** **

**UNITED STATES**

 

**FORM 10Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

 

| **(Mark One)**                    |                                                                                                                                                                                                                                                          |                                                                                                |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                              |                                                                                                                                                                                                                                                          |                                                                                                |
|                              | **ý**                                                                                                                                                                                                                                                    | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE********SECURITIES EXCHANGE ACT OF 1934** |
|                              |                                                                                                                                                                                                                                                          |                                                                                                |
|                              | **For the quarterly period ended  June 30, 2003**                                                                                                                                                                                                        |
|                              |                                                                                                                                                                                                                                                          |                                                                                                |
|                              | **OR**                                                                                                                                                                                                                                                        |
|                              |                                                                                                                                                                                                                                                          |
|                              | **o**                                                                                                                                                                                                                                                         | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**       |
|                              |                                                                                                                                                                                                                                                          |                                                                                                |
|                              | **For the transition period  from                  to                  ** |
|                              |                                                                                                                                                                                                                                                          |
| **Commission file number: 0-610** |
|                                   |                                                                                                                                                                                                                                                               |                                                                                                     |  |  |

 

**EQUITY OIL COMPANY**

(Exact name of registrant as specified in its charter)

 

| **COLORADO**                                                                      |   | **87-0129795**                        |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                   |   | (I.R.S. Employer  Identification No.) |
|                                                                              |   |                                  |
| **Suite  806, 10 West Third South, Salt Lake City, Utah 84101**                   |
| (Address of principal executive offices)  (Zip Code)                              |
|                                                                              |   |                                  |
| **(801)  521-3515**                                                               |
| Registrant’s telephone number, including area code                           |
|                                                                              |   |                                  |
|                                                                              |   |                                  |
| (Former name, former address and former fiscal year,if changed since last report) |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes   ý  No   o

 

Indicateby check mark whether the registrant is an accelerated file (as defined in Rule12b-2 of the exchange Act)

Yes   o  No   ý

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Actof 1934 subsequent to the distribution of securities under a plan confirmed bya court.

Yes   o  No   o

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date (August 11, 2003) : **12,008,661**

 

 

----

 

**PART I - FINANCIAL INFORMATION**

 

**ITEM I:             FinancialStatements**

 

EQUITY OIL COMPANYStatements of OperationsFor the six months ended June 30, 2003 and 2002(Unaudited)

 
|                                                                                                                                    |   | **2003**   |       | **2002**   |    |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|---------|
|                                                                                                                                    |   |       |       |       |    |
| REVENUES                                                                                                                                |   |       |       |       |    |
| Oil and gas sales                                                                                                                       |   | $          | 13,396,075 |       | $       | 10,377,345 |   |
| Other                                                                                                                                   |   | 216,906    |       | 99,519     |    |
|                                                                                                                                    |   | 13,612,981 |       | 10,476,864 |    |
| EXPENSES                                                                                                                                |   |       |       |       |    |
| Operating costs                                                                                                                         |   | 4,393,845  |       | 3,638,593  |    |
| Depreciation, depletion and amortization                                                                                                |   | 3,825,000  |       | 3,300,000  |    |
| 3-D seismic                                                                                                                             |   | 12,331     |       | 14,934     |    |
| Exploration                                                                                                                             |   | 153,880    |       | 125,761    |    |
| General and administrative                                                                                                              |   | 1,701,208  |       | 1,139,388  |    |
| Production and exploration overhead                                                                                                     |   | 876,586    |       | 652,056    |    |
| Accretion expense                                                                                                                       |   | 136,001    |       | —     |    |
| Interest                                                                                                                                |   | 588,691    |       | 370,698    |    |
|                                                                                                                                    |   | 11,687,542 |       | 9,241,430  |    |
| Income from continuing operations before  income taxes                                                                                  |   | 1,925,439  |       | 1,235,434  |    |
|                                                                                                                                    |   |       |       |       |    |
| Provision for income taxes                                                                                                              |   | 629,529    |       | 526,970    |    |
|                                                                                                                                    |   |       |       |       |    |
| Income from continuing operations                                                                                                       |   | 1,295,910  |       | 708,464    |    |
|                                                                                                                                    |   |       |       |       |    |
| Discontinued operations (Note 6)  Income from operations of properties sold, net of provision for income taxes  of $52,812 and $144,718 |   | 90,041     |       | 194,561    |    |
|                                                                                                                                    |   |       |       |       |    |
| Gain on sale of properties, net of  provision for income taxes of $453,940                                                              |   | 655,168    |       | —     |    |
|                                                                                                                                    |   |       |       |       |    |
| Income before cumulative effect of  accounting change                                                                                   |   | 2,041,119  |       | 903,025    |    |
|                                                                                                                                    |   |       |       |       |    |
| Cumulative effect of change in accounting,  net of benefit from income taxes of $622,832                                                |   | (1,061,865 | )          | —     |    |
|                                                                                                                                    |   |       |       |       |    |
| NET INCOME                                                                                                                              |   | $          | 979,254    |       | $       | 903,025 |   |
|                                                                                                                                    |   |       |       |       |    |
| Proforma net income reflecting adoption of  SFAS 143                                                                                    |   |       |       | $          | 866,925 |   |
|                                                                                                                                    |   |       |       |       |    |
| Basic income per common share                                                                                                           |   |       |       |       |    |
| Income from continuing operations                                                                                                       |   | $          | .11        |       | $       | .06 |   |
|                                                                                                                                    |   |       |       |       |    |
| Income from discontinued operations                                                                                                     |   | $          | .06        |       | $       | .01 |   |
|                                                                                                                                    |   |       |       |       |    |
| Income before cumulative effect of  accounting change                                                                                   |   | $          | .17        |       | $       | .07 |   |
|                                                                                                                                    |   |       |       |       |    |
| Cumulative effect of change in accounting                                                                                               |   | $          | (.09       | )          | —  |   |
|                                                                                                                                    |   |       |       |       |    |
| NET INCOME                                                                                                                              |   | $          | .08        |       | $       | .07 |   |
|                                                                                                                                    |   |       |       |       |    |
| Diluted income per common share                                                                                                         |   |       |       |       |    |
|                                                                                                                                    |   |       |       |       |    |
| Income from continuing operations                                                                                                       |   | $          | .11        |       | $       | .06 |   |
|                                                                                                                                    |   |       |       |       |    |
| Income from discontinued operations                                                                                                     |   | $          | .06        |       | $       | .01 |   |
|                                                                                                                                    |   |       |       |       |    |
| Income before cumulative effect of  accounting change                                                                                   |   | $          | .17        |       | $       | .07 |   |
|                                                                                                                                    |   |       |       |       |    |
| Cumulative effect of change in accounting                                                                                               |   | $          | (.09       | )          | —  |   |
|                                                                                                                                    |   |       |       |       |    |
| NET INCOME                                                                                                                              |   | $          | .08        |       | $       | .07 |   |
|                                                                                                                                    |   |       |       |       |    |
| Proforma net income per share, reflecting  adoption of SFAS 143                                                                         |   |       |       |       |    |
|                                                                                                                                    |   |       |       |       |    |
| Basic                                                                                                                                   |   | —     |       | $          | .07     |   |
|                                                                                                                                    |   |       |       |       |    |
| Diluted                                                                                                                                 |   | —     |       | $          | .07     |   |
|                                                                                                                                    |   |       |       |       |    |
| Weighted average shares outstanding                                                                                                     |   |       |       |       |    |
|                                                                                                                                    |   |       |       |       |    |
| Basic                                                                                                                                   |   | 12,008,661 |       | 12,573,549 |    |
|                                                                                                                                    |   |       |       |       |    |
| Diluted                                                                                                                                 |   | 12,259,841 |       | 12,721,540 |    |

 

The accompanying notes are an integral partof these statements.

 

2

----

 

EQUITY OIL COMPANY

Statements of Comprehensive Income

For the six months ended June 30, 2003and 2002

(Unaudited)

 
|                                                                                                  |   | **2003** |    | **2002** |   |
|-------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                                                                  |   |     |    |     |   |
| Net income                                                                                            |   | $        | 979,254 |     | $      | 903,025 |   |
|                                                                                                  |   |     |    |     |   |
| Other comprehensive loss                                                                              |   |     |    |     |   |
|                                                                                                  |   |     |    |     |   |
| Unrealized losses on financial instruments,  net of benefit from income taxes of $94,726 and $125,733 |   | (161,498 | )       | (434,159 | )      |
|                                                                                                  |   |     |    |     |   |
| Comprehensive income                                                                                  |   | $        | 817,756 |     | $      | 468,866 |   |

 

The accompanying notes are an integral partof these statements.

