-----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, LCH9FptFyBsc9kFyus6oNggZp3NFV1e9pujWFaIwWaZybxQT/e8ap/7I4RHIoD04 i1DHW/yUPHkHilPtsfK/OQ== 0000788965-05-000011.txt : 20050815 0000788965-05-000011.hdr.sgml : 20050815 20050815164534 ACCESSION NUMBER: 0000788965-05-000011 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 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: 051027341 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 s063005qsb.txt JUNE 30, 2005 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, 2005 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 15, 2005: 7,093,150 PART I - FINANCIAL INFORMATION Consolidated Balance Sheet (in thousands)
June 30, December 31, 2005 2004* ------ ------ ASSETS Current assets: Cash and cash equivalents $12,723 $19,927 Oil and gas operator bonds 252 Accounts receivable- Oil and gas sales 534 573 Well operations 234 117 E&B account receivable 35 230 E&B note receivable 3,632 3,569 ------ ------ Total current assets 17,158 24,668 ------ ------ Oil and gas properties, at cost (successful efforts): Unproved properties 1,747 220 Proved properties 2,155 2,155 Less-accumulated depreciation, depletion, amortization and impairment (1,755) (1,740) ------ ------ 2,147 635 ------ ------ Investment in Catalytic Solutions 150 150 Investment in CELLC 301 Other assets 66 67 ------ ------ $19,822 $25,520 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 357 $ 642 Oil and gas sales payable 847 922 Income tax payable 360 300 Partnership options payable 407 ------ ------ Total current liabilities 1,564 2,271 ------ ------ Minority interest 4,629 9,742 ------ ------ 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 (4,503) (4,625) ------ ------ 13,629 13,507 ------ ------ $19,822 $25,520 ====== ====== *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, 2005 2004 2005 2004 ----- ----- ----- ----- Revenue: Gas $ 333 $ 327 $ 166 $ 169 Natural gas liquids 89 72 45 40 Oil 45 35 20 15 Interest 282 11 149 5 ----- ----- ----- ----- 749 445 380 229 ----- ----- ----- ----- Costs and expenses: Lease operating 98 83 50 40 Delay rentals 38 64 34 34 Impairment of unproved properties 14 67 14 67 Equity loss in CELLC 25 25 Depreciation, depletion and amortization 19 24 9 12 General and administrative 295 416 127 230 ----- ----- ----- ----- 489 654 259 383 ----- ----- ----- ----- Income (loss) from continuing operations before minority interest 260 (209) 121 (154) Minority interest (78) 62 (36) 46 ----- ----- ----- ----- Income (loss) from continuing operations 182 (147) 85 (108) Income tax-current (60) (30) Income from discontinued operations net of minority interest of $358 and $145 836 338 ----- ----- ----- ----- Net income $ 122 $ 689 $ 55 $ 230 ===== ===== ===== ===== Net income (loss) per share - basic Continuing operations $ 0.02 $(0.02) $ 0.01 $(0.02) Discontinued operations 0.12 0.05 ----- ----- ------ ----- $ 0.02 $ 0.10 $ 0.01 $ 0.03 ===== ===== ====== ===== 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, 2005 2004 ------ ------ Net cash provided by operating activities: $ 11 $ 1,169 ------ ------ Cash flows from investing activities: Properties (1,541) (245) Investment in COALition (326) Decrease in bonds 252 Other (2) (74) ------ ------ Net cash used in investing activities (1,617) (319) ------ ------ Cash flows from financing activities: Repurchase of partnership options (407) Distribution to limited partners (5,191) ------ Net cash used in financing activities (5,598) ------ Net (decrease) increase in cash and cash equivalents (7,204) 850 Cash and cash equivalents, beginning of period 19,927 3,319 ------ ------ Cash and cash equivalents, end of period $12,723 $ 4,169 ====== ====== See accompanying notes.
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 state- ments filed as part of our 2004 Form 10-KSB. This quarterly report should be read in conjunction with that annual report. 3. On April 15, 2005, we issued 750,000 ten-year options to employees at an exercise price of $2.25, which was based on the stock price of a March 2005 private transaction between one of our shareholders and a third party. These options vest at 1/3 per year over the next three years. There are no more options available for issuance. As allowed in SFAS 123, Accounting for Stock-Based Compensation, we continue to apply APB 25, Accounting for Stock Issued to Employees, and related interpretations in recording compensation related to our plan. Had compensation costs for the plan been determined consistent with SFAS 123, we would have estimated the fair value of the option grant using the Black-Scholes option-pricing model, using the following assumptions for the 2005 grants: (i) risk free interest rate of 4.24%; (ii) expected life of 10 years; (iii) expected volatility of 120%; and (iv) no dividend yield. The average fair value of options granted during 2005 was $2.15. Pro forma net income for 2005 would have been $67,000 or $0.01 per share; pro forma results for 2004 were immaterial. 4. On August 10, 2004, Hallador Petroleum, LLP (the "Partnership") entered into an agreement with E&B Natural Resources Management Corporation (a private company) to sell all of our interestin the South Cuyama field and adjacent exploration areas, all located in Santa Barbara County, California, for $23 million; consisting of $19.5 million in cash and an interest bearing (3.5%) note of $3.5 million due on September 30, 2005. Closing occurred on September 30, 2004 and we recorded a pre-tax gain of about $14 million. Results from the South Cuyama field have been presented as discontinued operations in the accompanying Consolidated Statement of Operations. Revenue and expenses before the minority interest were about $4.5 million and $3.3 million, respectively for the six months ended June 30, 2004. Due to the sale, the joint board of directors of Hallador Petroleum Company and the Executive Committee of the Partnership, voted to discontinue new partnership operations effective October 1, 2004. Currently, the Partnership's assets consist of cash, the $3.5 million note receivable, oil and gas properties in New Mexico and Texas, and other miscellaneous assets. On October 1, 2004, the board of directors of Hallador Petroleum Company in their capacity as general partner, and the Executive Committee of the Partnership, valued the oil and gas properties in New Mexico and Texas and the other miscellaneous assets at $4 million. On May 6, 2005 we made a cash distribution of about $5.2 million to the limited partners. During the third quarter 2005, Hallador Petroleum Company will offer to purchase the limited partners interest in the Partnership for about $1.2 million. This does not include their interest in the $3.5 million note receivable which is due September 30, 2005. Upon collection of the note a final distribution will be made to the limited partners. 