Business Activities
Adams Resources & Energy, Inc. (“ARE”) and its subsidiaries (collectively, the "Company"), are engaged in the business of marketing crude oil, natural gas and petroleum products, tank truck transportation of liquid chemicals, and oil and gas exploration and production. Adams Resources & Energy, Inc. is a Delaware corporation organized in 1973. The Company’s headquarters are located in 23,450 square feet of office space located at 17 South Briar Hollow Lane Suite 100, Houston, Texas 77027 and the telephone number of that address is (713) 881-3600. The revenues, operating results and identifiable assets of each industry segment for the three years ended December 31, 2011 are set forth in Note 8 of Notes to Consolidated Financial Statements included elsewhere herein.
Marketing Segment Subsidiaries
Gulfmark Energy, Inc. (“Gulfmark”), a subsidiary of ARE, purchases crude oil and arranges sales and deliveries to refiners and other customers. Activity is concentrated primarily onshore in Texas and Louisiana with additional operations in Michigan and New Mexico. During 2011, Gulfmark purchased approximately 81,600 barrels per day of crude oil at the wellhead or lease level. Gulfmark also operates 148 tractor-trailer rigs and maintains over 54 pipeline inventory locations or injection stations. Gulfmark has the ability to barge oil from three oil storage facilities along the intercoastal waterway of Texas and Louisiana and maintains 180,000 barrels of storage capacity at certain of the dock facilities in order to access waterborne markets for its products. Gulfmark delivers physical supplies to refiner customers or enters into exchange transactions with third parties when the cost of the exchange is less than the alternate cost incurred in transporting or storing the crude oil. During 2011, Gulfmark had sales to four customers that comprised 18.2 percent, 15.4 percent, 13.4 percent, and 11.3 percent, respectively, of total Company wide revenues. Management believes that a loss of any of these customers would not have a material adverse effect on the Company’s operations. See also Note 3 of Notes to Consolidated Financial Statements.
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Adams Resources Marketing, Ltd. (“ARM”), a subsidiary of ARE, operates as a wholesale purchaser, distributor and marketer of natural gas. ARM’s focus is on the purchase of natural gas at the producer level. During 2011, ARM purchased approximately 208,000 million british thermal units (“mmbtu’s”) of natural gas per day at the wellhead and pipeline pooling points. Business is concentrated among approximately 60 independent producers with the primary production areas being the Louisiana and Texas Gulf Coast and the offshore Gulf of Mexico region. ARM provides value added services to its customers by providing access to common carrier pipelines and handling daily volume balancing requirements as well as risk management services.
Ada Resources, Inc. (“Ada”), a subsidiary of ARE, marketed branded and unbranded refined petroleum products such as motor fuels and lubricants. In February 2012, the Company sold substantially all equipment, inventory and contracts associated with this operation. The company retained Ada’s former distribution and warehousing facility located on 5.5 Company-owned acres in Houston, Texas. See Note (10) of Notes to Financial Statements for additional discussion.
Operating results are sensitive to a number of factors. Such factors include commodity location, grades of product, individual customer demand for grades or location of product, localized market price structures, availability of transportation facilities, actual delivery volumes that vary from expected quantities, and the timing and costs to deliver the commodity to the customer.
Transportation Segment Subsidiary
Service Transport Company (“STC”), a subsidiary of ARE, transports liquid chemicals on a "for hire" basis throughout the continental United States and Canada. Transportation service is provided to over 400 customers under multiple load contracts in addition to loads covered under STC’s standard price list. Pursuant to regulatory requirements, STC holds a Hazardous Materials Certificate of Registration issued by the United States. Department of Transportation (“DOT”). STC operates 285 truck tractors of which 12 are independent owner-operator units and maintains 447 tank trailers. In addition, STC maintains truck terminals in Houston, Corpus Christi, and Nederland, Texas as well as Baton Rouge (St. Gabriel), Louisiana and Mobile (Saraland), Alabama. Transportation operations are headquartered at a terminal facility situated on 22 Company-owned acres in Houston, Texas. This property includes maintenance facilities, an office building, tank wash rack facilities and a water treatment system. The St. Gabriel, Louisiana terminal is situated on 11.5 Company-owned acres and includes an office building, maintenance bays and tank cleaning facilities.
