SecProbe.io

CORRESP
1
filename1.htm

SEC Correspondence 05/05/2005

May 5,
2005

H. Roger
Schwall

Assistant
Director

U.S.
Securities and Exchange Commission

450
5th Street,
N.W., Stop 4-5

Washington,
D.C. 20549-0405

      RE:

      SEC
      Comment Letter dated April 22, 2005

Related
to Adams Resources & Energy, Inc.

Form 10-K
for the fiscal year ended December 31, 2004

File No.
1-7908

Dear Mr.
Schwall:

This
letter responds to the comments Adams Resources & Energy, Inc. (the
“Company”) received from the U.S. Securities and Exchange Commission (the “SEC”
of the “Commission”) by letter dated April 22, 2005.

We hope
this letter is responsive to your comments and requests for information. The
Company’s goal is to resolve these outstanding comments in a manner that is
acceptable to the SEC Staff.

Our
responses utilize the same captions contained in the April 22, 2005 letter, and
are numbered to correspond to the numbers assigned in your letter. For your
convenience, our responses are prefaced by the Commission’s corresponding
comment in bold text.

Note
1 - Significant Accounting Policies, page 16

SEC
Comment:

Property
and Equipment

    1.

      We
      note your capitalization policy stating that exploratory drilling costs
      are capitalized “…until the properties are evaluated and determined to be
      either productive or nonproductive.” Please expand your disclosures to
      include total suspended drilling costs, as of each balance sheet date, and
      the amount of such costs that are associated with (i) wells in areas
      requiring a major capital expenditure before production could begin, where
      additional drilling efforts are not
      underway or firmly planned for the near future, and (ii) wells in areas
      not requiring a major capital expenditure before production could begin,
      where more
      than one year has elapsed since the completion of
      drilling.

To
the extent you have material suspended well costs, please provide corresponding
disclosures explaining why the delay in characterizing your reserves as
proved
reserves was unavoidable; include the dates that your exploratory drilling
efforts were completed. Your disclosures should convey the status of the
significant properties or projects involved, including the anticipated timing of
when you expect to be able to determine whether or not proved reserves have been
found. Refer to the February 11, 2005 Industry Letter on our website at
www.sec.gov/divisions/corpfin/guidance/oilgas021105.htm,
and the guidance in FSP FAS 19-1, for further
clarification.

Response:

We
understand from reading the above “guidance” that the term “suspended drilling
costs” refers to capitalized exploratory drilling cost where more than 12 months
has or will expire before such underlying wells are brought on production. To
date, we had
no such items.

  With the
exception of a minor interest in certain close-in Gulf of Mexico producing
properties, all of our drilling operations are conducted onshore in the
traditional productive areas of the United States. With rare exception, the time
frame from the spudding of a well to placing such well on production is less
than seven months. For instance, at year-end 2004, we had one exploratory well
where drilling was in progress and such well was successfully placed on
production in the first quarter of 2005. Similarly, at year-end 2003 we also had
one exploratory well in progress and that well was placed on production in the
first quarter of 2004. The capitalized exploratory costs associated with these
wells were $570,000 and $78,000 as of December 31, 2004 and 2003, respectively.
Since each of these wells was determined to be productive prior to our report
date, we did not view this item as a material disclosure. However, in future
filings, we will make an affirmative statement about the status of suspended
drilling cost (or lack thereof) as of a given report date. Such disclosure might
read as follows, “As of December 31, 2004 and 2003 the Company had no
unevaluated or suspended exploratory drilling costs”.

Note
11 - Marketing Joint Venture, page 22

SEC
Comment:

    2.

      We
      note your disclosure describing your settlement with your former
      co-venture partner, Williams-Gulfmark Energy, resulting in the gain of
      $1,476,000 that you indicate was recorded as an offset to cost of sales.
      We understand that you received accounts receivable of the joint venture
      as part of the arrangement, although you were also required to pay
      $350,000 and assume all future obligations of the joint
      venture.

Please
expand your disclosure to quantify the amounts assigned to each element of your
arrangement. It should be clear how you were able to realize a gain on
settlement of what would seemingly have been an additional cost, based on the
claim you described. Also, since you have no account labeled cost of sales on
page 13, replace your reference to cost of sales with the line item reflecting
the adjustment identified.

Finally,
tell us how you determined it was appropriate to recognize a gain in the fourth
quarter of 2004, rather than restate your financial results of prior periods,
given your disclosure indicating the disputed amount of $11.6 million related to
activity for the period from May 2000 through October
2001.

Response:

Your
comment letter asks how we “determined it was appropriate to recognize a gain in
the fourth quarter of 2004, rather than restate your financial results of prior
periods”. First, it is important to note that the gain was recorded in the third
quarter of 2004, as disclosed in our third quarter 2004 form 10-Q filing. The
gain was recorded in the third quarter of 2004 because the dispute was settled
on July 14, 2004. As to why we recorded the gain in 2004 rather than restating
prior period results, we present the following background information.

--Discussion
of net cash flows to the venture participants.

The joint
venture operated from May 2000 through October 2001. During its period of
existence, certain items of cash cleared through the joint venture and into our
bank account and certain items of cash cleared through the joint venture and
into the co-participant’s bank account. The venture maintained no cash balances
of its own. To the extent we either received or paid cash to the venture (other
than a distribution of earnings), our books and records reflected either a
receivable from or a payable to the venture. The similar situation held true for
our venture co-participant. During the course of the joint venture, we generally
experienced greater positive cash flow than did our co-venture participant. Thus
as of June 30, 2004 we had $3,390,847 of excess cash collected that was
theoretically owed to the co-venture participant pursuant to the joint venture
agreement.

--Discussion
of joint venture dissolution fee.

