Item 1A. RISK FACTORS
Economic developments could damage operations and materially reduce profitability and cash flows.
Potential disruptions in the credit markets and concerns about global economic growth could have a significant adverse impact on global financial markets and commodity prices. Such factors could contribute to a decline in the Company’s stock price and corresponding market capitalization. Should commodity prices experience a period of rapid decline, future earnings will be reduced. Since the Company has no bank debt obligations nor covenants tied to its stock price, potential declines in the Company’s stock price do not affect the Company’s liquidity or overall financial condition. Should the capital and credit markets experience volatility and the availability of funds become limited, the Company’s customers and suppliers may incur increased costs associated with issuing commercial paper and/or other debt instruments and this, in turn, could adversely affect the Company’s ability to secure supply and make profitable sales.
General economic conditions could reduce demand for chemical based trucking services.
Customer demand for the Company’s products and services is substantially dependent upon the general economic conditions for the United States which are cyclical in nature. In particular, demand for liquid chemical truck transportation services is dependent on activity within the petrochemical sector of the U.S. economy. Chemical sector demand typically varies with the housing and auto markets as well as the relative strength of the U.S. dollar to foreign currencies. A relatively strong U.S. dollar exchange rate may be adverse to the Company’s transportation operation since it tends to suppress export demand for petrochemicals. Conversely, a weak U.S. dollar exchange rate tends to stimulate export demand for petrochemicals.
The Company’s business is dependent on the ability to obtain trade and other credit.
The Company’s future development and growth depends, in part, on its ability to successfully obtain credit from suppliers and other parties. Trade credit arrangements are relied upon as a significant source of liquidity for capital requirements not satisfied by operating cash flow. Should global financial markets and economic conditions disrupt and reduce stability in general, and the solvency of creditors specifically, the availability of funding from credit markets would be reduced as many lenders and institutional investors would enact tighter lending standards, refuse to refinance existing debt on terms similar to current debt or, in some cases, cease to provide funding to borrowers. These issues coupled with weak economic conditions would make it more difficult for the Company and its suppliers and customers to obtain funding. If the Company is unable to obtain trade or other forms of credit on reasonable and competitive terms, the ability to continue its marketing and exploration businesses, pursue improvements, and continue future growth will be limited. There is no assurance that the Company will be able to maintain future credit arrangements on commercially reasonable terms.
The financial soundness of customers could affect the Company’s business and operating results
Constraints in the financial markets and other macro-economic challenges that might affect the economy of the United States and other parts of the world could cause the Company’s customers to experience cash flow concerns. As a result, if customers’ operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, customers would not be able to pay, or may delay payment of, accounts receivable owed to the Company. Any inability of current and/or potential customers to pay for services may adversely affect the Company’s financial condition and results of operations.
Counterparty credit default could have an adverse effect on the Company.
The Company’s revenues are generated under contracts with various counterparties and results of operations could be adversely affected by non-performance under the various contracts. A counterparty’s default or non-performance could be caused by factors beyond the Company’s control. A default could occur as a result of circumstances relating directly to the counterparty, or due to circumstances caused by other market participants having a direct or indirect relationship with such counterparty. The Company seeks to mitigate the risk of default by evaluating the financial strength of potential counterparties; however, despite mitigation efforts, contractual defaults may occur from time to time.
Escalating diesel fuel prices could have an adverse effect on the Company
As an integral part of the Company’s marketing and transportation businesses, the Company operates approximately 500 truck-tractors and diesel fuel costs are a significant component of operating expense. Such costs generally fluctuate with increasing and decreasing world crude oil prices. While the Company attempts to recoup rising diesel fuel costs through the pricing of its services, to the extent such costs escalate, operating earnings will generally be adversely affected.
Fluctuations in oil and gas prices could have an adverse effect on the Company.
The Company’s future financial condition, revenues, results of operations and future rate of growth are materially affected by oil and natural gas prices that historically have been volatile and are likely to continue to be volatile in the future. Moreover, oil and natural gas prices depend on factors outside the control of the Company. These factors include:
·
supply and demand for oil and gas and expectations regarding supply and demand;
·
political conditions in other oil-producing countries, including the possibility of insurgency or war in such areas;
·
economic conditions in the United States and worldwide;
·
governmental regulations and taxation;
·
impact of energy conservation efforts;
·
the price and availability of alternative fuel sources;
·
weather conditions;
·
availability of local, interstate and intrastate transportation systems; and
·
market uncertainty.
Revenues are generated under contracts that must be renegotiated periodically.
Substantially all of the Company’s revenues are generated under contracts which expire periodically or which must be frequently renegotiated, extended or replaced. Whether these contracts are renegotiated, extended or replaced is often subject to factors beyond the Company’s control. Such factors include sudden fluctuations in oil and gas prices, counterparty ability to pay for or accept the contracted volumes and, most importantly, an extremely competitive marketplace for the services offered by the Company. There is no assurance that the costs and pricing of the Company’s services can remain competitive in the marketplace or that the Company will be successful in renegotiating its contracts.
Anticipated or scheduled volumes will differ from actual or delivered volumes.
The Company’s crude oil marketing operation purchases initial production of crude oil at the wellhead under contracts requiring the Company to accept the actual volume produced. The resale of such production is generally under contracts requiring a fixed volume to be delivered. The Company estimates its anticipated supply and matches such supply estimate for both volume and pricing formulas with committed sales volumes. Since actual wellhead volumes produced will never equal anticipated supply, the Company’s marketing margins may be adversely impacted. In many instances, any losses resulting from the difference between actual supply volumes compared to committed sales volumes must be absorbed by the Company.
Environmental liabilities and environmental regulations may have an adverse effect on the Company.
The Company’s business is subject to environmental hazards such as spills, leaks or any discharges of petroleum products and hazardous substances. These environmental hazards could expose the Company to material liabilities for property damage, personal injuries, and/or environmental harms, including the costs of investigating and rectifying contaminated properties.
Environmental laws and regulations govern many aspects of the Company’s business, such as drilling and exploration, production, transportation and waste management. Compliance with environmental laws and regulations can require significant costs or may require a decrease in production. Moreover, noncompliance with these laws and regulations could subject the Company to significant administrative, civil, and/or criminal fines and/or penalties.
Operations could result in liabilities that may not be fully covered by insurance.
Transportation of hazardous materials and the exploration and production of crude oil and natural gas involves certain operating hazards such as well blowouts, automobile accidents, explosions, fires and pollution. Any of these operating hazards could cause serious injuries, fatalities or property damage, which could expose the Company to liability. The payment of any of these liabilities could reduce, or even eliminate, the funds available for exploration, development, and acquisition, or could result in a loss of the Company’s properties and may even threaten survival of the enterprise.
Consistent with the industry standard, the Company’s insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage provided for sudden and accidental occurrences. Insurance might be inadequate to cover all liabilities. Moreover, from time to time, obtaining insurance for the Company’s line of business can become difficult and costly. Typically, when insurance cost escalates, the Company may reduce its level of coverage and more risk may be retained to offset cost increases. If substantial liability is incurred and damages are not covered by insurance or exceed policy limits, the Company’s operation and financial condition could be materially adversely affected.
Changes in tax laws or regulations could adversely affect the Company.
The Internal Revenue Service, the United States Treasury Department, Congress and the states frequently review federal or state income tax legislation. The Company cannot predict whether, when, or to what extent new federal or state tax laws, regulations, interpretations or rulings will be adopted. Any such legislative action may prospectively or retroactively modify tax treatment and, therefore, may adversely affect taxation of the Company.
The Company’s business is subject to changing government regulations.
Federal, state or local government agencies may impose environmental, labor or other regulations that increase costs and/or terminate or suspend operations. The Company’s business is subject to federal, state and local laws and regulations. These regulations relate to, among other things, the exploration, development, production and transportation of oil and natural gas. Existing laws and regulations could be changed, and any changes could increase costs of compliance and costs of operations.
Several proposals are before state legislators and the U.S. Congress that, if implemented, would either prohibit the practice of hydraulic fracturing or subject the process to regulation under state regulation or the Safe Drinking Water Act. The Company routinely participates in wells where fracturing techniques are utilized to expand the available space for natural gas and oil to migrate toward the well-bore. This is typically done at substantial depths in very tight formations. Although it is not possible at this time to predict the final outcome of the legislation regarding hydraulic fracturing, any new state or federal restrictions could result in increased compliance costs or additional operating restrictions.
Estimating reserves, production and future net cash flow is difficult.
Estimating oil and natural gas reserves is a complex process requiring significant interpretations of technical data and assumptions relating to economic factors such as future commodity prices, production costs, severance and excise taxes, capital expenditures and remedial costs, and the assumed effect of governmental regulation. As a result, actual results may differ from the Company’s estimates. Also, the use of a 10 percent discount factor for reporting purposes, as prescribed by the SEC, may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which the Company’s business is subject. Any significant variations from the Company’s valuations could cause the estimated quantities and net present value of the Company’s reserves to differ materially.
The reserve data included in this report is only an estimate. The reader should not assume that the present values referred to in this report represent the current market value of the Company’s estimated oil and natural gas reserves. The timing of the production and the expenses from development and production of oil and natural gas properties will affect both the timing of actual future net cash flows from the Company’s proved reserves and their present value.
The Company’s exploration operations are dependent on the ability to replace reserves.
Future success depends in part on the Company’s ability to find, develop and acquire additional oil and natural gas reserves. Absent ongoing successful acquisition or exploration activities, reserves and revenues will decline as a result of current reserves being depleted by production. The successful acquisition, development or exploration of oil and natural gas properties is dependent upon an assessment of recoverable reserves, future oil and natural gas prices and operating costs, potential environmental and other liabilities, and other factors. These factors are necessarily inexact. As a result, the Company may not recover the purchase price and/or the development costs of a property from the sale of production from the property, or may not recognize an acceptable return from properties acquired. In addition, exploration and development operations may not result in any increases in reserves. Exploration or development may be delayed or cancelled as a result of inadequate capital, compliance with governmental regulations, price controls or mechanical difficulties. In the future, the cost to find or acquire additional reserves may become prohibitive.
Oil and gas segment revenues are dependent on the ability to successfully complete drilling activity.