5. In late March 2005, we invested $325,000 for a 29% interest in a newly formed entity called COALition Energy, LLC (CELLC). CELLC was formed to pursue coal investments. To date CELLC has not commenced significant operations. We account for this investment using the equity method of accounting. Four of our directors, David Hardie, Steven Hardie, Cortlandt Dietler, and Victor Stabio, who is also our CEO and CFO, acquired, at the same proportionate cost, and on the same terms as us, membership interests of 3.09%, 3.09%, 4.64%, and 3.09%, respectively, based on personal investments of $33,333, $33,333, $50,000 and $33,334, respectively, in CELLC. There are 12 other members of CELLC, with Cortlandt Dietler, Victor Stabio, and three other individuals, constituting the initial directors of CELLC. Kestrel Energy Partners, which is 82.64% owned by Yorktown Energy Partners, VI, L.P., acquired, through a wholly-owned subsidiary, a 20% interest in CELLC for $224,490. Yorktown Energy Partners VI, L.P. and Yorktown Energy Partners II, L.P., as well as their respective general partners and Yorktown Partners LLC, the manager of both of these partnerships, are under common control. Yorktown Energy Partners II., L.P. owns approximately 32% of our common stock. HALLADOR PETROLEUM COMPANY Management's Discussion and Analysis or Plan of Operation RESULTS OF OPERATIONS - --------------------- Overview - -------- The following discussion updates the MD&A section of our 2004 Form 10-KSB which was filed on April 15, 2005 and should be read in conjunction thereto. Albany Shale Gas Lease Play --------------------------- Since June 30, 2005 we have invested about $1 million in this wildcat gas play in the Illinois Basin and expect to invest another $1 million. Our goal is to lease about 50,000 acres and then sell the unproved acreage and retain some sort of interest. Montana ------- We are evaluating two lease plays in Montana. To date no funds have been committed. North Dakota ------------ As disclosed in the 2004 Form 10-KSB, in February 2005 we invested $1.3 million in a 2,500 acre oil development prospect in McKenzie County, North Dakota, located on the mid-western Montana border. On April 25, 2005 we purchased additional acres for $111,000. We have a 37.5% WI (.328 NRI), Kodiak Oil and Gas, the operator also has a 37.5% WI, the remaining 25% is owned by others. Kodiak is headquartered in Denver and its stock trades on the TSX Venture Exchange under the symbol KOG. We hope to drill the first oil well the first half of 2006, at a cost of about $2.5 million to the 100%. This is a horizontal play so a vertical well is drilled to 8,000 feet and then two horizontal laterals are drilled at distance of 4,000 - 6,000 feet in opposite directions. Headington Oil Company is a major operator in this area on the Montana side and Burlington Resources is a major operator on the North Dakota side. Depending on the success of the first well, our total commitment could be an additional $2 million. San Juan Basin -------------- As disclosed in the Form 10-KSB two more development gas wells are planned for September 2005. The estimated costs to drill and complete these two wells are about $1 million each to the 100%. We have a .056 WI (.047 NRI) in each of the wells. Coal ---- As disclosed in the 2004 Form 10-KSB, in late March 2005, we invested $325,000 for a 29% interest in a newly formed entity called COALition Energy, LLC (CELLC). To date, CELLC has not commenced significant operations. Some of our directors and officers also invested in CELLC. See Note 5 to the Financial Statements for further information. Liquidity and Capital Resources - ------------------------------- Cash and cash to be provided from operations are expected to enable us to meet our obligations as they become due during the next several years. We have no bank debt, no special purpose entities and no off-balance sheet arrangements. Results Of Continuing Operations - -------------------------------- The tables below (in thousands) provides sales data and average prices for the period.
Year-to-date Comparison -------------------------------------------------------- 2005 2004 --------------------------- ----------------------- Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------- ------ ----- ------- Gas-mcf San Juan 32 $ 6.13 $196 35 $ 4.98 $174 Other 21 6.53 137 27 5.67 153 NGLs-barrels San Juan 3.1 28.71 89 3.4 21.18 72 Oil-barrels Other .91 49.46 45 1 35.00 35
Quarter-to-date Comparison -------------------------------------------------------- 2005 2004 --------------------------- ----------------------- Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------- ------ ----- ------- Gas-mcf San Juan 15 $ 6.27 $ 94 19 $ 5.22 $ 99 Other 10 7.20 72 12 5.84 70 NGLs-barrels San Juan 1.5 30.00 45 1.8 22.23 40 Oil-barrels Other .38 52.64 20 .42 35.72 15
