News Column


August 11, 2014

Results of Operations - Marketing Marketing segment revenues, operating earnings, depreciation and certain costs were as follows (in thousands): _ Six Months Ended Three Months Ended June 30, June 30, 2014 2013 Change(1) 2014 2013 Change(1) Revenues $ 2,066,208$ 1,875,719 10.2 %

$ 1,139,004$ 943,843 20.7 % Operating earnings $ 17,146$ 24,115 (28.9 ))% $ 7,776$ 10,681 (27.2 )% Depreciation $ 4,556$ 3,578 27.3 % $ 2,287$ 1,814 26.1 % Driver commissions $ 10,259$ 9,330 10.0 % $ 5,322$ 4,851 9.7 % Insurance $ 4,163$ 3,272 27.2 % $ 2,091$ 1,699 23.1 % Fuel $ 7,609$ 6,692 13.7 % $ 3,908$ 3,428 14.0 %


(1) Represents the percentage increase (decrease) from the prior year.

Supplemental volume and price information is as follows:

Six Months Ended Three Months Ended June 30, June 30, 2014 2013 2014 2013 Field Level Purchase Volumes - Per day(2) Crude oil - barrels 113,054 102,345 115,877 103,911 Average Purchase Price Crude oil - per barrel $ 98.02$ 100.43$ 99.60$ 98.56


(2) Reflects the volume purchased from third parties at the oil and natural gas field level and pipeline pooling points.

Crude oil revenues increased during 2014 with increased volumes and further, average prices increased during the comparative second quarter of 2014, as shown in the table above. Volume increases resulted from new well production by the Company's customer base in the Eagle Ford shale trend of South Texas. 16 --------------------------------------------------------------------------------

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 valuation losses. Over time, these gains and losses tend to offset and have limited impact on cash flow. While crude oil prices fluctuated during the first six months of 2014, the net impact yielded inventory liquidation gains totaling $2,562,000 as prices increased from $90 per barrel in January 2014 to a composite average of $101 per barrel in June 2014 for all grades of crude oil held by the Company. Crude oil prices were generally declining during the first half of 2013 producing inventory valuation losses of $380,000 for the comparative period. As of June 30, 2014, the Company held 359,848 barrels of crude oil inventory at a composite average price of $100.63 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 reconciliation from the GAAP to non-GAAP financial measure (in thousands): Six Months Ended Three Months Ended June 30, June 30, 2014 2013 2014 2013 As reported segment operating earnings Add (less) - $ 17,146$ 24,115$ 7,776$ 10,681 Inventory valuation (gains) losses (2,562 ) 380 67 1,374 Derivative valuation (gains) losses (383 ) 1 15 151

Field level operating earnings(1) $ 14,201$ 24,496$ 7,858$ 12,206


(1) Such designation is unique to the Company and is not comparable to any

similar measures developed by industry participants. The Company utilizes

such data to evaluate the profitability of its operations.

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 delivery to market at the sales point. Comparative field level operating earnings declined during 2014 relative to the first half of 2013 as the available infrastructure developed to deliver South Texas sourced crude oil to the marketplace. Such development increased competition which reduced unit margins. In addition, depreciation expense increased with facilities expansion while a combination of higher mileage and accident frequency increased insurance costs. Driver commission and fuel expense increases generally tracked with additional purchase volumes.

Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See Item 1A Risk Factors in the Annual Report on Form 10-K for the year ended December 31, 2013.

17 --------------------------------------------------------------------------------

- Transportation

Transportation segment revenues, earnings and depreciation are as follows (in thousands): Six Months Ended Three Months Ended June 30, June 30, 2014 2013 Change(1) 2014 2013 Change(1) Revenues $ 34,952$ 34,889 0.2 % $ 17,303$ 17,543 (1.4 )% Operating earnings $ 2,130$ 3,231 (34.1 )% $ 955$ 1,833 (47.9 )% Depreciation $ 3,631$ 3,476 4.5 % $ 1,818$ 1,740 4.5 % Driver Commissions $ 6,823$ 6,633 2.9 % $ 3,354$ 3,341 0.4 % Insurance $ 2,942$ 2,782 5.8 % $ 1,471$ 1,317 11.7 % Fuel $ 7,558$ 7,607 (0.6 )% $ 3,573$ 3,660 (2.4 )% Maintenance expense $ 3,112$ 2,365 31.6 % $ 1,565$ 1,247 25.5 %


(1) Represents the percentage increase (decrease) from the prior year.

Transportation segment customer demand and revenues were consistent and strong during the comparative periods. This segment benefits from the present low price environment for natural gas since this commodity is a basic feedstock to the petrochemical industry which makes up the Company's customer base. As the petrochemical industry continues to expand capacity, the long-term prospect for chemical hauling demand remains positive. However, the Company is operating below its full physical equipment capacity with the availability of qualified drivers the significant constraint. Excess physical capacity has hampered operating earnings. In addition, the imposition of new emission system requirements increased maintenance expense and highway break-down inefficiencies for the Company's 2011 and 2012 model year truck-tractors. Since these factors adversely affect earnings, the Company has begun to replace such problem units as the truck manufacturers correct defaults. Driver recruiting efforts have also intensified with only limited favorable results to date.