Drilling and exploration are one of the main methods of replacing reserves. However, drilling and exploration operations may not result in any increases in reserves for various reasons. Drilling and exploration may be curtailed, delayed or cancelled as a result of:
·
lack of acceptable prospective acreage;
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inadequate capital resources;
·
weather;
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title problems;
·
compliance with governmental regulations; and
·
mechanical difficulties.
Moreover, the costs of drilling and exploration may greatly exceed initial estimates. In such a case, the Company would be required to make additional expenditures to develop its drilling projects. Such additional and unanticipated expenditures could adversely affect the Company’s financial condition and results of operations.
Security issues exist relating to drivers, equipment and terminal facilities.
The Company transports liquid combustible materials including petrochemicals, and such materials may be a target for terrorist attacks. While the Company employs a variety of security measures to mitigate risks, no assurance can be given that such events will not occur.
Current and future litigation could have an adverse effect on the Company.
The Company is currently involved in certain administrative and civil legal proceedings as part of the ordinary course of its business. Moreover, as incidental to operations, the Company sometimes becomes involved in various lawsuits and/or disputes. Lawsuits and other legal proceedings can involve substantial costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. Although insurance is maintained to mitigate these costs, there can be no assurance that costs associated with lawsuits or other legal proceedings will not exceed the limits of insurance policies. The Company’s results of operations could be adversely affected if a judgment, penalty or fine is not fully covered by insurance.
The Company is subject to risks associated with climate change.
Potential climate change and efforts to regulate ‟greenhouse gas” (‟GHG’s”) emissions have the potential to adversely affect the Company’s business including negatively impacting the costs it incurs in providing its products and services, including costs to operate and maintain its facilities, install new emission controls on its facilities, acquire allowances to authorize its GHG emissions, pay any taxes related to GHG emissions, administer and manage a GHG emissions program, pay higher insurance premiums or accept greater risk of loss in areas affected by adverse weather and coastal regions in the event of rising sea levels. In addition, the demand for and consumption of its products and services (due to change in both costs and weather patterns), and the economic health of the regions in which the Company operates, could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
The Company is subject to risks related to cybersecurity.
The Company is subject to cybersecurity risks and may incur increasing costs in connection with its efforts to enhance and ensure security and in response to actual or attempted cybersecurity attacks.
Substantial aspects of the Company’s business depend on the secure operation of its computer systems and websites. Security breaches could expose the Company to a risk of loss, misuse, or interruption of sensitive and critical information and functions, including its own proprietary information and that of its customers, suppliers and employees. Such breaches could result in operational impacts, reputational harm, competitive disadvantage, litigation, regulatory enforcement actions, and liability. While the Company devotes substantial resources to maintaining adequate levels of cybersecurity, there can be no assurance that it will be able to prevent all of the rapidly evolving types of cyber attacks. Actual or anticipated attacks and risks may cause the Company to incur increasing costs for technology, personnel and services to enhance security or to respond to occurrences.
If the Company’s security measures are circumvented, proprietary information may be misappropriated, its operations may be disrupted, and its computers or those of its customers or other third parties may be damaged. Compromises of the Company’s security may result in an interruption of operations, violation of applicable privacy and other laws, significant legal and financial exposure, damage to its reputation, and a loss of confidence in its security measures.
Item 1B.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 3.
Item 3. LEGAL PROCEEDINGS
During 2013 and continuing in 2014, AREC has been noticed as a defendant in a number of Louisiana based suits involving alleged environmental contamination from prior drilling operations. Such suits typically allege improper disposal of oilfield wastes in earthen pits with one suit alleging subsidence contributing of the formation of a sink hole. The Company is currently named as a defendant in four such suits. The suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, Gustave J. LaBarre, Jr., et. al. v. Adams Resources Exploration Corporation et al dated October 2012, Edward Conner, et al v. Adams Resources Exploration Corporation dated October 2013 and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013. Each suit involves multiple industry defendants with substantially larger proportional interest in the properties. The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages. While management does not believe that a material adverse effect will result from the claims, significant attorney fees will be incurred to defend this item. As of December 31, 2013, the Company has accrued $200,000 of future legal costs for these matters.
From time to time as incident to its operations, the Company may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage, or that may exceed the level of insurance coverage, and could potentially represent a material adverse effect on the Company’s financial position or results of operations.
Item 4.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
Item 5.
Item 5.
MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on the NYSE MKT under the ticker symbol ‟AE”. The following table sets forth the high and low sales prices of the common stock as reported by the NYSE MKT for each calendar quarter since January 1, 2012.
At February 14, 2014 there were approximately 217 shareholders of record of the Company’s common stock and the closing stock price was $67.10 per share. The Company has no securities authorized for issuance under equity compensation plans. The Company made no repurchases of its stock during 2013 and 2012.
On December 17, 2012, the Company paid an annual cash dividend of $.62 per common share to its common stockholders. On each of June 17, 2013, September 17, 2013 and December 16, 2013 the Company paid quarterly cash dividend of $.22 per common share to common its stockholders. Such dividends totaled $2,614,954 and $3,027,841 for 2012 and 2013, respectively.
Performance Graph
The performance graph shown below was prepared under the applicable rules of the SEC based on data supplied by Research Data Group. The purpose of the graph is to show comparative total stockholder returns for the Company versus other investment options for a specified period of time. The graph was prepared based upon the following assumptions:
1.
$100.00 was invested on December 31, 2008 in the Company’s common stock, the S&P 500 Index, and the S&P 500 Integrated Oil and Gas Index.
2.
Dividends are reinvested on the ex-dividend dates.
Note: The stock price performance shown on the graph below is not necessarily indicative of future price performance.
12/08
12/09
12/10
12/11
12/12
12/13
Adams Resources & Energy, Inc.
100.00
132.70
149.73
183.26
224.99
444.24
S&P 500
100.00
126.46
145.51
148.59
172.37
228.19
S&P Integrated Oil & Gas
100.00
98.71
117.31
134.64
137.61
167.24
Item 6.
Item 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
________________________________
Notes:
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In 2012 and 2011, certain oil and natural gas producing properties were sold for $3.6 million and $6.6 million producing net gains of $2.2 million and $2.9 million, respectively.
-
The 2013, 2012 and 2011 oil and gas operating losses include property impairments totaling $2.6 million, $4.7 million and $14.8 million, respectively, recorded following unfavorable drilling results in 2013 and declining natural gas prices in 2012 and 2011.
Item 7.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- Crude Oil
Crude oil marketing revenues, operating earnings, depreciation and certain costs are as follows (in thousands):
Supplemental volume and price information:
(1) Reflects the volume purchased from third parties at the field level of operations.
Crude oil revenues increased in 2013 relative to 2012 and in 2012 relative to 2011 consistent with increased field level purchase volumes as shown in the table above. Volume increases resulted from new production established by the Company’s customer base in the Eagle Ford shale trend of South Texas beginning in 2011, coupled with a new area of operation established in the Bakken field of North Dakota during 2013.
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Crude Oil - Field Level Operating Earnings (Non GAAP Measure)
Two significant factors affecting comparative crude oil segment operating earnings are inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations. As a purchaser and shipper of crude oil, the Company holds inventory in storage tanks and third-party pipelines. Inventory sales turnover occurs approximately every three days, but the quantity held in stock at the end of a given period is reasonably consistent. As a result, during periods of increasing crude oil prices, the Company recognizes inventory liquidation gains while during periods of falling prices, the Company recognizes inventory liquidation and valuation losses. Over time, these gains and losses tend to offset and have limited impact on cash flow. While crude oil prices fluctuated during 2013 and 2012, the net impact yielded inventory valuation losses totaling $3,824,000 and $1,596,000, respectively as compared to inventory liquidation gains totaling $3,021,000 for 2011. As of December 31, 2013, the Company held 306,633 barrels of crude oil inventory at a composite average price of $90.06 per barrel.
Crude oil marketing operating earnings are also affected by the valuations of the Company’s forward month commodity contracts (derivative instruments) as of the various report dates. Such non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. The Company generally enters into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). Only those contracts qualifying as derivative instruments are accorded fair value treatment while the companion contracts to purchase crude oil at the wellhead (field level) are not accorded fair value treatment. The valuation of derivative instruments at period end requires the recognition of ‟mark-to-market” gains and losses. The impact on crude oil segment operating earnings of inventory liquidations and derivative valuations is summarized as follows (in thousands):
____________________________________
(1)
Such designation is unique to the Company and is not comparable to any similar measures developed by industry participants.
Field level operating earnings and field level purchase volumes (see earlier table) depict the Company’s day-to-day operation of acquiring crude oil at the wellhead, transporting the material, and delivering it to market at the sales point. Comparative crude oil field level operating earnings decreased in 2013 relative to 2012 but increased in 2012 relative to 2011 with the noted volume additions and fluctuating unit margins for the comparative periods. Unit margins initially began to widen during the third quarter of 2011 when South Texas sourced production started selling at a discount to world crude oil prices due to its relative abundance in relation to the infrastructure available to deliver such oil to market. The initial burst in unit margins was most prevalent during the third quarter of 2011 with favorable unit margins continuing into 2012, and then diminishing in 2013 as competition and additional industry infrastructure development progressed in the region. In addition, competitive pressure increased driver commission rates in 2013 and 2012 and a combination of higher mileage and deteriorating accident frequency increased insurance costs in 2013. The Company anticipates continued volume growth from South Texas and North Dakota sourced production as these regions continue to develop, although competition should narrow margins.
Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See discussion under Item 1A Risk Factors.
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Transportation
The transportation segment revenues and operating earnings were as follows (in thousands):
______________
(1)
Represents the percentage increase (decrease) from the prior year.
Revenues for the transportation segment were consistent and strong for the comparative periods due to consistent customer demand. Operating earnings for 2012 and 2011 benefitted from gains totaling $2.6 million and $1.2 million, respectively, from the sale of used equipment following the purchase of new truck replacements. Such sales did not recur in 2013 within the transportation segment. Operating earnings for 2013 were adversely impacted by increased depreciation, insurance and maintenance costs. As shown above, maintenance expense increased in 2013, in part due to increased environmental compliance costs.