Revenue increased due to higher prices. Interest income increased due to investing the proceeds from the sale that occurred in September 2004 and interest income earned on the $3.5 million note due September 30, 2005. General and administrative expenses declined due to the termination of two employees after the California property sale, and salary reductions in the Denver office. Victor P. Stabio's salary was reduced 26% and certain other employees' salaries were reduced 10%. After the $5.2 million distribution to the limited partners on May 6, 2005, interest income will decrease for the remainder of the year. 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 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 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 5. Other Information Albany Shale Gas Lease Play --------------------------- Since June 30, 2005 we have invested about $1 million in this wildcat gas play in the Illinois Basin and expect to invest another $1 million. Our goal is to lease about 50,000 acres and then sell the unproved acreage and retain some sort of interest. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.1 -- Oil and Gas Project Agreement dated June 3, 2005 31 -- SOX 302 Certification 32 -- SOX 906 Certification 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 15, 2005 By:/S/VICTOR P. STABIO CEO and CFO Signing on behalf of registrant and as principal financial officer. EX-10 2 exhib10-1.txt EXHIBIT 10-1 - HALLADOR PROJECT AGREEMENT OIL AND GAS PROJECT AGREEMENT ----------------------------- THIS OIL AND GAS PROJECT AGREEMENT (this "Agreement") is made and entered into effective this 3rd day of June 2005 by and between Global GeoData, LLC, a Colorado limited liability company and J. Bruce Branson, an individual (together referred to as "Global") and Hallador Petroleum Company, a Colorado corporation ("Hallador"). Each of Hallador and Global are sometimes referred to individually as a "Party" and collectively as the "Parties." RECITALS -------- A. Global has presented to Hallador a XXXXXXX Project known as the Boomerang Project (the "Project") covering the areas in Xxxxxxxx outlined or crosshatched on the map attached as Exhibit A (the "AMI"). B. It is the mutual desire of Global and Hallador that Hallador acquire oil and gas leases in the AMI as provided herein. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: ARTICLE I ---------- DEFINITIONS ----------- 1.11 Certain Defined Terms. Unless the context otherwise requires, the following terms shall have the respective meanings set forth in this Section 1.1: (a) "AMI" shall have the meaning ascribed thereto in the recitals to this Agreement. (b) "Acreage Fee" shall mean all bonus and rental paid to the owner of the oil and gas estate covered by a Lease plus $xx per net mineral acre covered by the Lease; provided, however, that if a Lease is earned through drilling or Hallador does not otherwise pay cash consideration for a Lease, the Acreage Fee shall be $xx.00 per net mineral acre for such Lease. (c) "Affiliate" shall mean, when used with respect to a specified Person, any other Person directly controlling, controlled by or in common control with the specified Person. For purposes of this definition "control", when used with respect to any specified Person, means the power to direct the management and policies of the Person whether through the ownership of voting securities or by contract; and the term "controlled" have the meanings correlative to the foregoing. (d) "Agreement" shall mean this Oil and Gas Project Agreement between Global and Hallador. (e) "Approved Form" shall mean the form of oil and gas lease as that attached hereto as Exhibit C. (f) "Broker" shall mean xxxxxxxx or such other lease brokerage firm agreed to between Global and Hallador. (g) "Disputed Claim" shall have the meaning given such term in Section 5.1. (h) "Global ORRI" shall mean an ORRI in each Lease that is equal to five percent (x%) provided, however, that if the NRI of a Lease is less than xx%, then the Global ORRI shall be reduced by the difference between the NRI of such Lease and xx%; provided further that in no event shall the Global ORRI ever be less than three percent (xx%). (i) "Governmental Authority" shall mean any entity of or pertaining to government, including any federal, state, local, other governmental or administrative authority, agency, court, tribunal, arbitrator, commission, board or bureau. (j) "Lease" shall mean any oil, gas, coal or other mineral lease, oil, gas, coal or other royalty or mineral right or interest, or rights to earn such interests, including without limitation, farmout or farmin agreements, or other similar interest, to the extent located within the AMI. The term "Lease" shall also mean extensions or renewals of a Lease, with an extension meaning a Lease that is delivered within two years of the prior Lease. (k) "NRI" shall mean the net revenue interest (i.e., the percentage of proceeds owned by lessee after deduction of royalty, ORRI and other similar burdens) in a Lease at the time the Lease is first acquired by Hallador or its Affiliates, officers, employees, agents or representatives, but before taking into account the Global ORRI. (l) "ORRI" shall mean a cost free share of production of oil, gas and other minerals in and under land that is calculated and determined on the same basis as royalty interests reserved by the federal government on leases covering lands owned by the U.S. Bureau of Land Management. (m) "Person" shall mean any individual, corporation, partnership, joint venture, association, limited liability company, joint stock company, trust, unincorporated organization, Governmental Authority or government (or agency or political subdivision thereof). (n) "Program" shall mean the lease acquisition program under Section 3.1. 1.2 Other Definitional Provisions. ------------------------------ (a) As used in this Agreement, unless expressly stated otherwise, references to (i) "including" mean "including, without limitation", and the words "hereof," "herein," and "hereunder," and similar words, refer to this Agreement as a whole and ot to any particular Article, provision, section or paragraph of this Agreement and (ii) "or" mean "either or both." Unless otherwise specified, all references in this Agreement to articles, sections, paragraphs, exhibits or schedules are deemed references to the corresponding articles, sections, paragraphs, exhibits or schedules in this Agreement. Reference to "day" or "days" in this Agreement shall refer to calendar days unless otherwise stated. