectable.
In 2013 and 2012 interest expense increased 13% and decreased 23%, respectively, over the prior years.
In 2013 and 2012, the Company recognized $397,442 and $12,517 respectively, for the abandonment and impairment in value of oil and 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 Company’s contractual obligations as of December 31, 2013 are as follows:
ITEM 7A.
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.
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Texas Vanguard Oil Company
We have audited the accompanying balance sheets of Texas Vanguard Oil Company (the “Company”) as of December 31, 2013 and 2012, 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 audits 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 Company’s 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, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Padgett, Stratemann & Co., LLP
San Antonio, Texas
March 26, 2014
TEXAS VANGUARD OIL COMPANY
Balance Sheets
December 31, 2013 and 2012
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Statements of Earnings
Years ended December 31, 2013 and 2012
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Statements of Stockholders' Equity
Years ended December 31, 2013 and 2012
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Statements of Cash Flows
Years ended December 31, 2013 and 2012
See accompanying notes to financial statements.
TEXAS VANGUARD OIL COMPANY
Notes to Financial Statements
December 31, 2013 and 2012
(1) Significant Accounting Policies
Description of Business - Texas Vanguard Oil Company (the Company) engages in the acquisition, exploration, and development of onshore oil and natural gas properties in the United States, principally in Texas. The Company owns interests in producing properties and in undeveloped oil and natural gas leases in Texas, Wyoming, Nebraska, Oklahoma and New Mexico. Along with operated producing properties, the Company acquires non-operated interests, leasehold interests and participates in re-entries and low risk drilling projects. Production is sold 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 earnings 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 $397,442 and $12,517 were recorded in 2013 and 2012, 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
TEXAS VANGUARD OIL COMPANY
Notes to Financial Statements
(1) Significant Accounting Policies, continued
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 management’s evaluation of accounts receivable. All amounts considered uncollectible are charged against the allowance and recoveries are added to the allowance.
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.
Revenue Recognition - The Company recognizes revenues from the sales of oil and natural gas upon transfer of title, net of royalties, in the period of delivery.
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 2013 and two purchasers in 2012 as follows: 2013 - 55%, 10%; and 2012 - 51%, 12%. 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) up to $250,000. At December 31, 2013 and 2012, cash in banks exceeded 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) Sale of Operated Properties
On October 21, 2013, Texas Vanguard Oil Company sold the oil and gas properties for which the Company serves as operator (the “operated properties”) to Trivista Energy, LLC, for $10,000,000, less fees of $411,797, pursuant to the exercise by Trivista of an option to purchase the assets dated September 13, 2013. See Texas Vanguard’s Reports on Form 8-K dated October 21, 2013 and September 13, 2013.
The purchase price was paid in two installments. The first payment was received at closing of the purchase on October 21, 2013, with the remaining $8,000,000 in the form of a note receivable to the Company, which was paid on January 6, 2014. Payment of the second installment was secured by a letter of credit issued by Toronto-Dominion Bank. At closing, Texas Vanguard also received a per diem operating fee for operating the wells on the operated properties between the effective date of October 1 and October 21, 2013.
(3) Recently Issued Accounting Standards
The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the twelve-month period ended December 31, 2013, and determined that the updates are either not applicable or will not have a material impact on the Company.
TEXAS VANGUARD OIL COMPANY
Notes to Financial Statements
(4) Notes Payable and Long-term Debt
The Company had notes payable debt to banks as follows at December 31:
As of December 31, 2013 and 2012, the Company had no long term debt.
The Company has issued the standard bonding standby letter of credit to the Railroad Commission of Texas for $250,000, which is pledged by a $250,000 certificate of deposit. No amounts are outstanding on the letter of credit at December 31, 2013 or 2012.
(5) 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 $270,000 and $264,000 as compensation for performance of those services during the years ended December 31, 2013 and 2012, respectively. Effective January 1, 2014, the agreement was renewed with terms of $22,500 per month through December 31, 2014.
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 $26,450 and $26,400 for the years ended December 31, 2013 and 2012, respectively.
Certain officers and directors of the Company owned small interests in a number of the properties that the Company had interests in as well as other similar properties in which the Company did not have an interest. For the years ended December 31, 2013 and 2012, these individuals received $23,824 and $41,529, respectively from properties that were operated by the Company. In 2012, in a non-monetary exchange, a company owned by William Watson exchanged its working interest in 138 wells operated by the Company for working interests the Company held in 8 non-operated wells. A third party engineer made the valuation and determination that the properties exchanged were approximately the same fair value.
During the years ended December 31, 2013 and 2012, a Director of the Company received $76,200 and $76,100 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.
