-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AZsT/STGf+m/aFp+lM7mM1EvnWsHYopzuCJj/DXVo4mKDkwcTCI9F4qHLlVUpbSf JlJdqVHRKzwE/sEzMjPx0w== /in/edgar/work/20000817/0000076878-00-000022/0000076878-00-000022.txt : 20000922 0000076878-00-000022.hdr.sgml : 20000922 ACCESSION NUMBER: 0000076878-00-000022 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEASE OIL & GAS CO /CO/ CENTRAL INDEX KEY: 0000076878 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 870285520 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-06580 FILM NUMBER: 704645 BUSINESS ADDRESS: STREET 1: 751 HORIZON COURT STE 203 STREET 2: P O BOX 60219 CITY: GRAND JUNCTION STATE: CO ZIP: 81506-8718 BUSINESS PHONE: 9702455917 MAIL ADDRESS: STREET 1: 751 HORIZON CT STE 203 STREET 2: P O BOX 60219 CITY: GRAND JUNCTION STATE: CO ZIP: 81506-8758 FORMER COMPANY: FORMER CONFORMED NAME: WILLARD PEASE OIL & GAS CO DATE OF NAME CHANGE: 19920703 10QSB 1 0001.txt JUNE 30, 2000 FORM 10-QSB - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 Commission File Number 0-6580 [GRAPHIC OMITTED] PEASE OIL AND GAS COMPANY (Exact name of small business issuer as specified in its charter) Nevada 87-0285520 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 751 Horizon Court, Suite 203 Grand Junction, Colorado 81506 (Address of Principal executive offices) (970) 245-5917 (Registrant's telephone number, including area code) 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 past 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 August 14, 2000 the registrant had 1,731,398 shares of its $0.10 par value Common Stock issued and outstanding. Transitional Small Business Issuer Disclosure Format (check one): Yes No X - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE NUMBER PART I - Financial Information..............................................3 Item 1. Unaudited Financial Statements................................3 Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999............................................3 Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2000 and 1999................4 Consolidated Statements of Cash Flows For the Three and Six Months Ended June 30, 2000 and 1999................5 Notes to Consolidated Financial Statements.......................6-7 Item 2. Management's Discussion and Analysis..........................8 Liquidity, Capital Expenditures and Capital Resources............8-9 Results of Operations........................................10 Overview.................................................10 Oil and Gas..............................................10 Consulting Arrangement - Related Party...................11 General and Administrative...............................11 Depreciation Depletion and Amortization..................11 Interest Expense.........................................12 Impairment Expense - Oil and Gas Properties..............12 Other Matters................................................12 Disclosure Regarding Forward-Looking Statements..........12 PART II - Other Information................................................13 Item 1. Legal Proceedings........................................13 Item 2. Changes in Securities....................................13 Item 3. Defaults Upon Senior Securities..........................13 Item 4. Submission of Matters to a Vote of Security Holders......13 Item 5. Other Information........................................13 Item 6. Exhibits and Reports on Form 8-K.........................13 PART III - Signatures......................................................14 PART 1- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PEASE OIL AND GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2000 1999 ASSETS (unaudited) CURRENT ASSETS: Cash and equivalents ........................... $ 1,348,407 $ 724,354 Trade receivables, net ......................... 317,765 402,847 Debt issuance costs, net ....................... 115,197 -- Prepaid expenses and other ..................... 66,446 76,349 ------------ ------------ Total current assets ...................... 1,847,815 1,203,550 ------------ ------------ OIL AND GAS PROPERTIES, at cost (full cost method): Unevaluated properties ......................... 2,494,162 2,281,732 Costs being amortized .......................... 18,499,829 18,278,461 ------------ ------------ Total Oil and gas properties .............. 20,993,991 20,560,193 Less accumulated amortization .................. (15,366,241) (14,868,287) ------------ ------------ Net oil and gas properties ................ 5,627,750 5,691,906 ------------ ------------ OTHER ASSETS: Debt issuance costs, net ....................... -- 184,315 Office equipment and vehicles, net ............. 