 

3

----

 

EQUITY OIL COMPANY

Statements of Operations

For the three months ended June 30, 2003and 2002

(Unaudited)

 
|                                                                                                                       |   | **2003**   |      | **2002**   |    |
|----------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|------------|---------|
| REVENUES                                                                                                                   |   |       |      |       |    |
| Oil and gas sales                                                                                                          |   | $          | 6,667,676 |       | $       | 6,865,948 |   |
| Other                                                                                                                      |   | 110,921    |      | 33,309     |    |
|                                                                                                                       |   | 6,778,597  |      | 6,899,257  |    |
| EXPENSES                                                                                                                   |   |       |      |       |    |
|                                                                                                                       |   |       |      |       |    |
| Operating costs                                                                                                            |   | 2,390,129  |      | 1,931,531  |    |
| Depreciation,  depletion and amortization                                                                                  |   | 1,900,000  |      | 2,400,000  |    |
| 3-D seismic                                                                                                                |   | 2,414      |      | —     |    |
| Exploration                                                                                                                |   | 110,487    |      | 62,102     |    |
| General and  administrative                                                                                                |   | 822,402    |      | 592,074    |    |
| Production and  exploration overhead                                                                                       |   | 442,589    |      | 307,631    |    |
| Accretion expense                                                                                                          |   | 68,001     |      | —     |    |
| Interest                                                                                                                   |   | 278,102    |      | 319,809    |    |
|                                                                                                                       |   | 6,014,124  |      | 5,613,147  |    |
| Income from continuing  operations before income taxes                                                                     |   | 764,473    |      | 1,286,110  |    |
|                                                                                                                       |   |       |      |       |    |
| Provision for income  taxes                                                                                                |   | 260,946    |      | 552,334    |    |
|                                                                                                                       |   |       |      |       |    |
| Income from continuing  operations                                                                                         |   | $          | 503,527   |       | $       | 733,776 |   |
|                                                                                                                       |   |       |      |       |    |
| Discontinued  operations (Note 6) Income from operations of properties sold, net of  provision for income taxes of $94,754 |   | —     |      | 127,413    |    |
|                                                                                                                       |   |       |      |       |    |
| NET INCOME                                                                                                                 |   | $          | 503,527   |       | $       | 861,189 |   |
|                                                                                                                       |   |       |      |       |    |
| Proforma net income  reflecting adoption of SFAS 143                                                                       |   |       |      | $          | 843,139 |   |
|                                                                                                                       |   |       |      |       |    |
| Basic income per  common share                                                                                             |   |       |      |       |    |
| Income from continuing  operations                                                                                         |   | $          | .04       |       | $       | .06 |   |
|                                                                                                                       |   |       |      |       |    |
| Income from  discontinued operations                                                                                       |   | $          | —    |       | $       | .01 |   |
|                                                                                                                       |   |       |      |       |    |
| NET INCOME                                                                                                                 |   | $          | .04       |       | $       | .07 |   |
|                                                                                                                       |   |       |      |       |    |
| Diluted income per  common share                                                                                           |   |       |      |       |    |
|                                                                                                                       |   |       |      |       |    |
| Income from continuing  operations                                                                                         |   | $          | .04       |       | $       | .06 |   |
|                                                                                                                       |   |       |      |       |    |
| Income from  discontinued operations                                                                                       |   | $          | —    |       | $       | .01 |   |
|                                                                                                                       |   |       |      |       |    |
| NET INCOME                                                                                                                 |   | $          | .04       |       | $       | .07 |   |
|                                                                                                                       |   |       |      |       |    |
| Proforma net income  per share, reflecting adoption of SFAS 143                                                            |   |       |      |       |    |
| Basic                                                                                                                      |   | —     |      | $          | .07     |   |
|                                                                                                                       |   |       |      |       |    |
| Diluted                                                                                                                    |   | —     |      | $          | .07     |   |
|                                                                                                                       |   |       |      |       |    |
| Weighted average  shares outstanding                                                                                       |   |       |      |       |    |
|                                                                                                                       |   |       |      |       |    |
| Basic                                                                                                                      |   | 12,008,661 |      | 12,461,285 |    |
|                                                                                                                       |   |       |      |       |    |
| Diluted                                                                                                                    |   | 12,288,337 |      | 12,627,124 |    |

 

The accompanying notes are an integral partof these statements.

 

4

----

 

EQUITY OIL COMPANY

Statements of Comprehensive Income

For the three months ended June 30, 2003and 2002

(Unaudited)

 
|                                                                                                                                                               |   | **2003** |    | **2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                                                                                                                               |   |     |    |     |   |
| Net income                                                                                                                                                         |   | $        | 475,727 |     | $      | 861,189 |   |
|                                                                                                                                                               |   |     |    |     |   |
| Other comprehensive gain (loss)                                                                                                                                    |   |     |    |     |   |
|                                                                                                                                                               |   |     |    |     |   |
| Unrealized gains (losses) on financial  instruments, net of expense from income taxes of $31,007 in 2003 and net of  benefit from income taxes of $254,654 in 2002 |   | 52,865   |    | (434,159 | )      |
|                                                                                                                                                               |   |     |    |     |   |
| Comprehensive income                                                                                                                                               |   | $        | 528,592 |     | $      | 427,030 |   |

 

The accompanying notes are an integral partof these statements.

 

5

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EQUITY OIL COMPANY

Balance Sheets

as of June 30, 2003 andDecember 31,2002

(Unaudited)

 
|                                                       |   | **June 30,  2003** |       | **December 31,  2002** | ** ** |
|------------------------------------------------------------|--------|-------------------------|------------|-----------------------------|------------|
| ASSETS                                                     |   |                    |       |                        |       |
|                                                       |   |                    |       |                        |       |
| Current  assets:                                           |   |                    |       |                        |       |
| Cash and  cash equivalents                                 |   | $                       | 613,466    |                        | $          | 1,348,024 |   |
| Accounts  and advances receivable                          |   | 4,220,562               |       | 4,396,473                   |       |
| Income  taxes receivable                                   |   | 956,033                 |       | 1,054,927                   |       |
| Deferred  income taxes                                     |   | 28,460                  |       | 28,460                      |       |
| Other current  assets                                      |   | 226,582                 |       | 215,177                     |       |
|                                                       |   | 6,045,103               |       | 7,043,061                   |       |
|                                                       |   |                    |       |                        |       |
| Property  and equipment, at cost                           |   | 146,163,173             |       | 147,174,977                 |       |
| Less  accumulated depreciation, depletion and amortization |   | (78,169,140             | )          | (78,148,866                 | )          |
|                                                       |   | 67,994,033              |       | 69,026,111                  |       |
|                                                       |   |                    |       |                        |       |
| Other  assets                                              |   | 612,685                 |       | 731,184                     |       |
|                                                       |   |                    |       |                        |       |
| TOTAL  ASSETS                                              |   | $                       | 74,651,821 |                        | $          | 76,800,356 |   |
|                                                       |   |                    |       |                        |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                 |   |                    |       |                        |       |
|                                                       |   |                    |       |                        |       |
| Current  liabilities:                                      |   |                    |       |                        |       |
| Accounts  payable                                          |   | $                       | 1,298,922  |                        | $          | 2,157,291 |   |
| Accrued  liabilities                                       |   | 209,488                 |       | 406,681                     |       |
| Income  taxes payable                                      |   | 453,216                 |       | 170,399                     |       |
| Fair  value of financial instruments                       |   | 2,174,212               |       | 1,584,988                   |       |
|                                                       |   | 4,135,838               |       | 4,319,359                   |       |
|                                                       |   |                    |       |                        |       |
| Fair  value of financial instruments                       |   | —                  |       | 333,000                     |       |
| Asset  retirement obligation                               |   | 3,283,062               |       | —                      |       |
| Revolving  credit facility                                 |   | 29,000,000              |       | 34,500,000                  |       |
| Deferred  income taxes                                     |   | 4,165,487               |       | 4,398,319                   |       |
|                                                       |   |                    |       |                        |       |
| Total  liabilities                                         |   | 40,584,387              |       | 43,550,678                  |       |
|                                                       |   |                    |       |                        |       |
| Stockholders’  equity:                                |   |                    |       |                        |       |
| Common  stock                                              |   | 12,856,661              |       | 12,856,661                  |       |
| Paid in  capital                                           |   | 3,738,263               |       | 3,738,263                   |       |
| Less cost  of treasury stock                               |   | (1,991,444              | )          | (1,991,444                  | )          |
| Retained  earnings                                         |   | 20,834,360              |       | 19,855,106                  |       |
| Accumulated  other comprehensive loss                      |   | (1,370,406              | )          | (1,208,908                  | )          |
|                                                       |   | 34,067,434              |       | 33,249,678                  |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY           |   | $                       | 74,651,821 |                        | $          | 76,800,356 |   |

 

The accompanying notes are an integral part of these statements.

