Edgar Filing: PYRAMID OIL CO

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-32989

PYRAMID OIL COMPANY

(Exact Name of registrant as specified in its charter)

CALIFORNIA		94-0787340
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2008 – 21^st. Street. P.O. Box 832, Bakersfield, California		93302
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number:

(661) 325-1000

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer ¨		Accelerated Filer ¨
Non-accelerated filer ¨		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

(Class)		(Outstanding at August 14, 2013)
Common Stock Without Par Value		4,688,085

PYRAMID OIL COMPANY

FORM 10-Q

June 30, 2013

Table of Contents

		Page

PART I

Item 1.	Financial Statements

	Balance Sheets - June 30, 2013 (Unaudited)
	and December 31, 2012	3

	Statement of Operations -
	Three months ended June 30, 2013 and 2012 (Unaudited)	5
	Six months ended June 30, 2013 and 2012 (Unaudited)	6

	Statements of Cash Flows -
	Six months ended June 30, 2013 and 2012 (Unaudited)	7

	Notes to Financial Statements (Unaudited)	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

PART II

Item 1.	Legal Proceedings	19

Item 1A.	Risk Factors	19

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other Information	19

Item 6.	Exhibits	19

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

PYRAMID OIL COMPANY

BALANCE SHEETS

ASSETS

	June 30,		December 31,
	2013		2012
	(Unaudited)

CURRENT ASSETS:
Cash and cash equivalents	$	4,152,665	$	3,834,097
Short-term investments		2,138,406		2,135,709
Trade accounts receivable (net of reserve for doubtful accounts of $4,000 in 2013 and 2012)		467,160		375,090
Income taxes receivable		41,400		73,069
Crude oil inventory		83,582		82,180
Prepaid expenses and other assets		117,566		257,370
Deferred Income taxes		264,400		264,400

TOTAL CURRENT ASSETS		7,265,179		7,021,915

PROPERTY AND EQUIPMENT, at cost:

Oil and gas properties and equipment (successful efforts method)		20,063,740		20,007,453
Capitalized asset retirement costs		425,978		425,978
Drilling and operating equipment		2,058,744		1,966,750
Land, buildings and improvements		1,098,918		1,098,918
Automotive, office and other property and equipment		1,202,544		1,202,544
		24,849,924		24,701,643
Less - accumulated depletion, depreciation, amortization and valuation allowances		(21,215,120)		(20,953,324)

TOTAL PROPERTY AND EQUIPMENT		3,634,804		3,748,319

INVESTMENTS AND OTHER ASSETS
Long-term investments		1,116,493		1,101,526
Deferred income taxes		522,500		621,800
Deposits		250,000		250,000
Other assets		17,380		17,380

TOTAL INVESTMENTS OTHER ASSETS		1,906,373		1,990,706

TOTAL ASSETS	$	12,806,356	$	12,760,940

The accompanying notes are an integral part of these balance sheets.

PYRAMID OIL COMPANY

BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY

	June 30,		December 31,
	2013		2012
	(Unaudited)
CURRENT LIABILITIES:
Accounts payable	$	177,346	$	226,759
Accrued professional fees		84,604		120,000
Accrued taxes, other than income taxes		0		70,407
Accrued payroll and related costs		57,446		58,954
Accrued royalties payable		226,500		204,509
Accrued insurance		13,197		94,116

TOTAL CURRENT LIABILITIES		559,093		774,745

LIABILITY FOR ASSET RETIREMENT OBLIGATIONS		1,346,172		1,327,861

TOTAL LIABILITES		1,905,265		2,102,606

COMMITMENTS AND CONTINGENCIES (Note 3)

SHAREHOLDERS' EQUITY:
Preferred stock, no par value Authorized - 10,000,000 shares Issued and outstanding – none		0		0
Common stock, no par value Authorized - 50,000,000 shares Issued and outstanding - 4,688,085 shares		1,682,971		1,682,971
Retained earnings		9,218,120		8,975,363

TOTAL SHAREHOLDERS’ EQUITY		10,901,091		10,658,334

TOTAL LIABILITES AND SHAREHOLDERS’ EQUITY	$	12,806,356	$	12,760,940

The accompanying notes are an integral part of these balance sheets.