44,364 54,198 Deposits and other ............................. 4,995 7,493 ------------ ------------ Total other assets ........................ 49,359 246,006 ------------ ------------ TOTAL ASSETS ...................................... $ 7,524,924 $ 7,141,462 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt: Convertible Debenture, net of unamortized discount ..................... $ 2,599,719 $ -- Other ..................................... 6,640 6,352 Accounts payable, trade ........................ 165,393 140,554 Accrued expenses ............................... 89,747 134,539 ------------ ------------ Total current liabilities ........... 2,861,499 281,445 ------------ ------------ LONG-TERM DEBT, less current maturities: .......... 13,009 2,506,218 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred Stock, par value $0.01 per share, 2,000,000 shares authorized, 105,828 shares of Series B 5% PIK Cumulative Convertible Preferred Stock issued and outstanding (liquidation preference of $5,511,000 at June 30, 2000) .............. 1,058 1,058 Common Stock, par value $0.10 per share, 4,000,000 shares authorized, 1,731,398 shares issued and outstanding ............................... 173,140 173,140 Additional paid-in capital ..................... 37,636,191 37,636,191 Accumulated deficit ............................ (33,159,973) (33,456,590) ------------ ------------ Total Stockholders' equity ................ 4,650,416 4,353,799 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 7,524,924 $ 7,141,462 ============ ============
PEASE OIL AND GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For The Three Months For The Six Months Ended June 30, Ended June 30, -------------------- --------------------- 2000 1999 2000 1999 -------- -------- --------- -------- REVENUE: Oil and gas sales ................$ 828,940 $ 551,065 $1,627,938 $ 962,859 ---------- --------- ---------- -------- OPERATING COSTS AND EXPENSES: Oil and gas production costs ..... 155,821 86,958 318,899 171,434 Consulting arrangement-related party .......................... -- -- -- 37,750 General and administrative ....... 172,104 206,357 345,471 386,017 Depreciation, depletion and amortization ................... 256,031 284,614 507,788 547,989 ---------- --------- ---------- --------- Total operating costs and expenses .................. 583,956 577,929 1,172,158 1,143,190 ---------- --------- ---------- --------- INCOME (LOSS) FROM OPERATIONS ....... 244,984 (26,864) 455,780 (180,331) OTHER INCOME (EXPENSES): Interest and other income ........ 11,543 13,611 20,767 25,008 Interest expense ................. (89,884) (89,981) (179,930) (179,911) ---------- --------- ---------- --------- NET INCOME (LOSS) ...................$ 166,643 $(103,234) $ 296,617 $(335,234) ========== ========= ========== ========= NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS .....................$ 100,502 $(169,396) $ 164,335 $(467,742) ========== ========= ========== ========= BASIC: Earnings (Loss) Per Share.........$ 0.06 $ (0.10) $ 0.09 $ (0.28) Weighted Average Shares Outstanding .................... 1,731,398 1,688,698 1,731,398 1,657,570 DILUTED: Earnings (Loss) Per Share ........$ 0.01 $ (0.10) $ 0.02 $ (0.28) Weighted Average Shares Outstanding ....................18,127,075 1,688,698 18,127,075 1,657,570
-3- PEASE OIL AND GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For The Six Months Ended June 30, 2000 1999 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss)....................................... $ 296,617 $ (335,234) Adjustments to reconcile net Loss to net cash provided by (Used in) operating activities: Depreciation, depletion and amortization ........... 507,788 547,989 Amortization of debt discount and issuance costs ... 178,787 178,786 ----------- ----------- Cash flows before working capital adjustments . 983,192 391,541 Changes in operating assets and liabilities: (Increase) decrease in: Trade receivables ......................... 85,082 99,190 Prepaid expenses and other assets ......... (2,599) (60) Increase (decrease) in: Accounts payable .......................... (6,717) (113,290) Accrued expenses .......................... (44,792) (81,918) ----------- ----------- Net cash provided by (used in) operating activities 1,014,166 295,463 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property, plant and equipment . (402,242) (461,084) Proceeds from redemption of CD ......................... 15,000 100,000 Proceeds from sale of property and equipment ........... -- 69,910 ----------- ----------- Net cash provided by (used in) investing activities ............................ (387,242) (291,174) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt ............................ (2,871) (2,889) Payment of Series B Preferred Stock Dividends .......... -- (132,508) Purchase and retirement of Series B Preferred Stock .... -- (51,313) ----------- ----------- Net cash provided by (used in) financing activities ............................ (2,871) (186,710) ----------- ----------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS ............... 624,053 (182,421) ----------- ----------- CASH AND EQUIVALENTS, beginning of period ................. 724,354 1,049,582 ----------- ----------- CASH AND EQUIVALENTS, end of period ....................... $ 1,348,407 $ 867,161 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: INFORMATION: Cash paid for interest ................................. $ 139,508 $ 138,774 =========== =========== Cash paid for income taxes ............................. $ -- $ -- =========== =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Increase (decrease) in payables for oil & gas exploration activities ............................... $ 31,556 $ (14,805) =========== ===========
-4- PEASE OIL AND GAS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1 - Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to consolidated financial statements included in our Annual Report on Form 10-KSB for the year ended December 31, 1999. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year. The accounting policies we followed are set forth in Note 1 to our financial statements in Form 10-KSB for the year ended December 31, 1999. We suggest that these financial statements be read in conjunction with the financial statements and notes included in the Form 10-KSB. Note 2 - Dividends and Earnings (Loss) Per Common Share: We have adopted SFAS No. 128 titled "Earnings Per Share". Accordingly, "Basic" earnings (loss) per share ("EPS") is computed by dividing income (loss) available to common stockholders (the "numerator") by the weighted-average number of common shares outstanding (the "denominator") during the periods presented. The net income (loss) available to common stockholders is determined by including any dividends accruing to the benefit of the preferred stockholders to the net income (loss). The dividends included for this calculation include: 1) paid dividends; 2) accrued but unpaid dividends; and 3) any dividends in arrears. Accordingly, the net loss available to common stockholders includes the following charges associated with the Series B preferred stock.
For the Three Months For the Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 ------ ------ ------ ------ Dividends declared and paid -- $ 66,162 -- $132,508 Dividends in arrears ...... 66,141 -- 132,282 -- -------- -------- -------- -------- -------- Total ............ $ 66,141 $ 66,162 $132,282 $132,508 ======== ======== ======== ========
In connection with an agreement signed by the Preferred Stockholders and associated with the contemplated merger with Carpatsky, we have not accrued or paid any dividends to the Series B Preferred Stockholders subsequent to September 1, 1999. However, should the merger be abandoned the amount that we would be obligated to pay for the periods presented has been included in the calculation of net income per share as "Dividends in arrears". Computing the "Diluted" EPS for the three months ended June 30, 2000 is similar to the Basic EPS except for: a.) the numerator is adjusted to add back the $66,141 of convertible preferred stock dividends in arrears: and b.) the denominator is increased to include the number of additional common shares that would have been outstanding assuming the preferred stock had been converted into 16,395,677 shares of common stock on January 1, 2000. This assumption presumes the preferred stock would have been converted into common stock in accordance with its original terms of a 25% discount to a reported closing market price of $.4375 (a recent price of our common stock). Our Articles of Incorporation only authorize the issuance of up to 4.0 million shares, of which 1,731,398 are currently issued and outstanding. Accordingly, the "Diluted" EPS is only a hypothetical computation since we would be required to obtain shareholder approval for any shares to be issued beyond million. Pursuant to the terms of our proposed merger with Carpatsky Petroleum, Inc. -5- PEASE OIL AND GAS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) ("Carpatsky") which is more thoroughly discussed in our Annual Report on Form 10-KSB, our Preferred Stockholders have agreed to exchange all the outstanding Preferred Shares for 8,865,665 shares of Common stock when and if the merger is ultimately consummated. "Diluted" EPS for both the three months and the six months ended June 