 

6

----

 

EQUITY OIL COMPANY

Statements of Cash Flows

For the six months ended June 30, 2003and 2002

(Unaudited)

 
|                                                 |   | **2003**   |    | **2002**    |   |
|------------------------------------------------------|--------|------------|---------|-------------|--------|
| CASH  FLOWS FROM OPERATING ACTIVITIES:               |   |       |    |        |   |
| Net  income                                          |   | $          | 979,254 |        | $      | 903,025 |   |
| Adjustments                                          |   |       |    |        |   |
| Depreciation,  depletion and amortization            |   | 3,825,000  |    | 3,300,000   |   |
| Accretion  expense                                   |   | 136,001    |    | —      |   |
| Cumulative  effect of change in accounting           |   | 1,061,865  |    | —      |   |
| (Gain)  loss on sale of properties                   |   | (1,264,556 | )       | 3,478       |   |
| Change in  other assets                              |   | 118,499    |    | 79,140      |   |
| Equity  loss in Symskaya Exploration                 |   | —     |    | 74,452      |   |
| Change in  deferred income taxes                     |   | 484,726    |    | 513,123     |   |
| Increase  (decrease) from changes in:                |   |       |    |        |   |
| Accounts  and advances receivable                    |   | 175,911    |    | (1,106,604  | )      |
| Other  current assets                                |   | (11,405    | )       | (67,613     | )      |
| Accounts  payable and accrued liabilities            |   | (1,055,562 | )       | (1,292,363  | )      |
| Income  taxes receivable/payable                     |   | 381,711    |    | 120,741     |   |
| Net cash  provided by operating activities           |   | 4,831,444  |    | 2,527,379   |   |
|                                                 |   |       |    |        |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:               |   |       |    |        |   |
| Advances  to Symskaya Exploration                    |   | —     |    | (74,452     | )      |
| Capital  expenditures                                |   | (2,398,384 | )       | (33,302,653 | )      |
| Proceeds  from sale of properties                    |   | 2,332,382  |    | —      |   |
|                                                 |   |       |    |        |   |
| Net cash  used in investing activities               |   | (66,002    | )       | (33,377,105 | )      |
|                                                 |   |       |    |        |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:               |   |       |    |        |   |
|                                                 |   |       |    |        |   |
| Proceeds  from exercise of stock options             |   | —     |    | 7,500       |   |
| Treasury  stock purchase, 608,400 shares at cost     |   | —     |    | (1,295,892  | )      |
| Credit  facility borrowing                           |   | —     |    | 37,000,000  |   |
| Payments  on credit facility                         |   | (5,500,000 | )       | (5,500,000  | )      |
| Net cash  provided by (used in) financing activities |   | (5,500,000 | )       | 30,211,608  |   |
|                                                 |   |       |    |        |   |
| NET  DECREASE IN CASH                                |   | (734,558   | )       | (638,118    | )      |
|                                                 |   |       |    |        |   |
| CASH AND  CASH EQUIVALENTS AT BEGINNING OF PERIOD    |   | 1,348,024  |    | 960,970     |   |
| CASH AND  CASH EQUIVALENTS AT END OF PERIOD          |   | $          | 613,466 |        | $      | 322,852 |   |

 

The accompanying notes are an integral partof these statements.

 

7

----

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

**Note1.     Interim Financial Statements**

 

In the opinion of the Company’s management,the accompanying interim financial statements reflect the necessaryadjustments, all of which are of a normal and recurring nature, to presentfairly the financial position of Equity Oil Company (the Company) as ofJune 30, 2003, and the results of its operations and its cash flows forthe six month periods ended June 30, 2003 and 2002.

 

The financial statements and the accompanyingnotes to financial statements have been prepared according to rules andregulations of the Securities and Exchange Commission.  Accordingly, certain notes and otherinformation have been condensed or omitted from the interim financialstatements presented in this Quarterly Report on Form 10-Q.  These financial statements should be read inconjunction with the Company’s 2002 Annual Report on Form 10-K.

 

The results for the three and six monthperiod ended June 30, 2003 are not necessarily indicative of futureresults.

 

**Note 2.     NetIncome Per Share**

 

Basic net income per share is computed usingthe weighted average number of common shares outstanding during the period.Diluted net income per share is computed using the weighted average number ofcommon and, if dilutive, common equivalent shares outstanding during theperiod. Common equivalent shares consist of the incremental common sharesissuable upon the exercise of stock options (using the treasury stock method).

 

Options to purchase approximately 1,873,400shares of common stock at prices of $1.06 to $5.125 per share were outstandingat June 30, 2003, of which, 279,676 incremental shares (868,729 options)and 251,180 incremental shares (736,886 options) were included in thecomputation of diluted net income per share for the three and six month periodsended June 30, 2003. Options to purchase approximately 1,833,800 shares ofcommon stock at prices of $1.06 to $5.50 per share were outstanding atJune 30, 2002, of which, 165,839 incremental shares (417,800 options) and147,991 incremental shares (417,027 options) were included in the computationof diluted net income per share for the three and six month periods endedJune 30, 2002.

 

**Note 3.     HedgingActivities**

 

The Company periodically enters into oil andgas financial instruments to manage its exposure to oil and gas pricevolatility.  The instruments are usuallyplaced with counterparties that the Company

 

8

----

 

believes are minimal credit risks.  It is the Company’s policy to only enterinto derivative contracts with investment grade rated counterparties deemed bymanagement to be competent and competitive market makers.  The oil and gas reference prices upon whichthe price hedging instruments are based reflect various market indices thathave  historically correlated withactual prices received by the Company.

 

As of June 30, 2003, the Company hadcommodity price hedges in place for 6,000 MMBTU of natural gas per day undercostless collars (5,000 MMBTU through April 30, 2004 and 1,000 MMBTUthrough December 31, 2003).  Thehedges ranged from a floor of $3.00 per MMBTU and a ceiling of $4.915 perMMBTU.  The settlement price for thehedges during the quarter ended June 30, 2003 resulted in cash payments of$535,267 from the Company to the counterparty which are reflected as areduction of oil and gas sales.  Thefair value of these financial instruments at June 30, 2003, as computed bythe counterparty, was ($2,174,212). This amount is shown on the balance sheet as a current liability.

 

**Note4.     Asset Retirement Obligation**

 

In August 2001, the FASB issued SFAS No.143 (SFAS 143), “Accounting for Asset Retirement Obligations.” SFAS 143 waseffective for the Company beginning January 1, 2003. The most significantimpact of this standard on the Company was a change in the method of accruingfor site restoration costs associated with its oil and gas properties. UnderSFAS 143, the fair value of asset retirement obligations is recorded as aliability when incurred, which is typically at the time the assets are placedin service. Amounts recorded for the related assets are increased by the amountof these obligations. Over time, the liabilities are accreted for the change intheir present value and the initial capitalized costs are depreciated over theuseful lives of the related assets.

 

The Company used an expected cash flowapproach to estimate its asset retirement obligations under SFAS 143.  Upon adoption at January 1, 2003, theCompany recorded a retirement obligation of $3,147,061, an increase in propertyand equipment cost of $1,997,619, an increase in accumulated depreciation,depletion and amortization of $535,255 and a cumulative effect of accountingchange, net of benefit from taxes, of $1,061,865.  As a result of adoption of SFAS 143, the Company estimates thataccretion expense will be approximately $273,000 in 2003.

 

9

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The following table summarizes the Company’sasset retirement obligation liability as of June 30, 2003:

 
| Balance, December 31, 2002               |   | $         | — |   |
|-----------------------------------------------|--------|-----------|--------|--------|
| Liability recorded upon adoption of SFAS  143 |   | 3,147,061 |   |
| Accretion expense                             |   | 136,001   |   |
| Payments                                      |   | —    |   |
| Balance, June 30, 2003                   |   | 3,283,062 |   |

 

At June 30, 2003, there are no assetslegally restricted for purposes of settling asset retirement obligations.  There was no impact on the Company’s cashflows as a result of adopting SFAS 143 since the cumulative effect of change inaccounting method is a non-cash transaction.

 

The Company’s estimated asset retirementobligation liability at January 1, 2002 was approximately $2.9 million.

 

The SFAS 143 impact on net income for thethree and six month periods ending June 30, 2003 was additional expense ofapproximately $99,200 and $201,400 or $0.01 and $0.02 per common share.

 

**Note 5.     StockBased Compensation Plans**

 

At June 30, 2003, the Company had onestock-based compensation plan.  TheCompany applies APB Opinion No. 25 and related interpretations in accountingfor this plan. Accordingly, no compensation cost has been recognized foroptions granted to employees under its fixed stock option plan.

 

On December 31, 2002, the FASB issuedSFAS 148, “Accounting for Stock Based Compensation Transition and Disclosure(SFAS 148),” which amends SFAS 123. SFAS 148 requires more prominent andfrequent disclosures about the effects of stock-based compensation.  The Company adopted the disclosure provisionof SFAS 148 for the year ended December 31, 2002. The Company will continueto account for its stock based compensation according to the provisions of APBOpinion No. 25.