TEXAS VANGUARD OIL COMPANY
Notes to Financial Statements
(6) Income Taxes
The provision for income taxes for the year ended December 31, 2013 and 2012 consists of:
A reconciliation of the expected federal income tax expense based on the applicable U.S. corporate income tax rate of 34% to actual for 2013 is as follows:
The federal income tax expense for 2012 does not significantly differ from the expected tax expense by applying the U.S. federal corporate income tax rate of 34%.
The tax effects of temporary differences that give rise to the deferred Federal tax assets and liabilities at December 31, 2013 and 2012 is presented below:
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’s 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, 2013, 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 2009 through 2012 remain open to examination by the taxing jurisdictions in which we file income tax returns.
TEXAS VANGUARD OIL COMPANY
Notes to Financial Statements
(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 Company’s 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.
TEXAS VANGUARD OIL COMPANY
SUPPLEMENTAL OIL AND GAS INFORMATION
Years ended December 31, 2013 and 2012
(Unaudited)
Reserve Quantity Information (Unaudited)
The following reserve related information is based on estimates prepared by an independent third party petroleum engineer in 2013 and 2012. 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 Company's oil and natural gas reserves are located in the United States.
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 2013 and 2012, 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.
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:
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
Costs Incurred in Oil and Gas Property
Acquisition, Exploration and Development Activities
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
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 Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Company’s 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 Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this Report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
MANAGEMENT’S 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, 2013.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors and Executive Officers. The following table sets forth the names and certain information with regard to each of the Directors and Executive Officers of the Company. Linda R. Watson and William G. Watson were both related to Robert N. Watson, Jr., the former President and CEO of the Company who passed away in September 2002.
Linda R. Watson (age 70) became a director of the Company in 1982. She served as Director and Secretary/ Treasurer from 1982 to 2002. In 2002, she became Chairman of the Board. She has also been a director and Secretary/Treasurer of Robert Watson, Inc. for more than the last five years and is now President of Robert Watson, Inc. She received her B.A. degree from The University of Texas at Austin in 1966.
William G. Watson (age 65) served as a director and Vice President of the Company from 1982 until 1997. He was elected President of the Company on September 27, 2002. He has since served as director, President and CEO. He is a director and President of William Watson, Inc., an independent geological consulting firm, which he founded in 1983, for more than the last five years, and a director of Robert Watson, Inc. He received his B.A. degree from Texas Tech University in 1970 and his M.S. degree from The University of Texas at Arlington in 1974.
Robert L. Patterson (age 74) has served as director of the Company since 1983. He was employed by Union Oil Company of California from 1965 through 1975, serving in various engineering capacities. He was a Vice President of Argonaut Energy Corporation from 1976 through 1982. He was President of Medallion Equipment Corporation and President of Argonaut Energy Corporation from July 1985 through January 1989. He has been an independent consulting petroleum engineer since 1983. He received his B.S. and M.S. degrees from The University of Texas at Austin in 1963 and 1964.
GOVERNANCE OF THE COMPANY
Code of Ethics
The Board of Directors adopted a Code of Ethics in March 2004, which is applicable to all directors, employees and consultants of the Company, including the principal executive and financial officers. A copy of the Code will be provided to any person without charge upon a written request to: Investor Relations, Texas Vanguard Oil Company, 9811 Anderson Mill Road, Suite 202, Austin, TX 78750.
Meetings and Committees of the Board of Directors
a. Meetings of the Board of Directors
During the year ended December 31, 2013, the Board of Directors held two meetings. All of the directors attended all board meetings. Meetings are conducted either in person or by telephone conference.
b. Audit Committee
The Audit Committee is a standing committee which operates pursuant to a charter approved by the Board of Directors. A copy of the Charter may be obtained free of charge upon written request to the Company. The Committee is responsible for ensuring the reliability of the Company’s financial statements, overseeing management’s implementation of the Company’s financial reporting process, the independence and qualifications of the independent auditor, and the Company’s compliance with legal and regulatory requirements. All members of the Committee have experience in preparing and analyzing financial reports and in setting and enforcing internal controls. They also have experience in dealing with small oil and gas companies. Success for companies such as Texas Vanguard Oil requires a close working relationship between management and the Board. The Company’s financials are prepared by an independent Certified Public Accountant and are audited by an independent accounting firm. The Board has not designated any member as its “Audit Committee Financial Expert” as the term is defined under SEC rules, and does not plan to designate one at this time. Liability risks inherent in serving on any board and the limited resources of a small company such as Texas Vanguard make it difficult to bring in outside board members with a working knowledge of the oil and gas business. The Audit Committee met five times during 2013. All members of the Audit Committee attended all committee meetings.
c. Report of the Audit Committee
The Audit Committee has reviewed and discussed with management the audited financial statements of the Company for the fiscal year ended December 31, 2013. The Audit Committee, in a meeting with Padgett, Stratemann & Co., LLP, discussed matters required to be discussed by the Statement on Auditing Standards No. 61. The Audit Committee has received the disclosure and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence and has discussed Padgett, Stratemann & Co.’s independence with them.