As
discussed in footnote 11 to our financial statements, beginning in November
2001, we were to earn a per barrel fee from the co-participant based on barrels
of crude oil purchased by the co-participant in the offshore Gulf of Mexico
region. Also as noted, beginning in February 2002, the co-participant refused to
pay the fee. The purpose of the fee was to compensate us for the co-participant
assuming Gulf of Mexico business originally developed by us. Since administering
this business was a new endeavor for the co-participant, during the period from
November 2001 through June 2002, our personnel accounted for and maintained a
substantial portion of their books and records associated with the Gulf of
Mexico activity. Although the co-participant stopped paying the fee in February
2002, we continued to accrue fee income through June 2002. The reason we were
able to continue to accrue the monthly fee income was because (1) we were
holding over $3 million in excess cash which assured collection of the fee
receivable and (2) we knew the amount to accrue because we were performing
bookkeeping services for the co-participant and thus knew the monthly volume of
crude oil continuing to be purchased in the Gulf of Mexico. As of June 30, 2002
we had accrued a $1,795,696 receivable for fees due.

As a
result of financial difficulties being experienced by the co-participant, during
mid-2002, the co-participant announced its intention to fully exit the crude oil
and other commodity marketing businesses. The co-participant began an orderly
shut down of the Gulf of Mexico business, which we believe was fully completed
before year-end 2002. Beginning in July 2002, we stopped accruing fee income. We
made this change because (1) we were no longer performing bookkeeping services
for the co-participant and thus had no way to calculate the amount of the fee,
(2) the fee was totally contingent on the co-participant continuing to purchase
crude oil, which we suspected was declining rapidly as their business wound down
and, (3) their financial difficulties and threats to sue us over the joint
venture could put collection of additional accounts receivable in doubt.

--The
lawsuit

When the
co-participant refused to pay our fee, we ceased any attempt to settle up cash
balances. We believe the co-participant sued for the $11.6 million figure as a
way to open negotiations toward a final settlement between the parties. While we
were never provided with a sufficient accounting of the crude oil purchase
volumes during the period from July 2002 through December 2002, we suspect that
such amount was not particularly significant. We also suspect that one of the
primary motivations behind the suit was to get a clean break from the venture,
which the co-participant achieved by our agreeing to absorb any liabilities. The
final settlement was simply a negotiated amount with both sides having imperfect
information. Had the co-participant not filed suit and simply paid our fee as
invoiced, we would have remitted to the co-participant its full share of the net
cash flow. In such event, the $1,476,781 gain would have never materialized. To
record any gain prior to July of 2004 would have required us to record a
contingent asset in violation of GAAP.

--Timing
for recognition of the gain.

During
the 2000 and 2001 period when the venture was operational, we properly accrued a
liability for the excess cash flow received by us. During 2002, we properly
accrued fee income based on the facts and circumstance at the time. During 2003
no events occurred to trigger recognition of the gain. During 2004, we settled
all accounts with the co-participant in July and thus reported the third quarter
gain.

--
Components of the gain.

The
components of the gain included:

      Excess
      cash flow from the venture

      $

      3,390,847

      (1,795,696

      )

      Fee
      income offset

      Net
      excess cash flow from the venture

      1,595,151

      Assignment
      of accounts receivable

      430,735

      Cash
      paid to co-participant

      (350,000

      )

      Liabilities
      assumed

      (199,105

      )

      Gain
      from settlement

      $

      1,476,781

--
Conclusion

    ·

      Re:
      Timing of Recognition of the Gain.

Clearly
the $1,476,781 gain did not materialize until the dispute was resolved on July
14, 2004. There is no basis for recognizing the gain in any prior period. Thus
we believe our accounting for the gain is proper as presented.

    ·

      Re:
      Need for Additional Disclosures.

We
believe our disclosures as presently presented are proper and adequate. In
developing the Footnote 11 disclosure, we attempted to balance the competing
objectives of informing the reader of our financial statements with preserving
the confidentially of our strategy for resolving this dispute. First we
determined what was critical information for the reader. We believe the reader
is most interested in (a) was the dispute resolved and (b) did any one-time
items result? We disclosed this information. We also disclosed (1) the history
leading up to the suit, (2) the amount of cash paid out, (3) the fact that we
were relieved of “any cash obligations otherwise due the joint venture” and (4)
the fact we assumed venture receivables and payables. The amount of receivables
and payables assumed to resolve this dispute is not material when compared to
the Company’s total accounts receivable and accounts payable, which are each in
excess of $160 million. We do not believe that expanding our present disclosure
would change the reader’s decision making process for assessing our financial
position. In contrast, we have other dealings with the co-participant outside
the joint venture and we believe it’s in the Company’s best interest to leave
the disclosure as presented.

    ·

      Re:
      Reference to Cost of Sales.

Regarding
the reference to “cost of sales”, in future filings we will correct the
reference to read “marketing costs and expenses”. In general, we hope with the
supplemental information presented herein, you will concur with our
conclusions.

Other
Matters

The
Company acknowledges that it is responsible for the adequacy and accuracy of the
disclosure in its filings. Additionally, the Company acknowledges that comments
from the SEC staff or changes to disclosure in response to SEC staff comments do
not foreclose the Commission from taking any action with respect to the filing.
Likewise, the Company acknowledges that it may not assert the comments by the
SEC staff as a defense in any proceeding initiated by the Commission or any
person under the federal securities laws of the United States.

We hope
this letter is responsive to your comments and requests for information. We
would like to again emphasize that the Company’s goal is to resolve these
comments in a manner that is acceptable to the SEC staff. Please contact me at
(713) 881-3673 if we can be of further assistance to the SEC staff in reviewing
this letter.

                                            ADAMS RESOURCES &
ENERGY, INC.

                                            By:
______________________

    Richard B.
Abshire

                                       Chief Financial
Officer