 

Had compensation cost for the Company’s stockoptions been recognized based on the estimated fair value on the grant dateunder the fair value methodology prescribed by SFAS 123, the Company’s net earningsand earnings per share would have been as follows:

 

10

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|                                                                                                                                             |        | **Six Months** |    | **Six Months** |   | **Three  Months** |   | **Three  Months** |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------|-------------|----------------|---------|----------------|--------|-------------------|--------|-------------------|---------|
|                                                                                                                                             |        | **Ended**      |    | **Ended**      |   | **Ended**         |   | **Ended**         |    |
|                                                                                                                                             |        | **6/30/03**    |    | **6/30/02**    |   | **6/30/03**       |   | **6/30/02**       |    |
|                                                                                                                                             |        |           |    |           |   |              |   |              |    |
| Net income, as reported                                                                                                                          |        | $              | 979,254 |           | $      | 903,025           |   | $                 | 503,527 |   | $ | 861,189 |   |
|                                                                                                                                             |        |           |    |           |   |              |   |              |    |
| Less: Total stock-based employee  compensation expense determined under the fair value based method for all  awards, net of related tax effects. |        | 63,393         |    | 104,131        |   | 26,621            |   | 50,769            |    |
|                                                                                                                                             |        |           |    |           |   |              |   |              |    |
| Pro forma net income (loss)                                                                                                                      |        | $              | 915,861 |           | $      | 798,894           |   | $                 | 476,906 |   | $ | 810,420 |   |
|                                                                                                                                             |        |           |    |           |   |              |   |              |    |
| Net income (loss) per share                                                                                                                      |        |           |    |           |   |              |   |              |    |
|                                                                                                                                             |        |           |    |           |   |              |   |              |    |
| Basic                                                                                                                                       | As reported |           | $       | .08            |   | $                 | .07    |              | $       | .04 |   | $ | .07 |   |
|                                                                                                                                             | Pro forma   |           | $       | .08            |   | $                 | .06    |              | $       | .04 |   | $ | .07 |   |
|                                                                                                                                             |        |           |    |           |   |              |   |              |    |
| Diluted                                                                                                                                     | As reported |           | $       | .08            |   | $                 | .07    |              | $       | .04 |   | $ | .07 |   |
|                                                                                                                                             | Pro forma   |           | $       | .07            |   | $                 | .06    |              | $       | .04 |   | $ | .06 |   |

 

**Note 6.****          Discontinued Operations**

 

During February and March 2003,three packages of Canadian oil and gas properties were sold for approximately$2.4 million, resulting in a gain of approximately $1.2 million ($745,209 netof tax). In accordance with the provisions of SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”, the results of operations and gainon sale of these properties have been reflected as discontinuedoperations.  Revenue from these Canadianoil and gas properties was approximately $154,000 and $432,000 for the threeand six month periods ending June 30, 2002.  After the sales, the Company’s remaining Canadian asset is its50% interest in the Cessford Field located in southern Alberta.

 

**Note 7.****          Intangible Assets**

 

Statement of Financial Accounting StandardsNo. 141, *Business Combinations*(FAS 141) and Statement of Financial Accounting Standards, No. 142*, Goodwill and Intangible Assets* (FAS 142)were issued by the Financial Accounting Standards Board (FASB) inJune 2001 and became effective for us on July 1, 2001 andJanuary 1, 2002, respectively.  FAS 141 requires all business combinations initiated after June 30,2001 to be accounted for using the purchase method.  Additionally, FAS 141 requires companies to disaggregate andreport separately from goodwill certain intangible assets.  FAS 142 establishes new guidelines foraccounting for goodwill and other

 

11

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intangible assets.  Under FAS 142, goodwill and certain other intangible assets arenot amortized, but rather are reviewed annually for impairment.   The FASB, the Securities and ExchangeCommission (SEC) and others continue to discuss the appropriate application ofFAS 141 and 142 to oil and gas mineral rights held under lease and othercontractual arrangements representing the right to extract such reserves.  Depending on the outcome of suchdiscussions, these oil and gas mineral rights held under lease and othercontractual arrangements representing the right to extract such reserves forboth undeveloped and developed leaseholds may be classified separately from oiland gas properties, as intangible assets on our balance sheets.  In addition, the disclosures required by FAS141 and 142 relative to intangibles would be included in the notes to financialstatements.  Historically, we, like manyother oil and gas companies, have included these oil and gas mineral rightsheld under lease and other contractual arrangements representing the right toextract such reserves as part of the oil and gas properties, even after FAS 141and 142 became effective.

 

This interpretation of FAS 141 and 142 wouldonly affect our balance sheet classification of oil and gas leaseholds.  Our results of operations and cash flowswould not be affected, since these oil and gas mineral rights held under leaseand other contractual arrangements representing the right to extract suchreserves would continue to be amortized in accordance with accounting rules foroil and gas companies provided in Statement of Financial Accounting StandardsNo. 19, *Financial Accounting and Reportingby Oil and Gas Producing Companies*(FAS 19).

 

At December 31, 2002 we had netundeveloped leaseholds of approximately $1.35 million that would be classifiedon our balance sheet as “intangible undeveloped leasehold” and net developedleaseholds of an estimated $308,000 that would be classified as “intangibledeveloped leaseholds” if we applied the interpretation currently beingdiscussed.

 

We will continue to classify our oil and gasmineral rights held under lease and other contractual rights representing theright to extract such reserves as tangible oil and gas properties until furtherguidance is provided.

 

**ITEM 2**

 

**Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**RESULTS OF OPERATIONS**

 

**Financial Results**

 

Higher oil and natural gas prices werepartially offset by the effects of hedging payments and lower productionvolumes and resulted in higher oil and gas revenues for the first half of 2003as compared to the first half of 2002. Oil and gas sales were 29% higher in the

 

12

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first half of 2003 as compared to the firsthalf of 2002. Total revenues for the six month period ended June 30, 2003were $13,612,981, compared to $10,476,864 during the first half of 2002. TheCompany recorded net income for the 2003 first half of $979,254, or $.08 perbasic share. This compares to net income for the first half of 2002 of$903,025, or $.07 per basic share.

 

During the second quarter of 2003, theCompany recorded net income of $503,527, or $.04 per basic share, compared tonet income of $861,189 during the corresponding period of 2002, or $.07 perbasic share.  Total revenues of$6,778,597 during the second quarter of 2003 compare to second quarter 2002revenues of $6,899,257.

 

**Operating Results**

 

The Company participated in the drilling offour wells during the quarter and another was in progress at the end of thequarter.  The FH Petroleum #1-3BR, anexploratory well on the Roosevelt Creek Area proprietary 3-D seismic project inthe Williston Basin of North Dakota, was drilled by FH Petroleum.  The well was completed in June and iscurrently producing 130 barrels per day. The Company has a 25.0% working interest in this well that is operatedby FH Petroleum.

 

Three development wells in the TodhuntersLake Field in Yolo County, California were drilled during the quarter.  All three wells appear to have productivesands in the Markley Gorge Submarine Canyon Fill Formation and the UpperMokulmne River Formation.  Completionoperations were started at the end of June. We also recompleted four existing wells in this field during thequarter.  The wells were recompleted inthe Starkey and Upper Mokulmne River Sands. We have a 100% working interest in these wells in the Todhunters LakeField.

 

At the end of the quarter, we were drillingan exploration well in Todhunters Lake Field to test an apparent accumulationof hydrocarbons in the Cretaceous age Winters Formation.  In July it was determined this well wasa dry hole and thus costs incurred prior to the end of the quarter of $81,000are included in expense for the second quarter.

 

The Company continued its polymer injectionwater-shut-off treatment program in the Big Horn Basin by treating threeadditional wells during the quarter in the Torchlight Field.   The 2002 pilot program, increased oilproduction 517% from the six pilot wells, to 142 barrels of oil per day (BOPD)from 23 BOPD and deceased fresh water production by 49%.  Similar results are expected from the 2003program.

 

Oil production in the 2003 second quarter was143,000 barrels, compared to 145,000 in the prior 2003 quarter.  The decrease from quarter to quarter isattributable to the normal production declines of our properties as theymature.  Gas production also declinedslightly from 898,000 million cubic feet in the first quarter to 864,000million cubic feet in the second quarter. Gas production

 

13

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from our Sacramento Basin acquisition hasdecreased from the initial rates when we acquired the properties as we havechanged the operating philosophy to maximize the ultimate recovery of naturalgas from the properties.  This hasresulted in lower short term production, but should extend the economic life ofthe property.

 

**CAPITAL RESOURCES AND LIQUIDITY**

 

The Company’s cash balances decreased 54%from December 31, 2002. Cash flow from operating activities in the firsthalf of 2003 increased 91% or $2.3 million from $2,527,379 for the six monthsended June 30, 2002 to $4,873,218 for the six months ended June 30,2002.  The increase is due primarily tohigher commodity prices received for sales of oil and natural gas.

 

Investment in property and equipment for thesix months ended June 30, 2003 totaled $2,398,384 compared to $33,302,653during the same period of 2002.  Approximately $30.7 million of the prior year expenditures areattributable to the acquisition of the Sacramento Basin assets.