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. Whenever the Parties have agreed that any approval or consent shall not be "reasonably withheld," such phrase shall also include the Parties' agreement that the approval or consent shall not be unreasonably delayed or conditioned. 1.3 Other Terms. Other terms may be defined elsewhere in the text of this Agreement and shall have the meaning indicated throughout this Agreement. ARTICLE II ---------- TERM ---- 2.1 This Agreement shall be effective as of the date hereof and shall continue in effect for a term ending upon expiration of all Leases acquired hereunder. ARTICLE III ----------- RIGHTS AND OBLIGATIONS ----------------------- 3.1 Lease Acquisition. (a) Global shall retain the Broker to acquire Leases in the AMI. Global shall supervise the Broker and manage the Program. Global shall enter into a written agreement with the Broker that, for the duration of such agreement and at least 12 months thereafter, prohibits the Broker from acquiring any Leases within the AMI except as provided in this Agreement and requires that the Program remain confidential. The Leases acquired in the AMI shall be taken in the name of the Broker. Global shall require that the Broker convey the Leases to Hallador within five (5) business days after Hallador provides Global a written request to assign the Leases. Global shall cause the Broker to attempt to lease unleased mineral interests using the Approved Form. The $xx.00 per net mineral acre flat included in the Acreage Fee shall be used, all or in part, to compensate the Broker. Hallador shall not have any further obligation to pay the Broker retained by Global in accordance with the terms of this Agreement except that Hallador shall (a) bear any costs related to any special requests made by Hallador, (b) pay the Broker a $x,xxx per county startup fee for mapping, and (c) reimburse the Broker's reasonable out of pocket costs for overnight mail and , if requested by Hallador or Global, travel that is outside of Xxxxxxxx. All of Broker's backup materials and work copies, including all maps used in connection with the program, shall be furnished and/or made available to Global and Hallador on an ongoing basis. (b) Neither of the parties hereto nor their Affiliates shall acquire any Leases within the AMI except as set forth in this Article III. (c) Hallador shall fund the acquisition of the Leases until it has expended a minimum of $XXXXXXX for Acreage Fees. Hallador shall not be obligated to pay more than $xxxx per acre for any Lease. Hallador shall not be obligated to pay Acreage Fees for any Lease that is not on the Approved Form unless (i) it was approved prior to payment by Hallador or (ii) it meets the following minimum qualifications: 1) the Lease has at least an xx% NRI (inclusive of the Global ORRI); 2) the Lease does not contain a Pugh clause or other similar acreage reduction provision at the end of the primary term; 3) the Lease contains a broad form pooling clause; the lessor's royalty does not expressly prohibit deduction of post production costs including gathering, dehydration, compression, transporta- tion and processing; 4) the Lease contains a primary term of at least five (5) years, and the Lease does not expressly restrict surface access other than those set forth in the Lease Form. (d) If Global fails to acquire 50,000 net mineral acres for which Hallador is obligated to pay Acreage Fees hereunder by December 1, 2005, then Hallador's obligation to fund the Program shall, at its option, term- inate. The other obligations of the Agreement shall remain in effect. (e) If on December 1, 2005, Global has failed to acquire 50,000 net mineral acres for which Hallador is obligated to pay Acreage Fees here- under, but Hallador elects to continue the Agreement in effect, then Hallador, at its sole option, may continue the Program; provided that if during any consecutive six month period thereafter Hallador has not funded Acreage Fees for two months, during which time additional Leases have been made available for funding, and, within the six month period, has not undertaken geophysical operations, drilling operations or other activities related to preparation for drilling and operations within the AMI, then the obligations of each Party to acquire Leases or not to compete with each other under this Agreement shall terminate; provided further that the foregoing shall not relieve Hallador of its obligations under that certain Confidentiality Agreement and No-Competition Agreement dated May 20, 2005 between the Parties. (f) If on December 1, 2005, Global has acquired 50,000 net acres for which Hallador is obligated to pay Acreage Fees hereunder, then Hallador, at its sole option, may continue the Program; provided that if during any consecutive 12 month period thereafter Hallador has not funded Acreage Fees for two months, during which time additional Leases have been made available for funding, and, within the 12 month period, has not undertaken geophysical operations, drilling operations or other activities related to preparation for drilling and operations within the AMI, then the obligations of each Party to acquire Leases or not to compete with each other under the terms of this Agreement shall terminate; provided further that the foregoing shall not relieve Hallador of its obligations under that certain Confidentiality Agreement and No-Competition Agreement dated May 20, 2005 between the Parties. (g) Hallador shall upon execution of this Agreement wire transfer $xxxxxx to Global which shall be used only for Acreage Fees ("Initial Fund"). As the Initial Fund approaches a $xxxxxx balance, Global will request further funding by submitting to Hallador a written report describing (i) the Leases taken and the net mineral acres covered