-----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, ObVwiughwPCvg7EoR1iYEZ+oiPLr6fSFQHZetZo0+f9IiF0ufWtsoVeIiYXmB4Wk 25xNdWpsX/7HBeXrqmTH0Q== 0000788965-03-000016.txt : 20030814 0000788965-03-000016.hdr.sgml : 20030814 20030814154246 ACCESSION NUMBER: 0000788965-03-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 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: 03847407 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 OIL & GAS CO /CO/ DATE OF NAME CHANGE: 19900102 FORMER COMPANY: FORMER CONFORMED NAME: KIMBARK INC DATE OF NAME CHANGE: 19860624 10QSB 1 sjun2003q.txt 2ND QTR FORM 10-QSB FOR HPC 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 June 30, 2003 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 August 14, 2003: 7,093,150 PART I - FINANCIAL INFORMATION Consolidated Balance Sheet (in thousands)
June 30, December 31, 2003 2002* --------- ----------- ASSETS Current assets: Cash and cash equivalents $ 2,943 $ 1,647 Accounts receivable- Oil and gas sales 783 680 Well operations 262 146 ------ ------ Total current assets 3,988 2,473 ------ ------ Oil and gas properties, at cost (successful efforts): Unproved properties 249 247 Proved properties 25,321 25,058 Less - accumulated depreciation, Depletion, amortization and impairment (19,270) (18,836) ------ ------ 6,300 6,469 ------ ------ Oil and gas operator bonds 507 417 Investment in Catalytic Solutions 164 164 Other assets 35 38 ------ ------ $10,994 $ 9,561 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,086 $ 527 Oil and gas sales payable 414 185 ------ ------ Total current liabilities 1,500 712 ------ ------ Bank debt 251 ------ ------ Key employee bonus plan 236 209 ------ ------ Future site restoration-South Cuyama Field 954 653 ------ ------ Minority interest 4,933 4,763 ------ ------ Commitments and contingencies 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 (14,761) (15,159) ------ ------ 3,371 2,973 ------ ------ $10,994 $ 9,561 ====== ====== *Derived from the Form 10-KSB.
See accompanying notes. Consolidated Statement of Operations (in thousands)
Six months ended Three months ended June 30, June 30, 2003 2002 2003 2002 ------ ------ ------ ------ Revenue: Oil $3,828 $2,881 $1,725 $1,559 Gas 835 559 487 302 Realized gain (loss) on crude oil puts 39 (18) Interest and other 70 25 15 17 ----- ----- ----- ----- 4,772 3,465 2,209 1,878 ----- ----- ----- ----- Costs and expenses: Lease operating 2,731 2,266 1,494 1,191 Exploration costs 145 47 125 28 Impairment-Fulton Fuller gas well 79 79 Impairment-S.E. Bonus Field 840 840 Depreciation, depletion and amortization 562 1,346 277 654 General and administrative 585 450 243 217 ----- ----- ----- ----- 4,023 5,028 2,139 3,009 ----- ----- ----- ----- Income (loss) before cumulative effect of change in accounting principle 749 (1,563) 70 (1,131) Cumulative effect of change in accounting principle (181) ----- ----- ----- ----- Income (loss) before minority interest 568 (1,563) 70 (1,131) Minority interest (170) 469 (21) 339 ----- ----- ----- ----- Net income (loss) $ 398 $(1,094) $ 49 $ (792) ===== ===== ===== ===== Income (loss) per share- basic and diluted: Before cumulative effect of change in accounting principle $ .07 $ (.15) $ .01 $ (.11) Cumulative effect of change in accounting principle (.02) ----- ----- ----- ----- Net income (loss) $ .05 $ (.15) $ .01 $ (.11) ===== ===== ===== ===== Weighted average shares outstanding- basic 7,093 7,093 7,093 7,093 ===== ===== ===== =====
See accompanying notes. Consolidated Statement of Cash Flows (in thousands)
Six months ended June 30, 2003 2002 ------ ------ Net cash provided by operating activities $1,548 $1,029 ------ ----- Cash flows from investing activities: Properties (262) (966) Operator bonds (90) (52) ------ ----- Net cash used in investing activities (352) (1,018) ------ ----- Cash flows from financing activites: Debt retirement (251) Cash calls from joint interest owners 351 ------ Net cash from financing activities 100 ------ Net increase in cash and cash equivalents 1,296 11 Cash and cash equivalents, beginning of period 1,647 2,078 ------ ----- Cash and cash equivalents, end of period $ 2,943 $2,089 ====== =====