PYRAMID OIL COMPANY

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended June 30,
	2013		2012
REVENUES:
Oil and gas sales	$	1,154,409	$	1,340,314

COSTS AND EXPENSES:
Operating expenses		500,043		459,798
General and administrative		234,862		228,878
Taxes, other than income and payroll taxes		37,158		36,960
Provision for depletion, depreciation, and amortization		148,817		186,738
Accretion expense		7,932		5,730
Other costs and expenses		52,973		54,669
		981,785		972,773

OPERATING INCOME		172,624		367,541

OTHER INCOME (EXPENSE):
Interest income		10,004		10,170
Other income		0		250
Interest expense		0		(290)
		10,004		10,130

INCOME BEFORE INCOME TAX PROVISION		182,628		377,671
Income tax provision
Current		9,357		34,600
Deferred		43,200		54,500
		52,557		89,100

NET INCOME	$	130,071	$	288,571

BASIC INCOME PER COMMON SHARE	$	0.03	$	0.06

DILUTED INCOME PER COMMON SHARE	$	0.03	$	0.06

Weighted average number of common shares outstanding		4,688,085		4,683,853

Diluted average number of common shares outstanding		4,688,085		4,686,827

The accompanying notes are an integral part of these statements.

PYRAMID OIL COMPANY

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Six months ended June 30,
	2013		2012
REVENUES:
Oil and gas sales	$	2,162,212	$	2,709,372

COSTS AND EXPENSES:
Operating expenses		934,481		889,739
General and administrative		457,003		439,894
Taxes, other than income and payroll taxes		67,555		84,381
Provision for depletion, depreciation, and amortization		261,796		367,894
Accretion expense		18,311		18,817
Other costs and expenses		86,198		84,474
		1,825,344		1,885,199

OPERATING INCOME		336,868		824,173

OTHER INCOME (EXPENSE):
Interest income		20,315		20,860
Other income		0		250
Interest expense		0		(716)
		20,315		20,394

INCOME BEFORE INCOME TAX PROVISION		357,183		844,567
Income tax provision
Current		15,126		83,000
Deferred		99,300		100,900
		114,426		183,900

NET INCOME	$	242,757	$	660,667

BASIC INCOME PER COMMON SHARE	$	0.05	$	0.14

DILUTED INCOME PER COMMON SHARE	$	0.05	$	0.14

Weighted average number of common shares outstanding		4,688,085		4,683,853

Diluted average number of common shares outstanding		4,688,085		4,686,929

The accompanying notes are an integral part of these statements.

PYRAMID OIL COMPANY

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30,
	2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	242,757	$	660,667

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for depletion, depreciation, and amortization		261,796		367,894
Accretion expense		18,311		18,817
Deferred income taxes		99,300		100,900
Asset retirement obligations		0		8,096

Changes in operating assets and liabilities:
(Increase) decrease in trade accounts and income taxes receivable		(60,401)		190,815
(Increase) decrease in crude oil inventories		(1,402)		1,988
Decrease in prepaid expenses		139,804		142,494
(Decrease) in accounts payable and accrued liabilities		(215,652)		(212,532)

Net cash provided by operating activities		484,513		1,279,139

The accompanying notes are an integral part of these statements.

