Edgar Filing: PRIMA ENERGY CORP

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
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Commission file number 0-9408

PRIMA ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 84-1097578
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1099 18TH STREET, SUITE 400, DENVER CO 80202
(Address of principal executive offices) (Zip Code)

(303) 297-2100
(Registrant's telephone number, including area code)

NO CHANGE
(Former name, former address and former fiscal year, if changed from last
report.)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]

As of April 30, 2002, the Registrant had 12,800,185 shares of Common Stock,
$0.015 Par Value, outstanding.

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PRIMA ENERGY CORPORATION

INDEX

PART I - FINANCIAL INFORMATION Page
----

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets .......................... 3

Unaudited Consolidated Statements of Operations ................ 5

Unaudited Consolidated Statements of Comprehensive Income ...... 6

Unaudited Consolidated Statements of Cash Flows ................ 7

Notes to Unaudited Consolidated Financial Statements ........... 8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 12

Item 3. Quantitative and Qualitative Disclosures About Market
Risk ................................................... 17

Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995 ........ 19

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K .......................... 19

Signatures ......................................................... 21

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS

March 31, December 31,
2002 2001
------------- -------------
(Unaudited)

CURRENT ASSETS
Cash and cash equivalents ............................................ $ 28,746,000 $ 23,337,000
Cash held in like-kind exchange escrow ............................... 11,746,000 --
Available for sale securities, at market ............................. 2,405,000 2,418,000
Receivables (net of allowance for doubtful
accounts: 3/31/02, $295,000; 12/31/01, $295,000 .................... 4,982,000 5,806,000
Derivatives, at fair market value .................................... -- 4,472,000
Tubular goods inventory .............................................. 1,507,000 1,415,000
Other ................................................................ 1,138,000 710,000
------------- -------------
Total current assets .......................................... 50,524,000 38,158,000
------------- -------------

OIL AND GAS PROPERTIES, at cost, accounted
for using the full cost method .................................... 132,824,000 143,842,000
Less accumulated depreciation, depletion and amortization ............ (55,649,000) (53,270,000)
------------- -------------
Oil and gas properties - net .................................. 77,175,000 90,572,000
------------- -------------

PROPERTY AND EQUIPMENT, at cost
Oilfield service equipment ........................................... 9,105,000 9,159,000
Furniture and equipment .............................................. 697,000 694,000
Field office, shop and land .......................................... 473,000 473,000
------------- -------------
10,275,000 10,326,000
Less accumulated depreciation ........................................ (5,135,000) (4,893,000)
------------- -------------
Property and equipment - net .................................. 5,140,000 5,433,000
------------- -------------

OTHER ASSETS ......................................................... 1,281,000 1,281,000
------------- -------------

$ 134,120,000 $ 135,444,000
============= =============

See accompanying notes to unaudited consolidated financial statements.

PRIMA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D.)

LIABILITIES AND STOCKHOLDERS' EQUITY

March 31, December 31,
2002 2001
------------- -------------
(Unaudited)

CURRENT LIABILITIES
Accounts payable ..................................................... $ 1,122,000 $ 1,668,000
Derivatives, at fair value ........................................... 1,450,000 --
Amounts payable to oil and gas property owners ....................... 1,557,000 1,910,000
Ad valorem and production taxes payable .............................. 3,026,000 3,272,000
Accrued and other liabilities ........................................ 585,000 1,408,000
Deferred tax liability ............................................... -- 1,778,000
------------- -------------
Total current liabilities ..................................... 7,740,000 10,036,000

AD VALOREM TAXES, non-current ........................................ 3,883,000 3,302,000
DEFERRED TAX LIABILITY ............................................... 21,870,000 20,366,000
------------- -------------
Total liabilities .............................................. 33,493,000 33,704,000
------------- -------------

STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 2,000,000 shares
authorized; no shares issued or outstanding ....................... -- --
Common stock, $0.015 par value, 35,000,000 shares
authorized; 12,899,923 and 12,889,923 shares issued .............. 193,000 193,000
Additional paid-in capital ........................................... 3,407,000 3,147,000
Retained earnings .................................................... 101,518,000 102,240,000
Accumulated other comprehensive income (loss) ........................ (505,000) 26,000
Treasury stock, 161,251 and 155,351 shares at cost ................... (3,986,000) (3,866,000)
------------- -------------
Total stockholders' equity ..................................... 100,627,000 101,740,000
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$ 134,120,000 $ 135,444,000
============= =============

See accompanying notes to unaudited consolidated financial statements.

PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended
March 31,
---------------------------
2002 2001
------------ ------------

REVENUES
Oil and gas sales .................................................... $ 5,884,000 $ 16,357,000
Losses on derivatives instruments, net ............................... (2,708,000) --
Oilfield services .................................................... 2,085,000 1,776,000
Interest, dividend and other income .................................. 146,000 337,000
------------ ------------
5,407,000 18,470,000
------------ ------------
EXPENSES
Depreciation, depletion and amortization:
Depletion of oil and gas properties ............................. 2,379,000 1,768,000
Depreciation of property and equipment .......................... 322,000 282,000
Lease operating expense .............................................. 805,000 799,000
Ad valorem and production taxes ...................................... 456,000 1,424,000
Cost of oilfield services ............................................ 1,735,000 1,134,000
General and administrative ........................................... 772,000 1,088,000
------------ ------------
6,469,000 6,495,000
------------ ------------
Income (Loss) Before Income Taxes and Cumulative Effect
of Change in Accounting Principle ................................... (1,062,000) 11,975,000
Provision for (Benefit from) Income Taxes ............................ (340,000) 3,910,000
------------ ------------
Net Income (Loss) Before Cumulative Effect of Change
in Accounting Principle ........................................... (722,000) 8,065,000
Cumulative Effect of Change in Accounting Principle .................. -- 611,000
------------ ------------