The Company’s customers predominately consist of the domestic petrochemical industry and contributing to customer demand is low natural gas prices (a basic feedstock cost for the petrochemical industry) and high export demand for petrochemicals. With demand strength, industry capacity has been strained allowing rate increases and an opportunity for increased profitability. However, an industry wide shortage of qualified drivers has affected the Company by suppressing current year revenues and results of operations. As transportation revenues increase or decrease, operating earnings will typically increase or decrease at an accelerated rate. This trend exists because the fixed cost components of the Company’s operation do not vary with changing revenues. As currently configured, operating earnings project at break-even levels when annual revenues average approximately $54 million. Above that level, operating earnings will grow and below that level, losses result.
Transportation segment depreciation increased for 2013 and 2012 as older fully depreciated tractor units were replaced with new model year vehicles. During 2013, the Company purchased 35 new trailers with 17 serving as replacements. During 2012, the Company replaced 125 truck-tractors and one trailer. During 2011 the Company replaced 115 older model truck-tractor units and added 10 new units to the fleet. In addition, 25 trailers were added to the fleet during 2011.
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Oil and Gas
Oil and gas segment revenues and operating earnings are primarily a function of crude oil and natural gas production volumes and prices. Comparative amounts for revenues, operating earnings and depreciation and depletion were as follows (in thousands):
______________
(1)
Represents the percentage increase (decrease) from the prior year.
(2)
Includes gains from property sales of $2.2 million and $2.9 million in 2012 and 2011, respectively.
As shown in the table below, improving crude oil production volumes served to boost oil and gas segment revenues, with a partial offset occurring during 2013 as natural gas volumes declined. Such volume changes resulting from the interplay of recent drilling efforts and normal production declines as low prices curtailed natural gas drilling. Operating losses resulted in 2013, 2012 and 2011 following producing property impairments as well as increased prospect impairment expense as shown in the second table below. Property impairments resulted in 2013 following adverse drilling results while 2012 and 2011 impairments followed declines in the then current and forward price for natural gas.
Comparative volumes and prices were as follows:
___________________________
(1)
Crude oil prices and volumes include the sale of associated natural gas liquids production.
Comparative exploration and prospect impairment costs were as follows (in thousands):
During 2013, the Company participated in the drilling of 80 wells with three dry holes. Additionally, the Company had 34 wells in process on December 31, 2013 with ultimate evaluation anticipated during 2014. Converting natural gas volumes to equate with crude oil volumes at a ratio of six to one, production volumes and proved reserve changes summarize as follows, on an equivalent barrel (Eq. Bbls) basis:
For 2013 and for the three year period ended December 31, 2013, estimated reserve additions represented 157 percent and 72 percent, respectively, of production volumes. Such reserve additions resulted from active drilling efforts during the periods presented.
Given the present low natural gas price environment, exploration and development activity during 2014 will be substantially reduced. The Company’s current drilling and exploration efforts are primarily focused as follows:
West Texas Project
In 2008 the Company acquired an approximate 7.5% working interest in 49,015 gross acres located in Irion and Crockett Counties, Texas for the purpose of developing the Wolfcamp Shale. A total of 190 wells have been drilled through December 31, 2013 with 177 wells on production and 13 wells being completed. Drilling is expected to continue in 2014 with 31 wells scheduled for drilling. Production from the Wolfcamp area is oil-rich with large amounts of gas and natural gas liquids.
South Texas Project
This investment’s goal is to extend the productive area of the Eagle Ford trend north in Fayette and Lavaca Counties, Texas. Two wells have been drilled on this acreage indicating the project is on the gas-condensate window, but substantial Eagle Ford production has yet to be established. Evaluation of this project continues and the Company holds a five percent working interest in this project which includes approximately 46,800 acres currently under lease.
Kansas
The Company presently holds a 6.8% interest in 30,000 acres in Pratt County, Kansas with the objective of further developing the Mississippi Lime trend. One successful well has been completed on this acreage with a second well currently in process. If warranted by results, approximately 10 additional horizontal well sites can be developed on this acreage.
In addition to current active drilling efforts, the Company maintains a fractional interest in approximately 142,163 acres in the East Texas - Haynesville trend. The Haynesville program is a natural gas development play with the Company’s interest currently held by production and to date, the Company has participated in 93 wells on this acreage. Further development of this property is contingent on increased natural gas prices.
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Oil and gas property sales
In 2012, the Company sold, to third parties, its interest in two separate oil and gas producing properties. One of the properties was located on-shore Texas with the second property located in Federal waters offshore Louisiana. Proceeds from these two sales totaled $3,049,000 and the Company recorded a $1,728,000 pre-tax gain. Since both properties had depleted substantially from their initial productive period, the sales were consummated before the properties lost further value. Additionally in 2012, the Company sold to a third party fifty percent of its interest in certain Kansas oil and gas properties with the sale consummated to spur further development on the properties. Total proceeds were $578,000 and the Company recorded a $475,000 pre-tax gain on sale. The Company continues to participate in the development of these Kansas properties.
In 2011, the Company completed the sale of its interest in certain producing oil and gas properties located in the on-shore Gulf Coast region of Texas. Proceeds from the sale totaled $6.2 million and the pre-tax gain from this transaction totaled $2,708,000. Sales negotiations were conducted by the third party operator of the properties and the Company elected to participate in the sale due to attractive pricing. Also during 2011, the Company sold a portion of its interest in certain non-producing oil and gas properties located in West Texas. Total proceeds from the sale were $329,000 and the Company recorded a $125,000 gain from this transaction. Further in 2011, the Company sold an interest in certain non-producing properties for $90,000 in proceeds and gain.
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General and administrative expense, interest income and income tax
General and administrative expenses were generally consistent during the periods presented with elevated costs in 2013, 2012 and 2011 due to employee bonuses, consistent with increased corporate earnings. The provision for income taxes is based on Federal and State tax rates and variations are consistent with taxable income in the respective accounting periods.
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Discontinued operations
Effective October 31, 2013 and due to inadequate earnings, the Company completed an orderly wind-down and closure of its natural gas marketing segment. The Company incurred employee severance and other shut-down costs totaling $416,000 as a result of this event. All obligations were satisfied and no further matters are anticipated. During the first quarter of 2012, the Company sold contracts, inventory and certain equipment associated with its former refined products marketing segment and discontinued that operation. The pre-tax gain from this sale, net of first quarter 2012 operating expenses and wind-down cost totaled $808,000. See also Note 9 - Discontinued Operations to Unaudited Condensed Consolidated Financial Statements.
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Outlook
Crude oil marketing operations anticipate steady volume growth but competition continues to narrow unit margins by as much as one-third and an operating earnings decline is anticipated for 2014. Demand for transportation services remains strong but driver shortages and persistently high operating cost has dampened profitability within this segment. For the oil and gas segment, growth in production volumes should lead to continued earnings improvement especially if 2014 price increases in natural gas prices are sustained.
The Company has the following major objectives for 2014:
-
Manage declining marketing margins to maintain operating earnings at the $30 million level exclusive of inventory valuation gains or losses.
-
Maintain transportation operating earnings at the $5 million level.
-
Grow oil and gas operating earnings to the $2 million level.
Liquidity and Capital Resources
The Company’s liquidity primarily derives from net cash provided from operating activities, which was $43,976,000, $54,494,000 and $55,815,000 for each of 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, the Company had no bank debt or other forms of debenture obligations. Cash and cash equivalents totaled $60,733,000 as of December 31, 2013, and such balances are maintained in order to meet the timing of day-to-day cash needs. Working capital, the excess of current assets over current liabilities, totaled $79,561,000 as of December 31, 2013. The Company relies on its ability to obtain open-line trade credit from its suppliers especially with respect to its crude oil marketing operation. In this regard, the Company generally maintains substantial cash balances and avoids debt obligations.
Capital expenditures during 2013 included $14,508,000 for marketing and transportation equipment additions, primarily consisting of truck-tractors, and $13,094,000 in property additions associated with oil and gas exploration and production activities. For 2014, the Company anticipates expending an additional approximately $10 million on oil and gas development and exploration projects. In addition, approximately $3 million will be expended during 2014 primarily for the purchase of 30 trailers for the transportation segment and approximately $15 million will be expended by the crude oil marketing operation for the purchase of 42 truck-tractors, 51 trailers and the construction of a barge loading facility. The truck-tractors will serve to replace older units and to increase the marketing fleet by 32 units. Funding for these 2014 projects will be from operating cash flow and available working capital. Within certain constraints, the proposed projects can be delayed or cancelled should funding become unavailable.
At various times during each month, the Company makes cash prepayments and/or early payments in advance of the normal due date to certain suppliers of crude oil within the marketing operations. Crude oil supply prepayments totaled $13,705,000 as of December 31, 2013 and such amounts will be recouped and advanced from month to month as the suppliers deliver product to the Company. In addition, in order to secure crude oil supply, the Company may also ‟early pay” its suppliers in advance of the normal payment due date of the twentieth of the month following the month of production. Such ‟early payments” serve to reduce accounts payable as of the balance sheet date. The Company also requires certain counterparties to make similar early payments or to post cash collateral with the Company in order to support their purchases from the Company. Early payments received from customers serve to reduce accounts receivable as of the balance sheet date. Such cash collateral held by the Company totaled $6,938,000 as of December 31, 2013. The Company also maintains a stand-by letter of credit facility with Wells Fargo Bank to provide for the issuance of up to $60 million in stand-by letters of credit to suppliers of crude oil (see Note (1) to Consolidated Financial Statements). The issuance of stand-by letters of credit enables the Company to avoid posting cash collateral when procuring crude oil supply. As of December 31, 2013, letters of credit outstanding totaled $14.6 million. The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due. Management believes current cash balances, together with expected cash generated from future operations, and the ease of financing truck and trailer additions through leasing arrangements (should the need arise) will be sufficient to meet short-term and long-term liquidity needs.
The Company utilizes cash from operations to make discretionary investments in its marketing, transportation and exploration businesses, which comprise substantially all of the Company’s investing cash outflows for each of the periods in this filing. The Company does not look to proceeds from property sales to fund its cash flow needs. Except for an approximate $9.5 million commitment for storage tank terminal arrangements and office lease space, the Company’s future commitments and planned investments can be readily curtailed if operating cash flows contract.