30, 1999, is identical to the "Basic" EPS for the same period since the affects of including any potential common shares would have been antidilutive. Note 3 - Comprehensive Income: There are no components of comprehensive income which have been excluded from net income and, therefore, no separate statement of comprehensive income have been presented. -6- ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS Liquidity, Capital Expenditures and Capital Resources At June 30, 2000, our cash balance was $1,348,407 with a negative working capital position of $1,275,464, compared to a cash balance of $724,354 and a positive working capital position of $922,105 at December 31, 1999. The change in our working capital position can be attributed to the reclassification of our convertable debentures, with a balance of $2.8 million, from a long-term liability to a current liability during the second quarter of 2000. These debentures become due in April 2001. The change in our cash balance is summarized as follows:
Cash balance at December 31, 1999 ........................ $ 724,354 ----------- Sources of Cash: Cash provided by operating activities ................ 1,014,166 Proceeds from the redemption of certificate of deposit 15,000 ----------- Total sources of cash ........................... 1,029,166 Uses of Cash: Capital expenditures for exploration activities ...... (402,242) Repayment of long term debt .......................... (2,871) ----------- Total uses of cash .............................. (405,113) ----------- Cash balance at June 30, 2000 ............................ $ 1,348,407 ===========
As a result of oil prices averaging almost $27.95 per barrel during the first six months of 2000, we were able to generate positive cash flow from operating activities of $1,014,166. As far as our uses of cash, the following table illustrates the costs incurred for our exploration activities (the difference between the total cash paid for exploration activities in the above table and the amount illustrated below, relates to the net increase in accounts payable for those activities between December 31, 1999 and June 30, 2000):
PROGRAM OPERATOR -------------------------------- Internal NEG Beta AHC Costs Total % -------- -------- -------- -------- -------- ----- Category: Productive Efforts ........ $ 14,551 $ 38,148 $ 83,792 $ -- $136,491 31% Exploratory Dry Holes ..... -- 35,639 -- -- 35,639 8% Land, G&G Costs on Seismic Programs .............. -- 115,740 -- -- 115,740 27% Capitalized Interest ...... -- -- -- 138,365 138,365 32% Other Exploration Costs ... -- -- -- 7,563 7,563 2% -------- -------- -------- -------- -------- ----- Total Exploration Costs $ 14,551 $189,527 $ 83,792 $145,928 $433,798 100% ======== ======== ======== ======== ======== ===== Percent ............... 3% 44% 19% 34% 100%
A description of the areas we have an oil and gas interest in are more thoroughly discussed in our 1999 Annual Report on Form 10-KSB. There have been no significant changes in our areas of operation since the date of that report. However, effective June 1, 2000, Beta Oil and Gas, Inc. ("Beta") a publicly held entity headquartered in Tulsa, Oklahoma, took over operations of the Formosa and Ganado 3-D prospect areas in and around Jackson County Texas. These prospect areas were previously operated by Parallel Petroleum, headquartered in Midland, Texas. It is expected that Parallel will remain a non-operating working interest owner in the prospect areas. Beta became the designated operator for these areas in an effort to better exploit the prospects. As a result of this change in operator, we expect that some of the 3-D data will be reprocessed and the drilling program will be significantly accelerated. Beta's president, Steve Antry, is also a director of Pease. Since we are a non-operator in all of the areas in which we hold an oil and gas interest, we do not necessarily control the timing of any development or exportation activities and therefore have little control over the corresponding required cash outlays. However, we currently expect the expenditures that will be proposed by the respective operators of our core areas to be within the following ranges through the second quarter of 2001: -7-
Estimated Investment Area Operator Minimum Maximum - --------------------------- --------------------------- --------- ----------- East Bayou Sorrel National Energy Group, Inc. ("NEG") $ 50,000 $ 400,000 Formosa, Texana, and Ganado Beta Oil and Gas, Inc. ("Beta") 250,000 1,100,000 Maurice Prospect Amerada Hess Corporation ("AHC") 350,000 500,000 --------- ----------- Total $ 650,000 $ 2,000,000 ========= ===========