NET INCOME (LOSS) .................................................... $ (722,000) $ 8,676,000
============ ============

Basic Net Income (Loss) per Share Before Cumulative Effect
of Change in Accounting Principle ................................. $ (0.06) $ 0.63
Cumulative Effect of Change in Accounting Principle .................. -- 0.05
------------ ------------

BASIC NET INCOME (LOSS) PER SHARE .................................... $ (0.06) $ 0.68
============ ============

Diluted Net Income (Loss) per Share Before Cumulative
Effect of Change in Accounting Principle .......................... $ (0.06) $ 0.60
Cumulative Effect of Change in Accounting Principle .................. -- 0.05
------------ ------------

DILUTED NET INCOME (LOSS) PER SHARE .................................. $ (0.06) $ 0.65
============ ============

Weighted Average Common Shares Outstanding ........................... 12,731,895 12,757,551
============ ============
Weighted Average Common Shares Outstanding
Assuming Dilution .................................................. 12,731,895 13,322,748
============ ============

See accompanying notes to unaudited consolidated financial statements.

PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

Three Months Ended
March 31,
--------------------------
2002 2001
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Net income (loss) ..................................................... $ (722,000) $ 8,676,000
----------- -----------

Other comprehensive income (loss):

Change in fair value of hedges ........................................ (764,000) 1,921,000
Reclassification adjustment for realized gains on hedges
included in net income ............................................. -- (523,000)
Deferred income tax expense related to change in fair value
of hedges .......................................................... 283,000 (517,000)

Change in fair value of available-for-sale securities ................. (81,000) 98,000
Reclassification adjustment for realized losses
included in net income ............................................. 1,000 --
Deferred income tax expense related to change in fair value
of available-for-sale securities ................................... 30,000 (36,000)
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(531,000) 943,000
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COMPREHENSIVE INCOME (LOSS) .......................................... $(1,253,000) $ 9,619,000
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See accompanying notes to unaudited consolidated financial statements.

PRIMA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Three Months Ended
March 31,
--------------------------
2002 2001
----------- -----------

OPERATING ACTIVITIES
Net income (loss) .................................................... $ (722,000) $ 8,676,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization ........................ 2,701,000 2,050,000
Deferred income taxes ........................................... (440,000) 3,656,000
Mark to market commodity derivatives:
Total losses (gains) .......................................... 2,708,000 (660,000)
Amounts received on closed positions .......................... 2,450,000 --
Other ........................................................... 241,000 (19,000)
Changes in operating assets and liabilities:
Receivables .................................................. 824,000 471,000
Inventory .................................................... (92,000) (350,000)
Other current assets ......................................... 50,000 127,000
Accounts payable and payables to owners ...................... (899,000) 1,222,000
Production taxes payable ..................................... 335,000 1,465,000
Accrued and other liabilities ................................ (823,000) (16,000)
------------ ------------
Net cash provided by operating activities ................ 6,333,000 16,622,000
------------ ------------

INVESTING ACTIVITIES
Proceeds from sales of oil & gas properties .......................... 13,553,000 --
Increase in cash held in like-kind exchange escrow ................... (11,746,000) --
Additions to oil and gas properties .................................. (2,535,000) (11,060,000)
Purchases of other property .......................................... (50,000) (279,000)
Purchases of available for sale securities ........................... (65,000) (28,000)
------------ ------------
Net cash used in investing activities .................... (843,000) (11,367,000)
------------ ------------

FINANCING ACTIVITIES
Treasury stock purchased ............................................. (120,000) (1,625,000)
Proceeds from common stock issued .................................... 39,000 --
Other ................................................................ -- 172,000
------------ ------------
Net cash used in financing activities .................... (81,000) (1,453,000)
------------ ------------

INCREASE IN CASH AND CASH EQUIVALENTS ................................ 5,409,000 3,802,000
CASH AND CASH EQUIVALENTS, beginning of period ....................... 23,337,000 20,382,000
------------ ------------

CASH AND CASH EQUIVALENTS, end of period ............................. $ 28,746,000 $ 24,184,000
============ ============

Supplemental schedule of noncash investing activities:

Other assets acquired in exchange for undeveloped
oil and gas properties .......................................... $ -- $ 1,000,000
============ ============

See accompanying notes to unaudited consolidated financial statements.

PRIMA ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

Prima Energy Corporation is an independent oil and gas company
primarily engaged in the exploration for, and the acquisition, development and
production of, crude oil and natural gas. Through wholly owned subsidiaries, we
also conduct operations in oil and gas property management, oilfield services
and natural gas gathering, marketing and trading. These activities have been
conducted predominantly in the Rocky Mountain region of the United States.

Our consolidated financial statements include the accounts of Prima
Energy Corporation and its subsidiaries, which are collectively referred to in
this report as "Prima" or "the Company". All significant intercompany
transactions have been eliminated.

Financial information presented herein as of March 31, 2002 and for the
three-month periods ended March 31, 2002 and 2001 is unaudited but reflects all
adjustments that we believe are necessary to fairly present Prima's financial
position, results of operations and cash flows for the periods shown. Such
adjustments consist only of normal recurring accruals. Certain prior-year
amounts have also been reclassified to conform to classifications reflected as
of March 31, 2002. Results for interim periods are not necessarily indicative of
results to be expected for our full fiscal year ending December 31, 2002.