 

Debt outstanding at June 30, 2003 was$29 million, a decrease of $5.5 million from year-end 2002 amounts.   At June 30, 2003, our borrowing baseas determined by our bank was $36 million; thus we had $7.0 million ofremaining availability under the current commitment on the facility.

 

We believe that existing cash balances, cashflow from operating activities, and funds available under the Company’s creditfacility will provide adequate resources to meet our capital and explorationspending objectives for 2003.

 

**COMPARISON OF SECOND QUARTER 2003 WITH SECONDQUARTER 2002**

 

Total revenues for the period decreased 2% to$6,778,597 for the second quarter of 2003 compared to $6,899,257 during thesame period of 2002.  The decrease isattributable to lower production volumes as our properties mature and ourproduction philosophy to maximize the ultimate recovery of gas from theproperties acquired in the Sacramento Basin in the prior year.  This philosophy has resulted in lowershort-term production volumes, but should result in greater ultimate recoveryover the life of the property.

 

The average crude oil price received, net ofthe effects of hedging, in the second quarter this year was $24.84 per barrel,compared to $23.23 per barrel received during the same period of 2002. Gasprices received,  net of the effects ofhedging, increased in the second quarter of 2003, averaging $3.57 per Mcf,compared to $2.48 per Mcf received during the second quarter of 2002.

 

As of June 30, 2003, the Company hadcommodity price hedges in place

 

14

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for 6,000 MMBTU of natural gas per day undercostless collars.  One gas hedge for5,000 MMBTU has a floor of $3.00 and a ceiling of $4.43 per MMBTU for theperiod May 2002 through April 2004. The second gas hedge, for 1,000 MMBTU, has a floor of $3.50 and aceiling of $4.195 per MMBTU and runs from January 2003 throughDecember 2003.  The settlementprice of each of the contracts during the quarter resulted in the companymaking payments to the counterparty of $535,267.  The Company’s oil hedge expired on April 30, 2003 and thesettlement for April 2003 resulted in a payment to the counterparty of$34,188 during the quarter.  Currentlythere are no volumes of oil hedged.  Thefair value of the hedges, as computed by the counterparty at June 30,2003, was ($2,174,212).  This amount isshown on the balance sheet as a current liability.

 

Operating costs were 24% higher in 2003 than2002. This increase is attributable to the payment in 2003 of taxes based onthe increase in reserve value associated with the Sacramento Basin propertiesand workover and plugging costs of two Company operated gas wells.

 

Exploration costs were higher this periodthan 2002 due to the dry hole that was in process at the end of thequarter.  General and administrativecosts and production and exploration overhead costs were higher this period whencompared to the prior year. Due primarily to higher salary and benefit costs,investor relation related expense, credit facility fees and amortization ofcapitalized credit facility fees.

 

Lower interest costs in 2003 reflect thedecreased balance of the debt outstanding under the Company’s credit facilityand lower interest rates.  During thequarter principal payments of $2.5 million were made.  Our current average interest rate on debt outstanding for the2003 quarter was approximately 3.40% compared to 4.10% in 2002.

 

**COMPARISON OF FIRST HALF 2003 WITH FIRST HALF2002**

 

Higher oil and natural gas prices werepartially offset by payments made under the Company’s hedging agreements andslightly lower production volumes.  Thehigher prices allowed the Company to show a year over year increase of 30% intotal revenue.  Total revenues for theperiod were $13,612,981, compared to $10,476,864 during the first six months of2002.  The 2002 revenues have beenadjusted to account for sale of certain Canadian assets in 2003 as discontinuedoperations.

 

Average oil prices received by the Company inthe first six months of 2003, were $24.67 per barrel, compared to $20.17 perbarrel during the same period of 2002. Average gas prices received during the first six months of 2003 werehigher at $3.50 per Mcf compared to the $2.38 per Mcf received in 2002.  The average price received in 2003 for bothoil and natural gas are net of payments made under the Company’s hedgingprogram.  During the first six months of2003 payments of $2,331,900 were made to the counterparty to settle the hedgesthat closed during the period.  Duringthe first six months of 

 

15

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2002 no payments were made to thecounterparty for hedging.

 

For the first six months of 2003, oilproduction of 288,000 was down  from2002 production of 319,000 barrels, 2002 production includes approximately12,000 barrels of oil from the Canadian properties that were sold in 2003.  The remaining decline in oil production isrelated to normal declines as properties mature.  Natural gas production decreased slightly from 1.796 Bcf in 2002to 1.762 Bcf in 2003.

 

Operating costs increased 21% from year toyear.  The increase is attributable tothe initial year value based taxes on the acquired Sacramento Basin assets andnon-recurring workover and plugging costs.

 

Depreciation, depletion and amortizationcosts (DD&A) were higher in 2003 when compared to 2002.  The increase is attributable to DD&A onthe acquired gas properties.  The 2002DD&A included expense associated with the properties for only one quarteras they were acquired in April 2002, whereas the 2003 DD&A includedexpense for the entire year.

 

General and administrative expenses increasedfrom 2002 first half levels.  In 2003 weincurred higher compensation costs, employee benefit costs, legal fees, travelexpense, insurance costs and annual credit facility fees.  Higher costs were also incurred associatedwith our investor relations program. Production and exploration overhead expense also increased during thefirst half of 2003 as compared to the same period of 2002.  The increase in due to higher compensationand benefit charges and geological and geophysical expenses.

 

Higher interest rate charges are related tothe higher amount outstanding under our credit facility.  Funds were borrowed during the secondquarter of 2002 to finance the Sacramento Basin gas property acquisition. Ourcurrent average interest rate on debt outstanding is approximately 3.40%.

 

**OTHER ITEMS**

 

The Company has reviewed all recently issued,but not yet adopted, accounting standards in order to determine their effects,if any, on the results of operations or financial position of the Company.  Based on that review, the Company believes thatnone of these pronouncements will have a significant effect on current orfuture financial position or results of operations.

 

**CRITICAL ACCOUNTING POLICIES**

 

A summary of our significant accountingpolicies is included in Note 1 of our financial statements contained in theannual report on Form

 

16

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10-K for the year ended December 31,2002.  We believe the application ofthese accounting policies on a consistent basis enables us to provide financialstatement users with useful, reliable and timely information about our resultsof operations, financial condition and cash flows.

 

The preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesof America requires management to make judgements, estimates and assumptionsregarding uncertainties that affect the reported amounts presented anddisclosed in the financial statements. Our management reviews these estimates and assumptions based onhistorical experience, changes in business conditions and other relevantfactors that they believe to be reasonable under the circumstances.  In any given reporting period, actualresults could differ from the estimates and assumptions used in preparing ourfinancial statements.

 

Critical accounting policies are those thatmay have a material impact on our financial statements and also requiremanagement to exercise significant judgement due to a high degree ofuncertainty at the time the estimate is made. Our senior management has discussed the development and selection of ouraccounting policies, related accounting estimates and the related disclosureswith the Audit Committee of our Board of Directors.  We believe our critical accounting policies include those addressingthe recoverability and useful lives of assets, and oil and gas reserveestimates.

 

**FORWARD LOOKING STATEMENTS**

 

The preceding discussion and analysis shouldbe read in conjunction with the consolidated financial statements, includingthe notes thereto, appearing in the Company’s annual report on Form 10-K.  Except for the historical informationcontained herein, the matters discussed in this report contain forward-lookingstatements within the meaning of Section 27a of the Securities Act of 1933, asamended, and Section 2le of the Securities Exchange Act of 1934, as amended,that are based on management’s beliefs and assumptions, current expectations,estimates, and projections.  Statementsthat are not historical facts, including without limitation statements whichare preceded by, followed by or include the words “believes”, “anticipates”,“plans”, “expects”, “may”, “should” or similar expressions are forward-lookingstatements.  Many of the factors thatwill determine the Company’s future results are beyond the ability of theCompany to control or predict.  Thesestatements are subject to risks and uncertainties and, therefore, actualresults may differ materially. All subsequent written and oral forward-looking statementsattributable to the Company, or persons acting on its behalf, are expresslyqualified in their entirety by these cautionary statements.  The Company disclaims any obligation toupdate any forward-looking statements whether as a result of new information,

 

17

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future events or otherwise.

 

Important factors that may affect futureresults include, but are not limited to: drilling success, the availability ofequipment and contract services, environmental risks and impediments, geologichazards, the risk of a significant natural disaster, the inability of theCompany to insure against certain risks, fluctuations in commodity prices, theinherent limitations in our ability to estimate oil and gas reserves, changinggovernment regulations, as well as general market conditions, competition andpricing, and other risks detailed from time to time in the Company’s SECreports, copies of which are available upon request from the Company’s investorrelations department.

 

**ITEM 3**

 

**Quantitative and Qualitative Disclosuresabout Market Risk**

 

The answers to items listed under Item 3 areinapplicable or negative except for items related to interest rate andcommodity price risk.

 

Our credit facility has variable interestrates and any fluctuation in interest rates will increase or decrease ourinterest expense.