In addition to the potential capital necessary for our exploration activities, in April 2001 our convertible debentures with a current outstanding balance of $2,782,500 will become due and payable. Accordingly, given the range of potential capital requirements through the first part of next year (2001), our current and anticipated cash position may not be sufficient to cover the future working capital and exploration obligations. We have vigorously explored various alternatives for additional sources of capital. However, with the hyper-dilutive potential of the outstanding Series B Preferred Stock (should the holders elect to convert into common stock), we have been unable to attract additional equity capital. For example, using our recent common stock price of $0.4375, and applying the applicable discount of 25%, should all the holders of the Series B Preferred Stock elect to convert into common stock, we would be required to issue approximately 16.6 million shares in the conversion. This would represent approximately 90% of the then outstanding common shares. Presently, we have only 4.0 million shares of common stock authorized and are obligated under the terms of the Preferred Stock Agreement to seek approval of additional shares at our next meeting of stockholders and if not, what the consequences may be. In September 1998, we engaged San Jacinto Securities, Inc. ("SJS"), an investment banking firm located in Dallas, Texas, to assist us in pursuing various strategic alternatives. Their efforts have focused primarily on seeking a potential merger candidate for us. In exchange for their services, SJS was paid a $150,000 non-refundable cash fee in 1999 (which was expensed for financial statement reporting purposes) and will receive an additional 3% of the merger value in excess of $5.0 million should it close. On September 1, 1999 we entered into a Merger Agreement with Carpatsky Petroleum, Inc. ("Carpatsky"), a company whose primary oil and gas assets are located in the Republic of Ukraine. The potential merger with Carpatsky and a description of Carpatsky's assets, are more thoroughly discussed in our 1999 Annual report on form 10-KSB. We entered into the merger agreement with Carpatsky in order to, among other things, increase and diversify our asset base and improve the chances of financing future opportunities. If the contemplated merger with Carpatsky cannot be consummated within a reasonable period of time, or is other wise abandoned, then we may have to seek additional financing and attempt to restructure both our outstanding convertable debentures and the Series B Preferred Stock. However, our common stock was delisted from the NASDAQ SmallCap electronic market system on January 14, 1999 for failure to maintain an average bid price of at least $1.00 per share. The stock is now listed on the over-the-counter market on the NASD Bulletin Board (OTC BB). It is believed that this delisting will have a material negative impact on our ability to raise additional equity capital. Therefore, it is unclear at this time what alternatives for future working capital will be available, or to what extent the potential dilution to the existing shareholders may be. If additional sources of financing are not ultimately available and/or we cannot satisfactorily restructure our capital should it be necessary, we may have to consider other alternatives, including the sale of existing assets, cancellation of existing exploration agreements, farm outs, joint ventures, restructuring under the protection of the federal Bankruptcy Laws and/or liquidation. -8- RESULTS OF OPERATIONS Overview Our largest source of operating revenue is from the sale of produced oil, natural gas, and natural gas liquids. Therefore, the level of our revenues and earnings are affected by prices at which natural gas, oil and natural gas liquids are sold. Therefore, our operating results for any prior period are not necessarily indicative of future operating results because of the fluctuations as well as changes in production levels. Oil and Gas Operating statistics for oil and gas production for the periods presented are as follows:
For the Three Months For the Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 ------ ------ ------ ------ Production: Oil (Bbl) ........................ 22,839 18,741 45,911 36,912 Gas (Mcf) ........................ 49,538 105,696 101,935 213,052 BOE (6:1) ........................ 31,095 36,357 62,900 72,421 Average Collected Price: Oil (per Bbl) .................... $ 27.97 $ 15.79 $ 27.95 $ 13.37 Gas (per Mcf) .................... 3.84 2.41 3.38 2.20 Per BOE (6:1) .................... 26.66 15.15 25.88 13.30 Operating Margins; Revenue - Oil ......................... $ 638,726 $ 295,831 $ 1,283,223 $ 493,368 Gas ......................... 190,214 255,234 344,715 469,491 ----------- ----------- ----------- ----------- Total Revenue ............. 828,940 551,065 1,627,938 962,859 Costs Lifting Costs ............... (66,978) (40,302) (140,777) (84,383) Production taxes ............ (88,843) (46,656) (178,122) (87,051) ----------- ----------- ----------- ----------- Total Costs ............... (155,821) (86,958) (318,899) (171,434) ----------- ----------- ----------- ----------- Operating Margin .............. $ 673,119 $ 464,107 $ 1,309,039 $ 791,425 =========== =========== =========== =========== Operating Margin Percent ...... 81% 84% 80% 82% Production Costs per BOE before DD&A $ 5.01 $ 2.39 $ 5.07 $ 2.37 Change in Revenue Attributable to : Production .................... $ (70,922) $ (219,421) $ (124,581) $ (379,876) Price ......................... 348,797 114,826 789,660 95,467 ----------- ----------- ----------- ----------- Total Increase in Revenue .......... $ 277,875 $ (104,595) $ 665,079 $ (284,409) =========== =========== =========== ===========
The decrease in gas production between the periods presented is primarily attributed to the Maurice Field operations (operated by AHC) where: a.) we have experienced the natural decline of production inherent in oil and gas operations; and b.) the loss of one well in September 1999 due to down-hole mechanical problems. Absent any unforeseen negative circumstances or additional discoveries, we expect our total gas production for the remainder of 2000 to be approximately 45% of what it was in 1999. The increase in oil production between the periods presented is primarily attributable to increase production from the Schwing #1, one of the three wells located at East Bayou Sorrel. NEG, the operator of the East Bayou Sorrel field, has been adjusting the choke of the Schwing #1 to allow it to produce at a higher rate. Absent any unforeseen negative circumstances or additional discoveries, we expect our total oil production for the remainder of 2000 to be at least equal to what it was in 1999 or as much as 20% higher. -9- Production costs per BOE have increased during the periods presented due to: 1.) a substantial portion of the production taxes are based on revenue (vs. the volume produced), and 2.) increased water production at the East Bayou Sorrel facility has significantly increased the lifting costs for the three wells currently producing there. We expect the production costs to remain at approximately $5.00 per BOE for the remainder of 2000. Substantially, all of our current oil and gas production is now generated from four of the ten wells in which we hold a working interest. Of the four main producing wells, three are operated by NEG, and the other one is operated by AHC. All these wells are deep, high pressure, water driven reservoirs that are inherently laden with geologic, geophysical, and mechanical risks and uncertainties. The unexpected loss of any one of these wells would have a material negative impact on our estimated reserves, future production and future cash flows. Consulting Arrangement - Related Party In March 1996 we entered into a three-year consulting agreement with Beta Capital Group, Inc. ("BCG") located in Newport Beach, California. BCG's chairman, Steve Antry, has been a director of Pease since August 1996. The Consulting agreement, which ended in February 1999, provided for minimum monthly cash payments of $17,500 plus reimbursement for out-of-pocket expenses. Stephen Fischer, an independent contractor for BCG, is also a member of our Board of directors. Messrs. Antry and Fischer are also principals of Beta Oil & Gas, Inc., a publicly held oil and gas company located in Tulsa, Oklahoma. General and Administrative General and administrative ("G&A") expenses decreased: i) $40,546 during the first six months of 2000 when compared to the same period in 1999; and ii) $34,253 during the second quarter of 2000 when compared to the same period in 1999. These decreases are attributable to and overall effort initiated in the fourth quarter of 1998 to substantially reduce G&A costs. Actions taken include reducing personnel, limiting travel, eliminating unnecessary administrative services and only utilizing consultants on an as needed bases. A portion of these savings have been offset by costs incurred in connection with the efforts to consummate the merger with Carpatsky. The following table illustrates the merger costs that are included in our G&A during the periods presented:
For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------- --------------- 2000 1999 2000 1999 ------ ------ ------ ----- $ 47,088 $ 20,413 $ 74,955 $ 20,413