The consolidated financial statements presented in this Form 10-Q
should be read in conjunction with the Notes to Consolidated Financial
Statements that were included in Prima's Annual Report on Form 10-K filed for
the year ended December 31, 2001.

2. DERIVATIVES TRANSACTIONS

From time to time, we have used crude oil and natural gas futures,
options and swaps, to mitigate risks associated with fluctuating oil and natural
gas prices and basis differentials. While the use of such derivatives can reduce
the adverse effects of oil and gas price declines or increases in basis
differentials, they also generally limit the benefits of price increases.

Prima adopted Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
effective January 1, 2001. SFAS 133 established accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts. SFAS 133 prescribes that the fair value of all
derivatives should be recognized as either assets or liabilities in the
statement of financial position. If a cash flow hedge qualifies for hedge
accounting under SFAS 133, and is designated as such by Prima management when
the contract is initiated, changes in the fair value of the derivative are
recorded in other comprehensive income until the hedged item affects earnings,
at which time any realized gain or loss is recognized in the income statement.
If a cash flow hedge does not qualify for hedge accounting under SFAS 133, or if
we so elect when the contract is initiated, changes in the fair value of the
derivative are immediately recognized in earnings.

Pursuant to SFAS 133 requirements, and based on our current sources of
oil and gas production, we have determined that swaps, collars, puts or floors
that are based on NYMEX oil prices or CIG gas prices qualify as cash flow
hedges. Derivatives based on NYMEX gas prices will not so qualify unless we

have entered into corresponding transactions to hedge basis differentials
between NYMEX and CIG indices. In addition, stand-alone basis differential swaps
and sales of call options do not qualify for hedge accounting.

Our adoption of SFAS 133 as of January 1, 2001 resulted in the
recognition of a current asset of $1,241,000, a current liability of $549,000,
and net-of-tax cumulative effect adjustments reducing other comprehensive income
by $129,000 and increasing net income by $611,000. The $611,000 is reflected as
the cumulative effect of a change in accounting principle in financial
statements for the first quarter of 2001.

We have entered into various derivatives contracts related to futures
prices for oil and natural gas. Some of these derivatives have qualified for
hedge accounting, while others have been non-qualifying. Prima realized net cash
receipts of $2,450,000 from derivatives positions that were closed out during
the first quarter of 2002, but our revenues for the period included aggregate
net losses from oil and gas derivatives of $2,708,000. The realized gains had
largely been included in revenues reported in 2001, through mark-to-market
accounting for the carrying value of the positions at the end of December 2001.
The net losses recognized in the quarter ended March 31, 2002 primarily
reflected declines in the fair value of Prima's derivatives positions
outstanding at period end, since December 31, 2001 or, if later, since
initiation of the position. The losses on derivatives recognized in the first
three months of 2002 related to instruments that did not qualify for hedge
accounting. Such instruments were principally NYMEX gas swaps for which we did
not elect to enter into corresponding swaps for Rocky Mountain basis
differentials. In the first quarter of the prior year, $422,000 of gains from
derivative transactions that qualified for hedge accounting were included in oil
and gas sales.

As of March 31, 2002, Prima had recorded a current liability of
$1,450,000, representing the aggregate unrealized mark-to-market losses for its
open derivative positions at that date. These positions are summarized below:

Market Total Volumes Contract Unrealized
Time Period Index (MMBtu) Price Gain (Loss)
----------- ------- ------------- -------- ------------

Natural Gas Futures
April - June 2002 ................. NYMEX 2,300,000 $3.1525 $ (497,000)
July - September 2002 ............. NYMEX 2,100,000 3.2136 (320,000)
October - December 2002 ........... NYMEX 1,000,000 3.3076 (190,000)
January - February 2003 ........... NYMEX 300,000 3.6300 (91,000)

Natural Gas Basis Swaps
November - December 2002 .......... NYMEX/CIG 600,000 0.3400 0
January - March 2003 ............. NYMEX/CIG 900,000 0.3400 0

Crude Oil Futures
May - June 2002 ................... NYMEX 30,000 21.60 (142,000)
July - September 2002 ............. NYMEX 45,000 21.45 (210,000)
-----------

Total Unrealized Losses ................ $(1,450,000)
===========

Oil and gas prices are volatile and the market value of these
derivatives will change as the underlying commodity futures prices change.
Mark-to-market adjustments could result in significant earnings volatility. The
actual gains or losses realized will depend on the applicable futures prices in
effect at the time such positions expire or are closed.

3. EARNINGS PER SHARE

Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share reflects the potential dilution that could occur upon
exercise of options to acquire common stock, computed using the treasury stock
method. The treasury stock method assumes that the number of additional shares
that could be issued is reduced by the number of shares that could have been
repurchased with proceeds that Prima would receive upon exercise of the options.
The amount of shares that could have been repurchased was determined using the
average market price of our common stock during the reporting period.

The following table reconciles the net earnings and common shares
outstanding used in the calculations of basic and diluted net income per share
for the quarter ended March 31, 2001. The diluted loss per share calculations
for the quarter ended March 31, 2002 produce results that are anti-dilutive. The
dilutive calculation for 2002 increased the common shares outstanding by 442,789
shares. Therefore, the diluted loss per share amounts for 2002 reported in the
accompanying consolidated statements of income are the same as the basic loss
per share amounts.

Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------- ----------

Quarter Ended March 31, 2001:
Basic Net Income per Share ........................ $8,676,000 12,757,551 $ 0.68
Effect of Stock Options ........................... -- 565,197 ==========
---------- ----------
Diluted Net Income per Share ...................... $8,676,000 13,322,748 $ 0.65
========== ========== ==========

4. SALE OF ASSETS

On March 5, 2002, Prima sold all of its producing wells in the Stone's
Throw CBM project in the northern Powder River Basin, along with associated
gathering system facilities and approximately 35,000 net undeveloped acres in
the Stone's Throw area. Net proceeds from the transaction totaled $13,539,000
after normal closing adjustments. Approximately $11,746,000 of the proceeds were
closed into an escrow account with a qualified intermediary, to preserve the
opportunity to consummate a tax-free like-kind exchange if suitable properties
to acquire can be identified within 45 days (which was subsequently
accomplished) and purchased within six months. If a tax-free exchange is not
consummated, Prima's current income taxes for 2002 could increase by up to
$1,400,000.

5. NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement applies to intangibles and goodwill acquired
after June 30, 2001, as well as goodwill and intangibles previously acquired.
Under this statement, goodwill as well as other intangibles determined to have
an infinite life will no longer be amortized. These assets will be reviewed for
impairment on a periodic basis. This statement was effective for the Company in
the first quarter of 2002. The adoption of this statement has not had a material
effect on our financial position or results of operations.

In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 provides the accounting requirements for
retirement obligations associated with long-lived assets and requires the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying costs of the asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002, and early adoption is permitted. We are currently
assessing, but have not yet determined, the impact of SFAS No. 143 on our
financial position, results of operations, or cash flows.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value less
costs to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001 and generally is to be applied
prospectively. The adoption of this statement has not had a material effect on
our financial position or results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion is intended to assist in understanding
Prima's financial position at March 31, 2002, its results of operations for the
three-month periods ended March 31, 2002 and March 31, 2001, and our assessment
of Prima's liquidity and capital resources.

LIQUIDITY AND CAPITAL RESOURCES

Prima's principal sources of liquidity have been the internal
generation of cash flow from operations, proceeds from occasional asset sales,
and existing net working capital. Additional potential sources of capital
include borrowings and issuances of common stock or other securities. Our
revenues and cash flows are substantially derived from oil and gas sales, which
are dependent upon oil and gas production volumes and sales prices.

During the quarter ended March 31, 2002, net cash provided by Prima's
operating activities totaled $6,333,000. We also received cash proceeds totaling
approximately $13,553,000 from the sale of certain oil and gas properties, while
our new investments in oil and gas properties aggregated approximately
$2,535,000 in the recent quarter. Prima's net working capital increased from
$28,122,000 at the end of 2001 to $42,784,000 at March 31, 2002. Net working
capital at the end of the first quarter of 2002 included cash equivalents and
short-term investments totaling $42,897,000, compared to $25,755,000 at the end
of 2001, and Prima was free of long-term debt at both dates.

The overall increase in net working capital in the first quarter of
2002 occurred despite a swing in the mark-to-market value of our derivatives
positions from a net asset of $4,472,000 at the end of 2001 to a net liability
of $1,450,000 at the end of March 2002. We collected approximately $2,450,000
from positions that expired or were closed during the quarter, and the value of
the remaining positions was lowered by increases in oil and gas prices quoted in
futures markets. Higher market prices for oil and gas reduce the value of our
commodity derivatives but generally increase the prices we receive for the sales
of our production.

The assets sold consisted primarily of our Stones Throw CBM project in
the northern Powder River Basin, the associated gathering system and
approximately 35,000 net undeveloped acres in the Stones Throw area. These
properties accounted for approximately 6.1% of Prima's total estimated proved
oil and gas reserves and 4.5% of the related estimated present value of future
net cash flows before income taxes, as of the end of 2001. The transaction was
closed on March 5, 2002. The producing wells sold accounted for approximately 8%
of Prima's total oil and gas sales revenue before hedging effects during the
first two months of 2002.

Prima invested $2,535,000 in oil and gas properties during the quarter
ended March 31, 2002, including $1,904,000 on well costs and other development
activities and $631,000 for undeveloped acreage. Well costs were incurred
principally in refracturing or recompleting 11 gross (9.2 net) wells in the
Denver Basin. During the first quarter of 2002, Prima also expended $50,000 for
other property and equipment and $120,000 for the purchase of 5,900 shares of
treasury stock.

We deferred certain investments earlier in the year to benefit from
anticipated improvements in gas prices and service costs, which did begin to
materialize late in the first quarter. Certain investments in the Powder River
Basin CBM play were also delayed to take advantage of developing infrastructure,
activities of other operators, and the anticipated issuance later in the year by
the Bureau of Land Management of a record of decision concerning an
environmental impact statement (EIS) for CBM development in the Powder River
Basin. Approximately 82% of Prima's Powder River Basin acreage is federal and
access to federal lands has been limited pending completion of the EIS. As
previously reported, Prima anticipates making current year capital investments
aggregating between $25 million and $30 million, with investment activities
weighted toward the second half of the year.

Currently planned 2002 drilling activities include 60 to 90 CBM wells,
six to 12 wells in the Denver Basin, and three to six exploratory wells.
Additional planned 2002 activities provide for investments in various hook-up
and infrastructure projects, including the Porcupine-Tuit CBM project in the
Powder River Basin, and conducting 40 to 50 refracturing or recompletion
operations in the Denver Basin. A significant portion of the 2002 budget has
also been reserved for acquisition of additional acreage for future exploration
or exploitation, or for other opportunities identified during the year.

