RSRV Reserve Petroleum Co (PK)

 

 

The Company elects all Directors of the Board each year. Because we are a very small company with only six employees, we try to keep the process of operating the Company as uncomplicated as possible. At the same time, our objective is full compliance with all the Securities and Exchange Commission (“SEC”) rules and regulations required of all public companies that are smaller reporting companies, as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). We have been in business since 1931 and try to operate the Company today using the same principles as when the Company was formed. Our operations have progressed as technology has advanced. The Company’s directors’ fees are nominal, and we have no stock incentive-based compensation for the directors, our executive officers or our other employees. Accordingly, all existing directors are re-nominated each year, unless they elect not to serve.

 

The Company’s Statement of Governance Principles and the Charter of the Nominating Committee were adopted by the Board in 2004. The Statement of Governance Principles was amended as of May 25, 2021. All director nominees to the Board meet the qualifications set out in those documents.

 

Each non-employee director was originally nominated to serve on the Board based on their individual business background. Our current directors have a wide variety of business experience including some with petroleum industry experience and some without any petroleum industry experience. Some directors have large corporate background work experience, and some have experience working in or managing smaller companies or their own company. Because of the Company’s practice of re-nominating current directors, the primary qualification that led to each re-nominated director being chosen to serve for the coming year is their prior service and experience as a director. Considering the Company’s business and structure, the diversity of the Board is limited to the variety of business experience and backgrounds of the current directors.

 

The following persons are the Company’s current directors.

 

 

Each director has served continuously as a director since the date of his first election or appointment to the Board. The Board has determined that the following directors are independent, as independence is defined in Rule 5605(a)(2) of the NASDAQ Listing Rules: Eddy R. Ditzler, Doug S. Fuller, Marvin E. Harris, Jr., and William M. (Bill) Smith.

 

 

 

Cameron R. McLain, Director, CEO, President and Exploration Manager, and Kyle L. McLain, Director, Chairman of the Board, Executive Vice President and Production Manager, are brothers.

 

Eddy R. Ditzler has been a director since May 25, 2021. Mr. Ditzler served Grant Thornton LLP for more than 35 years until his retirement in August 2017. As an audit partner, Mr. Ditzler was with Grant Thornton LLP as lead engagement partner and quality control partner for audits of privately owned and publicly traded oil and gas companies, financial institutions, insurance companies, manufacturers, distributors, retailers, and service companies. From December 2012 until his retirement, Mr. Ditzler was the National Professional Practice Director (NPPD) for the region that included offices in Dallas, Houston, Kansas City, Minneapolis, Oklahoma City, St. Louis, Tulsa, and Wichita. As the NPPD, he supported audit teams by providing technical support on accounting, auditing, and regulatory matters and consulted directly with audit teams and client management to provide timely resolution of technical accounting and auditing issues. Mr. Ditzler holds a Bachelor of Science in Business Administration (Accounting) and a Master of Science in Accounting from Oklahoma State University.

 

Lawrence R. Francis was employed by the Company on September 1, 2017, and was elected Chief Financial Officer, 1^st Vice President and Secretary/Treasurer, effective January 1, 2018. Mr. Francis devotes substantially all his time to the affairs of the Company, although he devotes a part of his time and efforts to the activities of affiliated organizations. Mr. Francis was previously employed as an Assurance Manager for HoganTaylor LLP, where he served from January 2013 to August 2017 and as a CPA for Smith, Carney and Company, P.C. from January 2011 to December 2012. Prior to becoming a CPA, Mr. Francis spent more than 10 years in operations management in the retail sector. Mr. Francis holds a Bachelor of Science degree in Accounting from the University of Central Oklahoma and is a Certified Public Accountant in Oklahoma.

 

Doug S. Fuller has been a director since May 2, 2000. He is the President and Chief Executive Officer of Quail Creek Bank where he has been employed since April 20, 2009. Mr. Fuller was employed as Membership Director with Leadership Oklahoma from May 2007 until April 2009. Before that, he had been in banking since 1980 and was an executive officer with Bank of Oklahoma from 1992 until 2007. Mr. Fuller holds a Bachelor of Business Administration degree in Finance from the University of Oklahoma and a Master of Business Administration degree from Oklahoma City University. He is also a director of Quail Creek Bank, The Bankers Bank, the Oklahoma Bankers Association, and the Last Frontier Council of the Boy Scouts of America.

 

Marvin E. Harris, Jr. has been a director since May 7, 1991. He was a senior software developer with Devon Energy Corporation from April 2013 until his retirement in March 2021. Mr. Harris was a senior software developer with Teleflora from March 2012 until April 2013 and from January 2011 until March 2012 was employed as a Principal Analyst with Southwest Research Institute. He served as President of Tetron Software, a computer software company, which he formed, from January 1994 until January 2011. Mr. Harris was employed as President of RDS Services, Inc., a computer software company, from 1991 until 1994. He was employed by Intel Corporation from 1984 until 1991. Mr. Harris holds a Bachelor of Science degree from the University of Alabama, a Master of Science degree from the University of Alabama in Birmingham, and a Master of Business Administration degree from Southern Methodist University.