by the Leases and (ii) the funds remaining and an estimate of the funds required for the following 14 days. Global shall thereafter submit similar reports every two weeks (or more frequently if funds are needed) to Hallador that set forth the estimated costs for the following 14-day period. Hallador shall pay Global the estimated amount, adjusted up or down to true-up the actual amount for the prior period within five days after receipt of Global's report. (h) For each Lease not meeting the minimum standards described in Section 3.1(c) (a "Non-Standard Lease"), Hallador shall have the continuing right and option to purchase any Non-Standard Lease as follows: (a) Global shall furnish to Hallador a copy of the Non-Standard Lease and a written description of the actual or estimated cost thereof (the "Offer Notice"), and (b) Hallador shall have ten days after receipt of each Offer Notice to notify Global in writing as to whether or not Hallador elects to acquire the Non-Standard Lease set forth in the Offer Notice or waive its option with respect to such Lease. If Hallador elects to waive the option or fails to respond within ten business days after receipt of an Offer Notice, then the option with respect to the Lease described in the Offer Notice shall be considered temporarily waived and Hallador shall not acquire or attempt to acquire any interest in the same. If Hallador waives its option or fails to respond and Global has leased 50,000 acres in accordance with Section 3.1(c) then Global may acquire the Lease described in the Offer Notice for its own account. If Hallador elects to acquire the Lease described in the Offer Notice then payment of the Acreage Fee shall be made within ten business days after receipt of the Offer Notice and the Lease shall be included as part of the minimum lease acreage acquisition requirement set forth in Section 3.1(c). 3.2 No-Shop. Upon execution of this Agreement by the Parties, Global shall (a) terminate any and all negotiations in which Global may be currently involved with third Persons with regard to a transaction involving the Project and (b) neither solicit, nor entertain additional bids nor discuss with or provide information concerning the Project to third Persons; provided, however that the foregoing shall not restrict Global with respect to Leases that Global acquires and offers Hallador in compliance with Section 3.1(h). 3.3 Sharing Data. Each Party will provide to the other Party, with no delay and at no cost to the other Party, a copy of all data that is acquired with respect to the Project, including, without limitation, all geological, geophysical (subject to standard licensing provisions and to the extent that Hallador is not restricted by a third party), engineering, well, land, Lease and title data, information and materials. 3.4 Sale or Conveyance of Leases by Hallador. If, during the term of this Agreement, Hallador or any of its Affiliates desires to sell, assign, convey or otherwise transfer directly or by operation of law any of their respective control, rights, titles or other interests in and to all or any part of any Leases or enter into any other transaction for the acquisition of Leases or the exploration or production of oil and gas in the AMI, then Hallador shall, as a condition to any such transaction, cause the counterparty to expressly assume Hallador's obligations under this Agreement. 3.5 Audit Rights. The Parties shall, at its expense, have the right at all times to examine the books and records of the other Party, during normal working hours, to the extent necessary to verify the accuracy of any computation or demand made under or pursuant to this Agreement. Each Party agrees to keep records and books of account in accordance with generally accepted accounting principles in the industry. 3.6 Good Faith. The Parties shall undertake their respective obligations under this Agreement with good faith ARTICLE IV ---------- COMPENSATION TO GLOBAL ---------------------- 4.1 Global ORRI. Unless Global has reserved the Global ORRI in an assignment of a Lease to Hallador, Hallador shall within 10 days after receipt of Global's request assign to Global the Global ORRI on each Lease. The Global ORRI shall be reserved or assigned (as the case may be) on a form reasonably satisfactory to Global that incorporates the relevant provisions of this Agreement and expressly applies to extensions or renewals of a Lease, with an extension meaning a Lease that is delivered within two years of the prior Lease. In no event shall Hallador first assign any interest in a Lease prior to the time it assigns the Global ORRI in a Lease. The Global ORRI shall be proportionately reduced, but only to the extent that (a) the interest in a Lease covers less than xx% of the mineral estate in the lands covered by the Lease and (b) Hallador owns, controls and receives the benefit of less than xx% of the working interest in a Lease (thus, if Hallador were to receive a xxx% working interest in a Lease before well payout and xx% working interest after well payout, the Global ORRI would not be reduced before payout and reduced by xx% after payout); provided, however, the ORRI to Global shall not be reduced to the extent Hallador enters into or structures arrangements with Persons to acquire Leases so as to deprive Global of the full Global ORRI. 4.2 Project Fee. Hallador shall pay Global the following project fees: (a) $xxxxx upon signing this Agreement, (b) $xxxxxx within 10 days after the first 10,000 net acres of Leases are acquired and delivered to Hallador with title, (c) $xxxxxx within 10 days after 20,000 net acres of Leases are acquired and delivered to Hallador with title, (d) $xxxxxx within 10 days after 30,000 net acres of Leases are acquired and delivered to Hallador with title, and (e) $xxxxx within 10 days after 50,000 net acres of Leases are acquired and delivered to Hallador with title. 