We recently initiated a four-well drilling program in the Denver Basin
and plan to complete the balance of the current year drilling program beginning
in the fall, after crop season. We also recently initiated our current year
Powder River Basin CBM drilling program with the drilling of four wells in the
Porcupine-Tuit area. Prima has now drilled 27 Wyodak coal wells to-date at
Porcupine-Tuit and has identified 66 additional locations in the project area
for near-term drilling. Most of these locations are on federal lands, where
drilling access is presently limited, but we have applications for drilling
permits pending and anticipate obtaining such permits for drilling most of the
locations during the latter part of the year. Another CBM project with near-term
activity planned is in the Kingsbury area, where we intend to commence our first
deep-coal pilot. We plan to drill 14 wells to test two coals at depths between
1,500 feet and 2,000 feet beginning mid-year and anticipate having these wells
on pump before year-end.

Potential exploratory activity later in the year includes a test well
on the Merna Prospect, located in Sublette County, Wyoming, 10 to 30 miles north
of the Pinedale Anticline. Prima owns approximately 72,000 gross (28,000 net)
undeveloped acres in the prospect area. We previously agreed to support a large
integrated gas company's re-entry of a well in the vicinity of Prima leasehold.
In exchange for providing us with all of the well information, that party has
the right to drill on a portion of our leasehold and earn a partial interest
therein. The agreement calls for the other company to commence drilling a well
on our leasehold no later than August 2002. The drilling of that well is timed
to coincide with installation of a temporary 42-mile six-inch natural gas
pipeline designed to facilitate the testing of the well. The target objective of
this well will be the Cretaceous Lance and Mesaverde formations, which are under
extensive development on the Pinedale Anticline to the southeast.

Exploratory operations are also continuing in the Coyote Flats Prospect
area, which is located on the Wasatch Plateau 15 to 25 miles northwest of Price,
Utah. During the first quarter, Prima increased its interest in certain prospect
leases in which it already owned a 25% interest, by exercising an option to
purchase the remaining 75% (representing approximately 25,000 net acres). We now
own approximately 75,000 gross (71,000 net) acres within the prospect area.
Prima has also been proceeding with efforts to obtain regulatory and surface
owner approvals required to facilitate the drilling of two test wells on the
prospect. Significant hydrocarbon production exists in the region. Prima's
objectives at Coyote Flats will be to test the hydrocarbon potential of
sandstone and coal bed reservoirs in the Blackhawk, Emery, Ferron and Dakota
members of the middle to lower Cretaceous section.

Activity is also expected later in the year on the Teakettle Prospect
(formerly considered a part of the South Jonah Prospect), in which a large
independent energy company recently acquired an interest and has proposed
drilling a well to test the Lance and Mesaverde formations. Prima owns 4,440
gross (2,220 net) acres in the prospect area, which is located in Sublette
County, Wyoming, in the northern portion of the Green River Basin. This prospect
is located approximately ten miles from the large Jonah Field, which produces
primarily from the over-pressured Upper Cretaceous Lance Formation. Prima is
currently evaluating options for its level of participation in the proposed test
well, which is expected to be drilled in the fourth quarter of this year.

Although a specific budget for property acquisitions has not been
established, Prima continues to pursue such opportunities on an ongoing basis.
Approximately $11,746,000 of proceeds from the Stones Throw sale was closed into
an escrow account with a qualifying intermediary to preserve the opportunity to
consummate a tax-free like-kind exchange. We have satisfied the requirement to
identify suitable properties within 45 days of the sale and will be able to
defer the tax gain if such properties are acquired on or before September 1,
2002.

Prima's average daily net production in the first quarter of 2002
totaled approximately 29,400 Mcfe, including an average 3,600 Mcf per day
contributed by the Stones Throw property, which was sold in early March. In the
absence of an acquisition, significant production from new sources is not
expected until after the anticipated commencement of production from the
Porcupine-Tuit CBM project in the third quarter of this year. Production
reported for several wells in the Porcupine-Tuit area owned by other operators
has been generally averaging 150 to 250 Mcf per day after brief de-watering
periods, with several wells averaging in excess of 350 Mcf per day. We expect
production from our wells in this area to perform similarly but cannot forecast
with certitude when production will be initiated or how the wells will then
perform. The timing and amounts of production that may be added later in the
year from other new activities, including other CBM projects and exploration,
also cannot be precisely forecast.

In January 2001, Prima's Board of Directors approved a repurchase
program of up to 5% of the Company's common stock then outstanding, or
approximately 640,000 shares. As of March 31, 2002, approximately 479,000 shares
remained subject to repurchase under this authorization.

We expect to fund our current year exploration, development, and
exploitation operations, the expansion of our service companies, and any
re-purchases of common stock with cash provided by operating activities and
existing working capital. We also regularly review opportunities for acquisition
of assets or companies related to the oil and gas industry that could expand or
enhance our existing business. If a sufficiently large transaction is
consummated, it could involve the incurrence of debt or issuance of equity
securities.

RESULTS OF OPERATIONS

As noted above, Prima's primary source of revenues is the sale of
natural gas and oil production. Because of significant fluctuations in oil and
natural gas prices and variances in production volumes, operating results for
any period are not necessarily indicative of future operating results.