 

Cameron R. McLain has been a director since May 23, 2006. He was elected Chief Executive Officer on May 19, 2009, and President of the Company on May 20, 2008. Mr. McLain also serves as Exploration Manager and has served in that capacity continuously since his employment on May 9, 1982. He devotes substantially all his time to Company affairs; however, he devotes a part of his time and efforts to the activities of affiliated organizations. Mr. McLain was employed from May 1980 to May 1982 as an exploration geologist for Cities Service Oil and Gas Company in the Mid-Continent Division. He holds a Bachelor of Science degree in Geology from the University of Oklahoma and a Master of Business Administration degree from Oklahoma City University. Mr. McLain is also a director and officer of Mesquite Minerals, Inc.

 

 

Kyle L. McLain has been a director since May 23, 2006. He was elected Chairman on May 30, 2013, and Executive Vice President on May 20, 2008. Mr. McLain also serves as Production Manager and has served in that capacity continuously since his employment on May 12, 1984. He devotes substantially all his time to the affairs of the Company, although he spends a part of his time and efforts on the activities of affiliated organizations. Mr. McLain was employed as a reservoir engineer for Gulf Oil Corporation from May 1980 to May 1984. He holds a Bachelor of Science degree in Petroleum Engineering from the University of Oklahoma. Mr. McLain is also a director and officer of Mesquite Minerals, Inc.

 

Robert L. Savage has been a director since May 6, 1975. He has been a Financial Consultant with B.B. Graham & Company, Inc. since December 2014. Mr. Savage was President and Chief Executive Officer of Leonard Securities, Inc. from 1997 to February 2015. He was the President of Leonard Agency, Inc. from 1998 to 2019 and has been President of Leonard Investment Advisors, Inc. since 1999. Mr. Savage was Vice President with Park Avenue Securities, Inc. from January 1989 to May 1994 and Century Investment Group, Inc. from April 1994 to September 1997. He was employed as an Account Executive with Reynolds Securities, later named Dean Witter Reynolds from 1975 to 1989. Mr. Savage holds a Bachelor of Business Administration degree from Trinity University and a Master of Business Administration degree from Southern Methodist University.

 

William M. (Bill) Smith has been a director since May 5, 1998. He is the owner of W. M. Smith Energy, LLC, a geological consulting company that he formed January 1, 2008. Prior to that date, Mr. Smith had served as Manager of Geology at Bracken Operating, LLC since 1994 and was also part owner. He joined Bracken Exploration Co. as an Exploration Geologist in 1981 and became Vice President of Geology until 1986. In 1986, Mr. Smith assisted in forming Bracken Energy Company, for whom he was an employee and part owner. He was employed by Samedan Oil Corporation from 1980 through 1981. Mr. Smith holds a Bachelor of Science degree in Geology from the University of Oklahoma.

 

James L. Tyler has been a director since May 22, 2018. He was employed by the Company from August 2003 until he retired in December 2017. Mr. Tyler served as Chief Financial Officer, 2nd Vice President and Secretary/Treasurer during his employment. Mr. Tyler was employed as Vice-President Controller for Grace Petroleum Corporation from May 1979 to May 1994 and Controller for MCNIC Oil & Gas, Inc. from June 1994 to April 1999. From May 1999 until March 2003, he was employed as Controller for Express Ranches and Accounting Manager for Bison Drilling Company. Mr. Tyler holds a Bachelor of Science degree in Accounting from the University of Central Oklahoma and is a Certified Public Accountant in Oklahoma.

 

 

On or about November 11, 2013, a Statement of Claim was filed against Robert Savage, Leonard Securities, Inc., of which Mr. Savage was President and Chief Executive Officer, two other individuals, and an unrelated investment advisor entity (collectively the “Respondents”) in FINRA Arbitration Case Number 13-03324. An Amended Statement of Claim was filed on or about August 29, 2014. The Claimant asserted the following causes of action: churning, suitability, breach of fiduciary duty, negligence, and failure to supervise. The Claimant sought damages in the amount of $676,000 for actual/compensatory damages and unspecified other damages. Mr. Savage and Leonard Securities, Inc. denied the allegations made in the Statement of Claim and asserted affirmative defenses. On December 19, 2014, a Panel of Arbitrators determined that (i) the Respondents were jointly and severally liable to the Claimant in the amount of $200,000 plus interest and (ii) Leonard Securities, Mr. Savage and three of the other Respondents were jointly and severally responsible for $5,400 in fees related to the FINRA Dispute Resolution. Notwithstanding that the Respondents were jointly and severally liable, Leonard Securities, Inc. and Mr. Savage satisfied the full amount of the award and the fees.

 

Supervision of registered representatives and their sales practices requires a firm to have a supervisory system that is reasonably designed and implemented to achieve compliance with applicable laws and regulations. An effective supervisory system enables the firm to detect and review for possible suspicious activity. Mr. Savage and Leonard Securities, Inc. disagreed with the Claimant’s allegation regarding failure of supervision. Leonard Securities, Inc. supervised the investment advisory activities of another named Respondent according to its written supervisory procedures covering supervision of outside investment advisers and to the extent applicable, that individual’s activities as a registered representative of Leonard Securities, Inc. Mr. Savage and Leonard Securities, Inc. believe the compliance system adopted and implemented by Leonard Securities, Inc. represented sound and common-sense procedures, consistent with industry norms and practices for reviewing such activities.