4.3 Well Fees. Hallador shall pay Global a fee of $xxxxxx per well on a total of 25 oil or gas test wells drilled on any of the Leases or lands pooled therewith in which Hallador or its successors or assigns have the right to participate. This fee shall be paid to Global for the first 25 wells drilled that qualify. To qualify, (a) Hallador must own at least xx% working interest or (b) Hallador did not own at least xx% working interest because Hallador entered into a transaction whereby it conveyed or agreed to convey working interest in the well or Leases (but not if it was unable to acquire sufficient Leases in the drilling and spacing unit for a well). Such fees shall be payable upon spudding of each qualifying well. 4.4 Acreage Fees. Hallador shall pay to Global the Acreage Fee for all Leases acquired. Except for payment of Acreage Fees that Global has received under Section 3.1(g), Hallador shall pay Global the Acreage Fee due hereunder for each Lease within 20 days after Hallador acquires the Lease. Payment. All past due payments hereunder, unless a such payments are in dispute, shall bear interest from the date due until paid at a rate equal to the lesser of (a) a per annum rate equal to the prime rate of interest charged by Citibank, N.A. plus five percent (x%) or (b) the maximum non-usurious rate of interest permitted to be charged under applicable law. ARTICLE V --------- DISPUTES -------- 5.1 Dispute Resolution; Arbitration. In the event of any controversy or claim, whether based in contract, tort or otherwise, arising out of or relating to this Agreement or the scope, breach, termination or validity of this Agreement (a "Disputed Claim"), the Parties shall promptly seek to resolve the same by negotiations between senior executives of the Parties who have authority to settle the Disputed Claim. When a Party believes there is a Disputed Claim under this Agreement that Party will give the other Party written notice of the Disputed Claim. Within 30 days after receipt of such notice, the receiving Party shall submit to the other a written response. Both the notice and response shall include (i) a statement of each Party's position and a summary of the evidence and arguments supporting its position, and (ii) the name, title, fax number, and telephone number of the executive who will represent that Party. The executives shall meet at a mutually acceptable time and place within 15 days after the date of the response and thereafter as often as they reasonably deem necessary to exchange relevant information and to attempt to resolve the Disputed Claim. If one of the executives intends to be accompanied at a meeting by an attorney, the other executive shall be given at least five days' notice of such intention and may also be accompanied by an attorney. All negotiations and communications pursuant to this Article V shall be treated and maintained by the Parties as confidential information and shall be treated as compromise and settlement negotiations for the purposes of the Federal and State Rules of Evidence. 5.2 Failure to Resolve Through Negotiations. If the Disputed Claim has not been resolved within 60 days after the date of the response given pursuant to Section 5.1 above, or such additional time, if any, that the Parties mutually agree to in writing, or if the Party receiving such notice denies the applicability of the provisions of Section 5.1 or otherwise refuses to participate under the provisions of Section 5.1, either Party may initiate binding arbitration pursuant to the provisions of Section 5.3 below. 5.3 Arbitration. Any Disputed Claims not settled pursuant to the foregoing provisions shall be submitted to binding arbitration in accordance with the following provisions. Arbitration shall be the sole and exclusive remedy of the Parties in connection with any Disputed Claims hereunder. (a) Disputed Claims shall be resolved by arbitration in accordance with the then current Center for Public Resources Institute for Dispute Resolution Rules for Non-Administered Arbitration for the U.S. and Canada and related commentary ("Rules") and this Section. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. ss 1-16, and the Rules, to the exclusion of any provision of state law inconsistent with them. Notwithstanding anything to the contrary, the provisions of this Article V shall control to the extent of any conflict with the Rules. (b) The Parties shall select one disinterested arbitrator who is a practicing attorney or arbiter with at least ten years' experience in the oil and gas industry or ten years' legal experience with oil and gas law, and not previously employed by either Party or its affiliates, and, if possible, shall be selected by agreement between the Parties. If the Parties do not select a disinterested arbitrator by agreement within 15 days of the date of the notice of arbitration, a qualified arbitrator will be selected in accordance with the Rules. The arbitrator(s) shall resolve the disputes and render a final award in accordance with the substantive laws of the state of Colorado. The arbitrator shall set forth the reasons for the award in writing, and judgment on the arbitration award may be entered in any court having jurisdiction. (c) The Parties hereto hereby request and consent to the arbitrator conducting a hearing in Denver, Colorado, no later than 60 days following their selection or 30 days after all prehearing discovery has been completed, whichever is later, at which the Parties shall present such evidence and witnesses as they may choose, with or without counsel. (d) The Federal Rules of Civil Procedure, as modified or supplemented by the local rules of civil procedure for the U.S. District Court of Colorado, shall apply in the arbitration. The Parties shall make their witnesses available in a timely manner for discovery pursuant to such rules. If a Party fails to comply with this discovery agreement within the time established by the arbitrator, after resolving any discovery disputes, the arbitrator may take such failure to comply into consideration in reaching his decision. All discovery disputes shall be resolved by the