-----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, Ho0lZG0v43UUJPckf4r+f6l8R+rmqHWweqeQXAN5U/NoNbV374NuFRGEwjsGrgb4 Pojxt7Up1Rm+u+ssFwSwvQ== 0000788965-05-000014.txt : 20051114 0000788965-05-000014.hdr.sgml : 20051111 20051114163032 ACCESSION NUMBER: 0000788965-05-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 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: 051201998 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 s092005q.txt SEPTEMBER 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 September 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 November 14, 2005: 7,093,150 PART I - FINANCIAL INFORMATION Consolidated Balance Sheet (in thousands)
September 30, December 31, 2005 2004* ------ ------ ASSETS Current assets: Cash and cash equivalents $11,539 $19,927 Oil and gas operator bonds 252 Accounts receivable- Oil and gas sales 921 573 Well operations 839 117 E&B account receivable 230 E&B - note receivable 3,569 ------ ------ Total current assets 13,299 24,668 ------ ------ Oil and gas properties, at cost (successful efforts): Unproved properties 3,555 220 Proved properties 2,301 2,155 Less-accumulated depreciation, depletion, amortization and impairment (1,764) (1,740) ------ ------ 4,092 635 ------ ------ Investment in Catalytic Solutions 150 150 Investment in CELLC 271 Other assets 76 67 ------ ------ $17,888 $25,520 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 995 $ 642 Oil and gas sales payable 1,205 922 Income taxes payable 494 300 Partnership options payable 407 ------ ------ Total current liabilities 2,694 2,271 ------ ------ Minority interest 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 (2,938) (4,625) ------ ------ 15,194 13,507 ------ ------ $17,888 $25,520 ====== ====== *Derived from the Form 10-KSB.
See accompanying notes. Consolidated Statement of Operations (in thousands)
Nine months ended Three months ended September 30, September 30, 2005 2004 2005 2004 ----- ----- ----- ----- Revenue: $ 521 $ 490 $ 188 $ 163 Natural gas liquids 146 116 57 44 Oil 73 56 28 21 Interest 414 18 132 8 ----- ----- ----- ----- 1,154 680 405 236 ----- ----- ----- ----- Costs and expenses: Lease operating 157 138 58 56 Delay rentals 38 100 27 Impairment of unproved properties 183 67 169 Equity loss in CELLC 55 30 Depreciation, depletion and amortization 30 33 11 9 General and administrative 411 621 116 175 ----- ----- ----- ----- 874 959 384 267 ---- ----- ----- ----- Income (loss) from continuing operations before minority interest 280 (279) 21 (31) Minority interest (84) 84 (6) 9 ----- ----- ----- ----- Income (loss) from continuing operations before taxes 196 (195) 15 (22) Income tax-current (90) (6) ----- ----- ----- ----- Income (loss) from continuing operations 106 (195) 9 (22) Income (loss) from discontinued operations net of minority interest of $(18), $607 $(18) and $236 (30) 1,414 (30) 552 Gain (loss) on sale of discontinued operations, net of taxes of $1,300 and net of minority interest of $3907 for 2004 and $116 and $140 in additional taxes for 2005 (116) 9,117 (140) 9,117 ----- ----- ----- ----- Net income (loss) $ (40) $10,336 $ (161) $9,647 ===== ====== ===== ===== Net income (loss) per share - basic Continuing operations $ .02 $ (.03) $ $ Discontinued operations .20 0.07 Gain (loss) on sale of discontinued operations (.02) 1.29 (.02) 1.29 ----- ------ ------ ----- $ 0 $ 1.46 $ (.02) $ 1.36 ===== ====== ====== ===== Weighted average shares outstanding- basic 7,093 7,093 7,093 7,093 ===== ====== ===== ===== See accompanying notes.
