-----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, Fg9EJXkLjLQ0sRNninx1tXI+Ieq06fhb9UKwk4L030T8gY9evqvZjnGH8dGm3Ied Jti6qoqi5XEfaMQlHrUG0Q== 0000788965-02-000013.txt : 20021118 0000788965-02-000013.hdr.sgml : 20021118 20021115132931 ACCESSION NUMBER: 0000788965-02-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HALLADOR PETROLEUM CO CENTRAL INDEX KEY: 0000788965 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 841014610 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14731 FILM NUMBER: 02829284 BUSINESS ADDRESS: STREET 1: 1660 LINCOLN ST STE 2700 CITY: DENVER STATE: CO ZIP: 80264 BUSINESS PHONE: 3038395505 MAIL ADDRESS: STREET 1: 1660 LINCOLN STREET STREET 2: SUITE 2700 CITY: DENVER STATE: CO ZIP: 80264 FORMER COMPANY: FORMER CONFORMED NAME: KIMBARK INC DATE OF NAME CHANGE: 19860624 FORMER COMPANY: FORMER CONFORMED NAME: KIMBARK OIL & GAS CO /CO/ DATE OF NAME CHANGE: 19900102 10QSB 1 ssept02q.txt 3RD QTR HPC 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-14731 HALLADOR PETROLEUM COMPANY (Exact name of registrant as specified in its charter) Colorado 84-1014610 (State of incorporation) (I.R.S. Employer Identification No.) 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264-2701 (Address of principal executive offices) 303-839-5504 FAX: 303-832-3013 (Issuer's telephone numbers) Check whether the issuer (1) filed all reports required by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days: Yes [x] No [ ] Shares outstanding as of November 14, 2002: 7,093,150 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheet (in thousands)
September 30, December 31, 2002 2001* --------- ----------- ASSETS Current assets: Cash and cash equivalents $ 2,238 $ 2,078 Accounts receivable- Oil and gas sales 789 706 Well operations 364 174 ------ ------ Total current assets 3,391 2,958 ------ ------ Oil and gas properties, at cost (successful efforts): Unproved properties 243 204 Proved properties 25,390 24,687 Less - accumulated depreciation, depletion and amortization (19,087) (16,497) ------ ------ 6,546 8,394 ------ ------ Oil and gas operator bonds 417 366 Investment in Catalytic Solutions 175 175 Other assets 33 44 ------ ------ $10,562 $11,937 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,317 $ 833 Oil and gas sales payable 416 180 ------ ------ Total current liabilities 1,733 1,013 ------ ------ Key employee bonus plan 354 335 ------ ------ Future site restoration-South Cuyama field 579 344 ------ ------ Minority interest 4,811 5,516 ------ ------ Stockholders' equity: Preferred stock, $.10 par value; 10,000,000 shares authorized; none issued Common stock, $.01 par value; 100,000,000 shares authorized; 7,093,150 shares issued 71 71 Additional paid-in capital 18,061 18,061 Accumulated deficit (15,047) (13,403) ------ ------ 3,085 4,729 ------ ------ $10,562 $11,937 ====== ====== - ------------------------------ *Derived from the Form 10-KSB.