arbitrator pursuant to the procedures set forth in the Federal Rules of Civil Procedure. (e) Adherence to formal rules of evidence shall not be required. The arbitrator shall consider any evidence and testimony that he determines to be relevant. (f) The Parties hereto hereby request that the arbitrators render their decision within 30 days following conclusion of the hearing. (g) Any decision of the arbitrator shall be final, binding and non- appealable. Any such decision may be filed in any court of competent jurisdiction and may be enforced by any Party as a final judgment in such court. There shall be no grounds for appeal of any arbitration award hereunder. (h) The defenses of statute of limitations and laches shall be tolled from and after the date a Party gives the other Party written notice of a Disputed Claim as provided in Section 5.1 above until such time as the Disputed Claim has been resolved pursuant to Section 5.1, or an arbitration award has been entered pursuant to Section 5.3. 5.4 Recovery of Costs and Attorneys' Fees. In the event proceedings related to this Agreement are initiated by either Party, the prevailing Party, after the entry of a final non-appealable order, shall be entitled to recover from the other Party, as a part of said order, all court costs, fees and expenses of such arbitration (or litigation), including, without limitation, reasonable attorneys' fees. 5.5 Choice of Forum. Any proceedings arising out of or relating to this Agreement or the transactions contemplated hereby, such proceedings shall be held within the boundaries of the City and County of Denver, Colorado. 5.6 Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the Parties shall be governed by, the law of the state of Colorado, without regard to any conflict-of-laws provision thereof that would otherwise require the application of the law of any other jurisdiction. ARTICLE VI ----------- REPRESENTATIONS AND WARRANTIES -------------------------------- 6.1 Representations and Warranties of Global. Global represents and warrants to Hallador as follows: (a) Enforceability. The execution, delivery and performance hereof by Global does not and will not contravene any provision of, or constitute ] a default under, or result in the creation of any lien under, any indenture, mortgage, contract or other instrument to which Global is a Party or by which it is bound or any judgment, injunction, order or decree applicable to it, and do not and will not require the approval or consent of any trustee or holder of indebtedness or obligations of Global. This Agreement has been duly executed and delivered by Global. Assuming due authorization, execution and delivery hereof by Hallador, upon execution and delivery hereof, this Agreement will constitute the legal, valid and binding agreement of Global, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency or similar laws generally affecting the enforcement of creditors' rights and by the availability of equitable remedies. 6.2 Representations and Warranties of Hallador. Hallador represents and warrants to Global as follows: (a) Organization and Qualification. Hallador is a corporation duly organized and validly existing under the laws of the state of Colorado, is duly qualified to do business in each jurisdiction where its failure to so qualify would have a material adverse effect on its business, operations or financial condition, and has the corporate power and authority to execute and deliver this Agreement and enter into and perform its obligations hereunder. (b) Authority; Enforceability. The execution, delivery and performance hereof by Hallador have been duly authorized by all necessary corporate action on the part of Hallador, are not inconsistent with Hallador's governing documents, do not and will not contravene any law or governmental rule, regulation or order now in effect applicable to it, do not and will not contravene any provision of, or constitute a default under, or result in the creation of any lien under, any indenture, mortgage, contract or other instrument to which Hallador is a Party or by which it is bound or any judgment, injunction, order or decree applicable to it, and do not and will not require the approval or consent of any trustee or holder of indebtedness or obligations of Hallador. This Agreement has been duly executed and delivered by Hallador. Assuming due authorization, execution and delivery hereof by Global, upon execution and delivery hereof, this Agreement will constitute the legal, valid and binding agreement of Hallador, enforce- able in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency or similar laws generally affecting the enforcement of creditors' rights and by the availability of equitable remedies. (c) Knowledge and Experience. Hallador does hereby acknowledge and agree that it is an experienced and knowledgeable investor in the oil and gas business and that it is relying solely on its independent investigation and evaluation of, and appraisal and judgment with respect to, the Project and the valuation assumptions applicable thereto and Hallador does hereby assume full responsibility for any conclusions or analysis relating to the Project. Furthermore, Hallador does hereby acknowledge and agree that Global makes no warranty or representation, either express, implied, statutory or otherwise, with respect to the accuracy, completeness or reliability of the information, records and data now, heretofore or hereafter made available to Hallador in connection with the Project. ARTICLE VII ----------- GENERAL PROVISIONS ------------------ 7.1 Notices. All notices, requests, demands and other communications required or permitted to be given under this Agreement shall be deemed to have been duly given if in writing and delivered personally or sent via first-class, postage prepaid, registered or certified mail (return receipt requested), or by overnight delivery service or facsimile transmission addressed as follows: If to Global: Global GeoData, LLC Attn: Timothy A. Gognat P.O. Box 5074 Greenwood Village, Colorado 80155 Telephone: (303) 525-3883 Facsimile: (720) 200-0232 With a copy to: J. Bruce Branson 1625 Broadway, Suite 2400 Denver, Colorado 80202 Telephone: (303) 592-8124 Facsimile: (303) 626-8251 If to Hallador: Hallador Petroleum Company 1660 Lincoln Street, Suite 2700 Denver, Colorado 80264-3103 Attention: Victor P. Stabio Telephone: (303) 839-5504 Facsimile: (303) 832-3013 Any Party may change the address to which the communications are to be directed to it by giving notice to the other in the manner provided in this Section 7.1. Notice by mail shall be deemed to have been given and received on the third business day after posting. Notice by overnight delivery service, facsimile transmission or personal delivery shall be deemed given on the date of actual delivery. 