Based on review and discussions, the Committee recommended to the Board of Directors that the audited financial statements of the Company for the fiscal year ended December 31, 2013 be accepted and made part of the Company’s Form 10-K Annual Report for filing with the Securities and Exchange Commission. The committee also appointed Padgett, Stratemann & Co., LLP, to audit Texas Vanguard Oil Company’s financial statements for 2014.
Audit Committee
Teresa Nuckols, Chairman
Linda Watson
Robert Patterson
d. Nominations to the Board
Nominations for election to the board have been made unanimously by the full board. We do not have a nominating committee charter. Due to our small size, we do not believe that creation of a nominating committee would be practical or significantly improve our operations or protect our shareholders.
We have not established specific, minimum qualifications for recommended nominees or specific qualities or skills for our directors to possess. We have used a subjective process for identifying nominees for director based on the judgment of our Board of our current needs. We do not have a formal policy for considering diversity in background, age, experience, and skills in identifying nominees. Nominations for new members to the Board of Directors will be considered when submitted by shareholders.
We believe that our Directors have an appropriate balance of knowledge, experience, skills and expertise required for our board as a whole. Our Directors have substantial experience in the oil and gas industry in general, and in our Company’s operations in particular, and that experience has allowed us to operate profitably, grow, and take advantage of opportunities as they arise in the oil business. Each of our Directors has at least 25 years’ experience as an officer and/or director of the Company. We believe that experience has served our Company well, and that our past performance validates the qualifications of each Director for his or her position.
e. Board Leadership and Role in Risk Oversight
We have separated the functions of Chairman of the Board (Linda R. Watson) and President (William G. Watson). We have no independent directors due to our small size. The Board of Directors is responsible for oversight of our risk management policies and procedures. All three of our Directors are actively involved in the day-to-day management of the Company and therefore evaluate risks, including financial risks, as a regular part of their responsibilities. Our main financial risks depend on fluctuations in the price of oil and gas which our Board of Directors considers when making investment and operating decisions. In addition, our Audit Committee evaluates financial and regulatory responsibilities and compliance. Two members of the Board are also members of the Audit Committee.
Compliance With Section 16(A) Of The Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than 10% of our common stock to file with the Securities and Exchange Commission, within certain specified time periods, reports of ownership (Form 3) and changes in ownership (Form 4). Such officers, directors and stockholders are required by SEC regulations to furnish us with copies of all such reports that they file.
To our knowledge, based solely upon a review of copies of such reports furnished to us and representations by certain officers and directors that no other reports were required with respect to the year ended December 31, 2013, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis.
Shareholder Communications
Any shareholder of the Company wishing to communicate to the board of directors may do so by sending written communication to the Company at Texas Vanguard Oil Company, P.O. Box 202650, Austin, Texas 78720, Attention: Shareholder Relations.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Compensation of Executive Officers
The following sets forth in summary form the compensation received during each of the Company’s last two complete fiscal years by the Chairman of the Company. No other officer of the Company received salary, bonus or other annual compensation in total, in excess of $100,000.
SUMMARY COMPENSATION TABLE
Linda R. Watson does not receive a salary, bonus or equity based compensation in the form of stock or stock options. She is compensated through a consulting company controlled by Ms. Watson that has a management agreement with the Company. Compensation also includes committee fees paid to Ms. Watson of $1,250 and $2,250 for the years ended December 31, 2013 and 2012, respectively.
Compensation of Directors
The following table indicates the compensation paid in 2013 to our directors, other than Linda R. Watson, whose compensation is described above in the Summary Compensation Table.
(1) The Officers and directors received no bonus or equity based compensation in the form of stock or stock options at year-end in 2013.
ITEM 12.
ITEM 12. STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table reflects the beneficial ownership of the Company’s common stock based upon the 1,416,587 common shares outstanding as of March 31, 2014 by (i) each person known to the Company to be the beneficial owner of more than 5% of the outstanding shares of the common stock, (ii) each director and each executive officer and (iii) all directors and executive officers as a group. The business address of each individual listed below is: c/o Texas Vanguard Oil Company, 9811 Anderson Mill Road, Suite 202, Austin, Texas 78750. Unless otherwise indicated, to the Company’s knowledge, each shareholder has sole voting and dispositive power with respect to the securities beneficially owned by that shareholder.