See accompanying notes. Consolidated Statement of Operations (in thousands, except per share amounts)
Nine months ended Three months ended September 30, September 30, 2002 2001 2002 2001 ------ ------ ------ ------ Revenue: Oil $ 4,656 $4,025 $1,877 $1,340 Gas 858 2,085 298 324 NGLs 157 266 56 62 Interest and other 35 112 10 34 Gain on prospect sale 67 ------ ----- ----- ----- 5,706 6,555 2,241 1,760 ------ ----- ----- ----- Costs and expenses: Lease operating 3,474 3,024 1,208 933 Exploration costs Geological and geophysical 1,031 1,031 Dry hole expense 103 71 Delay rentals 55 58 9 26 Contract termination fee 30 Impairment-Fulton Fuller gas well 79 436 436 Impairment-S.E. Bonus Field 840 Impairment-Unproved properties 18 99 18 99 Depreciation, depletion and amortization 1,918 702 572 250 General and administrative 656 660 219 205 California income taxes (refund) (34) 63 (34) 56 Purchase of employee stock options 300 Interest 18 35 5 9 ------ ----- ----- ----- 8,055 5,510 3,028 2,085 ------ ----- ----- ----- Income(loss)before minority interest (2,349) 1,045 (787) (325) Minority interest 705 (314) 236 98 ------ ----- ----- ----- Net income (loss) $(1,644) $ 731 $ (551) $ (227) ====== ===== ===== ===== Basic net income (loss) per share $ (.23) $ .10 $ (.08) $ (.03) ====== ===== ===== ===== Diluted net income (loss) per share $ (.23) $ .10 $ (.08) $ (.03) ====== ===== ===== ===== Basic weighted average shares outstanding 7,093 7,093 7,093 7,093 ====== ===== ===== ===== Diluted weighted average shares outstanding 7,093 7,507 7,093 7,093 ====== ===== ===== =====
See accompanying notes. Consolidated Statement of Cash Flows (in thousands)
Nine months ended September 30, 2002 2001 ------ ------ Net cash provided by operating activities $ 1,206 $2,026 ------ ----- Cash flows from investing activities: Properties (993) (1,568) Other assets (53) (63) Prospect sale 67 ------ ----- Net cash used in investing activities (1,046) (1,564) ------ ----- Cash flows from financing activities: Repayment of bank debt (200) ----- Net increase in cash and cash equivalents 160 262 Cash and cash equivalents, beginning of period 2,078 2,489 ------ ----- Cash and cash equivalents, end of period $ 2,238 $2,751 ====== =====
See accompanying notes. Notes to Financial Statements 1. The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The financial statements included herein have been prepared pursuant to the SEC's rules and regulations; accordingly, certain information and footnote disclosures normally included in GAAP financial statements have been condensed or omitted. 2. Our organization and business, the accounting policies we follow and other information are contained in the notes to our financial statements filed as part of our 2001 Form 10-KSB. This quarterly report should be read in conjunction with that annual report. 3. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement deals with the costs of closing facilities and removing assets. SFAS No. 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period it is incurred. This cost is initially capitalized and amortized over the remaining life of the underlying asset. Once the obligation is ultimately settled, any difference between the final cost and the recorded liability is recognized as a gain or loss on disposition. SFAS No. 143 is effective for years Notes to Financial Statements (continued) beginning after June 15, 2002. Hallador is currently evaluating the impact this pronouncement will have on its future financial results. 4. The Fulton Fuller exploratory gas well was placed on production in June 2001. Our cost was about $560,000. The well was a disappointment so we took a $436,000 impairment charge, based on estimated fair value, during the third quarter of 2001. We received an offer to purchase our interest in this property for $25,000 in July 2002 and recently accepted it. Based on a future net cash flow analysis we determined the well to be impaired. As such, we took an additional impairment charge of $79,000 during the quarter ended June 30, 2002, to reduce the net book value to the estimated realizable value of $25,000. During the third and fourth quarter of 2001, we participated in a four- well developmental gas prospect in Wharton County, Texas. These wells are deep (about 14,000 feet) and expensive; the costs to drill and complete each well was about $5 million. We have a 5.5% WI (4.3% NRI). Our net book value in the prospect was about $1.1 million. During the second quarter of 2002, production from the prospect began to drop unexpectedly. As a result we reduced the proved reserves for these wells and based on a future net cash flow analysis determined that the property had been impaired. As such, we recorded an impairment of $840,000 to reduce the net book value of these wells to estimated fair market value. 5. As discussed in our 2001 Form 10-KSB, the SC Field was purchased from ARCO (Atlantic Richfield which is now part of BP p.l.c.) in May 1990. ARCO assumed certain environmental liabilities connected with their 40-year ownership of the field and gas plant. Part of the gas plant has not been operational during the past twenty-five years. Hereafter, we refer to ARCO's obligation as the "ARCO Indemnity." There is evidence of asbestos in the non-operational part of the gas plant. It is our position, and the opinion of our legal counsel, that the ARCO Indemnity covers future abandonment and clean-up costs associated with this gas plant. We have had several discussions with BP regarding this matter and have retained a San Francisco law firm to assert our rights under the ARCO Indemnity. The costs to abandon and clean up the old gas plant area and other oil and gas areas at the field will be significant. There is a chance, depending on the negotiations with BP, that some or all of the costs would be borne by us. At this time we have not attempted to estimate what these costs could ultimately be but we expect that such costs could have a material adverse effect on our financial condition, results of operations and cash flows if ultimately we do bear the costs. 6. In August 2002, the Company issued 177,500 incentive stock options to certain employees at an exercise price of $1.25 per share, which was fair market value on grant date. These options vested one-third at date of grant and the remaining over two years. The options expire August 31, 2012. Total issued and outstanding options are 749,723. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS YEAR-TO-DATE COMPARISON - ----------------------- The table below (in thousands) provides sales data and average prices for the period.
