<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended Commission File No. 0-9120
May 31, 1998
THE EXPLORATION COMPANY
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-0793089
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
500 NORTH LOOP 1604 E., SUITE 250 78232
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210) 496-5300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of July 14, 1998.
Common Stock $0.01 par value 15,613,516
(Class of Stock) (Number of Shares)
Total number of pages is 11
<PAGE>
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE EXPLORATION COMPANY
BALANCE SHEETS
(UNAUDITED)
Assets May 31, 1998 Aug 31,1997
- ------- ------------ -------------
Current Assets
Cash ....................................... $ 503,714 $ 6,198,069
Accounts receivable-net .................... 773,030 362,426
Prepaid expenses ........................... 36,343 49,084
------------ ------------
Total Current Assets ......... 1,313,087 6,609,579
Property and Equipment
Oil and gas properties, net of impairment .. 19,135,184 14,991,690
Other equipment ............................ 235,531 194,550
Less accumulated depreciation, depletion
and amortization ....................... (1,009,658) (754,658)
------------ ------------
18,361,057 14,431,582
Other Assets
Deferred financing fees, net of amortization -0- 180,000
Other assets ............................... 447,824 431,565
------------ ------------
447,824 611,565
------------ ------------
Total Assets ................. $ 20,121,968 $ 21,652,726
============ ============
See notes to financial statements.
<PAGE>
3
THE EXPLORATION COMPANY
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity May 31, 1998 August 31, 1997
- ------------------------------------ ------------ ---------------
<S> <C> <C>
Current Liabilities
Accounts payable and accrued expenses $ 3,257,189 $ 1,840,550
Accrued payroll and taxes 38,650 46,406
Current portion of long term debt 377,482 944,013
Current portion of capital lease obligations 27,800 17,962
------------- ---------------
Total Current Liabilities 3,701,121 2,848,931
Long-term Liabilities
Long-term debt, net of current portion 17,457 4,000,000
Long-term capital lease obligations, net of current portion 10,136 33,025
------------- ---------------
Total Long-term Liabilities 27,593 4,033,025
Stockholders' Equity
Common stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding 15,613,516 shares at May 31, 1998
and 14,759,198 shares at August 31, 1997 156,135 147,592
Additional paid-in capital 40,161,100 35,928,054
Accumulated deficit (23,923,981) (21,304,876)
----------- ------------
Total Stockholders' Equity 16,393,254 14,770,770
----------- ------------
Total Liabilities and Stockholders' Equity $ 20,121,968 $ 21,652,726
=========== ============
</TABLE>
See notes to financial statements.
<PAGE>
4
THE EXPLORATION COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
May 31, 1998 May 31, 1997
------------ ------------
Revenues:
Oil and gas sales ...................... $ 901,571 $ 197,101
Other income ........................... 63,842 62,351
----------- ---------
965,413 259,452
Costs and Expenses:
Lease operating expenses ............... 206,418 16,179
Production taxes ....................... 59,010 15,213
Exploration expenses ................... 1,139,211 152,347
Impairment of properties ............... 50,000 -0-
Depreciation, depletion and amortization 176,245 37,300
General and administrative expenses .... 347,582 335,365
----------- ---------
Total costs and expenses ....... 1,978,466 556,404
----------- ---------
(1,013,053) (296,952)
Net loss from ExproFuels equity ownership .. -0- (113,732)
----------- ---------
Loss from operations ....................... (1,013,053) (410,684)
Other Income (Expense):
Interest income ........................ 5,663 137,927
Interest expense ....................... (24,508) (66,486)
Loss on currency translation ........... -0- -0-
----------- ---------
(18,845) 71,441
----------- ---------
Net loss ................................... $(1,031,898) $(339,243)
=========== =========
Amounts Per Common Share:
Basic loss per common share ................ $ (0.07) $ (0.02)
=========== =========
See notes to financial statements.