Historically, the Company paid an annual dividend in the fourth quarter of each year, and the Company paid a $.62 per common share dividend or $2,615,000 to shareholders of record as of December 3, 2012. On June 17, 2013, the Company initiated a quarterly dividend of $.22 per common share or $928,000. A quarterly dividend of $.22 per common share or $928,000 was also paid during both the third and fourth quarters of 2013. The most significant item affecting future increases or decreases in liquidity is earnings from operations and such earnings are dependent on the success of future operations (see Item 1A. Risk Factors in this annual report on Form 10-K).
Off-balance Sheet Arrangements
The Company maintains certain operating lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis. In addition, the Company has entered into certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business. Such contracts require certain minimum monthly payments for the term of the contracts. All operating lease commitments qualify for off-balance sheet treatment. Rental expense for the years ended December 31, 2013, 2012, and 2011 was $8,281,000, $8,110,000 and $7,621,000, respectively. As of December 31, 2013, rental commitments under long-term non-cancelable operating leases and terminal arrangements for the next five years are payable as follows: 2014 - $3,138,000; 2015 - $1,931,000; 2016 - $1,910,000; 2017 - $1,690,000; 2018 - $804,000 and $40,000 thereafter.
Contractual Cash Obligations
The Company has no capital lease obligations. The Company has entered into certain operating lease arrangements and terminal access agreements for tankage, truck-tractors, trailers and office space. A summary of the lease payment periods for contractual cash obligations is as follows (in thousands):
In addition to its lease obligations, the Company is also committed to purchase certain quantities of crude oil in connection with its marketing activities. Such commodity purchase obligations are the basis for commodity sales, which generate the cash flow necessary to meet such purchase obligations. Approximate commodity purchase obligations as of December 31, 2013 are as follows (in thousands):
Insurance
From time to time, the marketplace for all forms of insurance enters into periods of severe cost increases. In the past, during such cyclical periods, the Company has seen costs escalate to the point where desired levels of insurance were either unavailable or unaffordable. The Company’s primary insurance needs are workers’ compensation, automobile and umbrella coverage for its trucking fleet and medical insurance for employees. During each of 2013, 2012 and 2011, insurance costs totaled $14.9 million, $11.5 million and $10.1 million, respectively with 2013 costs elevated due to adverse claims experience. Insurance cost may experience rate increases during 2014 subject to market conditions and claims experience. Since the Company is generally unable to pass on such cost increases, any increase will need to be absorbed by existing operations.
Competition
In all phases of its operations, the Company encounters strong competition from a number of entities. Many of these entities possess financial resources substantially in excess of those of the Company. The Company faces competition principally in establishing trade credit, pricing of available materials and quality of service as well as for the acquisition of mineral properties. The Company’s marketing division competes with major oil companies and other large industrial concerns that own or control significant refining and marketing facilities. These major oil companies may offer their products to others on more favorable terms than those available to the Company. From time to time in recent years, there have been supply imbalances for crude oil and natural gas in the marketplace. This in turn has led to significant fluctuations in prices for crude oil and natural gas. As a result, there is a high degree of uncertainty regarding both the future market price for crude oil and natural gas and the available margin spread between wholesale acquisition costs and sales realization.
Critical Accounting Policies and Use of Estimates
Fair Value Accounting
The Company enters into certain forward commodity contracts that are required to be recorded at fair value and such contracts are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and the Company elects, cash flow hedge accounting. The Company had no contracts designated for hedge accounting during 2013, 2012 and 2011.
The Company utilizes a market approach to valuing its commodity contracts. On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts that typically have durations of less than 18 months. As of December 31, 2013, all of the Company’s market value measurements were based on either quoted prices in active markets (Level 1 inputs) or from inputs based on observable market data (Level 2 inputs). See discussion under ‟Fair Value Measurements” in Note 1 to the Consolidated Financial Statements.
The Company’s fair value contracts give rise to market risk, which represents the potential loss that may result from a change in the market value of a particular commitment. The Company monitors and manages its exposure to market risk to ensure compliance with the Company’s risk management policies. Such policies are regularly assessed to ensure their appropriateness given management’s objectives, strategies and current market conditions.
Trade Accounts
Accounts receivable and accounts payable typically represent the most significant assets and liabilities of the Company. Particularly within the Company’s energy marketing, oil and gas exploration, and production operations, there is a high degree of interdependence with and reliance upon third parties (including transaction counterparties) to provide adequate information for the proper recording of accounts receivable or payable. Substantially all such third parties are larger firms providing the Company with the source documents for recording trade activity. It is commonplace for these entities to retroactively adjust or correct such documents. This typically requires the Company to absorb, benefit from, or pass along such corrections to another third party.
Due to the volume of and complexity of transactions and the high degree of interdependence with third parties, this is a difficult area to control and manage. The Company manages this process by participating in a monthly settlement process with each of its counterparties. Ongoing account balances are monitored monthly and the Company attempts to gain the cooperation of such counterparties to reconcile outstanding balances. The Company also places great emphasis on collecting cash balances due and paying only bonafide and properly supported claims. In addition, the Company maintains and monitors its bad debt allowance. Nevertheless a degree of risk remains due to the custom and practices of the industry.
Oil and Gas Reserve Estimate
The value of the capitalized cost of oil and natural gas exploration and production related assets are dependent on underlying oil and natural gas reserve estimates. Reserve estimates are based on many subjective factors. The accuracy of these estimates depends on the quantity and quality of geological data, production performance data, reservoir engineering data, the pricing assumptions utilized as well as the skill and judgment of petroleum engineers in interpreting such data. The process of estimating reserves requires frequent revision (usually on an annual basis) as additional information becomes available. Calculations of estimated future oil and natural gas revenues are also based on estimates of the timing of oil and natural gas production, and there are no assurances that the actual timing of production will conform to or approximate such estimates. Also, certain assumptions must be made with respect to pricing. The Company’s calculations assume prices will remain constant from the date of the engineer’s estimates, except for changes reflected under natural gas sales contracts. There can be no assurance that actual future prices will not vary as industry conditions, governmental regulation, political conditions, economic conditions, weather conditions, market uncertainty, and other factors, impact the market price for oil and natural gas.
The Company follows the successful efforts method of accounting, so only costs (including development dry hole costs) associated with producing oil and natural gas wells are capitalized. Estimated oil and natural gas reserve quantities are the basis for the rate of amortization under the Company’s units of production method for depreciating, depleting and amortizing oil and natural gas properties. Estimated oil and natural gas reserve values also provide the standard for the Company’s periodic review of oil and natural gas properties for impairment.
Contingencies
During 2013 and continuing in 2014, AREC was noticed as a defendant in a number of Louisiana based lawsuits involving alleged environmental contamination from prior drilling operations. Such suits typically allege improper disposal of oilfield wastes in earthen pits with one suit alleging oil and gas production subsidence contributing to the formation of a sink hole. The Company is currently named as a defendant in four such suits. Each suit involves multiple industry defendants with substantially larger proportional interest in the properties. While management does not believe that a material adverse effect will result from the claims, significant attorney fees will be incurred to defend these items. As of December 31, 2013, the Company has accrued $200,000 of future legal costs for these matters.
From time to time as incident to its operations, the Company becomes involved in various accidents, lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims or other items of general liability as are typical for the industry. In addition, the Company has extensive operations that must comply with a wide variety of tax laws, environmental laws and labor laws, among others. Should an incident occur, management evaluates the claim based on its nature, the facts and circumstances and the applicability of insurance coverage. To the extent management believes that such event may impact the financial condition of the Company, management will estimate the monetary value of the claim and make appropriate accruals or disclosure as provided in the appropriate accounting literature guidelines.
Revenue Recognition
The Company’s crude oil marketing customers are invoiced daily or monthly based on contractually agreed upon terms. Revenue is recognized in the month in which the physical product is delivered to the customer. Where required, the Company also recognizes fair value or mark-to-market gains and losses related to its commodity activities. See discussion under Revenue Recognition policy in Note (1) to the Consolidated Financial Statements.
Transportation segment customers are invoiced, and the related revenue is recognized as the service is provided. Oil and natural gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and natural gas passes to the purchaser.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (‟FASB”) issued ASU 2011-11. This update requires additional disclosures about an entity’s right of setoff and related arrangements associated with its financial and derivative instruments. The ASU requires a tabular presentation that reflects the gross, net and setoff amounts associated with such assets and liabilities among other requirements. The Company adopted ASU 2011-11 effective January 1, 2013 and the adoption of ASU 2011-11 did not have a material impact on the Company’s consolidated financial statements, but additional disclosures regarding fair value measurements resulted.
Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows upon adoption.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s exposure to market risk includes potential adverse changes in interest rates and commodity prices.
Interest Rate Risk
The Company had no long-term debt outstanding at December 31, 2013 and 2012. A hypothetical ten percent adverse change in the floating rate would not have a material effect on the Company’s results of operations for the fiscal year ended December 31, 2013.
Commodity Price Risk
The Company’s major market risk exposure is in the pricing applicable to its marketing and production of crude oil and natural gas. Realized pricing is primarily driven by the prevailing spot prices applicable to oil and gas. Commodity price risk in the Company’s marketing operations represents the potential loss that may result from a change in the market value of an asset or a commitment. From time to time, the Company enters into forward contracts to minimize or hedge the impact of market fluctuations on its purchases of crude oil and natural gas. The Company may also enter into price support contracts with certain customers to secure a floor price on the purchase of certain supply. In each instance, the Company locks in a separate matching price support contract with a third party in order to minimize the risk of these financial instruments. Substantially all forward contracts fall within a six-month to eighteen-month term with no contracts extending longer than two years in duration.
Certain forward contracts are recorded at fair value, depending on management’s assessments of numerous accounting standards and positions that comply with generally accepted accounting principles in the United States. The fair value of such contracts is reflected in the balance sheet as fair value assets and liabilities and any revaluation is recognized on a net basis in the Company’s results of operations. See discussion under ‟Fair Value Measurements” in Note 1 to the Consolidated Financial Statements.