7.2 Waiver. No course of dealing and no delay on the part of either Party in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such Party's rights, powers or remedies. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provision of this Agreement except by written instrument of the Parties charged with such waiver or estoppel. The waiver of any breach of any term, condition or provision of this Agreement shall not be construed as a waiver of any prior, concurrent or subsequent breach of the same or any other term, condition or provision hereof. 7.3 Entire Agreement; Amendment. This Agreement and that certain Confidentiality Agreement and No-Competition Agreement dated May 20, 2005 between the Parties, including the exhibits attached hereto and thereto, constitutes the entire agreement and understanding between the Parties hereto with respect to the subject matter hereof, and supersede all other prior and contemporaneous agreements and undertakings of the Parties, in connection herewith. This Agreement may be modified in writing only, signed by the Parties in interest at the time of modification. 7.4 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns, whether so expressed or not. If either Party hereto (an "Assignor") assigns any or all of its rights hereunder, such assignment shall be in writing and provide that the assignee agrees to assume all of the Assignor's liabilities hereunder; provided, however that the Assignor shall remain jointly liable for obligations attributable to periods prior to the date the assignment is completed. Any such assignment shall not be binding on the other Party unless the provisions hereof have been complied with and unless and until it has been furnished with a fully executed copy of such assignment, and shall not relive the Assignor of its obligations hereunder. 7.5 Recording. Global and Hallador shall execute, acknowledge, and deliver a "short form" memorandum of this Agreement in the form of the attached Exhibit B, which either Party shall have the right to place of record in the counties which are wholly or partially contained within the AMI. Promptly upon request by either Party at any time following the termination of this Agreement, however such termination may be brought about, Global and Hallador shall execute and deliver to each other an instrument, in recordable form, evidencing the termination of this Agreement. 7.6 Severability. The invalidity or unenforceability of any provision of this Agreement shall in no way affect the validity or enforceability of any other provision hereof. 7.7 Time of Essence. Time is of the essence in the performance of all obligations falling due hereunder. 7.8 Captions. The headings to Articles, Sections, paragraphs and other sub- divisions of this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. 7.9 Schedules and Exhibits. All schedules and exhibits hereto which are referred to herein are hereby made a part hereof and incorporated herein by such reference. 7.10 No Partnership. The relationship between Global and Hallador at all times shall not be deemed a partnership or joint venture. 7.11 No Third Party Beneficiaries. This Agreement inures to the sole and exclusive benefit of Global and Hallador, their respective successors, legal representatives and assigns, and confers no benefit on any third Person. 7.12 Good Faith; Further Assurances. The Parties hereto shall, in good faith, undertake to perform their obligations in this Agreement. Upon request by either Party from time to time during the term of this Agreement, each Party agrees to execute and deliver all such other and additional instruments, notices and other documents and do all such other acts and things as may be necessary to carry out the purposes of this Agreement and to more fully assure the Parties' rights and interests provided for hereunder. 7.13 Survival. The termination of this Agreement shall not discharge any Party from any obligation that it owes to the other Party hereunder. In addition, Hallador's obligation to assign Global the Global ORRI on extensions and renewals of Leases shall survive the termination of this Agreement. 7.14 Negotiated Transaction. The provisions of this Agreement were negotiated by the Parties hereto, and this Agreement shall be deemed to have been drafted by all of the Parties hereto. THE PARTIES HERETO HAVE EXECUTED this Agreement to be effective as of the day first hereinabove written. GLOBAL GEODATA, LLC By: /S/TIMOTHY A GOGNAT Name: Timothy A. Gognat Title: Manager HALLADOR PETROLEUM COMPANY By: /S/VICTOR P. STABIO Name: Victor P. Stabio Title: Chief Executive Officer and President J. BRUCE BRANSON By: /S/J. BRUCE BRANSON Name: J. Bruce Branson EX-31 3 exhib31.txt EXHIBIT 31 - SOX 302 CERTIFICATION EXHIBIT 31 CERTIFICATION I, Victor P. Stabio, certify that: 1. I have reviewed this 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 15, 2005 /S/ VICTOR PSTABIO - ------------------ CEO and CFO EX-32 4 exhib32.txt EXHIBIT 32 - SOX 906 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 period ended June 30, 2005, 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 15, 2005 By:/S/VICTOR P. STABIO CEO and CFO -----END PRIVACY-ENHANCED MESSAGE-----