- Oil and Gas

Oil and gas segment revenues and operating earnings are primarily a function of crude oil and natural gas prices and volumes. Comparative amounts for revenues, operating earnings and depreciation and depletion are as follows (in thousands): Six Months Ended Three Months Ended June 30, June 30, 2014 2013 Change(1) 2014 2013 Change(1) Revenues $ 7,960$ 6,925 14.9 % $ 3,624$ 3,712 (2.4 )% Operating earnings $ (387 )$ 244 (258.6 )% $ (508 )$ 375 (235.5 )% Depreciation $ 4,028$ 3,720 8.3 % $ 2,004$ 1,691 18.5 %


(1) Represents the percentage increase (decrease) from the prior year. 18

-------------------------------------------------------------------------------- First half of 2014 oil and gas revenues improved with increased associated natural gas liquid production (included with crude oil volumes in the table below) and higher dry natural gas prices. Revenues declined in the second quarter of 2014 following reduced natural gas volumes, as shown in the table below. Operating earnings in 2014 were hampered by exploration costs during the period. See table below.

Production volumes and price information is as follows (in thousands):

Six Months Ended Three Months Ended June 30, June 30, 2014 2013 2014 2013 Crude Oil(1) Volume - barrels 67,166 48,102 31,619 27,140 Average price per barrel $ 72.03$ 72.48$ 66.13$ 73.58 Natural gas Volume - mcf 599,883 924,617 290,075 430,568 Average price per mcf $ 5.20$ 3.72$ 5.28$ 3.98


(1) Crude oil volumes and prices included the value of associated natural gas liquids production.

Comparative exploration costs are summarized in the table below. Exploration cost components were as follows (in thousands):

Six Months Ended Three Months Ended June 30, June 30, 2014 2013 2014 2013 Dry hole expense $ 957$ 105$ 302$ 105 Prospect and property impairments 405 242 312 190 Seismic and geological 8 90 2 89 Total $ 1,370$ 437$ 616$ 384 During the first six months of 2014, the Company participated in the drilling of 28 successful wells with seven dry holes. Additionally, the Company has an interest in 13 wells that were in process on June 30, 2014. Evaluation on the in-process wells is anticipated during the third quarter of 2014. Participation in the drilling of approximately 22 wells is planned for the remainder of 2014 on the Company's prospect acreage in Texas, Kansas, Arkansas, North Dakota and Wyoming. - Outlook Crude oil marketing operations anticipate steady volume growth but competition continues to constrain unit margins. Demand for transportation services remains strong but driver shortages and persistently high operating cost has dampened profitability within this segment. From the oil and gas segment, participation in active drilling efforts has been curtailed from recent trends. This should serve to reduce dry hole and other exploration expenses. 19 --------------------------------------------------------------------------------

Liquidity and Capital Resources

The Company's liquidity primarily derives from net cash provided by operating activities and such amount was $1,600,000 and $3,987,000 for the six-month periods ended June 30, 2014 and 2013, respectively. As of June 30, 2014 and December 31, 2013, the Company had no bank debt or other forms of debenture obligations. Cash and cash equivalents totaled $47,998,000 as of June 30, 2014, 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 $86,170,000 as of June 30, 2014. The Company heavily 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. Cash balances were reduced during the current period from $60,733,000 as of year-end 2013 to $47,998,000 as of June 30, 2014 when the Company utilized a portion of its cash to pre-pay for crude oil supply and to build working crude oil inventory balances. From time to time, the Company may make cash prepayments to certain suppliers of crude oil for the Company's marketing operations. Such prepayments totaled $17,038,000 as of June 30, 2014. Prepayment amounts are recouped and advanced from day-to-day 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 $19,142,000 as of June 30, 2014. 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 oil and natural gas exploration, marketing and transportation businesses, which comprise substantially all of the Company's investing cash outflows for each of the periods in this report. 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. Capital expenditures during the first six months of 2014 included $6,360,000 for marketing and transportation equipment additions and $5,729,000 in property additions associated with oil and gas exploration and production activities. For the remainder of 2014, the Company anticipates expending an additional approximate $5 million within the crude oil marketing operation to expand its truck and trailer fleet and to expand barge loading facilities. The transportation segment anticipates expending approximately $8 million toward equipment replacements and expansion while the oil and gas operation will expend approximately $3 million on drilling projects for the remainder of 2014. Historically, the Company paid an annual dividend in the fourth quarter of each year until June 17, 2013 when the Company initiated payment of a quarterly dividend. A quarterly dividend of $0.22 per common share or $928,000 was paid during each of the first and second quarters of 2014. 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 the Annual Report on Form 10-K for the year ended December 31, 2013.

Critical Accounting Policies and Use of Estimates

There have been no material changes to the Company's "Critical Accounting Policies and Use of Estimates" disclosures that have occurred since the disclosures provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.



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Source: Edgar Glimpses

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