<PAGE>
5
THE EXPLORATION COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
May 31, 1998 May 31, 1997
------------ ------------
Revenues:
Oil and gas sales ...................... $ 2,055,163 $ 479,232
Other income ........................... 144,337 160,426
----------- -----------
2,199,500 639,658
Costs and Expenses:
Lease operating expenses ............... 551,816 44,247
Production taxes ....................... 110,571 48,560
Exploration expenses ................... 2,287,610 324,715
Impairment of properties ............... 150,000 -0-
Depreciation, depletion and amortization 648,740 169,287
General and administrative expenses .... 986,123 744,614
----------- -----------
Total costs and expenses ....... 4,734,860 1,331,423
----------- -----------
(2,535,360) (691,765)
Net loss from ExproFuels equity ownership .. -0- (287,645)
----------- -----------
Loss from operations ....................... (2,535,360) (979,410)
Other Income (Expense):
Interest income ........................ 85,146 172,633
Interest expense ....................... (121,349) (193,617)
Loss on currency translation ........... (47,545) -0-
----------- -----------
(83,748) (20,984)
----------- -----------
Net loss ................................... $(2,619,108) $(1,000,394)
=========== ===========
Amounts Per Common Share:
Basic loss per common share ................ $ (0.17) $ (0.08)
=========== ===========
See notes to financial statements
<PAGE>
6
THE EXPLORATION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
May 31, 1998 May 31, 1997
------------ ------------
Operating Activities:
Net Loss ....................................... $(2,619,108) $ (1,000,394)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Impairment of properties .................. 150,000 -0-
Depreciation, depletion and amortization . 648,740 169,287
ExproFuels operations ..................... -0- 287,645
Changes in operating assets and liabilities:
Receivables ............................... (386,519) (204,017)
Drilling deposits and advances ............ -0- (2,054)
Prepaid expenses and other ................ 12,741 -0-
Accounts payable and accrued expenses ..... 1,630,472 630,198
----------- ------------
Net cash (used) in operating activities ........ (563,674) (119,335)
Investing Activities:
Development and purchases
of oil and gas properties .............. (4,527,579) (9,736,800)
Advances to ExproFuels, Inc. .............. -0- (338,303)
Purchase of property and equipment ........ (40,981) (92,719)
Other assets .............................. (19,999) (354,029)
----------- ------------
Net cash (used) in investing activities ........ (4,588,559) (10,521,851)
Financing Activities:
Issuance of common stock, net of expenses . 20,000 13,998,750
Other financing expenses .................. -0- (78,898)
Proceeds from debt obligations ............ 454,605 5,718,886
Payments on debt obligations .............. (1,016,727) (904,790)
----------- ------------
Net cash provided (used) in financing activities (542,122) 18,733,948
----------- ------------
Increase (decrease) in cash and equivalents .... (5,694,355) 8,092,762
Cash and equivalents at beginning of period .... 6,198,069 967,838
----------- ------------
Cash and equivalents at end of period .......... $ 503,714 $ 9,060,600
=========== ============
See notes to financial statements
<PAGE>
7
THE EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS FOR
THE PERIODS ENDED MAY 31, 1998 AND MAY 31, 1997 (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements of The Exploration
Company (TXCO or the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accounting policies
followed by the Company are set forth in Note A to the audited financial
statements contained in the Company's annual report on Form 10-K.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. For further information, refer to the financial statements and
footnotes thereto included in the Registrant Company's annual report on Form
10-K for the year ended August 31, 1997, which is incorporated herein by
reference.
2. Common Stock and Basic Loss Per Share
As of May 31, 1998, the Company had outstanding and exercisable warrants
and options to purchase 1,987,906 shares of common stock at prices ranging from
$2.00 to $6.60 per share. The warrants and options expire at various dates
through May 2008.
Basic loss per share is computed based on the weighted average number of common
shares outstanding during the periods presented as follows:
Three Months Nine Months
------------ -----------
May 31, 1998 15,613,516 15,531,136
May 31, 1997 14,759,210 11,961,516
3. Debt and Subsequent Events
Subsequent to the end of the current quarter, the Company obtained $4,000,000 in
additional operating funds through a financing agreement with Domain Energy
Corporation (NYSE:DXD), a publicly held energy company. The Company received the
funds in exchange for a limited term overriding royalty interest related to
specified depths underlying certain of its oil and gas leases in Maverick
County, Texas. The override will terminate upon repayment of the funds, with
interest, from a specified portion of sales proceeds of all existing and future
wells to be drilled on the subject leases.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended August 31, 1997.
Liquidity and Capital Resources
During the nine month period ended May 31, 1998, cash reserves of $6,198,069 at
August 31,1997 were reduced by cash used in operating activities of $563,674
resulting in a total of $5,634,395 in working capital available for use in
meeting the Company's ongoing operational and development needs. Additionally,
long-term debt financing was obtained during the current quarter through the
restructuring of an existing trade payable to a promissory note in the amount of
$425,959, with repayment, including interest, prior to April 1, 1999.
During the first quarter of fiscal 1998 portions of this capital were used to
fund payments on current portions of debt and capital leases of $947,048,
interest on debt of $72,509 and related currency translations losses of $47,545.