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 2002 Form 10-KSB. This quarterly report should be read in conjunction with that annual report. 3. In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset and is effective for fiscal years beginning after June 15, 2002. We adopted SFAS No. 143 on January 1, 2003 and increased our liability for asset retirement obligations by $264,000 (using an 8% discount rate) and recorded a cumulative effect of change in accounting principle of $181,000. For the six months ended June 30, 2003, we recognized $37,000 of accretion on the liability as a component of depletion expense. Had SFAS No. 143 been adopted on January 1, 2002, the pro forma net loss would have been $1,147,000 and the pro forma net loss per share would have been $(.16) for the six months ended June 30, 2002 and the pro forma asset retirement obligation at January 1, 2002 would have been $850,000. 4. As allowed in SFAS No. 123, "Accounting for Stock-Based Compensation," we continue to apply Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related interpretations in recording compensation related to our plan. The supplemental disclosures required by SFAS No. 123, as amended in SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," related to our stock option plan are presented below. Under SFAS No. 123, compensation cost would be recognized for the fair value of the employee's option rights. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for option grants made in 2002 (there were no grants issued in the first six months of 2003): 2002 ----- Expected option life 10 years Volatility 120% Risk-free interest rate 4.14% Had compensation cost for our stock based compensation plan been based upon the fair value at the grant dates for awards under the plan consistent with the method of SFAS No. 123 using the Black-Scholes model, our net income and earnings per share would have been recorded as the pro forma amounts indicated below for the six months ended June 30, 2003 and 2002 (in thousands, except per share data): 2003 2002 ----- ----- Net income (loss): As reported $ 398 $(1,094) Pro forma 373 (1,127) Basic and diluted net income (loss) per share: As reported .05 (.15) Pro forma .05 (.16) 5. Through mid February 2003, we had never entered into any commodity derivative agreements since acquiring the SC Field. During mid February 2003 oil prices in the field reached a level of about $36 per barrel. For the first time we purchased puts on 23,000 barrels of oil for the month of June 2003 (strike price of $29.00 per barrel) and 16,500 barrels of oil for the month of July 2003 (average strike price of $30.48 per barrel). Our total investment was $83,000. At March 31, 2003 the fair value of these puts was $140,000. During the second quarter we sold the puts for $122,000. Our net gain from this transaction was $39,000. For accounting purposes we realized a gain of $57,000 in the first quarter and in the second quarter we recognized a loss of $18,000. 6. As discussed in previous filings, the SC Field was purchased from ARCO (Atlantic Richfield which is now part of BP p.l.c.) in May 1990. As part of the Purchase and Sale Agreement, ARCO agreed to indemnify us for certain environmental liabilities connected with their 40-year ownership of the field and gas plant ("ARCO Indemnity"). Part of the gas plant has not been operational during the past twenty-five years. 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. BP continues to deny any responsibility. The costs to abandon and clean up the gas plant area and other oil and gas areas at the field will be significant. There is a chance, depending on the negotiations and legal proceedings with BP, that some or all of the costs could be borne by us. At this time we are unable 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. HALLADOR PETROLEUM COMPANY 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.