PYRAMID OIL COMPANY

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30,
	2013		2012
CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures	$	(148,281)	$	(777,916)
(Increase) in short-term investments		(2,697)		(4,264)
(Increase) in long-term investments		(14,967)		(14,327)

Net cash used in investing activities		(165,945)		(796,507)

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on long-term debt		0		(32,285)

Net cash used in financing activities		0		(32,285)

Net increase in cash and cash equivalents		318,568		450,347

Cash and cash equivalents at beginning of period		3,834,097		2,762,676

Cash and cash equivalents at end of period	$	4,152,665	$	3,213,023

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the six months for interest	$	0	$	716

Cash paid during the six months for income taxes	$	800	$	85,500

The accompanying notes are an integral part of these statements.

PYRAMID OIL COMPANY

NOTES TO FINANCIAL STATEMENTS

June 30, 2013

(UNAUDITED)

1. Summary of Significant Accounting Policies

The financial statements include the accounts of Pyramid Oil Company (the “Company”). Such financial statements included herein have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

A summary of the Company's significant accounting policies is contained in its December 31, 2012 Form 10-K. The financial data presented herein should be read in conjunction with the Company's December 31, 2012 financial statements and notes thereto, contained in the Company's Form 10-K.

In the opinion of the Company, the unaudited financial statements, contained herein, include all adjustments necessary to present fairly the Company's financial position as of June 30, 2013 and the results of its operations and its cash flows for the three and six month periods ended June 30, 2013 and 2012. The results of operations for any interim period are not necessarily indicative of the results to be expected for a full year.

Income Taxes - When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

The Company files income tax returns in the U.S. federal jurisdiction, California, Texas and New York states. With few exceptions, the Company is no longer subject to U.S. federal tax examination for the years before 2009. State jurisdictions that remain subject to examination range from 2009 to 2012. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

The Company policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FASB ASC 740, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarter.

Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations.

Income (Loss) per Share - Basic income (loss) per common share is computed by dividing the net income (loss) applicable to common stock by the weighted average number of shares of common stock outstanding during the period.

Diluted income (loss) is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period plus the weighted average number of dilutive common stock equivalents outstanding for the period. For periods with a net loss, the dilutive common stock equivalents are excluded from the diluted income (loss) calculation.

Valuation Allowances - The Company records valuation allowances for its oil and gas properties when the undiscounted future net cash flows are less than the net capitalized costs for the property. No valuation allowances were recorded during the first six months of 2013 or 2012.

Reclassifications - Certain reclassifications have been made to prior period financial statements to conform to the current year presentation.

2. Dividends

No cash dividends were paid during the six months ended June 30, 2013 and 2012.

3. Commitments and Contingencies

In February 2002, the Company entered into an employment agreement with John H. Alexander pursuant to which Mr. Alexander agreed to serve as the Company's Vice President. On June 3, 2004, Mr. Alexander was appointed as the Company's President and Chief Executive Officer. The employment agreement was for an initial term of six years, which term automatically renews annually if written notice is not tendered. The agreement was automatically renewed on June 3, 2013.

Pursuant to the employment agreement, the Company may terminate Mr. Alexander's employment with or without cause at any time before its term expires upon providing written notice. In the event the Company terminates Mr. Alexander's employment without cause, Mr. Alexander would be entitled to receive a severance amount equal to his annual base salary and benefits for the balance of the term of his employment agreement. In the event of termination by reason of Mr. Alexander's death or permanent disability, his legal representative will be entitled to receive his annual salary and benefits for the remaining term of his employment agreement. In the event of, or termination following, a change in control of the Company, as defined in the agreement, Mr. Alexander would be entitled to receive his annual salary and benefits for the remainder of the term of his agreement. In the event that Mr. Alexander is terminated the Company would incur approximately $930,000 in costs.

The Company has been notified by the United States Environmental Protection Agency (EPA) of a final settlement offer to settle its potential liability as a generator of waste containing hazardous substances that was disposed of at a waste disposal site in Santa Barbara County. The Company has responded to the EPA by indicating that the waste contained petroleum products that fall within the exception to the definition of hazardous substances for petroleum-related substances of the pertinent EPA regulations. Management has concluded that under both Federal and State regulations no reasonable basis exists for any valid claim against the Company. As such, the likelihood of any settlement is deemed remote. There has been not further communication form the EPA on this matter since September 25, 2009.