Historically, oil and natural gas prices have been volatile and are
likely to continue to be volatile. Prices are affected by, among other things,
market supply and demand factors, market uncertainty, and actions of the United
States and foreign governments and international cartels. These factors are
beyond our control. Prima's revenues, cash flows, earnings and operations are
adversely affected when oil and gas prices decline. Gas prices declined
significantly after reaching record high levels early in 2001, which has
unfavorably impacted our operating results year to date in 2002, compared to the
prior year, as further discussed below. We cannot accurately predict future
natural gas and oil prices, but historically gas and oil supply and demand have
responded to changes in price levels to correct from short-lived extreme levels
of high or low prices.

For the quarter ended March 31, 2002, Prima reported a net loss of
$722,000, or $0.06 per diluted share, on revenues of $5,407,000. As further
discussed below, Prima's revenues for the first quarter of 2002 reflected
$2,708,000 of net losses from oil and gas derivatives, although net cash
receipts of $2,450,000 were realized on derivatives positions that were closed
out during the quarter. Operating results for the recent quarter compared to
first quarter 2001 net income of $8,676,000, or $0.65 per diluted share
including $0.05 per share from the cumulative effect of adoption of FAS 133, on
revenues of $18,470,000. Expenses, other than income taxes, totaled $6,469,000
in the latest quarter compared to $6,495,000 in the first three months of 2001.
Revenues decreased $13,063,000 or 71%, while expenses decreased $26,000 or less
than 1%, in 2002.

Oil and gas sales reported for the first quarter of 2002 totaled
$5,884,000, compared to $16,357,000 for 2001, a decrease of 64%. The decline was
attributable to the combined effects of a 4% year-over-year reduction in
production volumes and 62% lower average price realizations per equivalent unit
of natural gas and oil produced.

Prima's natural gas production totaled 2,103,000 Mcf in the first three
months of 2002 compared to 2,099,000 Mcf in the same period of 2001,
representing less than a 1% increase year-over-year. The recent quarter included
321,000 Mcf from two months' net production from the Stones Throw CBM property,
which was sold March 5, 2002. Prima's oil production totaled 90,000 barrels and
111,000 barrels in the first three months of 2002 and 2001, respectively,
representing a current-year decrease of 21,000 barrels, or 19%. On an equivalent
unit basis, our production decreased approximately 4%, to 2,644,000 Mcfe in the
recent quarter from 2,765,000 Mcfe in the same quarter of 2001. Net production
from CBM operations increased from 91,000 Mcfe in the first quarter of 2001 to
382,000 Mcfe (including contributions from Stones Throw) in the first quarter of
2002, partially offsetting net decreases from other producing properties, which
were attributable to natural declines. The declines on non-CBM properties
reflected a high level of drilling and re-stimulation activity in the favorable
commodity price environment that prevailed in late 2000 and early 2001, and very
limited new activity in the relatively low

commodity price environment of late 2001 and early 2002. Prima's total
production was 80% natural gas and 20% oil in 2002, compared to 76% gas and 24%
oil in the prior year period.

The average sales price realized for natural gas production was $1.87
per Mcf in the initial quarter of 2002, compared to $6.29 per Mcf in the first
three months of 2001, representing a decrease of $4.42 per Mcf, or 70%. The
average price received per barrel of oil in the recent quarter was $21.61,
compared to $28.51 in the same period last year, yielding a decrease of $6.90
per barrel or 24%. On an Mcf equivalent basis, the average price we received was
$2.23 per Mcfe in the latest quarter compared to $5.92 per Mcfe in the prior
year period, representing an overall 62% decline in average prices.
Approximately 67% of our total oil and gas revenues in 2002 were derived from
natural gas sales, compared to 81% in the first quarter of 2001.

As noted, our revenues for the first quarter of 2002 included
$2,708,000 of reported net losses from oil and gas derivatives. Prima realized
net cash receipts of $2,450,000 from derivatives positions that were closed out
during the quarter, but such gains had mostly been included in revenues reported
in 2001, through "marking to market" the carrying value of the positions at the
end of December 2001. The net losses recognized in the recent quarter reflected
declines in the fair value of Prima's derivatives positions that were
outstanding at period end, due to sharp increases in oil and gas futures prices
during March 2002, as quoted on the New York Mercantile Exchange. While such
price increases diminish the value of our derivatives, they are generally
associated with higher price realizations on the physical sales of our
production. The losses recognized in the first quarter of 2002 related to
derivatives that did not qualify for hedge accounting. Such instruments were
principally NYMEX gas swaps for which we did not elect to enter into
corresponding swaps for Rocky Mountain basis differentials. In the first quarter
of the prior year, $422,000 of gains from derivative transactions that qualified
for hedge accounting were included in oil and gas sales and had the effect of
increasing average natural gas price realizations reported for the quarter by
$0.20 per Mcf.

Depletion expense for oil and gas properties was $2,379,000, or $0.90
per Mcfe, in 2002, compared to $1,768,000, or $0.64 per Mcfe, in 2001. The
substantial increase in the depletion rate reflects a number of factors,
including: significant declines in oil and gas prices, which, under the
methodology prescribed, affects estimates of oil and gas reserves that can be
economically recovered through future production; increases in oilfield service
costs, which impacted actual costs incurred during the past year and the
assumptions required to be used in estimating future development costs; and use
of more conservative assumptions for estimating undeveloped CBM reserves,
pending additional performance-related data. The depletion rate per Mcfe was
increased mid-year 2001.