STC is compliant with International Organization for Standardization (“ISO”) 9001:2000 Standard. The scope of this Quality System Certificate covers the carriage of bulk liquids throughout STC’s area of operations as well as the tank trailer cleaning facilities and equipment maintenance. STC’s quality management process is one of its major assets. The practice of using statistical process control covering safety, on-time performance and customer satisfaction aids continuous improvement in all areas of quality service. In addition to its ISO 9001:2000 practices, the American Chemistry Council recognizes STC as a Responsible CareÓ Partner. Responsible Care Partners serve the chemical industry and implement and monitor the seven Codes of Management Practices. The seven codes address compliance and continuing improvement in (1) Community Awareness and Emergency Response, (2) Pollution Prevention, (3) Process Safety, (4) Distribution, (5) Employee Health and Safety, (6) Product Stewardship and (7) Security.
Oil and Gas Segment Subsidiary
Adams Resources Exploration Corporation (“AREC”), a subsidiary of ARE, is actively engaged in the exploration and development of domestic oil and natural gas properties primarily in Texas and the south central region of the United States. AREC’s offices are maintained in Houston and the Company holds an interest in 405 wells of which 41 are Company operated.
Producing Wells--The following table sets forth the Company's gross and net productive wells as of December 31, 2011. Gross wells are the total number of wells in which the Company has an interest, while net wells are the sum of the fractional interests owned.
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Oil Wells
Gas Wells
Total Wells
Gross
Net
Texas
Other
Acreage--The following table sets forth the Company's gross and net developed and undeveloped acreage as of December 31, 2011. Gross acreage represents the Company’s direct ownership and net acreage represents the sum of the fractional interests owned. The Company’s developed acreage is held by current production while undeveloped acreage is held by oil and gas leases with various remaining terms from six months to three years. The Company’s ownership in undeveloped acreage is substantially all in the form of a non-operated minority interest. As such, the Company relies on the third party operator to manage the lease holdings.
Developed Acreage
Undeveloped Acreage
Texas
Kansas
Other
Drilling Activity--The following table sets forth the Company's drilling activity for each of the three years ended December 31, 2011. All drilling activity was onshore in Texas, Louisiana, Arkansas and Kansas.
2011
2010
2009
Gross
Net
Gross
Net
Gross
Net
Exploratory wells drilled
- Productive
- Dry
Development wells drilled
Production and Reserve Information--The Company's estimated net quantities of proved oil and natural gas reserves and the standardized measure of discounted future net cash flows calculated at a 10% discount rate for the three years ended December 31, 2011, are presented in the table below (in thousands):
December 31,
Crude oil (thousands of barrels)
Natural gas (thousands of mcf)
Standardized measure of discounted future
net cash flows from oil and natural gas reserves
The estimated value of oil and natural gas reserves and future net revenues from oil and natural gas reserves was made by the Company's independent petroleum engineers. The reserve value estimates provided at each of December 31, 2011, 2010 and 2009 are based on market prices of $95.85, $76.14 and $58.43 per barrel for crude oil and $4.69, $5.26 and $4.05 per mcf for natural gas, respectively. For 2011 and 2010, 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 Security and Exchange Commission (“SEC”) regulations. For 2009, the price reflects the market price on December 31, 2009. The price reported for natural gas includes the value of associated natural gas liquids.
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Reserve estimates are based on many subjective factors. The accuracy of reserve estimates depends on the quantity and quality of geological data, production performance data, and 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 of estimates as additional information is made available through drilling, testing, reservoir studies and acquiring historical pressure and production data. In addition, the discounted present value of estimated future net revenues should not be construed as the fair market value of oil and natural gas producing properties. Such estimates do not necessarily portray a realistic assessment of current value or future performance of such properties. Such revenue calculations are based on estimates as to the timing of oil and natural gas production, and there is no assurance that the actual timing of production will conform to or approximate such estimates. Also, certain assumptions have been made with respect to pricing. The estimates 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 and other factors impact the market price for oil and natural gas.
The Company's oil and natural gas production for the three years ended December 31, 2011 was as follows:
Years Ended
Crude Oil
Natural
December 31,
(barrels)
Gas (mcf)
Certain financial information relating to the Company's oil and natural gas division revenues and earnings is summarized as follows:
Years Ended December 31,
Average oil and condensate
sales price per barrel
Average natural gas
sales price per mcf
Average production cost, per equivalent
barrel, charged to expense