Historically, prices received for oil and natural gas sales have been volatile and unpredictable with price volatility expected to continue. From January 1, 2012 through December 31, 2013, the Company’s crude oil monthly average wholesale purchase costs ranged from an average low of $86.05 per barrel to a monthly average high of $113.10 per barrel during the same period. A hypothetical ten percent adverse change in average hydrocarbon prices, assuming no changes in volume levels, would have reduced earnings by approximately $4,173,000 and $3,937,000 for the comparative years ended December 31, 2013 and 2012, respectively.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Operations for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Adams Resources & Energy, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Adams Resources & Energy, Inc. and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Adams Resources & Energy, Inc. and subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2014, expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Houston, Texas
March 13, 2014
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
The accompanying notes are an integral part of these consolidated financial statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
The accompanying notes are an integral part of these consolidated financial statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
The accompanying notes are an integral part of these consolidated financial statements.
ADAMS RESOURCES & ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Adams Resources & Energy, Inc., a Delaware corporation (‟ARE”) together with its wholly owned subsidiaries (the ‟Company”) after elimination of all intercompany accounts and transactions. The impact on the accompanying financial statements of events occurring after December 31, 2013 were evaluated through the date of issuance of these financial statements.
Nature of Operations
The Company is engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals, and oil and gas exploration and production. Its primary area of operation is within a 1,000 mile radius of Houston, Texas.
Cash and Cash Equivalents
Cash and cash equivalents include any Treasury bill, commercial paper, money market fund or federal funds with maturity of 90 days or less. Depending on cash availability and market conditions, investments in corporate and municipal bonds, which are classified as investments in marketable securities, may also be made from time to time. Cash and cash equivalents are maintained with major financial institutions and such deposits may exceed the amount of federally backed insurance provided. While the Company regularly monitors the financial stability of such institutions, cash and cash equivalents ultimately remain at risk subject to the financial viability of such institutions.
Marketable Securities
From time to time, the Company may invest in marketable securities consisting of investment grade corporate bonds traded in liquid markets. Such bonds are held for the purpose of investing in liquid funds and are not generally intended to be retained on a long term basis. Marketable securities are initially recognized at acquisition costs inclusive of transaction costs and are classified as trading securities. In subsequent periods, marketable securities are valued at fair value. Changes in these fair values are recognized as gains or losses in the accompanying statement of operations under the caption ‟Costs and Expenses - Marketing”. Interest on marketable securities is recognized directly in the statement of operations during the period earned.
Allowance for Doubtful Accounts
Accounts receivable result from sales of crude oil, natural gas and trucking services. Marketing business wholesale level sales of crude oil comprise in excess of 90 percent of accounts receivable and under industry practices, such items are ‟settled” and paid in cash within 20 days of the month following the transaction date. For such receivables, an allowance for doubtful accounts is determined based on specific account identification. The balance of accounts receivable results primarily from sales of trucking services. For this component of receivables, the allowance for doubtful accounts is determined based on a review of specific accounts combined with a review of the general status of the aging of all accounts.
Inventories
Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of the Company’s crude oil marketing operations. Crude oil inventory is carried at the lower of average cost or market.
Prepayments
The components of prepayments and other are as follows (in thousands):
Property and Equipment
Expenditures for major renewals and betterments are capitalized, and expenditures for maintenance and repairs are expensed as incurred. Interest costs incurred in connection with major capital expenditures are capitalized and amortized over the lives of the related assets. When properties are retired or sold, the related cost and accumulated depreciation, depletion and amortization is removed from the accounts and any gain or loss is reflected in earnings.
Oil and gas exploration and development expenditures are accounted for in accordance with the successful efforts method of accounting. Direct costs of acquiring developed or undeveloped leasehold acreage, including lease bonus, brokerage and other fees, are capitalized. Exploratory drilling costs are initially capitalized until the properties are evaluated and determined to be either productive or nonproductive. Such evaluations are made on a quarterly basis. If an exploratory well is determined to be nonproductive, the costs of drilling the well are charged to expense. Costs incurred to drill and complete development wells, including dry holes, are capitalized. As of December 31, 2013, the Company had no unevaluated or suspended exploratory drilling costs.
Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. For lease and well equipment, development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. All other property and equipment is depreciated using the straight-line method over the estimated average useful lives of three to twenty years.
The Company reviews its long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable. Any impairment recognized is permanent and may not be restored. Producing oil and gas properties are reviewed on a field-by-field basis. For properties requiring impairment, the fair value is estimated based on an internal discounted cash flow model. Cash flows are developed based on estimated future production and prices and then discounted using a market based rate of return consistent with that used by the Company in evaluating cash flows for other assets of a similar nature. For the years ended December 31, 2013, 2012 and 2011, there were $1,373,000, $4,699,000 and $7,105,000 respectively, of impairment provisions on producing oil and gas properties.
Fair value measurements for producing oil and gas properties that were subject to fair value impairment for the years ended December 31, 2013 and 2012 summarized as follows (in thousands):
Fair value measurements for producing oil and gas properties are based on Level 3 - Significant Unobservable Inputs - (see “Fair Value Measurements” below).
On a quarterly basis, management evaluates the carrying value of non-producing oil and gas leasehold properties and may deem them impaired based on remaining lease term, area drilling activity and the Company’s plans for the property. This fair value measure depends highly on management’s assessment of the likelihood of continued exploration efforts in a given area and, as such, data inputs are categorized as ‟unobservable or Level 3” inputs. Importantly, this fair value measure only applies to the write-down of capitalized costs and will never result in an increase to reported earnings. Accordingly, impairment provisions on non-producing properties totaling $1,257,000, $856,000 and $7,644,000 were recorded for the years ending December 31, 2013, 2012 and 2011, respectively. Capitalized costs for non-producing oil and gas leasehold interests currently represent approximately five percent of total oil and gas property costs and are categorized as follows (in thousands):
The South Texas, West Texas and Napoleonville acreage areas have active or scheduled drilling operations underway and holding the underlying acreage is essential to the ongoing exploration effort. The ‟Other Acreage Areas” category consists of smaller onshore interests dispersed over a wide geographical area. Since the Company is generally not the operator of its oil and gas property interests, it does not maintain underlying detail acreage data and is dependent on the operator when determining which specific acreage will ultimately be drilled. However, the capitalized cost detail on a property-by-property basis is reviewed by management and deemed impaired if development is not anticipated prior to lease expiration. Onshore leasehold periods are normally three years and may contain renewal options. Capitalized cost activity on the ‟Other Acreage Areas” was as follows (in thousands):
During 2012, the Company sold half of its interest in certain non-producing Kansas oil and gas properties. Proceeds from the sale totaled $578,000 and the Company recorded a $475,000 pre-tax gain from this sale. Also during 2012, the Company sold its interest in two oil and gas producing property units for total proceeds of $3,049,000. The Company realized a $1,728,000 pre-tax gain from these two sales. In January 2011, the Company completed the sale of its interest in certain producing oil and gas properties located in the on-shore Gulf Coast region of Texas. Proceeds from the 2011 sale totaled $6.2 million and the pre-tax gain totaled $2,708,000. Also during 2011, the Company sold a portion of its interest in certain non-producing oil and gas properties located in West Texas for $329,000 with a $125,000 pre-tax gain from this transaction.
During 2013, 2012 and 2011, the Company sold certain used trucks and equipment from its marketing and transportation segments and recorded pre-tax gains totaling $372,000, $2,482,000 and $1,246,000, respectively.
Cash Deposits and Other Assets
The Company has established certain deposits to support participation in its liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are invested at the discretion of the Company’s insurance carrier and such investments primarily consist of intermediate term federal government bonds and bonds backed by federal agencies. Components of cash deposits and other assets are as follows (in thousands):
Revenue Recognition
Commodity purchase and sale contracts utilized by the Company’s marketing business generally qualify as derivative instruments with certain specifically identified crude oil contracts designated as trading activities. From the time of contract origination, such trading activity contracts are marked-to-market and recorded on a net revenue basis in the accompanying consolidated financial statements.
Most all crude oil purchase and sale contracts qualify and are designated as non-trading activities and the Company considers such contracts as normal purchases and sales activity. For normal purchases and sales the Company’s customers are invoiced monthly based upon contractually agreed upon terms with revenue recognized in the month in which the physical product is delivered to the customer. Such sales are recorded gross in the financial statements because the Company takes title, has risk of loss for the products, is the primary obligor for the purchase, establishes the sale price independently with a third party, and maintains credit risk associated with the sale of the product.
Certain crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. Such buy/sell arrangements are reflected on a net revenue basis in the accompanying consolidated financial statements. Reporting such crude oil contracts on a gross revenue basis would increase the Company’s reported revenues by $1,602,626,000, $1,381,352,000 and $1,812,561,000 for the years ended December 31, 2013, 2012 and 2011, respectively.
Transportation segment customers are invoiced, and the related revenue is recognized, as the service is provided. Oil and gas revenue from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.
Letter of Credit Facility
The Company maintains a Credit and Security Agreement with Wells Fargo Bank to provide a $60 million stand-by letter of credit facility that is used to support the Company’s crude oil purchases within the marketing segment. This facility is collateralized by the eligible accounts receivable within the segment and certain marketing and transportation equipment. Stand-by letters of credit issued totaled $14.6 million and $21.9 million as of December 31, 2013 and 2012, respectively. The issued stand-by letters of credit are cancelled as the underlying purchase obligations are satisfied by cash payment when due. The letter of credit facility places certain restrictions on the Company’s Gulfmark Energy, Inc. subsidiary. Such restrictions included the maintenance of a combined 1.1 to 1.0 current ratio and the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions. The Company is currently in compliance with all such financial covenants.
Statement of Cash Flows
Interest paid totaled $24,000, $10,000 and $8,000 during the years ended December 31, 2013, 2012 and 2011, respectively. Income taxes paid during these same periods totaled $9,949,000, $12,650,000, and $5,597,000, respectively. In addition, State and Federal income tax refunds totaled $4,000, $10,000 and $2,743,000 in 2013, 2012 and 2011, respectively. Non-cash investing activities for property and equipment items included in accounts payable as of period end were $1,507,000, $2,419,000 and $4,070,000 as of December 31, 2013, 2012 and 2011, respectively. There were no significant non-cash financing activities in any of the periods reported.
Earnings per Share
Earnings per share are based on the weighted average number of shares of common stock and potentially dilutive common stock shares outstanding during the period. The weighted average number of shares outstanding was 4,217,596 for 2013, 2012 and 2011. There were no potentially dilutive securities during those periods.