Consolidated Statement of Cash Flows (in thousands)
Nine months ended September 30, 2005 2004 ------ ------ Net cash provided by operating activities: $ 264 $ 2,210 ------ ------ Cash flows from investing activities: E&B note receivable 3,538 Proceeds from sale of property 18,111 Properties (3,614) (245) Investment in COALition (326) Decrease in bonds 252 Other (14) (74) ------ ------ Net cash (used in) provided by investing activities (164) 17,792 ------ ------ Cash flows from financing activities: Repurchase of partnership options (407) Distribution to limited partners (8,081) ------ Net cash used in financing activities (8,488) ------ Net (decrease) increase in cash and cash equivalents (8,388) 20,002 Cash and cash equivalents, beginning of period 19,927 3,319 ------ ------ Cash and cash equivalents, end of period $11,539 $23,321 ====== ====== 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 statements 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. The exercise price was based on the sales price of a March 2005 private stock transaction beween 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 loss for the three and nine month periods ended September 30, 2005 would have been $241,000 and $200,000 or $(0.03) per share, respectively. 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 interest in 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 which has since been paid. 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 $7 million and $5 million, respectively for the nine months ended September 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. 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 purchased the limited partners interest in the Partnership for about $1.2 million and made a final cash distribution to the limited partners of $1.6 million. After the cash payments to the limited partners, about $1.7 million remained in the minority interest account and was recorded as a reduction in our accumulated deficit account. For accounting purposes the Partnership no longer exists, and as a result, there is no longer a minority interest caption on our balance sheet. Upon filing the Federal and State returns in September for December 31, 2004, we determined that we under estimated the taxes due on the sale by about $116,000 and accrued for such in the third quarter of 2005. 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. Some of our directors are also directors of CELLC. An affiliate of Yorktown Energy Partners II, acquired a 20% interest in CELLC for about $225,000. Yorktown Energy Partners II., L.P. owns about 32% of our common stock. 6. In late August 2005, we were sued for about $2.1 million by an employee of one of our vendors. The employee was injured in an accident in 2003 and did not file a lawsuit against us until 2005. We have discussed the matter with our insurance company and our maximum exposure is about $100,000. HALLADOR PETROLEUM COMPANY Management's Discussion and Analysis of 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. Potential Acquisition --------------------- We are in negotiations whereby we would issue 1,893,000 shares of our common stock valued at $2.20 per share to Yorktown Energy Partners VI., L.P. The proceeds of this stock sale will be used to purchase a 32% interest in a private Michigan oil and gas exploration company from Yorktown Energy Partners II, L.P. Yorktown Energy Partners II, L.P. owns about 32% of our common stock. Albany Shale Gas Lease Play --------------------------- Since June 30, 2005 we have invested about $2.7 million in this wildcat gas play located in Western Kentucky, of which $586,000 was after September 30, 2005 . To date we have leased about 61,000 acres. Over 80% of the acreage is held under five-year leases with the right to extend for another five years by paying $2 per acre per year. We hope to sell the unproved acreage and retain some sort of interest. Montana ------- We are evaluating two lease plays in central 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. On October 12, 2005, we purchased additional acreage for $195,000. 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 to the 100%. San Juan Basin -------------- Two more development gas wells were drilled in September 2005 and are awaiting completion. Due to the shortage of manpower and equipment these wells will not be placed on production until mid November 2005. The costs were about $1 million each to the 100% and we have a .056 WI (.047 NRI) in each of these 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. Litigation - ---------- In late August 2005, we were sued for about $2.1 million by an employee of one of our vendors. The employee was injured in an accident in 2003 and did not file a lawsuit against us until 2005. We have discussed the matter with our insurance company and our maximum exposure is about $100,000. 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 47 $ 6.53 $307 54 $ 5.11 $276 Other 31 6.90 214 37 5.78 214 NGLs-barrels San Juan 4.6 31.74 146 5.1 22.75 116 Oil-barrels Other 1.4 52.14 73 1.5 37.33 56
Quarter-to-date Comparison -------------------------------------------------------- 2005 2004 --------------------------- ----------------------- Sales Average Sales Average Volume Price Revenue Volume Price Revenue ------- ------- ------- ------ ----- ------- Gas-mcf San Juan 15 $ 7.40 $111 18 $ 5.61 $101 Other 10 7.70 77 10 6.20 62 NGLs-barrels San Juan 1.5 38.00 57 1.7 25.88 44 Oil-barrels Other .47 59.57 28 .51 41.17 21
Revenue increased due to higher prices. The higher prices more than offset the decline in production as indicated above. San Juan natural gas is sold at an index price that is set at the first of every month and remains in effect for the entire month. Our San Juan November 2005 gas price is about $11.52 per MCF. During the first ten days of November, daily posted San Juan gas prices have fallen to $7.52 per MCF. If prices stay at this level, our December price could be about $4 per MCF less than our November price. 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 which was paid. During the third quarter, we decided to impair our investments in certain Wyoming lease plays. 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%. Upon filing the Federal and State returns in September for December 31, 2004, we determined that we under estimated the taxes due on the sale by about $116,000 and accrued for such in the third quarter of 2005. 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 6. Exhibits and Reports on Form 8-K (a) Exhibits: 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: November 14, 2005 By:/S/VICTOR P. STABIO CEO and CFO Signing on behalf of registrant and as principal financial officer. EX-31 2 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: November 14, 2005 /S/ VICTOR P. STABIO - -------------------- CEO and CFO EX-32 3 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 September 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: November 14, 2005 By:/S/VICTOR P. STABIO CEO and CFO -----END PRIVACY-ENHANCED MESSAGE-----