Included in the debt reduction was $940,481 in full prepayment of the Company's
outstanding line of credit with Luzerner Kantonalbank. Most significantly,
$4,211,778 was invested in the development of the Company's oil and gas
properties. The Company drilled three Williston Basin wells in North Dakota, one
Maverick Basin well in Texas and acquired $466,440 in 3-D seismic data over
certain of the Company's North Dakota properties and $83,578 in 3-D seismic in
Texas. Additionally, expenditures of $266,375 were incurred in completing the
new Maverick County gas gathering system that became operational in late
October.
<PAGE>
8
During the second quarter ended February 28, 1998, working capital was used to
fund drilling and completion costs totaling $788,412, including one new Maverick
Basin gas well as well as costs relating to prior quarter drilling activities
for three Williston Basin oil wells and one Maverick Basin gas well. Also
included in second quarter capital expenditures were $219,854 of new 3-D seismic
located over company leases in North Dakota and $84,313 in leasehold bonus
payments for various Williston Basin leases.
Also during the second quarter, management improved the Company's debt structure
by the conversion of its $4,000,000 in outstanding debentures to equity.
Effective January 1, 1998, the Company exercised its options to convert the
debentures, including accrued interest of $221,590, into 844,318 shares of
common stock at the conversion price of $5.00 per share. In addition to the
extremely favorable conversion price for the new stock issuance and the future
reduction of $240,000 in annual interest expense, management's elimination of
its primary long term debt significantly enhanced the Company's ability to
pursue new sources of equity or debt based working capital.
During the third quarter ended May 31, 1998, working capital was used to fund
ongoing development, including drilling and completion costs of $694,505. These
costs are primarily related to one Maverick Basin gas well and four Williston
Basin oil wells commenced prior to the current quarter, plus costs associated
with completion of the new gas gathering system in Maverick County. Other third
quarter expenditures included $30,195 for transportation and other equipment.
As a result of these activities, the Company ended the third quarter of fiscal
1998 with negative working capital of $2,388,034 and a current ratio of .35 to
1. This compares to positive working capital of $3,760,648 and a current ratio
of 2.32 to 1 at August 31, 1997. While the Company's working capital position
remained negative during the current quarter due to ongoing development
activity, increased revenues from new gas production from the two latest
Maverick Basin gas wells placed on production in December, 1997 and April, 1998,
plus the increased sales capacity from the Maverick County pipeline expansion
have significantly improved the Company's ability to meet its ongoing operating
cash expenses. Except for statutory, intangible (non-cash) expenses required for
compliance reporting purposes, including impairment, depreciation, depletion and
amortization totaling $798,740, and exploration expenses of $2,287,610, actual
operating activities for the nine month period ended May 31, 1998 resulted in
income from producing operations of $550,990.
Subsequent to the end of the current quarter, the Company obtained $4,000,000 in
additional working capital through a financing agreement reached with Domain
Energy Corporation, (NYSE:DXD), a publicly held energy company. The funds are to
be used primarily for the ongoing development of the Company's Maverick County,
Texas gas producing properties, and provide for the drilling of at least 4 new
gas wells, the completion of a 3.5 mile gas pipeline extension, various
production enhancement activities and repayment of various debts associated with
past drilling and 3-D seismic acquisition activities. Domain advanced the funds
in exchange for a limited term overriding royalty interest related to specified
depths underlying certain of the Company's oil and gas leases in Maverick
County, Texas. The override will terminate upon repayment of the funds, with
interest, from a specified portion of sales proceeds from all existing and
future wells to be drilled on the subject leases.
Management is confident it has obtained sufficient working capital to carry out
its exploration and development plans on its Texas leaseholds as well as to meet
its obligations in the ordinary course of business through the end of 1998. In
order to advance the development of the Company's Williston Basin leaseholds,
the Company will need to raise additional capital under terms consistent with
its continually improving internal cash generation capabilities.
Management continues to actively pursue financing arrangements with various
domestic and foreign parties, including banks, pension funds, institutions,
public and private companies and individuals. Based on its fundraising results
to date, including the financing completed subsequent to the end of the current
quarter, Management remains confident it will continue to be successful in
obtaining the required levels of favorably structured capital to fund the
development of its extensive drilling prospects on a timely basis. If
Management's efforts to raise additional capital are not successful, or if new
production from its Maverick County drilling program is substantially less than
expected, the Company's financial condition and liquidity could be materially
adversely affected.
Forward-looking statements in this 10-Q are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the costs of exploring and developing new oil and
natural gas reserves, the price for which such reserves can be sold,
environmental concerns effecting the drilling of oil and natural gas wells, as
well as general market conditions, competition and pricing. Please refer to
TXCO's Securities and Exchange Commission filings, copies of which are available
from the Company without charge, for additional information.