Share-Based Payments
During the periods presented herein, the Company had no stock-based employee compensation plans, nor any other share-based payment arrangements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Examples of significant estimates used in the accompanying consolidated financial statements include the oil and gas reserve volumes that form the foundation for calculating depreciation, depletion and amortization and estimating cash flows to assess impairment triggers and estimated values associated with oil and gas properties. Other examples include revenue accruals, the provision for bad debts, insurance related accruals, income tax permanent and timing differences, contingencies, and valuation of fair value contracts.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis (see Note 2).
Use of Derivative Instruments
The Company’s marketing segment is involved in the purchase and sale of crude oil. The Company seeks to make a profit by procuring this commodity as it is produced and then delivering the material to end users or the intermediate use marketplace. As is typical for the industry, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Certain of these contracts meet the definition of a derivative instrument and therefore, the Company accounts for such contracts at fair value, unless the normal purchase and sale exception is applicable. Such underlying contracts are standard for the industry and are the governing document for the Company’s crude oil wholesale distribution businesses. The accounting methodology utilized by the Company for its commodity contracts is further discussed below under the caption ‟Fair Value Measurements”.
None of the Company’s derivative instruments have been designated as hedging instruments and the estimated fair value of forward month commodity contracts (derivatives) is reflected in the accompanying Consolidated Balance Sheet as of December 31, 2013 as follows (in thousands):
As of December 31, 2013, one 100,000 barrel crude oil commodity put option and one commodity purchase and sale contract comprised the Company’s derivative valuations. The purchase and sale contract encompasses approximately 175 barrels of crude oil per day in each of January and February 2014.
Forward month commodity contracts (derivatives) are reflected in the accompanying Consolidated Balance Sheet as of December 31, 2012 as follows (in thousands):
As of December 31, 2012, three commodity purchase and sales contracts comprised substantially all of the Company’s derivative valuations. Such contracts encompassed the purchase and sale of approximately 900 barrels of crude oil per day in January 2013 and continuing at 200 barrels per day through June 2013.
The Company only enters into commodity contracts with creditworthy counterparties or obtains collateral support for such activities. As of December 31, 2013 and 2012, the Company was not holding nor had it posted any collateral to support its forward month fair value derivative activity. The Company is not subject to any credit-risk related trigger events. The Company has no other financial investment arrangements that would serve to offset its derivative contracts.
Forward month commodity contracts (derivatives) are reflected in the accompanying Consolidated Statement of Operations for the years ended December 31, 2013, 2012 and 2011 as follows (in thousands):
Fair Value Measurements
The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.
Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and the Company elects, cash flow hedge accounting. The Company had no contracts designated for hedge accounting during any reporting periods.
Fair value estimates are based on assumptions that market participants would use when pricing an asset or liability and the Company uses a fair value hierarchy of three levels that prioritizes the information used to develop those assumptions. Currently, for all items presented herein, the Company utilizes a market approach to valuing its contracts. On a contract by contract, forward month by forward month basis, the Company obtains observable market data for valuing its contracts. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The fair value hierarchy is summarized as follows:
Level 1 - quoted prices in active markets for identical assets or liabilities that may be accessed at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. For Level 1 valuation of marketable securities, the Company utilizes market quotations provided by its primary financial institution and for the valuations of derivative financial instruments, the Company utilizes the New York Mercantile Exchange ‟NYMEX” for such valuations.
Level 2 - (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical assets or liabilities but in markets that are not actively traded or in which little information is released to the public, (c) observable inputs other than quoted prices, and (d) inputs derived from observable market data. Source data for Level 2 inputs include information provided by the NYMEX, published price data and indices, third party price survey data and broker provided forward price statistics.
Level 3 - Unobservable market data inputs for assets or liabilities.
As of December 31, 2013, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):
As of December 31, 2012, the Company’s fair value assets and liabilities are summarized and categorized as follows (in thousands):
When determining fair value measurements, the Company makes credit valuation adjustments to reflect both its own nonperformance risk and its counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, the impact of netting and applicable credit enhancements, such as collateral postings, thresholds, and guarantees are considered. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by the Company or its counterparties. As of December 31, 2013 and 2012, credit valuation adjustments were not significant to the overall valuation of the Company’s fair value contracts. As a result, fair value assets and liabilities are included in their entirety in the fair value hierarchy.
The following table illustrates the factors impacting the change in the net value of the Company’s fair value contracts for the year ended December 31, 2013 (in thousands):
The following table illustrates the factors impacting the change in the net value of the Company’s fair value contracts for the year ended December 31, 2012 (in thousands):
Asset Retirement Obligations
The Company records a liability for the estimated retirement costs associated with certain tangible long-lived assets. The estimated fair value of asset retirement obligations are recorded in the period in which they are incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the useful life of the asset or the units of production associated with the related asset. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. A summary of the Company’s asset retirement obligations is presented as follows (in thousands):
In addition to an accrual for asset retirement obligations, the Company maintains $75,000 in escrow cash, which is legally restricted for the potential purpose of settling asset retirement costs in accordance with certain state regulations. Such cash deposits are included in other assets in the accompanying consolidated balance sheet.
Recent Accounts Pronouncement
In December 2011, the Financial Accounting Standards Board (‟FASB”) issued ASU 2011-11. This update requires additional disclosures about an entity’s right of setoff and related arrangements associated with its financial and derivative instruments. The ASU requires a tabular presentation that reflects the gross, net and setoff amounts associated with such assets and liabilities among other requirements. The Company adopted ASU 2011-11 effective January 1, 2013 and the adoption of ASU 2011-11 did not have a material impact on the Company’s consolidated financial statements, but additional disclosures regarding fair value measurements resulted.
Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption.
(2) Income Taxes
The following table shows the components of the Company’s income tax (provision) benefit (in thousands):
The following table summarizes the components of the income tax (provision) benefit (in thousands):
Taxes computed at the corporate federal income tax rate reconcile to the reported income tax (provision) as follows (in thousands):
Deferred income taxes reflect the net difference between the financial statement carrying amounts and the underlying income tax basis in such items. The components of the federal deferred tax asset (liability) are as follows (in thousands):
Financial statement recognition and measurement of positions taken, or expected to be taken, by an entity in its income tax returns must consider the uncertainty and judgment involved in the determination and filing of income taxes. Tax positions taken in an income tax return that are recognized in the financial statements must satisfy a more-likely-than-not recognition threshold, assuming that the tax position will be examined by taxing authorities with full knowledge of all relevant information. The Company has no significant unrecognized tax benefits. Interest and penalties associated with income tax liabilities are classified as income tax expense.
The earliest tax years remaining open for audit for Federal and major states of operations are as follows:
(3) Concentration of Credit Risk
Credit risk represents the amount of loss the Company would absorb if its customers failed to perform pursuant to contractual terms. Management of credit risk involves a number of considerations, such as the financial profile of the customer, the value of collateral held, if any, specific terms and duration of the contractual agreement, and the customer’s sensitivity to economic developments. The Company has established various procedures to manage credit exposure, including initial credit approval, credit limits, and rights of offset. Letters of credit and guarantees are also utilized to limit credit risk. Accounts receivable associated with crude oil marketing activities comprise approximately 90 percent of the Company’s total receivables and industry practice requires payment for such sales to occur within 20 days of the end of the month following a transaction. The Company’s customer makeup, credit policies and the relatively short duration of receivables mitigate the uncertainty typically associated with receivables management.
The Company’s largest customers consist of large multinational integrated oil companies and independent domestic refiners of crude oil. In addition, the Company transacts business with independent oil producers, major chemical concerns, crude oil trading companies and a variety of commercial energy users. Within this group of customers, the Company generally derives approximately 50 percent of its revenues from three to four large crude oil refining concerns. While the Company has ongoing established relationships with certain domestic refiners of crude oil, alternative markets are readily available since the Company supplies less than one percent of U. S. domestic refiner demand. As a fungible commodity delivered to major Gulf Coast supply points, the Company’s crude oil sales can be readily delivered to alternative end markets. Management believes that a loss of any of those customers where the Company currently derives more than 10 percent of its revenues would not have a material adverse effect on the Company’s operations.
The Company had revenues from four customers in 2013 that comprised 18.5 percent, 17.7 percent, 15.8 percent and 10.4 percent of total revenues, respectively. During 2012, three customers comprised 20.2 percent, 17.9 percent and 16.8 percent of total revenues. During 2011, four customers comprised 18.2 percent, 15.4 percent, 13.4 percent and 11.3 percent of total revenues.
The Company had accounts receivable from three customers that comprised 16.0 percent, 15.8 percent and 12.7 percent, respectively of total accounts receivables at December 31, 2013. Three customers comprised 22.1 percent, 21.4 percent and 11.4 percent, respectively, of total accounts receivable as of December 31, 2012. Two customers comprised 24.5 percent and 21.5 percent, respectively, of total accounts receivable at December 31, 2011.
An allowance for doubtful accounts is provided where appropriate and accounts receivable presented herein are net of allowances for doubtful accounts of $252,000 and $206,000 at December 31, 2013 and 2012, respectively.
An analysis of the changes in the allowance for doubtful accounts is presented as follows (in thousands):
(4) Employee Benefits
The Company maintains a 401(k) savings plan for the benefit of its employees. The Company’s contributory expenses for the plan were $674,000, $645,000 and $597,000 in 2013, 2012 and 2011, respectively. No other pension or retirement plans are maintained by the Company.