2003 2002 Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------ ------ ----- ------- Oil - barrels South Cuyama field 130 $28.82 $3,746 135 $20.70 $2,795 Other 5 16.40 82 6 14.33 86 Gas - mcf South Cuyama field 79 5.56 439 49 2.96 145 San Juan-New Mexico 26 4.57 119 26 1.92 50 Other 45 6.15 277 128 2.84 364
Oil and gas revenue increased due to higher prices as set forth in the Table above. Decrease in other gas production was due to the significant Production decline in our South Texas - Bonus field. As previously disclosed, we took an impairment charge of $840,000 in the second quarter of 2002 for this field. Current prices for the South Cuyama field are about $29.42 for oil and $5.00 for gas and San Juan gas is about $4.40. The table below (in thousands) shows lease operating expenses (LOE) for our two primary fields.
2003 2002 ---- ---- South Cuyama field: LOE excluding electricity $1,900 $1,439 Electricity 694 696 ----- ----- 2,594 2,135 San Juan-New Mexico 78 30 Other 59 101 ----- ----- Total $2,731 $2,266 ===== =====
LOE in the field increased due to higher operating expenses relating to the new equipment we had to install in the first quarter of 2003 in order to remove CO2 from our gas stream. Furthermore, when oil prices are high, we perform more repair and maintenance in the field compared to when prices are low (see the table above for 2003 and 2002 average oil prices.) The increase in exploration costs was due primarily to a late billing for $64,000 relating to 3-D work performed in the fourth quarter 2002. The increase in G&A was due to higher 2002 audit and tax fees - $35,000, accruals for 2003 audit and tax fees - $25,000, higher employee costs - $32,000, higher legal fees associated with the ARCO Indemnity and SOCAL negotiations - $24,000, and other minor increases of $19,000. DD&A decreased due to higher reserve estimates at June 30, 2003 compared to June 30, 2002. The increase in reserves was due to higher oil prices. QUARTER-TO-DATE COMPARISON - -------------------------- The table below (in thousands) provides sales data and average prices for the period.
2003 2002 Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------ ------ ----- ------- Oil - barrels South Cuyama field 64 $26.33 $1,685 65 $23.32 $1,516 Other 4 10.00 40 3 14.33 43 Gas - mcf South Cuyama field 58 5.47 317 23 3.48 80 San Juan-New Mexico 13 4.38 57 13 2.38 31 Other 19 5.95 113 55 3.47 191
The table below (in thousands) shows lease operating expenses (LOE) for our primary fields.
2003 2002 ---- ---- South Cuyama field: LOE excluding electricity $1,042 $ 752 Electricity 374 377 ----- ----- 1,416 1,129 San Juan-New Mexico 52 13 Other 26 49 ----- ----- Total $1,494 $1,191 ===== =====
The explanations above for the year-to-date comparisons also apply to the quarter-to-date comparisons, other than for G&A. 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 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. At March 31, 2003 we owed $244,000 under this line. On April 28, 2003 the loan was paid off. THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 2002 FORM 10-KSB AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER. PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY - --------------------------------------------- South Cuyama Field ------------------- Based on the results of our 3-D project we have identified four wildcat sites located outside the field boundaries. Also, we have identified six developmental drilling opportunities within the boundaries of the field. During July 2003 we drilled three development wells. We are still in the process of perforating and production testing. It is too early to assign reserves to these wells, but the results are encouraging. The wildcat wells outside the field will not be drilled until sometime next year and no further development drilling is planned for this year. SOCAL ----- Currently gas sales in the SC Field are 1,000 MCF per day. Southern California Gas Company (SOCAL), the pipeline company and our only outlet to sell gas has imposed a 1,000 MCF per day maximum limit. If it weren't for this limit, we believe we could sell 1,800 MCF per day. If we are unable to sell more gas, we will have to curtail our exploration and development plans. We have been negotiating with SOCAL to increase the capacity from 1,000 MCF per day to 3,000 MCF per day. We should know in the next 30 days the results of these negotiations. ARCO Indemnity - -------------- As discussed in previous filings, the SC Field was purchased from ARCO (Atlantic Richfield which is now part of BP p.l.c.) in May 1990. As part of the Purchase and Sale Agreement, ARCO agreed to indemnify us for certain environmental liabilities connected with their 40-year ownership of the field and gas plant ("ARCO Indemnity"). Part of the gas plant has not been operational during the past twenty-five years. 