We expect "core" G&A costs for the foreseeable future to be between $40,000 to $50,000 per month. However, we do expect additional amounts (aggregating $50,000 to $75,000 ) will be incurred in connection with the efforts to consummate the merger transaction with Carpatsky. Depreciation, Depletion and Amortization Depreciation, Depletion and Amortization ("DD&A") for the periods presented by cost center consisted of the following:
For the Three Months For the Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Oil and Gas Properties ............... $251,126 $278,801 $497,954 $535,892 Furniture and Fixtures ............... 4,905 5,813 9,834 12,097 -------- -------- -------- -------- Total .............................. $256,031 $284,614 $507,788 $547,989 ======== ======== ======== ======== DD&A for the oil and gas properties, per BOE: $ 8.08 $ 7.67 $ 7.92 $ 7.40 ======== ======== ======== ========
DD&A for the oil and gas properties is computed based on one full cost pool using the total estimated reserves at the end of each period presented and prior to applying the ceiling test discussed later in this section under "Impairment Expense". The increased rate of the DD&A for the oil and gas properties, per BOE, between the periods presented can be substantially attributed to: a) the decrease in natural gas production (which decrease was previously discussed under the caption "oil and gas"); and b) an increase in the total costs being amortized in the full cost pool. -10- Interest Expense Total interest incurred, and its allocation, for the periods presented is as follows:
For the Three Months For the Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 ------ ------ ------ ------ Interest paid or accrued ...................... $ 69,674 $ 69,958 $ 139,508 $ 139,105 Amortization of debt discount ................. 54,834 54,835 109,669 109,669 Amortization of debt issuance costs ........... 34,559 34,559 69,118 69,118 --------- --------- --------- --------- Total interest incurred ................... 159,067 159,352 318,295 317,892 Interest capitalized for exploration activities (69,183) (69,371) (138,365) (137,981) --------- --------- --------- --------- Interest expense .......................... $ 89,884 $ 89,981 $ 179,930 $ 179,911 ========= ========= --------- =========
Impairment - Oil and Gas Properties We use the full cost method of accounting for out oil and gas activities. The full cost method regards all costs of acquisition, exploration, and development activities as being necessary for the ultimate production of reserves. All of those costs are incurred with the knowledge that many of them relate to activities that do not result directly in finding and developing reserves. However, the benefits obtained from the prospects that do prove successful, together with benefits from past discoveries, may ultimately recover the costs of all activities, both successful and unsuccessful. Thus all costs incurred in those activities are regarded as integral to the acquisition, discovery, and development of reserves that ultimately result from the efforts as a whole and are thereby associated with Pease's proved reserves. Establishing a direct cause-and-effect relationship between costs incurred and specific reserves discovered, which is the premise under the successful efforts accounting method, is not relevant to the full cost concept. However, the costs accumulated in our full cost pool are subject to a "ceiling," as defined by Regulation SX Rule 4-10(e)(4). No charge for impairment has been recognized during the periods presented because our ceiling is in excess of the costs accumulated in our full cost pool. OTHER MATTERS Disclosure Regarding Forward-Looking Statements This report on Form 10-QSB includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this report, including, without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding Pease's contemplated merger, financial position, reserve quantities, plans and objectives of Pease's management for future operations and capital expenditures, and statements regarding the planned Carpatsky transactions and the Carpatsky assets are forward-looking statements and the assumptions upon which such forward-looking statements are based are believed to be reasonable. We can give no assurance that such expectations and assumptions will prove to be correct. Reserve estimates of oil and gas properties are generally different from the quantities of oil and natural gas that are ultimately recovered or found. This is particularly true for estimates applied to exploratory prospects. Additionally, any statements contained in this report regarding forward-looking statements are subject to various known and unknown risks, uncertainties and contingencies, many of which are