(5) Transactions with Affiliates
The late Mr. K. S. Adams, Jr., former Chairman of the Board and certain of his family partnerships and affiliates have participated as working interest owners with the Company’s subsidiary, Adams Resources Exploration Corporation. Mr. Adams and such affiliates participated on terms similar to those afforded other non-affiliated working interest owners. In recent years, such related party transactions generally resulted after the Company first identified oil and gas prospects of interest. Typically the available dollar commitment to participate in such transactions was greater than the amount management was comfortable putting at risk. In such event, the Company first determined the percentage of the transaction it wanted to obtain, which allowed a related party to participate in the investment to the extent there was excess available. In those instances where there was no excess availability there was no related party participation. Similarly, related parties were not required to participate, nor was the Company obligated to offer any such participation to a related or other party. When such related party transactions occurred, they were individually reviewed and approved by the Audit Committee comprised of the independent directors on the Company’s Board of Directors. During 2013 and 2012, the Company’s investment commitments totaled approximately $12 million and $22.7 million, respectively, in those oil and gas projects where a related party was also participating in such investments. As of December 31, 2013 and 2012, the Company owed a combined net total of $38,000 and $42,000, respectively, to these related parties. In connection with the operation of certain oil and gas properties, the Company also charges such related parties for administrative overhead primarily as prescribed by the Council of Petroleum Accountants Society Bulletin 5. Such overhead recoveries totaled $152,000, $152,000 and $145,000 for the years ended December 31, 2013, 2012, and 2011, respectively.
The Company also enters into certain transactions in the normal course of business with other affiliated entities including direct cost reimbursement for shared phone and secretarial services. For the years ended December 31, 2013, 2012 and 2011, the affiliated entities charged the Company $69,000, $64,000 and $42,000, respectively, of expense reimbursement and the Company charged the affiliates $99,000, $98,000 and $118,000, respectively, for such expense reimbursements. In January 2012, the Company relocated its primary office lease space to a building operated by an affiliated entity. The lease rental rate was determined by an independent appraisal. Rental expense paid to the related party for 2013 and 2012 totaled $481,000 and $442,000, respectively.
(6) Commitments and Contingencies
The Company maintains certain operating lease arrangements with independent truck owner-operators for use of their equipment and driver services on a month-to-month basis. In addition, the Company has entered into certain lease and terminal access contracts in order to provide tank storage and dock access for its crude oil marketing business. All operating lease commitments qualify for off-balance sheet treatment. Such contracts require certain minimum monthly payments for the term of the contracts. Rental expense for the years ended December 31, 2013, 2012, and 2011 was $8,281,000, $8,110,000 and $7,621,000, respectively. At December 31, 2013, commitments under long-term non-cancelable operating leases and terminal arrangements for the next five years and thereafter are payable as follows: 2014 - $3,138,000; 2015 - $1,931,000; 2016 - $1,910,000; 2017 - $1,690,000; 2018 - $804,000 and $40,000 thereafter.
Under the Company’s automobile and workers’ compensation insurance policies, the Company can either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally in certain instances the risk of insured losses is shared with a group of similarly situated entities. The Company has appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to the Company or its insurance carrier of $1,796,000 and $1,545,000 as of December 31, 2013 and 2012, respectively.
Effective January 1, 2012, the Company began a self-insurance program for managing employee medical claims. On a monthly basis, the Company establishes a liability for expected claims incurred. As claims are paid, the liability is relieved. As of December 31, 2013 and 2012, accrued medical claims totaled $1,129,000 and $506,000, respectively. The Company maintains third party insurance stop-loss coverage for annual individual medical claims exceeding $100,000. In addition, the Company maintains $2 million of umbrella insurance coverage for aggregate medical claims exceeding approximately $4.5 million for the calendar years 2013 and 2014.
During 2013 and continuing in 2014, AREC has been noticed as a defendant in a number of Louisiana based suits involving alleged environmental contamination from prior drilling operations. Such suits typically allege improper disposal of oilfield wastes in earthen pits with one suit alleging subsidence contributing of the formation of a sink hole. The Company is currently named as a defendant in four such suits. The suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004, Gustave J. LaBarre, Jr., et. al. v. Adams Resources Exploration Corporation et al dated October 2012, Edward Conner, et al v. Adams Resources Exploration Corporation dated October 2013 and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013. Each suit involves multiple industry defendants with substantially larger proportional interest in the properties. The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages. While management does not believe that a material adverse effect will result from the claims, significant attorney fees will be incurred to defend this item. As of December 31, 2013, the Company has accrued $200,000 of future legal costs for these matters.
From time to time as incidental to its operations, the Company may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, the Company is a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. Management of the Company is presently unaware of any claims against the Company that are either outside the scope of insurance coverage, or that may exceed the level of insurance coverage and, therefore could potentially represent a material adverse effect on the Company’s financial position or results of operations.
(7) Guarantees
ARE issues parent guarantees of commitments resulting from the ongoing activities of its subsidiary companies. The guarantees generally result from subsidiary commodity purchase obligations, subsidiary operating lease commitments and subsidiary banking transactions. The nature of such items is to guarantee the performance of the subsidiary companies in meeting their respective underlying obligations. Except for operating lease commitments and letters of credit, all such underlying obligations are recorded on the books of the subsidiary companies and are included in the consolidated financial statements included herein. Therefore, no such obligation is recorded again on the books of the parent. The parent would only be called upon to perform under the guarantee in the event of a payment default by the applicable subsidiary company. In satisfying such obligations, the parent would first look to the assets of the defaulting subsidiary company.
As of December 31, 2013, parental guaranteed obligations are approximately as follows (in thousands):
Presently, neither Adams Resources & Energy, Inc. (‟ARE”) nor any of its subsidiaries has any other types of guarantees outstanding that require liability recognition.
(8) Segment Reporting
The Company is engaged in the business of crude oil and natural gas marketing as well as tank truck transportation of liquid chemicals, and oil and gas exploration and production. Information concerning the Company’s various business activities is summarized as follows (in thousands):
__________________________________
(1)
Oil and gas segment operating earnings include gains on property sales totaling $2,203,000 and $2,923,000 during 2012 and 2011, respectively.
Segment operating earnings reflect revenues net of operating costs and depreciation, depletion and amortization and are reconciled to earnings from continuing operations before income taxes, as follows (in thousands):
Identifiable assets by industry segment are as follows (in thousands):
Intersegment sales are insignificant and all sales occurred in the United States. Other identifiable assets are primarily corporate cash, corporate accounts receivable, and properties not identified with any specific segment of the Company’s business. Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.
(9) Discontinued Operations
On February 27, 2012, the Company completed the sale of contracts, inventory and certain equipment associated with the refined products segment of its marketing business. Revenues from this segment included in net earnings from discontinued operations totaled $25,717,000 and $169,412,000 for the years ended December 31, 2012 and 2011, respectively. This business had experienced marginal results in recent years including an operating loss of $788,000 for the year 2011. The Company received $2 million in cash proceeds plus a cash payment of $1,546,000 for the agreed value of refined product inventories on the date of sale. The net gain recognized upon this sale totaled $1,622,000. The Company conducted an orderly wind-down of the operation during 2012 and 2013 which primarily consisted of collecting outstanding accounts receivable and satisfying all existing obligations. The Company’s fee interest in certain parcels of real estate was retained and the estimated fair value of such properties exceeded the Company’s cost basis in the properties. Therefore, an impairment assessment of long-lived assets was not necessary. The proceeds secured from this transaction exceeded the sum of carrying costs of the assets sold plus severance and other wind-down costs and, as a result, pre-tax earnings from this former segment totaled $398,000 for the year ended December 31, 2012.
Due to inadequate earnings, effective October 31, 2013, the Company completed an orderly wind-down and closure of its natural gas marketing segment. Revenues from this segment included in net earnings from discontinued operations totaled $2,377,000, $4,879,000 and $6,251,000 for the years ended December 31, 2013, 2012 and 2011, respectively. The Company incurred employee severance and other shut-down costs totaling $416,000 as a result of this event. All obligations were satisfied and no further events are anticipated.
(10) Quarterly Financial Data (Unaudited) -
Selected quarterly financial data and earnings per share of the Company are presented below for the years ended December 31, 2013 and 2012 (in thousands, except per share data):
The above unaudited interim financial data reflect all adjustments that are in the opinion of management necessary to a fair statement of the results for the period presented. All such adjustments are of a normal recurring nature.
(11) Oil and Gas Producing Activities (Unaudited)
The Company’s oil and gas exploration and production activities are conducted in Texas and the south central region of the United States, primarily along the Gulf Coast of Texas and Louisiana.
Oil and Gas Producing Activities -
Total costs incurred in oil and gas exploration and development activities, all incurred within the United States, were as follows (in thousands):
The aggregate capitalized costs relative to oil and gas producing activities are as follows (in thousands):
Estimated Oil and Natural Gas Reserves -
The following information regarding estimates of the Company’s proved oil and gas reserves, all located in Texas and the south central region of the United States, is based on reports prepared on behalf of the Company by its independent petroleum engineers. Because oil and gas reserve estimates are inherently imprecise and require extensive judgments of reservoir engineering data, they are generally less precise than estimates made in conjunction with financial disclosures. The revisions of previous estimates as reflected in the table below result from changes in commodity pricing assumptions and from more precise engineering calculations based upon additional production histories and price changes.
Proved developed and undeveloped reserves are presented as follows (in thousands):
The components of proved oil and gas reserves for the three years ended December 31, 2013 is presented below. All reserves are in the United States (in thousands):
The Company has developed internal policies and controls for estimating and recording oil and gas reserve data. The estimation and recording of proved reserves is required to be in compliance with SEC definitions and guidance. The Company assigns responsibility for compliance in reserve bookings to the office of President of the Company’s AREC subsidiary. No portion of this individual’s compensation is directly dependent on the quantity of reserves booked. Reserve estimates are required to be made by qualified reserve estimators, as defined by Society of Petroleum Engineers’ Standards.
The Company employs third party petroleum consultant, Ryder Scott Company, to prepare its oil and gas reserve data estimates as of December 31, 2013, 2012 and 2011. The firm of Ryder Scott is well recognized within the industry for more than 50 years. As prescribed by the SEC, such proved reserves were estimated using 12-month average oil and gas prices, based on the first-day-of-the-month price for each month in the period, and year-end production and development costs for each of the years presented, all without escalation.
The process of estimating oil and gas reserves is complex and requires significant judgment. Uncertainties are inherent in estimating quantities of proved reserves, including many factors beyond the estimator’s control. Reserve engineering is a subjective process of estimating subsurface accumulations of oil and gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and the interpretation thereof. As a result, assessments by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Accordingly, oil and gas quantities ultimately recovered will vary from reserve estimates.