Depreciation of other fixed assets, which include service equipment,
office furniture and equipment, and buildings, was $322,000 and $282,000 for
2002 and 2001, respectively. The increase of $40,000, or 14%, was due primarily
to acquisitions of oilfield service equipment in 2001.

Lease operating expenses ("LOE") totaled $805,000 for the three months
ended March 31, 2002 compared to $799,000 for the three months ended March 31,
2001, an increase of $6,000 or 1%. Additional costs associated with new
production from CBM wells were offset by reduced workover activities on other
properties. Lease operating expenses averaged $0.30 per Mcfe produced in the
2002 quarter compared to $0.29 per Mcfe in the 2001 quarter. Ad valorem and
other production taxes totaled $456,000 and $1,424,000 for the same periods, a
decrease of $968,000 or 68%. Production taxes fluctuate with revenues and
changing mill levy rates, and the year-over-year decline was primarily
attributable to lower oil and gas prices. Production taxes averaged $0.17 and
$0.52 per Mcfe in the 2002 and 2001 quarters, respectively. Total lifting costs
(LOE plus ad valorem and production taxes) were 21% of oil and gas revenues in
the first quarter of 2002 compared to 14% in the first quarter of 2001.

Oilfield services include the operations of Action Oilfield Services,
Inc. (Colorado) and Action Energy Services (Wyoming), wholly-owned subsidiaries.
Related revenues include well servicing fees from completion and swab rigs, CBM
drilling rigs, trucking, water hauling, equipment rentals, and other related
activities. Services are provided to both Prima and unaffiliated third parties,
but intercompany billings are eliminated in consolidation. Revenues from third
parties totaled $2,085,000 for the three months ended March 31, 2002 compared to
$1,776,000 for the three months ended March 31, 2001, an increase of $309,000,
or 17%. Costs of oilfield services provided to third parties were $1,735,000 in
2002 compared to $1,134,000 for 2001, an increase of $601,000 or 53%. Higher
revenues and costs in the current year both reflect increases in the amount of
equipment placed in service and a greater portion of services provided to third
parties. Approximately 10% of fees billed by our service companies in 2002 were
for Prima-owned property interests, compared to 39% in 2001. The year-over-year
decline in operating margins for the service companies reflects lower equipment
utilization and rate reductions in 2002, due to reduced overall demand for
oilfield services.

General and administrative expenses ("G&A"), net of third party
reimbursements and amounts capitalized, were $772,000 for the three months ended
March 31, 2002 compared to $1,088,000 for the three months ended March 31, 2001.
Net G&A decreased $316,000 or 29% due primarily to lower bonus costs, higher
reimbursements from third parties, and increased amounts capitalized.
Third-party reimbursements of management and operator fees increased from
$115,000 in 2001 to $146,000 in 2002 because Prima operated the wells at Stones
Throw in March and was reimbursed by the successor owner. Capitalized G&A
increased from $300,000 in 2001 to $486,000 in 2002, reflecting additional costs
associated with our exploration, development and acquisition activities.

We recorded an income tax benefit of $340,000 for the three months
ended March 31, 2002 compared to an income tax provision of $3,910,000 for the
three months ended March 31, 2001. Prima's effective tax rate decreased slightly
to 32% in 2002 from 32.6% in 2001. The effective tax rates in both years were
less than statutory rates due to permanent differences in financial and taxable
income, consisting primarily of statutory depletion deductions and Section 29
tax credits.

NEW ACCOUNTING PRONOUNCEMENTS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risks relate to changes in prices received on our
sales of natural gas and oil production. We periodically enter into derivatives
contracts to mitigate a portion of this commodity price risk. Such derivatives
consist of commodity futures or price swaps (agreements with counterparties to
exchange floating prices for fixed prices), and options on such futures or price
swaps. These instruments reduce our exposure to decreases in gas and oil prices,
or increases in differentials between NYMEX and Rocky Mountain gas prices, but
they also generally limit the benefits realized from increases in prices or
narrowing of basis differentials. By hedging only a portion of our exposure to
changes in prices, we are able to benefit from increases in gas and oil prices
or improvements in basis differentials, but we remain exposed to market risk on
the portion of our production not covered by such derivatives. Prima also
retains risks related to the ineffective portion of its derivatives instruments,
when applicable.

We have entered into derivatives contracts that are intended to offset
risks associated with downward price movements in benchmark NYMEX gas and oil
prices, and basis swaps to offset risks of increases in the differential between
NYMEX and Rocky Mountain gas prices. These derivatives positions represent cash
flow hedges that are determined to be qualifying or non-qualifying for hedge
accounting treatment in accordance with the provisions of SFAS 133. See
Derivatives Transactions in Notes to Consolidated Financial Statements for
additional information with respect to our derivatives and related accounting
policies.

All derivatives transactions are executed by personnel who have
appropriate skills, experience and supervision. The personnel involved in these
activities must follow prescribed trading limits and parameters that are
regularly reviewed by Prima's Chief Executive Officer. All derivatives
transactions are approved by Prima's Chief Executive Officer before being
entered into and significant transactions are reviewed by Prima's Board of
Directors. We utilize only conventional derivatives instruments and attempt to
manage credit risk by entering into derivatives contracts only with financial
institutions that are believed to be reputable and which carry an investment
grade rating.