4. Income Tax Provision

The Company recognized an income tax provision of $114,426 for the six months ended June 30, 2013 compared to an income tax provision of $183,900 for the same period in 2012.

Income tax provision for the six months ended June 30, 2013 was calculated as follows:

	Federal		State		Total
Current tax provision	$	12,726	$	2,400	$	15,126
Deferred tax provision		77,200		22,100		99,300

	$	89,926	$	24,500	$	114,426

Income tax provision for the six months June 30, 2012 was calculated as follows:

	Federal		State		Total
Current tax provision	$	71,000	$	12,000	$	83,000
Deferred tax provision		78,500		22,400		100,900

	$	149,500	$	34,400	$	183,900

Income tax provision for the three months ended June 30, 2013 was calculated as follows:

	Federal		State		Total
Current tax provision	$	7,957	$	1,400	$	9,357
Deferred tax provision		33,500		9,700		43,200

	$	41,457	$	11,100	$	52,557

Income tax provision for the three months ended June 30, 2012 was calculated as follows:

	Federal		State		Total
Current tax provision	$	29,500	$	5,100	$	34,600
Deferred tax provision		42,350		12,150		54,500

	$	71,850	$	17,250	$	89,100

Deferred income taxes are recognized using the asset and liability method by applying income tax rates to cumulative temporary differences based on when and how they are expected to affect the tax returns. Deferred tax assets and liabilities are adjusted for income tax rate changes. Deferred income tax assets have been offset by a valuation allowance of $1,719,000 as of June 30, 2013 and December 31, 2012. Management reviews deferred income taxes regularly throughout the year, and accordingly makes any necessary adjustments to properly reflect the valuation allowance based upon current financial trends and projected results.

5. Incentive and Retention Plan

On January 9, 2007, the Company's Board of Directors adopted an Incentive and Retention Plan pursuant to which the Company's officers and other employees selected by the Company's Compensation Committee are entitled to receive payments if they are employed by the Company as of the date of a 'Corporate Transaction,' as defined in the Incentive and Retention Plan. A 'Corporate Transaction' includes certain mergers involving the Company, sales of Company assets, and other changes in the control of the Company, as specified in the Incentive and Retention Plan. In general, the amount that is payable to each plan participant will equal the number of plan units that have been granted to him or her, multiplied by the increase in the value of the Company between January 9, 2007 and the date of a Corporate Transaction. There has been no Corporate Transaction since the adoption of the Incentive and Retention Plan.

6. Related-party Transaction

Effective January 1, 1990, John H. Alexander, an officer and director of the Company participated with a group of investors that acquired the mineral and fee interest on one of the Company's oil and gas leases (Santa Fe Energy lease) in the Carneros Creek field after the Company declined to participate. The thirty-three percent interest owned by Mr. Alexander represents a minority interest in the investor group. Royalties on oil and gas production from this property paid to the investor group approximated $81,000 during the six months ended June 30, 2013 and $137,000 during the six months ended June 30, 2012.

7. Stock Based Compensation

The Company issued options to purchase common shares of the Company as compensation for Board of Director services. The value of options issued for compensation are accounted for as a non-cash expense to the Company at the fair value of the options issued. The Company values the options at fair value as calculated by using the Black-Scholes option-pricing model. As of June 30, 2013 the Company has $0 in unamortized stock based compensation related to outstanding options.