2002 2001 Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------ ------ ----- ------- Oil - barrels South Cuyama field 199 $23.00 $4,577 167 $23.90 $3,991 South Texas-Bonus 2.8 22.14 62 Other * * 17 1.3 26.15 34 Gas - mcf South Cuyama field 80 3.14 251 150 8.96 1,344 South Texas-Bonus 125 3.11 389 4 2.75 11 San Juan-New Mexico 37 2.05 76 38 4.66 177 Merlin Prospect (1) 12 2.42 29 47 8.66 407 Other 45 2.51 113 31 4.71 146 NGLs - barrels South Cuyama field 11 10.45 115 10 20.20 202 San Juan-New Mexico 3.6 11.39 41 3.7 17.03 63 Other * * 1 * * 1 - ------------------------ * Not meaningful
(1) This field located in northern California is near the end of its economic life. Current prices for (i) the South Cuyama field are about $23.39 for oil and $3.94 for gas (ii) South Texas-Bonus are about $22.50 for oil and $3.88 for gas and (iii) San Juan gas is about $3.58. Current production to the 100% for the South Cuyama field is about 1,035 barrels per day (741 net to us.) Production a year ago was about 930 barrels per day (665 net to us.) There is no guarantee that the current production will be sustainable in the near future. The table below (in thousands) shows lease operating expenses (LOE) for our primary fields.
2002 2001 ---- ---- South Cuyama field: LOE excluding electricity $2,054 $1,919 Electricity 1,221 972 ----- ----- 3,275 2,891 South Texas-Bonus 57 19 San Juan-New Mexico 49 75 Other 93 39 ----- ----- Total $3,474 $3,024 ===== =====
Our oil revenue increased due to higher production in the South Cuyama field as set forth in the table above. Prices were about the same. Although our gas and NGL production increased compared to last year, the prices dropped significantly as set forth in the table above. During the summer of 2001 we received abnormally high gas prices due to the California energy crisis. As expected our electricity costs have increased due to higher rates and usage. DD&A increased because of lower reserve estimates. The impairment charges are discussed below. The $300,000 for employee stock options and the G&G costs were a one-time event. QUARTER-TO-DATE COMPARISON - --------------------------- The table below (in thousands) provides sales data and average prices for the period.
2002 2001 Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------ ------ ----- ------- Oil - barrels South Cuyama field 71 $26.16 $1,857 58 $23.00 $1,334 South Texas-Bonus * * 16 Other * * 4 * * 6 Gas - mcf South Cuyama field 30 3.53 106 59 3.66 216 South Texas-Bonus 29 3.62 105 4 2.75 11 San Juan-New Mexico 11 2.36 26 10 2.10 21 Merlin Prospect (1) 3 3.33 10 13 3.07 40 Other 22 2.32 51 12 3.00 36 NGLs - barrels South Cuyama field 3.5 11.43 40 3.4 13.82 47 San Juan-New Mexico 1.2 13.33 16 1.2 12.50 15 Other * * * * * * - ------------------------ * Not meaningful
(1) This field located in northern California is near the end of its economic life. The table below (in thousands) shows lease operating expenses (LOE) for our primary fields.