We closed certain derivative instruments between April 1, 2002 and
May 6, 2002, for net realized losses totaling $445,000. As of May 6, 2002, open
oil and gas derivative instruments showed net unrealized losses of $1,689,000,
as follows:

Market Total Volumes Contract Unrealized
Time Period Index (MMBtu) Price Gain (Loss)
------ ------------- --------- ----------

Natural Gas Futures
June 2002 ................................... NYMEX 500,000 $3.1414 $ (227,000)
July - September 2002 ....................... NYMEX 1,500,000 3.1869 (722,000)
October - December 2002 ..................... NYMEX 700,000 3.2757 (365,000)
January - February 2003 ..................... NYMEX 200,000 3.5905 (123,000)

Crude Oil Futures
June 2002 ................................... NYMEX 15,000 21.60 (68,000)
July - September 2002 ....................... NYMEX 45,000 21.45 (184,000)
----------

Total Unrealized Losses .......................... $1,689,000
==========

Certain information regarding our market risks is provided below.
Investors and other users are cautioned to avoid simplistic use of these
disclosures. Users should realize that the actual impact of future commodity
price movements will likely differ from the amounts disclosed below due to
ongoing changes in risk exposure levels and concurrent adjustments to positions.
It is not possible to accurately predict future movements in natural gas and oil
prices.

During the first quarter of 2002, Prima sold 90,000 barrels of oil. A
hypothetical decrease of $2.16 per barrel (10% of average first quarter prices
excluding hedging transactions) would have decreased our production revenues by
$194,000 for that period. Prima sold 2,103,000 Mcf of natural gas during the
first quarter of 2002. A hypothetical decrease of $0.19 per Mcf (10% of average
first quarter prices excluding hedging transactions) would have decreased our
production revenues by $400,000 for that period.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 2 of this Report contains
"forward-looking statements" which are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements relating to liquidity,
financing of operations, capital expenditures budget (both the amount and the
source of funds), continued volatility of oil and natural gas prices, future
drilling plans and other such matters. The words "anticipate," "expect," "plan,"
"believe," or "intend" and similar expressions identify forward-looking
statements. Such statements are based on certain assumptions and analyses made
by Prima's management in light of their experience and perceptions of historical
trends, current conditions, expected future developments and other factors that
are believed to be appropriate in the circumstances. Prima does not undertake to
update, revise or correct any of the forward-looking information. Factors that
could cause actual results to differ materially from the expectations expressed
in the forward-looking statements include, but are not limited to, the
following: industry conditions; volatility of oil and natural gas prices;
hedging activities; operational risks (such as blowouts, fires and loss of
production); insurance coverage limitations; potential liabilities, delays and
associated costs imposed by government regulation (including environmental
regulation); the need to develop and replace Prima's oil and natural gas
reserves; the substantial capital expenditures required to fund operations;
risks related to exploration and developmental drilling; and uncertainties about
oil and natural gas reserve estimates. For a more complete explanation of these
various factors, see "Cautionary Statement for the Purposes of the 'Safe Harbor'
Provisions of the Private Securities Litigation Reform Act of 1995" included in
Prima's Annual Report on Form 10-K for the year ended December 31, 2001,
beginning on page 19.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT NO. DOCUMENT

3 Certificate of Incorporation of Prima Energy Corporation,
Delaware, as filed August 18, 1988. (Incorporated by reference
to Registration of Securities of Certain Successor Issuers on
Form 8-B dated January 20, 1989.)

3 Certificate of Amendment of Certificate of Incorporation of
Prima Energy Corporation filed May 1, 1989. (Incorporated by
reference to Annual Report on Form 10-K for Prima Energy
Corporation dated June 30, 1989.)

3 Bylaws of Prima Energy Corporation. (Incorporated by reference
to Registration of Securities of Certain Successor Issuers on
Form 8-B dated January 20, 1989.)

3 Certificate of Amendment of the Certificate of Incorporation
of Prima Energy Corporation. (Incorporated by reference to
Quarterly Report on Form 10-Q for Prima Energy Corporation
dated June 30, 1997.)

4 Rights Agreement dated as of May 23, 2001, between Prima
Energy Corporation and Computershare Trust Company, Inc., as
Rights Agent, including the form of Certificate of
Designation, Powers, Preferences and Rights of Series A
Participating Preferred Stock dated May 29, 2001, as Exhibit
A, the Form of Right Certificate, as Exhibit B, and the
Summary of Rights to Purchase Preferred Shares. (Incorporated
by reference to Current Report on Form 8-K for Prima Energy
Corporation dated May 23, 2001.)

10.1 Prima Energy Corporation Non-Employee Directors' Stock Option
Plan.

10.2 Prima Energy Corporation 2001 Stock Incentive Plan.

(b) Reports on Form 8-K

During the quarter ended and subsequent to March 31, 2002, the Company
filed the following reports on Form 8-K:

o Report dated March 4, 2002, reporting year-end 2001 reserves, year 2002
estimated capital expenditures, and the sale of assets.

o Report dated March 20, 2002, reporting year-end 2001 financial results and
providing an update of operating activities and commodity hedging
transactions.

SIGNATURES

Pursuant to the requirements 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.

PRIMA ENERGY CORPORATION
(Registrant)

Date May 13, 2002 By /s/ Richard H. Lewis
--------------------------- ----------------------------------
Richard H. Lewis,
President and Chief Executive Officer

Date May 13, 2002 By /s/ Neil L. Stenbuck
--------------------------- ------------------------------
Neil L. Stenbuck,
Executive Vice President and Chief
Financial Officer

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.1 Prima Energy Corporation Non-Employee Directors' Stock Option
Plan.

10.2 Prima Energy Corporation 2001 Stock Incentive Plan.