 

We have market risk exposure related to theprices received for the sale of crude oil and natural gas.  We periodically enter into hedge contractsto manage the commodity price risk.

 

**ITEM 4**

 

**Controls and Procedures**

 

As of the end of the period covered by thisreport, the Company’s principal executive officer (“CEO”) and principalfinancial officer (“CFO”) carried out an evaluation of the effectiveness of theCompany’s disclosure controls and procedures. Based on those evaluations, theCompany’s CEO and CFO believe

 

(i) that the Company’s disclosure controlsand procedures are designed to ensure that information required to be disclosedby the Company in the reports it files under the Securities Exchange Act of1934 is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms and that such information is accumulatedand communicated to the Company’s management, including the CEO and CFO, asappropriate to allow timely decisions regarding required disclosure; and

 

(ii) that the Company’s disclosure controlsand procedures are effective.

 

There have been no significant changes in theCompany’s internal

 

18

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controls or in other factors that couldsignificantly affect the Company’s internal controls subsequent to theevaluation referred to in Item 4, above, nor have there been any correctiveactions with regard to significant deficiencies or material weaknesses.

 

**PART II**

 

**OTHER INFORMATION**

 

The answers to items one through five listedunder Part II are inapplicable or negative, except as shown below

 

**ITEM 4.  Submissionof Matters to a Vote of Security Holders.**

 

At our annual meeting, held on May 21,2003, shareholders were asked approve three proposals.  First, to elect Mr. William D. Forster, Mr.Randolph G. Abood and Mr. John W. Straker to the staggered board to serve threeyear terms expiring in 2006.  Based uponthe votes received, each director nominee was elected to the board.  The following votes were recorded for eachdirector.

 

Each director nominee received at least 90%of the shares voted at the meeting.

 
|               |   | **Forster** |   | **Abood**  |   | **Straker** |   |
|--------------------|--------|-------------|--------|------------|--------|-------------|--------|
|               |   |        |   |       |   |        |   |
| Affirmative votes  |   | 10,390,812  |   | 10,394,737 |   | 10,400,167  |   |
| Withhold authority |   | 1,099,595   |   | 1,095,670  |   | 1,090,240   |   |

 

The second proposal was to approve anamendment to the Restated Articles of Incorporation to increase the number ofauthorized shares of common stock.  Theproposal passed by receiving 81% of the shares voted at the meeting.  The vote total was as follows:

 

| For              |   | 9,355,673 |   |
|------------------|--------|-----------|--------|
| Against          |   | 2,084,962 |   |
| Abstain          |   | 49,772    |   |
| Broker non-votes |   | 0         |   |

 

The third proposal was to approve anamendment to the Restated Articles of Incorporation to authorize the possiblefuture issuance of preferred shares. The proposal required two-thirds of the outstanding shares to vote inthe affirmative to pass. As indicated below the proposal did not receive therequisite number of affirmative votes and was thus not passed.

 

| For              |   | 4,944,435 |   |
|------------------|--------|-----------|--------|
| Against          |   | 2,154,594 |   |
| Abstain          |   | 61,901    |   |
| Broker non-votes |   | 4,329,477 |   |

 

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**ITEM 6**.  **Exhibitsand Reports on Form 8-K**

 
|   | (a)    | Exhibits            |
|--------|--------|---------------------|
|   |   |                |   |   |
|   |   |                |   |   |
|   |   | (3)                 | (i) | Amendment to Article III of Restated Articles of Incorporation  adopted on May 21, 2003 and Restated Articles of Incorporation as  amended. |
|   |   |                |   |   |
|   |   |                | (ii) | Amended By-Laws. Incorporated by reference from the annual report  on  Form 10-K for the year-ended  December 31, 1997. |
|   |   |                |   |   |
|   |   | (10)                | (i) | Loan agreement between Equity Oil Company and Bank One, NA.  Incorporated by reference from the Form  10-Q for the period ended June 30, 2002. |
|   |   |                |   |   |
|   |   |                | (iii) | Change in Control Compensation Agreement for David P. Donegan  incorporated by reference from the Form 10-Q for the period ended  June 30, 2001.  Change in Control  Compensation Agreement for Russell V. Florence, incorporated by reference  from the annual report on Form 10-K for the year-ended December 31,  2000. Change in Control Compensation Agreements for Paul M. Dougan and James  B. Larson, incorporated by reference from the annual report on Form 10-K for  the year-ended December 31, 1997. |
|   |   |                |   |   |
|   |   |                |   | Equity Oil Company 2000 Stock Option Plan.  Incorporated by reference from Appendix A of the proxy  statement dated May 10, 2000. |
|   |   |                |   |   |
|   |   |                |   | Cash bonus plan for key employees.   Incorporated by reference from the Form 10-K for the year ended  December 31, 2002. |
|   |   |                |   |   |
|   |   | (31)                |   | Certifications required by Rule 13a-15(e) and 15d-15(e). |
|   |   |                |   |   |
|   |   | (32)                |   | Section 1350 Certifications. |
|   |   |                |   |   |
|   | (b)    | Reports on Form 8-K |
|   |   |                |   |   |
|   |   | **Filing Date**     |   | **Contents** |
|   |   |                |   |   |
|   |   | May 8,  2003   |   | Press  release regarding financial results for the quarter ended March 31,  2003. |
|        |        |                     |  |  |  |  |

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned there unto duly authorized.

 

 
|   |                 | EQUITY OIL COMPANY |                            |
|--------|----------------------|--------------------|---------------------------------|
|   |                 | (Registrant)       |                            |
|   |                 |               |                            |
|   |                 |               |
| DATE:  | August 11, 2003 |               | By                              | /s/ Paul M. Dougan |   |
|   |                 |               | Paul M. Dougan, President  |
|   |                 |               |                            |
|   |                 |               |                            |
| DATE:  | August 11, 2003 |               | By                              | /s/ Russell V. Florence |   |
|   |                 |               | Russell V. Florence,

Treasurer |
|        |                      |                    |                                 |  |  |  |  |  |

 

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**Exhibit 3(i) - Amendment to Restated Articlesof Incorporation adopted May 21, 2003.**

 

**ARTICLE III**

 

1.                                       TheCompany shall have authority to issue up to 50,000,000 shares of Common Stock.

 

2.                                       Eachholder of shares of common stock shall have the right to one vote for eachshare of common stock held of record on the books of the company on each matterto be voted on at a shareholder’s meeting. Cumulative voting is not allowed in the election of directors.

 

3.                                       Theentire voting power of the corporation shall be vested in the holders of theshares of common stock, except for holders of preferred stock with votingrights, if any.

 

4.                                       Inthe event of any liquidation, dissolution, or winding up of the affairs of thecorporation, whether voluntary or involuntary, all assets and funds of thecorporation remaining after the payment to the holders of the preferred stockof the full amounts to which they may be entitled, if any, shall be divided anddistributed among the holders of the common stock according to their respectiveshares.

 

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**Exhibit 3(i) - Restated Articles ofIncorporation as amended**

 

**Restated**

**Articles of Incorporation**

**of**

**Equity Oil Company**

 

Pursuant tothe laws of Colorado, the undersigned corporation, Equity Oil Company herebyadopts the following Restated Articles of Incorporation and certifies (1) thatthe Articles of Incorporation restated herein correctly set forth theprovisions of the Articles of Incorporation as heretofore amended and supersedethe original Articles of Incorporation of the corporation and all amendmentsthereto, and (2) the Articles of Incorporation as restated herein were dulyadopted by the board of directors of the corporation on January 25,1996.  Shareholder approval was notrequired:

 

**ARTICLE I**

 

The name ofthe corporation shall be Equity Oil Company.

 

**ARTICLE II**

 

The purposefor which the corporation is organized shall be the transaction of all lawfulbusiness for which corporations may be incorporated pursuant to the ColoradoCorporation Code.  It is the expressintent of the stockholders and Directors that the business purposes of thiscorporation shall not be limited except as provided by Colorado law.  By way of example, and not in any waylimiting the purpose of the corporation, it may engage in the business ofexploration, development, research, production and marketing of oil, gas, andminerals, in all their natural or artificial forms and any and all products andby-products derived therefrom.

 

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**ARTICLE III**

 

1.                                       TheCompany shall have authority to issue up to 50,000,000 shares of Common Stock.

 

2.                                       Eachholder of shares of common stock shall have the right to one vote for eachshare of common stock held of record on the books of the company on each matterto be voted on at a shareholder’s meeting. Cumulative voting is not allowed in the election of directors.

 

3.                                       Theentire voting power of the corporation shall be vested in the holders of theshares of common stock, except for holders of preferred stock with votingrights, if any.

 

4.                                       Inthe event of any liquidation, dissolution, or winding up of the affairs of thecorporation, whether voluntary or involuntary, all assets and funds of thecorporation remaining after the payment to the holders of the preferred stockof the full amounts to which they may be entitled, if any, shall be divided anddistributed among the holders of the common stock according to their respectiveshares.