The following table summarizes the option activity for the six months ended June 30, 2013:

(Unaudited)	Number of Options		Weighted-Average Exercise Price

Outstanding, December 31, 2012		10,000	$	5.40
Granted		0		0
Exercised		0		0
Cancelled		0		0
Outstanding, June 30, 2013		10,000	$	5.40

The following summarizes the options issued, outstanding and exercisable as of June 30, 2013:

Grant Date		June 2, 2011
Strike Price	$	5.40
Expiration Date		June 1, 2016
Options Remaining		10,000
Proceeds if Exercised	$	54,000
Call Feature		None

8. Fair Value

As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that the Company believes market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. FASB ASC 820 establishes a three-tiered fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - Observable inputs such as quoted prices in active markets;

Level 2 - Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Included in this category is the Company's determination of the value of its asset retirement obligation liability. The obligation has increased $18,311 during the six months ended June 30, 2013 as a result of normal accretion expense and the drilling of a new well.

The carrying amount of our cash and cash equivalents, short and long term investments reported in the balance sheets approximates fair value because of the short maturity of those instruments.

Fair Value on Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with GAAP (for example, when there is evidence of impairment). There were no instances of impairment recorded in the quarter ending June 30, 2013.

9. Asset Retirement Obligations

The Company recognizes a liability at discounted fair value for the future retirement of tangible long-lived assets and associated assets retirement cost associated with the petroleum and natural gas properties. The fair value of the liability is capitalized as part of the cost of the related asset and amortized to expense over its useful life. The liability accretes until the date of expected settlement of the retirement obligations. The related accretion expense is recognized in the statement of operations. The provision will be revised for the effect of any changes to timing related to cash flow or undiscounted abandonment costs. Actual expenditures incurred for the purpose of site reclamation are charged to the asset retirement obligations to the extent that the liability exists on the balance sheet. Differences between the actual costs incurred and the fair value of the liability recorded are recognized in income in the period the actual costs are incurred.

There are no legally restricted assets for the settlement of asset retirement obligations. A reconciliation of the Company's asset retirement obligations from the periods presented, are as follows:

Balance at December 31, 2012	$	1,327,861
Incurred during the period		0
Additions for new wells		0
Accretion expense		18,311
Balance at June 30, 2013	$	1,346,172

10. Subsequent Events

The Company evaluated subsequent events after the balance sheet date of June 30, 2013 through the date these unaudited financial statements were issued.

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

FORWARD LOOKING INFORMATION

Looking forward into the balance of fiscal 2013, crude oil prices have increased by $4.25 per barrel.

The Company is in the planning and permitting process to re-drill three of its existing wells sometime during the third quarter of 2013, depending on drilling rig availability. The three wells are located on the Company’s Delaney Tunnell property in Santa Maria, California. Two will be production wells, and will be re-drilled into the Monterey formation at a depth of approximately 6,700 feet. The wells were previously drilled to a depth of 4,700 feet. One of the wells will be re-drilled as a disposal well for production water. The Company has submitted its water disposal plan to the State of California and is awaiting approval.

Pyramid has maintained a strong balance sheet and working capital position, and management continues to seek and evaluate opportunities within the energy sector to enhance the value of the Company. Pyramid's growth during the balance of 2013 will be highly dependent on the level of success the Company has in its operations and capital investments, including the outcome of wells that have not yet been drilled. The Company's capital investment program may be modified during the year due to exploration and development successes or failures, market conditions and other variables. The production and sales of oil and gas involves many complex processes that are subject to numerous uncertainties, including reservoir risk, mechanical failures, human error and market conditions.

The Company has positioned itself, over the past several years, to withstand various types of economic uncertainties, with a program of consolidating operations on certain producing properties and concentrating on properties that provide the major revenue sources. The drilling of a new well and several limited work-overs of certain wells have allowed the Company to maintain its crude oil reserves for the last three years. The Company expects to maintain its reserve base in 2013 by drilling new wells and routine maintenance of its existing wells.

The Company may be subject to future costs necessary for compliance with the new implementation of air and water environmental quality requirements of the various state and federal governmental agencies. The requirements and costs are unknown at this time, but management believes that costs could be significant in some cases. As the scope of the requirements become more clearly defined, management may be better equipped to determine the true costs to the Company.