2002 2001 ---- ---- South Cuyama field: LOE excluding electricity $ 637 $ 509 Electricity 504 382 ----- ----- 1,141 891 South Texas-Bonus 28 5 San Juan-New Mexico 18 24 Other 21 13 ----- ----- Total $1,208 $ 933 ===== =====
The explanations above for the year-to-date comparisons also apply to the quarter-to-date comparisons. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash and cash flow from operations are expected to enable us to meet our obligations as they become due during the next several years. Bank Debt --------- The South Cuyama field (SC Field), our principal asset, is pledged to U. S. Bank National Association under a $2,200,000 revolving line of credit, which was renewed on March 31,2002. Presently, we owe $31,000 under this line, which is included in accrued liabilities. THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 2001 FORM 10-KSB AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER. PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY - --------------------------------------------- South Cuyama Field - ------------------ Two years ago the field's daily production averaged about 750 bopd. During the past two years, we have brought on new production through the recompletion of two wells and the drilling of two wells all of which were identified in our first 3-D seismic project. These wells raised our production to a peak of 1,190 bopd during the third quarter of 2002. Current production is at 1,035 bopd. The drop is due to a fast decline in initial production and the normal decline rate which we estimate to be about 8% per year. Currently, the four new wells provide about one-third of the daily production. Second 3-D Seismic Project -------------------------- We completed our second 3-D seismic project and the results should be known by March 2003. The cost to the 100% was about $1.3 million and our share was about $1 million, which was expensed during the third quarter. WesternGeco, a division of Schlumberger, is the contractor for the project. This project covered about 36 square miles. The October 2000 3-D seismic project covered 10 square miles. When we purchased this field from ARCO twelve years ago, 3-D seismic was in its infancy and very expensive. We are very excited about the possibilities this second 3-D seismic project can bring to us. ARCO Indemnity -------------- As discussed in our 2001 Form 10-KSB, the SC Field was purchased from ARCO (Atlantic Richfield which is now part of BP p.l.c.) in May 1990. ARCO assumed certain environmental liabilities connected with their 40-year ownership of the field and gas plant. Part of the gas plant has not been operational during the past twenty-five years. Hereafter, we refer to ARCO's obligation as the "ARCO Indemnity." There is evidence of asbestos in the non-operational part of the gas plant. It is our position, and the opinion of our legal counsel, that the ARCO Indemnity covers future abandonment and clean-up costs associated with this gas plant. We have had several discussions with BP regarding this matter and have retained a San Francisco law firm to assert our rights under the ARCO Indemnity. The costs to abandon and clean up the old gas plant area and other oil and gas areas at the field will be significant. There is a chance, depending on the negotiations with BP, that some or all of the costs would be borne by us. At this time we have not attempted to estimate what these costs could ultimately be but we expect that such costs could have a material adverse effect on our financial condition, results of operations and cash flows if ultimately we do bear the costs. Fulton Fuller - ------------- The Fulton Fuller exploratory gas well was placed on production in June 2001. Our cost was about $560,000. The well was a disappointment so we took a $436,000 impairment charge, based on estimated fair value, during the third quarter of 2001. We received an offer to purchase our interest in this property for $25,000 in July 2002 and recently accepted it. Based on a future net cash flow analysis we determined the well to be impaired. As such, we took an additional impairment charge of $79,000 during the quarter ended June 30, 2002, to reduce the net book value to the estimated realizable value of $25,000. South Texas -Bonus - ------------------ During the third and fourth quarter of 2001, we participated in a four-well developmental gas prospect in Wharton County, Texas. These wells are deep (about 14,000 feet) and expensive; the costs to drill and complete each well was about $5 million. We have a 5.5% WI (4.3% NRI). Our net book value in the prospect was about $1.1 million. During the second quarter of 2002, production from the prospect began to drop unexpectedly. As a result we reduced the proved reserves for these wells and based on a future net cash flow analysis determined that the property had been impaired. As such, we recorded an impairment of $840,000 to reduce the net book value of these wells to estimated fair market value. There are no other significant changes or developments to report from what we disclosed in the 2001 Form 10-KSB. ITEM 3. CONTROLS AND PROCEDURES a) Evaluation of Disclosure Controls and Procedures Our CEO, who is also our CFO, has evaluated the Company's disclosure controls and procedures as of November 14, 2002, and concluded that these controls and procedures are effective. b) Changes in Internal Controls There are no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to November 14, 2002. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - none. SIGNATURE In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HALLADOR PETROLEUM COMPANY Dated: November 14, 2002 By: /S/VICTOR P. STABIO Chief Executive Officer and Chief Financial Officer Signing on behalf of registrant and as principal financial officer. CERTIFICATION I, Victor P. Stabio, certify that: 1. I have reviewed the quarterly report on Form 10-QSB of Hallador Petroleum Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report my conclusion about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function) : a) all significant deficiencies in the design or operation of internal controls, which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /S/ VICTOR P. STABIO Chief Executive Officer and Chief Financial Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Hallador Petroleum Company (the "Company"), on Form 10-QSB for the quarterly period ended September 30,2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 14, 2002 By: /S/VICTOR P. STABIO Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----