 

**ARTICLE IV**

 

The term ofexistence of this corporation is perpetual.

 

**ARTICLE V**

 

a.                                       Number,election and terms.  The businessand affairs of the Corporation shall be managed by a Board of Directorsconsisting of not less than six nor more than nine

 

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persons.  The exact number of directors within theminimum and maximum limitations specified in the preceding sentence shall befixed from time to time by the Board of Directors pursuant to a resolutionadopted by a majority of the entire Board of Directors.  At the 1983 Annual Meeting of Shareholders,the directors shall be divided into three classes, as nearly equal in number aspossible, with the term of office of the first class to expire at the 1984Annual Meeting of Shareholders, the term of office of the second class toexpire at the 1985 Annual Meeting of Shareholders and the term of office of thethird class to expire at the 1986 Annual Meeting of Shareholders.  At each Annual Meeting of Shareholdersfollowing such initial classification and election, directors elected to succeedthose directors whose terms expire shall be elected for a term of office toexpire at the third succeeding Annual Meeting of Shareholders after theirelection.

 

b.                                      Newlycreated directorships and vacancies. Vacancies in the Board of Directors resulting from death, resignation,retirement, disqualification, removal from office or other cause may be filledby a majority vote of the directors then in office, though less than a quorumof the Board of Directors.  A directorelected by the Board to fill a vacancy shall be elected for the unexpired termof his predecessor in office.  Subjectto the rights of the

 

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holders of anyseries of preferred stock then outstanding, newly created directorshipsresulting from any increase in the authorized number of directors shall befilled by the affirmative vote of a majority of the directors then in office orby an election at an annual meeting or at a special meeting of shareholderscalled for that purpose.  A directorchosen to fill a position resulting from an increase in number of directorsshall hold office until the next annual meeting of stockholders and until hissuccessor has been elected and qualified. No decrease in the number of directors constituting the Board ofDirectors shall shorten the term of any incumbent director.

 

c.                                       Removal.  Subject to the rights of the holders of anyseries of Preferred Stock then outstanding, any director, or the entire Boardof Directors, may be removed from office at any time, but only by theaffirmative vote of the holders of at least 80% of the voting power of all theshares of the Corporation entitled to vote for the election of directors.

 

d.                                      Amendment,repeal, etc.  Notwithstandinganything contained in these Articles of Amendment to the contrary, theaffirmative vote of the holders of at least 80% of the voting power of all theshares of the Corporation entitled to vote for the election of directors shallbe required to amend, modify or repeal, this Article V.

 

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**ARTICLE VI**

 

Thiscorporation shall maintain an office as its principal place of business in SaltLake City, Utah.

 

**ARTICLE VII**

 

To the fullextent permitted by the laws of Colorado, as the same exist or may hereafter beamended, a director of the corporation shall not be personally liable to thecorporation or its shareholders for monetary damages for breach of fiduciaryduty as a director.  Any repeal ormodification of this Article by the shareholders of the corporation shall beprospective only and shall not adversely affect any right or protection of adirector of the corporation existing at the time of such repeal ormodification.

 

**ARTICLE VIII**

 

Section 1.       Vote Required for Certain BusinessCombinations.

 

A.                                   HigherVote for Certain Business Combinations. In addition to any affirmative vote required by law or these Articles ofIncorporation, and except as otherwise expressly provided in section 2 of thisArticle VIII:

 

(i)                                     anymerger or consolidation of the Corporation or any Subsidiary (as hereinafterdefined) with (a) any Interested Stockholder (as hereinafter defined) or (b)any other corporation (whether or not itself an Interested Stockholder) whichis, or after such merger or consolidation would be, an

 

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Affiliate (as hereinafter defined) of an Interested Stockholder; or

 

(ii)                                  anysale, lease, exchange, mortgage, pledge, transfer or other disposition (in onetransaction or a series of transactions) to or with any Interested Stockholderor any Affiliate of any Interested Stockholder of any assets of the Corporationor any Subsidiary having an aggregate Fair Market Value (as hereinafterdefined) of $1,000,000 or more; or

 

(iii)                               theissuance or transfer of by the Corporation or any Subsidiary (in onetransaction or a series of transactions) of any securities of the Corporationor any Subsidiary to any Interested Stockholder or any Affiliate of anyInterested Stockholder in exchange for cash, securities or other property (or acombination thereof) having an aggregate Fair Market Value of $1,000,000 ormore; or

 

(iv)                              theadoption of any plan or proposal for the liquidation or dissolution of theCorporation proposed by or on behalf of an Interested Stockholder or any

 

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Affiliate of any Interested Stockholder; or

 

(v)                                 anyreclassification of securities (including any reverse stock split), orrecapitalization of the Corporation, or any merger or consolidation of theCorporation with any of its Subsidiaries or any other transaction (whether ornot with or into or otherwise involving an Interested Stockholder) which hasthe effect, directly or indirectly, of increasing the proportionate share ofthe outstanding shares of any class of equity or convertible securities of theCorporation or any Subsidiary which is directly or indirectly owned by anyInterested Stockholder or any Affiliate of any Interested Stockholder;

 

shall requirethe affirmative vote of the holders of at least 80% of the voting power of thethen outstanding shares of capital stock of the Corporation entitled to votegenerally in the election of directors (the “Voting Stock”), voting together asa single class.  Such affirmative voteshall be required notwithstanding the fact that no vote may be required, orthat a lesser percentage may be specified, by law or in any agreement

 

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with anynational securities exchange or otherwise.

 

B.                                     Definitionof “Business Combination”.  The term“Business Combination” as used in this Article VIII shall mean any transactionor series of transactions which is referred to in any one or more of clauses(i) through (v) of paragraph A of this section 1.

 

Section 2.       When Higher Vote is Not Required.  The provisions of Section 1 of this ArticleVIII shall not be applicable to any particular Business Combination, and suchBusiness Combination shall require only such affirmative vote as is required bylaw and any other provision of these Articles of Incorporation, if all of theconditions specified in either of the following paragraphs A and B are met:

 

A.                                   Approvalby Continuing Directors.  TheBusiness Combination shall have been approved by a majority of the ContinuingDirectors (as hereinafter defined).

 

B.                                     Priceand Procedure Requirements.  All ofthe following conditions shall have been met.

 

(i)                                     Theaggregate amount of the cash and the Fair Market Value (as hereinafter defined)as of the date of the consummation of the Business Combination of considerationother than cash to be received per share by holders of Common

 

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Stock in suchBusiness Combination shall be at least equal to the highest of the following:

 

(a)                                  (ifapplicable) the highest per share price (including any brokerage commissions,transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholderfor any shares of Common Stock acquired by it (1) within the two-year periodimmediately prior to the first public announcement of the proposal of theBusiness Combination (the “Announcement Date”) or (2) in the transaction inwhich it became an Interested Stockholder, whichever is higher;

 

(b)                                 theFair Market Value per share of Common Stock on the day after the AnnouncementDate or on the date on which the Interested Stockholder became an InterestedStockholder (such latter date is referred to in this Article VIII as the“Determination Date”), whichever is higher;

 

(c)                                  (ifapplicable) the price per share equal to the Fair Market Value per share of CommonStock determined pursuant to paragraph B(i)(b) above, multiplied by the ratioof (1) the highest per share price (including any brokerage commissions,transfer taxes and soliciting dealers’ fees) paid by the Interested

 

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Stockholderfor any shares of Common Stock acquired by it within the two-year periodimmediately prior to the Announcement Date to (2) the Fair Market Value pershare of Common Stock on the first day in such two-year period upon which theInterested Stockholder acquired any shares of Common Stock.

 

(ii)           Theaggregate amount of the cash and the Fair Market Value as of the date of theconsummation of the Business Combination of consideration other than cash to bereceived per share by holders of shares of any other class of outstandingVoting Stock (other than Institutional Voting Stock, as hereinafter defined)shall be at least equal to the highest of the following (it being intended thatthe requirements of this paragraph B(ii) shall be required to be met withrespect to every class of outstanding Voting Stock (other than InstitutionalVoting Stock), whether or not the Interested Stockholder has previouslyacquired any shares of a particular class of Voting Stock):

 

(a)                                  (ifapplicable) the highest per share price (including any brokerage commissions,transfer taxes and soliciting dealers’ fees) paid by the Interested Stockholderfor any shares of such class of Voting Stock acquired by it (1) within

 

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the two-yearperiod immediately prior to the day after the Announcement Date or (2) in thetransaction in which it became an Interested Stockholder, whichever is higher;

 

(b)                                 (ifapplicable) the highest preferential amount per share to which the holders ofshares of such class of Voting Stock are entitled in the event of any voluntaryor involuntary liquidation, dissolution or winding up of the Corporation;

 

(c)                                  theFair Market Value per share of such class of Voting Stock on the day after the AnnouncementDate or on the Determination Date, whichever is higher; and

 

(d)                                 (ifapplicable) the price per share equal to the Fair Market Value per share ofsuch class of Voting Stock determined pursuant to paragraph B(ii)(c) above,multiplied by the ratio of (1) the highest per share price (including anybrokerage commissions, transfer taxes and soliciting dealers’ fees) paid by theInterested Stockholder for any shares of such class of Voting Stock acquired byit within the two-year period immediately prior to the Announcement Date to (2)the Fair Market Value per share of such class of Voting Stock on the

 

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first day insuch two-year period upon which the Interested Stockholder acquired any sharesof such class of Voting Stock.