beyond our control. Such risks and uncertainties may cause actual results, performance, achievements or expectations to differ materially from the anticipated results, performance, achievements or expectations. Factors that may affect such forward-looking statements include, but are not limited to: the contemplated merger not be consummated, our ability to generate additional capital to complete our planned drilling and exploration activities: risks inherent in oil and gas acquisitions, exploration, drilling, development and production: price volatility of oil and gas: competition; shortages of equipment, services and supplies; U.S. and foreign government regulation; environmental matters; implications to Carpatsky form conduction its operations un Ukraine and related political and geographical risks; financial condition of the other companies participating in the exploration, development and production of oil and gas programs; and other matters beyond our control. In addition, since all of the prospects in the Gulf Coast are currently operated by another party, we may not be in a position to control costs, safety and timeliness of work as well as other critical factors affecting a producing well or exploration and development activities. All written and oral forward-looking statements attributable to Pease or persons acting on our behalf subsequent to the date of this report are expressly qualified in their entirety by this disclosure. -11- PART II - OTHER INFORMATION Item 1. Legal Proceedings We may from time to time be involved in various claims, lawsuits disputes with third parties, actions involving allegations of discrimination, or breach of contract incidental to the operation to the operation of its business. At June 30, 2000 and as of the date of this report, we were not involved in any litigation which we believe could have a materially adverse effect on our financial condition or results of operations. Item 2. Recent Sales of Unregistered Securities We have not issued or sold any unregistered securities during the six months ended June 30, 2000 or through the date of this report. Item 3. Defaults Upon Senior Securities (a) There has been no material default in the payment of principal, interest, or any other material default, with respect to any indebtedness of the small business issuer during the period covered by this report. (b) There has been no material default in the payment of dividends for any class of preferred stock during the period covered by this report. However, on June 30, 2000 there were 105,828 outstanding shares of Series B Preferred Stock held by 10 holders. The Series B Preferred Stock is convertible into common stock at a 25% discount from the reported closing market price at the time of conversion. Based on a recent price of $.4375, the outstanding Series B Preferred Stock would have been convertible into approximately 16.6 million common shares. Our Articles of Incorporation authorize a total of up to 4,000,000 shares of common stock, of which 1,731,398 are currently issued and outstanding. We are obligated to take appropriated action and seek stockholder approval to increase the number of authorized common stock at the next meeting of stockholders to provide for this contingency. In connection with the contemplated merger with Carpatsky, all of the preferred stockholders have agreed that as long as the merger is being pursued that they will: a.) not convert any preferred shares into common: b.) not receive any dividends subsequent to September 1, 1999; and c.) will exchange all the outstanding preferred stock for 8,865,665 shares of common if the merger is ultimately consummated. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of our security holders during the period covered by this report. Item 5. Other Information There is no information reportable under this item for the period covered by this report. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this report: (1) Exhibit 27, "Financial Data Schedule" - for the quarter ended June 30, 2000. (b) Reports on Form 8-K: - No reports on Form 8-K were filed for the period April 1, 2000 through the date of this report: -12- SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PEASE OIL AND GAS COMPANY Date: August 16, 2000 By: /s/ Patrick J. Duncan Patrick J. Duncan President, Chief Financial Officer and Principal Accounting Officer -13- EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JUN-30-2000 1,348,407 0 333,386 15,621 0 1,847,815 20,993,991 15,366,241 7,521,924 261,780 2,599,719 0 1,058 173,140 0 7,521,924 1,627,938 1,627,938 318,899 1,172,158 0 0 179,930 296,617 0 296,617 0 0 0 296,617 0.09 0.02
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