 

 

The Company has adopted a Code of Ethics for Senior Officers (the “Code of Ethics”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions meeting the criteria set forth in Item 406 of SEC Regulation S-K. The Code of Ethics can be viewed at the SEC’s website as Exhibit 14 to the Company’s 2018, Quarter 1 Form 10-Q or on the Company website at https://www.reserve-petro.com/investor-relations/.

 

 

 

The Board chose to separate the Chief Executive Officer and Board Chairman positions in May 2009. Due to the relatively small size of the Company, this helps the Board achieve independent leadership and aids in effective monitoring and oversight. Cameron R. McLain serves as Chief Executive Officer and Kyle L. McLain serves as Chairman of the Board.

 

 

Due to the relatively small size of the Company and the limited number of Board meetings held annually, the Board has delegated its risk oversight function to the Company’s executive officers. Two of our three executive officers are also directors. The non-employee directors feel that since our executive officers supervise the day-to-day risk management of the Company, they are best equipped and the most logical choice for the risk oversight function. In addition, our executive officers have the overall responsibility to assess and manage the Company’s exposure to all risks, including credit, liquidity and operational risks.

 

 

The Board held three meetings during the Company’s fiscal year ended December 31, 2022. It is the Board’s policy that directors should attend the Company’s Annual Meeting of Stockholders. Last year, all directors attended the Annual Meeting of Stockholders.

 

 

In General. The Company is a smaller reporting company whose securities are not quoted on NASDAQ or listed on any exchange. The Company’s stock is traded by private transactions or over the counter. Over the counter bid information is quoted in the OTCQB Quotation Service in the OTC Market Report, and in the OTC Bulletin Board under the symbol “RSRV.” The Board adopted the Company’s Statement of Governance Principles in 2004. The Statement of Governance Principles was amended as of May 25, 2021 and can be viewed on the Company’s website at https://www.reserve-petro.com/investor-relations/.

 

Audit Committee. The Company adopted the Charter of the Audit Committee in 2021. The Board elected Eddy R. Ditzler to serve as Audit Committee Chairperson. Mr. Ditzler is an independent director as defined in Rule 5605(a)(2) of the NASDAQ Listing Rules. Mr. Ditzler is also an “audit committee financial expert” as that term is defined by the SEC. Other members of the committee include Doug S. Fuller and Marvin E. Harris, Jr., who are also considered independent directors as defined in Rule 5605(a)(2) of the NASDAQ Listing Rules. The Audit Committee charter can be viewed on the Company’s website at https://www.reserve-petro.com/investor-relations/. The Company’s Audit Committee reviews the qualifications, independence and performance of the independent auditors, reviews communications from the independent auditors, discusses related matters with the independent auditors, makes recommendations to the board of directors regarding the inclusion of the Company's financial statements in SEC reports, and performs other duties related to oversight of the Company's financial statements and related internal controls.

 

Executive Committee. The Board has designated the Executive Committee, which consists of Cameron R. McLain and Kyle L. McLain, to act on behalf of the board if needed. The Corporate Secretary attends Executive Committee meetings to document minutes and to ensure all required communications are communicated to the Board during regularly scheduled Board meetings.

 

Compensation Committee. The Company does not have a Compensation Committee or a committee performing a similar function. Because the Company is so small and only has six employees, three of whom are our executive officers, it is the view of the Board that it is appropriate for the Company not to have such a committee.

 

Nominating Committee. The Board adopted the Charter of the Nominating Committee in 2004. Minimum qualifications for director nominees are detailed in the Statement of Governance Principles, along with procedures for stockholders to recommend director candidates for consideration by the Nominating Committee. The charter can be viewed at the SEC’s website and on the Company website at https://www.reserve-petro.com/investor-relations/. The Board has designated Doug S. Fuller, Cameron R. McLain and William M. (Bill) Smith as members of the Nominating Committee. Both Mr. Fuller and Mr. Smith are “independent” as defined in Rule 5605(a)(2) of the NASDAQ Listing Rules. The Nominating Committee makes recommendations to the Board regarding individuals for nomination as directors and, in addition, may consider other matters relating to corporate governance. The Nominating Committee met once in March 2023 and recommended that the current directors be nominated to serve a one-year term on the Board. The Nominating Committee evaluates qualified nominees for director using the same process regardless of whether the nominee is recommended by an officer, director or stockholder.

 

 

 

As required by SEC Regulation S-K, Item 407(d)(3)(i), the Audit Committee has:

 

 

 

 

Based on the review and discussions referred to above, the Board approved the inclusion of the Company’s audited financial statements, for and as of the fiscal year ended December 31, 2022, in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, for filing with the SEC.

 

The Members of the Board are Eddy R. Ditzler, Doug S. Fuller, Marvin E. Harris, Jr., Cameron R. McLain, Kyle L. McLain, Robert L. Savage, William M. (Bill) Smith and James L. Tyler.