(1) Includes 50,440 shares owned directly and 992,626 shares owned by Robert Watson, Inc., of which Linda R. Watson is President and controlling stockholder. Linda Watson exercises shared voting and investment powers as one of the three directors of Robert Watson, Inc. William G. Watson is also a director of Robert Watson, Inc.
(2) Linda R. Watson, William G. Watson and Robert L. Patterson are directors of the Company.
(3) Includes 1,875 shares held jointly with his spouse; and 3,125 shares owned through his corporation, William Watson, Inc.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to each person, other than executive officers listed above, known by the Company to be the beneficial owner of more than 5% of the Company’s voting securities. The share information contained herein is based on investor filings with the SEC pursuant to Section 13(d) of the Securities Exchange Act of 1934.
(1) The general partners of VN Capital Fund I, L.P. are VN Capital Management, LLC and Joinville Capital Management, LLC. VN Capital Management, LLC and Joinville Capital Management, LLC are Delaware limited liability companies formed to be the general partners of VN Capital Fund I, L.P. James T. Vanasek and Patrick Donnell Noone are the Managing Members of VN Capital Management, LLC and Joinville Capital Management, LLC. Each is a reporting entity. Collectively the “Reporting Entities” beneficially owned 118,360 shares of common stock as of December 31, 2013.
ITEM 13.
ITEM 13. 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 $270,000 and $264,000 as compensation for performance of those services during the years ended December 31, 2013 and 2012 respectively. Effective January 1, 2014 the agreement was continued with terms of $22,500 per month through December 31, 2014.
The Company leases office space from a company owned by the Chairman of the Company under a month-to-month lease. Rent expense incurred under this lease was $26,450 and $26,400 for the years ended December 31, 2013 and 2012 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. In the properties operated by the Company, these individuals received $23,824 and $41,529 for the years ended December 31, 2013 and 2012, respectively.
During the years ended December 31, 2013 and 2012, a Director of the Company received $76,200 and $76,100 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.
In 2012, in a non-monetary exchange, William Watson’s company exchanged its working interest in 138 wells operated by the Company for working interests the Company held in 8 non-operated wells. A third party engineer made the valuation and determination that the properties exchanged were approximately the same fair value.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit-Related Fees.
The aggregate fees billed to the Company by Padgett, Stratemann & Co., LLP for the audit of Texas Vanguard Oil Company’s 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, 2013 totaled $41,700. The aggregate fees billed to the Company by Padgett, Stratemann & Co., LLP for the audit of Texas Vanguard Oil Company’s 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, 2012 totaled $40,300.
Tax Fees.
Tax services for the fiscal years ended December 31, 2013 and 2012 were not provided by Padgett, Stratemann & Co. LLP.
All Other Fees.
For the fiscal year ended December 31, 2013 the fees billed to the Company by Padgett, Stratemann & Co., LLP for other services totaled $750. The Company engaged Padgett, Stratemann & Co., LLP to research Form 8-K financial statement requirements associated with the recent property sale (see Note 2). There were no fees for other services paid to Padgett, Stratemann & Co., LLP for the fiscal year ended December 31, 2012.
It is the audit committee’s policy to pre-approve all services provided by Padgett, Stratemann & Co., LLP. All services provided by Padgett, Stratemann & Co., LLP during the years ended December 31, 2013 and 2012 were pre-approved by the audit committee.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1). Financial Statements.
Independent Auditors' Report, Balance Sheets at December 31, 2013 and 2012 and the related Statements of Earnings, Stockholders' Equity, and Cash Flows for each of the years in the two-year period ended December 31, 2013, 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, 2014.
31.1
Rule 13a-14(a)/15d-14(a) Certification
32.1
18 U.S.C. Section 1350 Certification
99.1
Reserve Report
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
Taxonomy Extension Calculation Linkbase
101.DEF
Taxonomy Extension Definition Linkbase
101.LAB
Taxonomy Extension Label Linkbase
101.PRE
Taxonomy Extension Presentation Linkbase
*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.
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 Officer
March 27, 2014
and Chief Financial Officer
March 27, 2014
Linda R. Watson
Teresa N. Nuckols
Linda R. Watson, Director and
Teresa N. Nuckols
Chairman of the Board
Secretary
March 27, 2014
March 27, 2014
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. LLP
Officer, Chief Financial Officer
Austin, Texas
and Director
TRANSFER AGENT
Teresa N. Nuckols
For stock certificate transfers, address change or lost certificates
Secretary
Computershare Trust Company, Inc.
P.O. Box 30170
Robert L. Patterson
College Station, TX 77842-3170
Director
Phone: 1-800-962-4284
COMMON STOCK
Quoted on the FINRA OTC Bulletin Board
Symbol: TVOC
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