The Company continues to absorb the costs for various state and local fees and permits under new environmental programs, the sum of which were not material during 2012. The Company retains outside consultants to assist the Company in maintaining compliance with these regulations. The Company is actively pursuing an ongoing policy of upgrading and restoring older properties to comply with current and proposed environmental regulations. The costs of upgrading and restoring older properties to comply with environmental regulations have not been determined. Management believes that these costs will not have a material adverse effect upon its financial position or results of operations.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Portions of this Quarterly Report, including Management's Discussion and Analysis, contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this release. Such forward-looking statements speak only as of the date of this report and the Company expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in Company expectations or results or any change in events. Factors that could cause results to differ materially include, but are not limited to: the timing and extent of changes in commodity prices of oil, gas and electricity, environmental risk, drilling and operational costs, uncertainties about estimates of reserves and government regulations.

ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2012

REVENUES

The decrease in oil and gas sales of $185,905 is due primarily to lower crude oil production combined with lower average sales prices for the second quarter of 2013. The Company's net revenue share of crude oil production/sales decreased by approximately 700 barrels for the second quarter of 2013. The average sales price of the Company's oil and gas for the second quarter of 2013 decreased by approximately $9.27 cents per equivalent barrel when compared to the same period of 2012. The decline in production for the second quarter of 2013 is not attributable to any one property. Most of the oil and gas leases had lower production due primarily to natural decline.

OPERATING EXPENSES

Operating expenses increased by $40,245 for the second quarter of 2013. The cost to produce an equivalent barrel of crude oil during the second quarter of 2013 was approximately $42.79 per barrel, an increase of approximately $5.72 per barrel when compared with production costs for the second quarter of 2012. The net increase in lease operating expenses is caused by many offsetting factors, including higher costs for contract operations and labor. These were offset by lower costs for gas engine repairs. Contract operations increased by $30,675 due primarily to higher operating costs for the New York gas properties and the Wyoming and Texas joint ventures. Labor costs increased by $17,803 due primarily to the hiring of one field employee in the fourth quarter of 2012 and a 7% increase in hourly wages that was effective May 1, 2012. Gas engine repairs decreased by $12,703 due primarily to a decline in maintenance activities on the Santa Fe, Theta 30 and Anderson leases.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased by $5,984 for the second quarter of 2013 when compared with the same period for 2012. Accounting services increased by $15,342 due primarily to higher than projected audit fees. The remaining net decrease in general and administrative costs of $9,358 is attributable to many different cost categories, none of them significant in amount.

PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION

The provision for depletion, depreciation and amortization decreased by $37,921 for the second quarter of 2013, when compared with the same period for 2012. The decrease is due primarily to a decrease in the depletion of oil and gas properties. Depletion decreased due to lower production volumes combined with a lower average per barrel depletion rate. The depletion rate for 2013 declined due to lower net costs to amortize.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2012

REVENUES

The decrease in oil and gas sales of $547,160 is due to lower crude oil sales volumes combined with lower average sales prices for the six months ended June 30, 2013. The Company's net revenue share of crude oil production/sales decreased by approximately 3,500 barrels for the six months ended June 30, 2013. The decline in production for the first half of 2013 is not attributable to any one property. Most of the oil and gas leases had lower production due primarily to natural decline. The average sales price of the Company's oil and gas for the six months ended June 30, 2013 decreased by approximately $7.53 per equivalent barrel when compared to the same period of 2012.

OPERATING EXPENSES

Operating expenses increased by $44,742 for the six months ended June 30, 2013. The cost to produce an equivalent barrel of crude oil during the six months ended June 30, 2013 was approximately $44.15 per barrel, an increase of approximately $8.13 per barrel when compared with production costs for the same period of 2012. The increase in lease operating expenses is caused by many factors. These include higher costs for labor, equipment rental, outside services, parts and supplies and pump repairs. These were offset by lower costs for chemicals, equipment fuel and production equipment repair and maintenance.