 

(iii)                               Theconsideration to be received by holders of a particular class of outstandingVoting Stock (including Common Stock) shall be in cash or in the same form asthe Interested Stockholder has previously paid for shares of such class ofVoting Stock.  If the InterestedStockholder has paid for shares of any class of Voting Stock with varying formsof consideration, the form of consideration for such class of Voting Stockshall be either cash or the form used to acquire the largest number of sharesof such class of Voting Stock previously acquired by it.

 

(iv)                              Aftersuch Interested Stockholder has become an Interested Stockholder and prior tothe consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, thereshall have been no failure to declare and pay at the regular date therefor anyfull quarterly dividends (whether or not cumulative) on the outstandingPreferred Stock, if any; (b) there shall have been (1) no reduction in theannual rate of dividends paid on the Common Stock (except as necessary toreflect any subdivision of the Common Stock), except as

 

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approved by amajority of the Continuing Directors, and (2) an increase in such annual rateof dividends as necessary to reflect any reclassification (including anyreverse stock split), recapitalization, reorganization or any similartransaction which has the effect of reducing the number of outstanding sharesof the Common Stock, unless the failure so to increase such annual rate isapproved by a majority of the Continuing Directors; and (c) such InterestedStockholder shall have not become the beneficial owner of any additional sharesof Voting Stock except as part of the transaction which results in suchinterested Stockholder becoming an Interested Stockholder.

 

(v)                                 Aftersuch Interested Stockholder has become an Interested Stockholder, suchInterested Stockholder shall not have received the benefit, directly orindirectly (except proportionately as stockholder), of any loans, advances,guarantees, pledges or other financial assistance or any tax credits or othertax advantages provided by the Corporation, whether in anticipation of or inconnection with such Business Combination or otherwise.

 

(vi)                              Aproxy or information statement describing the proposed Business Combination andcomplying with the requirements of the Securities Exchange Act of 1934

 

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and the rulesand regulations thereunder (or any subsequent provisions replacing such Act,rules or regulations) shall be mailed to public stockholders of the Corporationat lease 30 days prior to the consummation of such Business Combination(whether or not such proxy or information statement is required to be mailedpursuant to such Act or subsequent provisions).

 

Section 3. Certain Definitions.  For the purposes of this Article VIII:

 

A.                                   “person”shall mean any individual, firm, corporation or other entity.

 

B.                                     “InterestedStockholder” shall mean any person (other than the Corporation or anySubsidiary) who or which:

 

(i)            is the beneficialowner, directly or indirectly, of more than 10% of the voting power of theoutstanding Voting Stock; or

 

(ii)           isan Affiliate of the Corporation and at any time within the two-year periodimmediately prior to the date in question was the beneficial owner, directly orindirectly, of 10% or more of the voting power of the then outstanding VotingStock; or

 

(iii)          isan assignee of or has otherwise succeeded to any shares of Voting Stock whichwere at any time within the two-year period immediately prior to the date in

 

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questionbeneficially owned by any Interested Stockholder, if such assignment orsuccession shall have occurred in the course of a transaction or series oftransactions not involving a public offering within the meaning of theSecurities Act of 1933.

 

C.                                     Aperson shall be a “beneficial owner” of any Voting Stock:

 

(i)                                     whichsuch person or any of its Affiliates or Associates (as hereinafter defined)beneficially owns, directly or indirectly; or

 

(ii)                                  whichsuch person or any of its Affiliates or Associates has (a) the right to acquire(whether such right is exercisable immediately or only after the passage oftime), pursuant to any agreement, arrangement or understanding or upon theexercise of conversion rights, exchange rights, warrants or options, orotherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding;or

 

(iii)                               whichare beneficially owned, directly or indirectly, by any other person with whichsuch person or any of its Affiliates or Associates has any agreement,arrangement or understanding for the purpose of acquiring, holding, voting or disposingof any shares of Voting Stock.

 

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D.                                    Forthe purposes of determining whether a person is an Interested Stockholderpursuant to paragraph B of this Section 3, the number of shares of Voting Stockdeemed to be outstanding shall include shares deemed owned through applicationof paragraph C of this Section 3 but shall not include any other shares ofVoting Stock which may be issuable pursuant to any agreement, arrangement orunderstanding, or upon exercise of conversion rights, warrants or options, orotherwise.

 

E.                                      “Affiliate”or “Associate” shall have the respective meanings ascribed to such terms inRule 12b-2 of the General Rules and Regulations under the Securities ExchangeAct of 1934, as in effect on January 1, 1983.

 

F.                                      “Subsidiary”means any corporation of which a majority of any class of equity security isowned, directly or indirectly, by the Corporation; provided, however,that for the purposes of the definition of Interested Stockholder set forth inparagraph B of this section 3, the term “Subsidiary” shall mean only acorporation of which a majority of each class of equity security is owned,directly or indirectly, by the Corporation.

 

G.                                     “ContinuingDirector” means any member of the Board of Directors of the Corporation (the“Board”) who is unaffiliated with the Interested Stockholder and was a memberof the Board prior to the time that the Interested Stockholder became anInterested Stockholder and is

 

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recommended tosucceed a Continuing Director by a majority of Continuing Directors then on theBoard.

 

H.                                    “FairMarket Value means:  (i) in the case ofstock, the highest closing sale price during the 30-day period immediatelypreceding the date in question of a share of such stock on the Composite Tapefor New York Stock Exchange-Listed Stocks, or, if such stock is not quoted onthe Composite Tape, on the New York Stock Exchange, or, if such stock is notlisted on such Exchange, on the principle United States securities exchangeregistered under the Securities Exchange Act of 1934 on which such stock islisted, or, if such stock is not listed on any such exchange, the highestclosing bid quotation with respect to a share of such stock during the 30-dayperiod preceding the date in question on the National Association of SecuritiesDealers, Inc., Automated Quotations System or any system then in use, or if nosuch quotations are available, the fair market value on the date in question ofa share of such stock as determined by a majority of the Continuing Directors;and (ii) in the case of property other than cash or stock, the fair marketvalue of such property on the date in question as determined by a majority ofthe Continuing Directors.

 

I.                                         “InstitutionalVoting Stock” shall mean any class of Voting Stock which was issued to andcontinues to be held solely by one or more insurance companies, pensions funds,

 

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commercialbanks, savings banks or similar financial institutions or institutionalinvestors.

 

J.                                        Inthe event of any Business Combination in which the Corporation survives, thephrase “other consideration to be received” as used in paragraphs B(i) and (ii)of Section 2 of this Article VIII shall include the shares of Common Stockand/or the shares of any other class of outstanding Voting Stock retained bythe holders of such shares.

 

Section 4.       Certain Powers of the ContinuingDirectors.  A majority of theContinuing Directors of the Corporation shall have the power and duty todetermine for the purposes of this Article VIII, on the basis of informationknown to them after reasonable inquiry, (A) whether a person is an InterestedStockholder, (B) the number of shares of Voting Stock beneficially owned by anyperson, (C) whether a person is an Affiliate or Associate of another, (D)whether a class of Voting Stock is Institutional Voting Stock, (E) whether atransaction or a series of transactions constitutes a Business Combination, and(F) whether the assets which are the subject of any Business Combination have,or the consideration to be received for the issuance or transfer of securitiesby the Corporation or any Subsidiary in any Business Combination has, anaggregate Fair Market Value of $1,000,000 or more.

 

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Section 5.       No Effect on Fiduciary Obligations ofInterested Stockholders.  Nothingcontained in this Article VIII shall be construed to relieve any InterestedStockholder from any fiduciary obligation imposed by law.

 

Section 6.       Amendment, Repeal, Etc.  Notwithstanding any other provisions ofthese Articles of Incorporation or the By-Laws of the Corporation (andnotwithstanding the fact that a lesser percentage may be specified by law,these Articles of Incorporation or the By-Laws of the Corporation), theaffirmative vote of the holders of 80% or more of the voting power of theshares of the then outstanding Voting Stock, voting together as a single class,shall be required to amend or repeal, or adopt any provisions inconsistentwith, this Article VIII of these Articles of Incorporation.

 
| DATED this 7th day of August, 2003.   |                    |
|---------------------------------------|-------------------------|
|                                  |                    |
|                                  |                    |
| EQUITY OIL COMPANY                    |                    |
|                                  |                    |
|                                  |                    |
| By:                                   | /s/ Russell V. Florence |   |
| RUSSELL V.   FLORENCE, Secretary |                    |
|                                       |                         |  |

 

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