<PAGE> 9
Results of Operations
The increase by over 325% in oil and gas sales for the current quarter and nine
month year to date period of fiscal year 1998 over the same periods in fiscal
year 1997 is attributable to increased production from the completion of four
new Maverick Basin gas wells and ten new Williston Basin oil wells subsequent to
November, 1996. Additionally, gas sales were significantly enhanced by the
completion of the new gas gathering system addition placed in service during the
first quarter of the current year. The increase in year-to-date lease operating
expenses to $551,816 is due primarily to completion of the ten new oil wells
subsequent to November 1996, with their high, production associated, water
disposal costs. Prior period lease operating expenses reflect the much lower
operating costs typical to the production of natural gas. The increase in
exploration expenses to $2,287,610 for the current nine month period reflect the
accelerated exploration activity levels. Exploration expenses for the current
nine month period include $1,881,450 of dry hole costs incurred in drilling the
Dottie #1-23 and the Abrahamson #41-33H in the Williston Basin while the same
period in fiscal 1997 contained no significant dry hole charges. During the
first quarter of fiscal 1998, the Company established a $50,000 per quarter
reserve provision for impairment of non-producing leaseholds due to the
significant increase in new leases purchased during the past year, while no such
provision was necessary in the prior fiscal year. Depreciation, depletion and
amortization increased by $479,453 over the same nine month period of the prior
fiscal year. Depletion increased consistent with the higher oil and gas sales
levels of the current period. Amortization increased by $390,000. This increase
was due to the recognition in the current period of $180,000 in previously
capitalized prepaid loan fees related to the $4,000,000 debenture conversion
effective January 1, 1998, and $210,000 of 3-D seismic costs originally
capitalized subsequent to February, 1997.
Interest income decreased by $132,264 and $87,487 for the current quarter and
the nine month period of fiscal 1998 reflecting lower cash reserve levels as
compared to the respective prior year periods. Decreased interest expense for
the current quarter and the nine month period of fiscal 1998 reflects more
favorable terms under the Company's new long-term debt restructured in February,
1997 and the subsequent conversion of its convertible debentures to equity in
the second quarter of fiscal 1998.
The increase in general and administrative expenses is due primarily to staff
increases subsequent to November, 1996, and February, 1997, as required by
increased exploration activity, as well as higher legal and accounting expenses
related to ongoing compliance reporting requirements. The elimination of losses
from ExproFuels activity reflects the complete write-off of the Company's
investment in ExproFuels prior to the beginning of fiscal 1998.
During the first quarter, the Company completed building six miles of 6 inch
pipeline across a portion of its Maverick County, Texas, Paloma lease. The
pipeline gathers the Company's gas and provides the option of delivery to either
of two area pipeline systems, the Aquilla Gas pipeline or the West Texas Gas
pipeline. The Company had previously experienced some curtailment in its gas
production because of the inability of the West Texas Gas pipeline to
consistently carry all the Company's gas. Since completion of the new line, the
Company's gross production increased from 2,400,000 cubic feet of gas per day
initially, to 3,400,000 cubic feet per day as of the end of the current quarter,
from existing wells connected to this pipeline during the first quarter.
During the first quarter, the Company drilled the Paloma #2-83 on its 50,000
acres lease block in Maverick County, Texas. The well was completed in the Glen
Rose formation with an absolute open flow potential of 63,000,000 cubic feet of
gas per day and initial production in December, 1997 at a rate of 2,000,000
cubic feet per day. In January, 1998, production was increased to 3,000,000
cubic feet of gas per day and further increased to 4,000,000 cubic feet per day
prior to the end of the second quarter. By the end of the current quarter,
production was limited to 2,400,000 cubic feet of gas per day due to purchaser
curtailments through the West Texas Gas system. The Company expects further
curtailments to be eliminated upon the well's connection to its new 6 inch
pipeline, expected prior to the end of fiscal year 1998.
During the second quarter, the Company drilled the Paloma #1-66 on the Maverick
County, Texas lease block. The well was completed in the Glen Rose formation
with an absolute open flow potential of 18,000,000 cubic feet of gas per day.
Initial production commenced in April, 1998, at a rate of 3,300,000 cubic feet
of gas per day. By the end of the current quarter, production averaged only
2,700,000 cubic feet of gas per day due to purchaser curtailments through the
West Texas Gas system. The Company also expects to eliminate further
curtailments upon this well's connection to its new 6 inch pipeline, expected
prior to the end of fiscal year 1998. Based upon the Company's experience with
similar wells, production is expected to reach 4,000,000 cubic feet of gas per
day.