Standardized Measure of Discounted Future Net Cash Flows from Oil and Gas Operations and Changes Therein -
The standardized measure of discounted future net cash flows was determined based on the economic conditions in effect at the end of the years presented, except in those instances where fixed and determinable gas price escalations are included in contracts. The disclosures below do not purport to present the fair market value of the Company’s oil and gas reserves. An estimate of the fair market value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and risks inherent in reserve estimates. The standardized measure of discounted future net cash flows is presented as follows (in thousands):
The reserve estimates provided at December 31, 2013, 2012 and 2011 are based on aggregate prices of $94.99, $93.85 and $95.85 per barrel for crude oil and $4.69, $3.51 and $4.69 per mcf for natural gas, respectively. Such prices were based on the unweighted arithmetic average of the prices in effect on the first day of the month for each month of the respective twelve month periods as required by SEC regulations. The price reported in the reserve disclosure for natural gas for 2013 includes the value of associated natural gas liquids.
The effect of income taxes and discounting on the standardized measure of discounted future net cash flows is presented as follows (in thousands):
The principal sources of changes in the standardized measure of discounted future net flows are as follows (in thousands):
Results of Operations for Oil and Gas Producing Activities -
The results of oil and gas producing activities, excluding corporate overhead and interest costs, are as follows (in thousands):
Item 9.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains ‟disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‟Exchange Act”) that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefit of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s disclosure control objectives.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria described in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective at a reasonable assurance level as of December 31, 2013.
This Management’s Report on Internal Control over Financial Reporting shall not be deemed ‟filed” for purposes of Section 18 of the Exchange Act or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Adams Resources & Energy, Inc.
Houston, Texas
We have audited the internal control over financial reporting of Adams Resources & Energy, Inc. and subsidiaries (the "Company") as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2013 of the Company and our report dated March 13, 2014 expressed an unqualified opinion on those financial statements.
/s/Deloitte & Touche LLP
Houston, Texas
March 13, 2014
Item 9B.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10.
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information concerning directors, corporate governance and executive officers of the Company is incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held Wednesday, May 14, 2014, under the heading ‟Election of Directors” and ‟Executive Officers”, respectively, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 11.
Item 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held Wednesday, May 14, 2014, under the heading ‟Executive Compensation” to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held Wednesday, May 14, 2014, under the heading ‟Voting Securities and Principal Holders Thereof” to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 13.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held Wednesday, May 14, 2014, under the headings ‟Transactions with Related Parties” and ‟Director Independence” to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 14.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held Wednesday, May 14, 2014, under the heading ‟Principal Accounting Fees and Services” to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K.
PART IV
Item 15.
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Form 10-K:
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Operations for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the Years Ended
December 31, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
2. All financial schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits required to be filed
3(a)
-
Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3(a) filed with the Annual Report on Form 10-K (-File No. 1-7908) of the Company for the fiscal year ended December 31, 1987).
3(b)
-
Bylaws of the Company, as amended. (Incorporated by reference to Exhibit 3(b) filed with the Annual Report on Form 10-K for the year ended December 31, 2012 (-File No. 1-7908).
3(c)
-
Adams Resources & Energy, Inc. and Subsidiaries’ Code of Ethics (Incorporated by reference to Exhibit 3(d) of the Annual Report on Form 10-K (-File No. 1-7908) of the Company for the fiscal year ended December 31, 2002).
4(a)
-
Specimen common stock Certificate (Incorporated by reference to Exhibit 4(a) of the Annual Report on Form 10-K of the Company (-File No. 1-7908) for the fiscal year ended December 31, 1991).
4(b)
-
Credit and Security Agreement between Gulfmark Energy, Inc., Adams Resources Marketing, Ltd., and Wells Fargo Bank, National Association dated August 27, 2009 (Incorporated by reference to Exhibit 4(b) of the Quarterly Report on Form 10-Q for the period ended September 30, 2009).
10.1(a)+
- Employment agreement of Frank T. Webster, President, dated May 12, 2004 by and between Adams Resources & Energy, Inc. and Frank T. Webster (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004).
10.1(b)+
- Eleventh Amendment to Employment Agreement of Frank T. Webster, President, by and between Adams Resources & Energy, Inc. and Frank T. Webster effective December 5, 2013 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 6, 2013).
10.1(c)+
- Change in Control/Severance agreement by and between Adams Resources & Energy, Inc. and Richard B. Abshire effective July 25, 2008 (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on July 25, 2008).
10.1(d)+
- First Amendment to Change in Control/Severance agreement by and between Adams Resources & Energy, Inc. and Richard B. Abshire effective December 6, 2011 (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on December 7, 2011).
10.1(e)+
- Amendment to Change in Control/Severance agreement by and between Adams Resources & Energy, Inc. and Sharon Davis effective December 6, 2011 (Incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed on December 7, 2011).
10.1(f)+
- Non-Employee Director Change in Control Agreement by and between Adams Resources & Energy, Inc. and E. C. Reinauer, Jr., dated effective December 6, 2011 (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on December 7, 2011).
10.1(g)+
- Non-Employee Director Change in Control Agreement by and between Adams Resources & Energy, Inc. and Townes G. Pressler, dated effective December 6, 2011 (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on December 7, 2011).
10.1(h)+
- Non-Employee Director Change in Control Agreement by and between Adams Resources & Energy, Inc. and Larry E. Bell, dated effective December 6, 2011 (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on December 7, 2011).
10.1(i)+
- Standard form Indemnification Agreement between Adams Resources & Energy, Inc. and Officers or Directors (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly - Report on Form 10-Q for the period ended September 30, 2011).
21*
-
Subsidiaries of the Registrant
23.1*
-
Consent of Ryder Scott Company
31.1*
-
Adams Resources & Energy, Inc. Certification Pursuant to 17 CFR 13a-14 (a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
-
Adams Resources & Energy, Inc. Certification Pursuant to 17 CFR 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
-
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
-
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*
-
Ryder Scott Company Report
______________________________
* - Filed herewith
+ - Management contract or compensation plan or arrangement
Copies of all agreements defining the rights of holders of long-term debt of the Company and its subsidiaries, which agreements authorize amounts not in excess of 10% of the total consolidated assets of the Company, are not filed herewith but will be furnished to the Commission upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADAMS RESOURCES & ENERGY, INC.
(Registrant)
By /s/Richard B. Abshire
By /s/ Frank T. Webster
Richard B. Abshire,
Frank T. Webster
Vice President and Chief Financial Officer
Chief Executive Officer
(Principal Financial Officer and Principal Accounting Officer)
(P(Principal Executive Officer)
Date: March 13, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
By /s/ Frank T. Webster
By /s/ E. C. Reinauer, Jr.
Frank T. Webster, Director
E. C. Reinauer, Jr., Director
By /s/ Larry E. Bell
By /s/ Townes G. Pressler
Larry E. Bell, Director
Townes G. Pressler, Director
By /s/ Thomas S. Smith
Thomas S. Smith, Director
(Chairman)
EXHIBIT INDEX
Exhibit
Number
Description
3(a)
- Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3(a) filed with the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1987).
3(b)
- Bylaws of the Company, as amended. (Incorporated by reference to Exhibit 3(b) filed with the Annual Report on Form 10-K for the year ended December 31, 2012 (-File No. 1-7908).
3(c)
- Adams Resources & Energy, Inc. and Subsidiaries’ Code of Ethics (Incorporated by reference to Exhibit 3(d) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2002).
4(a)
- Specimen common stock Certificate (Incorporated by reference to Exhibit 4(a) of the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1991).
4(b)
- Credit and Security Agreement between Gulfmark Energy, Inc., Adams Resources Marketing, Ltd and Wells Fargo Bank, National Association dated August 27, 2010 (Incorporated by reference to Exhibit 4(b) of the Quarterly Report on Form 10-Q for the period ended September 30, 2009).
10.1(a)+
- Employment agreement of Frank T. Webster, President, dated May 12, 2004 by and between Adams Resources & Energy, Inc. and Frank T. Webster (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004).
10.1(b)+
- Eleventh Amendment to Employment Agreement of Frank T. Webster, President, by and between Adams Resources & Energy, Inc. and Frank T. Webster effective December 5, 2013 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 6, 2013).
10.1(c)+
- Change in Control/Severance agreement by and between Adams Resources & Energy, Inc. and Richard B. Abshire effective July 25, 2008 (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on July 25, 2008).
10.1(d)+
- First Amendment to Change in Control/Severance agreement by and between Adams Resources & Energy, Inc. and Richard B. Abshire effective December 6, 2011 (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on December 7, 2011).
10.1(e)+
- Amendment to Change in Control/Severance agreement by and between Adams Resources & Energy, Inc. and Sharon Davis effective December 6, 2011 (Incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed on December 7, 2011).
10.1(f)+
- Non-Employee Director Change in Control Agreement by and between Adams Resources & Energy, Inc. and E. C. Reinauer, Jr., dated December 6, 2011 (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on December 7, 2011).
10.1(g)+
- Non-Employee Director Change in Control Agreement by and between Adams Resources & Energy, Inc. and Townes G. Pressler, dated effective December 6, 2011 (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on December 7, 2011).
10.1(h)+
- Non-Employee Director Change in Control Agreement by and between Adams Resources & Energy, Inc. and Larry E. Bell, dated effective December 6, 2011 (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on December 7, 2011).
10.1(i)+
- Standard form Indemnification Agreement between Adams Resources & Energy, Inc. and Officers or Directors (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011).
21*
- Subsidiaries of the Registrant
23.1*
- Consent of Ryder Scott Company
31.1*
- Certification Pursuant to 17 CFR 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
- Certification Pursuant to 17 CFR 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
- Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*
- Ryder Scott Company Report
101.INS*
- XBRL Instance Document
101.SCH*
- XBRL Schema Document
101.CAL*
- XBRL Calculation Linkbase Document
101.LAB*
- XBRL Label Linkbase Document
101.PRE*
- XBRL Presentation Linkbase Document
______________________________
* - Filed herewith
+ - Management contract or compensation plan or arrangement.
** - Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income - Year Ended December 31, 2013 and 2012, (ii) the Consolidated Balance Sheets - December 31, 2013 and December 31, 2012, (iii) the Consolidated Statements of Cash Flows - Year Ended December 31, 2013 and 2012 and (iv) Notes to Consolidated Financial Statements.