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. BP continues to deny any responsibility. The costs to abandon and clean up the gas plant area and other oil and gas areas at the field will be significant. There is a chance, depending on the negotiations and legal proceedings with BP, that some or all of the costs could be borne by us. At this time we are unable 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. San Juan Basin - New Mexico --------------------------- Two successful development gas wells were drilled during April. In July and August, we drilled three more successful development gas wells. These five wells cost about $3 million to the 100%. We have an approximate 10% WI in these five wells. We expect to assign proved developed gas reserves to the 100% of between 1 BCF and 1.5 BCF per well. Our net revenue interest in these wells is about 6%. One more development gas well is planned before the end of the year and that will conclude our development activity in this area. Crude Oil Put Options - --------------------- Through mid February 2003, we had never entered into any commodity derivative agreements since acquiring the SC Field. During mid February 2003 oil prices in the field reached a level of about $36 per barrel. For the first time we purchased puts on 23,000 barrels of oil for the month of June 2003 (strike price of $29.00 per barrel) and 16,500 barrels of oil for the month of July 2003 (average strike price of $30.48 per barrel). Our total investment was $83,000. At March 31, 2003 the fair value of these puts was $140,000. During the second quarter we sold the puts for $122,000. Our net gain from this transaction was $39,000. For accounting purposes we realized a gain of $57,000 in the first quarter and in the second quarter we recognized a loss of $18,000. Predecessor Entity - ------------------ Over the past 12 years we have paid about $200,000 to properly plug and abandon 12 or so sites which were previously plugged and abandoned by Kimbark Oil & Gas Company, our predecessor entity. For the six months ended June 30, 2003 and 2002, we have spent less than $2,000 for these type of costs. We do not expect any more notices from state regulatory jurisdictions regarding improperly P&A wells, but it is possible that there could be more. SFAS No. 143 - "Accounting for Asset Retirement Obligations" - ------------------------------------------------------------ In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset and is effective for fiscal years beginning after June 15, 2002. We adopted SFAS No. 143 on January 1, 2003 and increased our liability for asset retirement obligations by $264,000 (using an 8% discount rate) and recorded a cumulative effect of change in accounting principle of $181,000. For the six months ended June 30, 2003, we recognized $37,000 of accretion on the liability as a component of depletion expense. There are no other significant changes or developments to report from what we disclosed in the 2002 Form 10-KSB. ITEM 3. CONTROLS AND PROCEDURES We maintain a system of disclosure controls and procedures that are designed for the purposes of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our CEO as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of our CEO of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our CEO, who is also our CFO, concluded that our disclosure controls and procedures are effective for the purposes discussed above. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation. PART II-OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 31 - SOX 302 Certification 32 - SOX 906 Certification (b) Form 8-K dated June 27, 2003 - Item 4. Change in Registrant's Certifying Accountant. 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: August 14, 2003 By: /S/VICTOR P. STABIO Chief Executive Officer and Chief Financial Officer Signing on behalf of registrant and as principal financial officer. EX-31 3 exhibit31.txt EXHIBIT 31 - SOX 302 CERTIFICATION EXHIBIT 31 CERTIFICATION I, Victor P. Stabio, certify that: 1. I have reviewed the report on Form 10-QSB of Hallador Petroleum Company; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors; a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /S/ VICTOR P STABIO Victor P. Stabio Chief Executive Officer and Chief Financial Officer EX-32 4 exhibit32.txt EXHIBIT 32 - SOC 306 CERTIFICATION Exhibit 32 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 June 30, 2003, 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 to his knowledge: (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: August 14, 2003 By: /S/ VICTOR P. STABIO Chief Executive Officer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----