<PAGE>
10
Subsequent to the end of the current quarter the Company commenced drilling the
Paloma "E" #1-90 on its Maverick County lease block. As of the date of this
report, drilling had encountered approximately 60 feet of reef in the Glen Rose
formation that appeared to be gas productive, based upon analysis of the
electric logs. Management expects the well will be connected to its new 6 inch
pipeline prior to the end of the fourth quarter. The Company owns a 62.5%
working interest in each of the above wells.
During the first quarter, the Company participated in drilling three Williston
Basin oil wells. The first well, Continental Resources, Inc.'s Table Mountain
#1-7 was drilled horizontally in the Red River "B" in Harding County, South
Dakota. The Company owns a 43% working interest in the well which is currently
producing at a rate of 20 barrels of oil per day and 175 barrels of water per
day. The second well, the Marty #1-17, owned 100% by the Company, was drilled in
the Red River "B" formation in Bowman County, North Dakota. The well was drilled
horizontally 3,350 feet using 3-D seismic and is currently producing 145-150
barrels of oil and 200 barrels of water per day. The Company drilled the Dottie
#1-23 in Golden Valley, North Dakota. The well was drilled 1,750 feet
horizontally in the Red River "B" formation and did not encounter economic
quantities of oil. Consequently, all drilling cost incurred through the end of
the current quarter were charged to dry hole cost. Subsequently, the Company has
decided to plug-back the well and further evaluate the Ratcliff interval prior
to abandonment.
Subsequent to the end of the current quarter, Union Pacific Resources Company
(UPRC) decided to plug and abandon the Abrahamson #1-33, located in Bowman
County, North Dakota. TXCO owns a 50% working interest in the well which was
drilled horizontally during the prior fiscal year. UPRC, as operator, had
drilled 5 laterals in the well attempting to stay in the target Red River "B"
zone, but encountered water on the first 4 laterals. The recent drop in oil
prices to $8-$9 per barrel in North Dakota has made the Company's anticipated
re-entry uneconomic. Management is reviewing the Company's future development
plans on its extensive Williston Basin leasehold in light of continuing weakness
in oil prices.
Since fiscal 1997, the Company has had an interest in several wells in the
Stadium Field, a field producing from the Lodgepole formation in Stark County,
North Dakota. The Stadium Field has now been unitized which will maximize
primary production and allow secondary recovery efforts to begin. The North
Dakota Industrial Commission has issued an order providing for the unitized
management, operation and further development of the Stadium-Lodgepole Unit.
Based upon current information, the Company estimates that approximately 34,000
barrels will be produced to the Company's interest over the economic life of the
field.
<PAGE>
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any significant matters of litigation
incidental to its business except for the two lawsuits filed in July,
1997 between the Company's former subsidiary, ExproFuels, Inc. versus
CNG International, American Engineering, Inc.,(AEI) and American
Technical Institute (ATI), one being filed in federal court in San
Antonio, Texas by ExproFuels and the other by ATI and AEI in state
court in Memphis, Tennessee. On January 22, 1998, both cases were
consolidated into one case, to be adjudicated in federal court in the
Western District of Tennessee. The parties are in the advanced stages
of negotiating a preliminary Settlement Agreement and Mutual Release
Agreement resulting from court-annexed non-binding mediation
proceedings. The Company and its counsel remain optimistic they will
ultimately prevail in the matter and remain confident that any
unfavorable outcome is extremely unlikely.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EXPLORATION COMPANY
(Registrant)
/s/ Roberto R. Thomae
Roberto R. Thomae,
Chief Financial Officer
(Signing on behalf of the Registrant
and as chief accounting officer)
Date: July 14, 1998
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
EXPLORATION COMPANY UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MAY 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<CIK> 0000313395
<NAME> THE EXPLORATION COMPANY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 503,714
<SECURITIES> 0
<RECEIVABLES> 783,003
<ALLOWANCES> 9,973
<INVENTORY> 0
<CURRENT-ASSETS> 1,313,087
<PP&E> 19,370,715
<DEPRECIATION> 1,009,658
<TOTAL-ASSETS> 20,121,968
<CURRENT-LIABILITIES> 3,701,121
<BONDS> 0
0
0
<COMMON> 156,135
<OTHER-SE> 16,237,119
<TOTAL-LIABILITY-AND-EQUITY> 20,121,968
<SALES> 901,571
<TOTAL-REVENUES> 965,413
<CGS> 1,404,639
<TOTAL-COSTS> 1,978,466
<OTHER-EXPENSES> (5,663)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,508
<INCOME-PRETAX> (1,031,898)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,031,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,031,898)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