Labor costs increased by $41,118 due primarily to the hiring of one additional field level employee in the fourth quarter of 2012 and a 7% salary increase for all field employees that was effective May 1, 2012. Equipment rental costs increased by $17,358 due to higher costs for certain oil and gas properties. Equipment rental costs increased on the Mullaney and Theta-12 leases due to the rental of crude oil storage tanks for these properties. Equipment rental costs increased on the Ranton lease due to the removal of a crude oil storage tank on this lease. Outside services increased by $10,483 due primarily to higher costs on the Santa Fe lease. The Company employed a third-party outside contractor to perforate different oil-producing zones in the Santa Fe #18 well. Parts and supplies increased by $10,227 due to higher maintenance activities for the six months ended June 30, 2013 when compared with the same period of 2012. Downhole pump repairs increased by $9,132 due to an increase in activity during the six months ended June 30, 2013. Pump repairs are cyclical in nature and costs will vary from period to period.

Chemicals costs decreased by $16,833 due to lower usage on certain oil producing properties. Equipment fuel costs decreased by $15,956 due to lower volumes of gasoline and diesel purchased during the first half of 2013. Production equipment repair and maintenance costs decreased by $14,518 for the six months ended June 30, 2013. During the six months ended June 30, 2012, the Company replaced the sand line and tubing line on two of its well servicing rigs. No such expenditures were made in the six months ended June 30, 2013.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased by $17,109 for the six months ended June 30, 2013 when compared with the same period for 2012. Accounting services increased by $20,429 due primarily to higher than projected audit fees. The remaining net decrease in general and administrative costs of $3,320 is attributable to many different cost categories, none of them significant in amount.

PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION

The provision for depletion, depreciation and amortization decreased by $106,098 for the six months ended June 30, 2013, when compared with the same period for 2012. The decrease is due primarily to a decrease in the depletion of oil and gas properties. Depletion decreased due to lower production volumes combined with a lower average per barrel depletion rate. The depletion rate for 2013 declined due to lower net costs to amortize.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased by $318,568 for the six months ended June 30, 2013. During the six months ended June 30, 2013, operating activities provided cash of $484,513. Cash was used for capital spending of $148,281. See the accompanying Statements of Cash Flows for additional detailed information. The Company had available a line of credit of $500,000 and short-term and long-term investments of $3,254,899 at June 30, 2013 that provided additional liquidity during the first six months of 2013.

IMPACT OF CHANGING PRICES

The Company’s revenue is affected by crude oil prices paid by the major oil companies. Average crude oil prices for the six months ended June 30, 2013 decreased by approximately $7.53 per equivalent barrel when compared with the same period of 2012. The Company cannot predict the future course of crude oil prices.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. - Legal Proceedings

None

Item 1A. - Risk Factors

See the risk factors that are included in the Company's Annual Report on Form 10K for the fiscal year ended December 31, 2012.

Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. - Defaults Upon Senior Securities

None

Item 4. - Mine Safety Disclosures

None

Item 5. - Other Information

None

Item 6. - Exhibits

31.1 - Certification of the Registrant's Principal Executive Officer under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 - Certification of the Registrant's Principal Financial Officer under Exchange Act Rules 13a-14(a) and 15-d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 - Certification of the Registrant's Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 - Certification of the Registrant's Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 - The following information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (1) Balance Sheets as of June 30, 2013 and December 31, 2012; (2) Income Statements for the three and six months ended June 30, 2013 and 2012; (3) Statements of Cash Flows for the six months ended June 30, 2013 and 2012; and (4) Notes to Financial Statements. *

Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.

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.

	PYRAMID OIL COMPANY
	(registrant)

Dated: August 14, 2013	JOHN H. ALEXANDER
	John H. Alexander
	President

Dated: August 14, 2013	LEE G. CHRISTIANSON
	Lee G. Christianson
	Chief Financial Officer