UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
[ ] TRANSITION report PURSUANT TO section 13 or 15(d)
of the securities exchange act of 1934
For the Quarter ended Commission File No.
September 30, 2000 0-9120
THE EXPLORATION COMPANY OF DELAWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 84-0793089
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
500 NORTH LOOP 1604 E., SUITE 250 SAN ANTONIO, TEXAS 78232
(Address of principal executive offices)
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 October 31, 2000.
Common Stock $0.01 par value 17,421,849
(Class of Stock) (Number of Shares)
Total number of pages is 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE EXPLORATION COMPANY
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Assets Sept 30, 2000 Dec 31, 1999 Aug 31, 1999
------ ------------- ------------ ------------
<S> <C> <C> <C>
Current Assets
Cash .................................... $ 4,296,671 $ 3,381,793 $ 968,516
Accounts receivable, net ................ 3,313,325 1,939,136 2,253,349
Prepaid expenses ........................ 99,855 122,475 256,334
------------ ------------ ------------
Total Current Assets ...... 7,709,851 5,443,404 3,478,199
Property and Equipment
Gas and oil properties, net of impairment 21,889,780 17,768,590 17,892,488
Other equipment ......................... 388,413 271,674 268,325
Less accumulated depreciation, depletion
and amortization .................... (6,624,939) (5,204,354) (4,532,761)
------------ ------------ ------------
15,653,254 12,835,910 13,628,052
Other Assets ................................ 356,564 368,564 447,564
------------ ------------ ------------
Total Assets .............. $ 23,719,669 $ 18,647,878 $ 17,553,815
============ ============ ============
</TABLE>
Note: As recommended by the SEC, the Company is reporting, for
comparative purposes, its new fiscal year end balance sheet of
December 31, as well as its last audited balance sheet of
August 31.
See notes to financial statements.
2
<PAGE>
THE EXPLORATION COMPANY
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity Sept 30, 2000 Dec 31, 1999 Aug 31, 1999
------------ ------------ ------------
<S> <C> <C> <C>
Current Liabilities
Accounts payable and accrued expenses ........... $ 1,265,234 $ 1,279,238 $ 678,478
Due to joint interest owners .................... 2,620,970 2,479,776 1,760,248
Current portion of long term debt ............... 493,215 1,476,730 2,565,067
------------ ------------ ------------
Total Current Liabilities ................ 4,379,419 5,235,744 5,003,793
Long-term Liabilities
Long-term debt, net of current portion .......... 538,439 203,206 529,742
Stockholders' Equity
Preferred stock, par value $.01 per share;
authorized 10,000,000, none issued
Common stock, par value $.01 per share;
authorized 50,000,000 shares;
issued and outstanding 17,421,849 shares
at September 30, 2000 and 15,938,516
shares at December 31, 1999
and at August 31, 1999 ...................... 174,219 159,385 159,385
Additional paid-in capital ...................... 43,887,483 40,651,444 40,651,444
Accumulated deficit ............................. (25,259,891) (27,601,901) (28,790,549)
------------ ------------ ------------
Total Stockholders' Equity ............... 18,801,811 13,208,928 12,020,280
------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 23,719,669 $ 18,647,878 $ 17,553,815
============ ============ ============
</TABLE>
Note: As recommended by the SEC, the Company is reporting, for
comparative purposes, its new fiscal year end balance sheet of
December 31, as well as its last audited balance sheet of
August 31.
See notes to financial statements.
3
<PAGE>
THE EXPLORATION COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
Sept 30, 2000 Sept 30, 1999
------------- -------------
<S> <C> <C>
Revenues:
Gas and oil sales ................................................. $ 3,992,843 $ 2,586,358
Other income ...................................................... 244,231 314,757
----------- -----------
4,237,074 2,901,115
Costs and Expenses:
Lease operations .................................................. 344,417 310,323
Production taxes .................................................. 287,822 180,866
Exploration expenses .............................................. 712,412 245,558
Impairment of mineral properties .................................. 885,000 470,451
Depreciation, depletion and amortization .......................... 517,753 1,132,521
General and administrative ........................................ 441,100 386,912
----------- -----------
Total costs and expenses .................................. 3,188,504 2,726,631
----------- -----------
Income from operations ................................................ 1,048,570 174,484
Other Income (Expense):
Interest income ................................................... 41,421 16,813
Interest expense .................................................. (29,196) (126,667)
Loan fee amortization ............................................. -0- (3,000)
----------- -----------
12,225 (112,854)
----------- -----------
Net Income before provision for
income taxes ...................................................... 1,060,795 61,630
Provision for income taxes ............................................ 15,000 -0 -
----------- -----------
Net Income ............................................................ $ 1,045,795 $ 61,630
=========== ===========
Net Income Per Common Share:
Basic ............................................................. $ 0.06 $ 0.004
=========== ===========
Diluted ........................................................... $ 0.06 $ 0.004
=========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
THE EXPLORATION COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept 30, 2000 Sept 30, 1999
------------- -------------
<S> <C> <C>
Revenues:
Gas and oil sales ................................................. $ 9,213,652 $ 6,226,141
Other income ...................................................... 700,602 578,161
----------- -----------
9,914,254 6,804,302
Costs and Expenses:
Lease operations .................................................. 1,092,103 781,794
Production taxes .................................................. 654,646 438,299
Exploration expenses .............................................. 1,420,655 432,536
Impairment of mineral properties .................................. 1,640,000 637,118
Depreciation, depletion and amortization .......................... 1,420,585 2,041,451
General and administrative ........................................ 1,279,667 1,119,830
----------- -----------
Total costs and expenses .................................. 7,507,656 5,451,028
----------- -----------
Income from operations ................................................ 2,406,598 1,353,274
Other Income (Expense):
Interest income ................................................... 153,191 42,734
Interest expense .................................................. (129,861) (424,690)
Loan fee amortization ............................................. (12,000) (9,000)
----------- -----------
11,330 (390,956)
----------- -----------
Net Income before provision for
income taxes ...................................................... 2,417,928 962,318
Provision for income taxes ............................................ 75,918 -0 -
----------- -----------
Net Income ............................................................ $ 2,342,010 $ 962,318
=========== ===========
Net Income Per Common Share:
Basic ............................................................. $ 0.14 $ 0.06
=========== ===========
Diluted ........................................................... $ 0.13 $ 0.06
=========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
THE EXPLORATION COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept 30, 2000 Sept 30, 1999
------------- -------------
<S> <C> <C>
Operating Activities:
Net income ............................................................ $ 2,342,010 $ 962,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Impairment of mineral properties ................................. 1,640,000 637,118
Depreciation, depletion and amortization ......................... 1,432,585 2,050,452
Changes in operating assets and liabilities:
Receivables ...................................................... (1,374,189) (1,621,734)
Prepaid expenses and other ....................................... 22,620 (193,811)
Accounts payable and accrued expenses ............................ 127,190 449,071
----------- -----------
Net cash provided in operating activities ............................. 4,190,216 2,283,414
Investing Activities:
Development and purchases
of gas and oil properties ..................................... (5,320,564) (1,653,285)
Purchase of other equipment ...................................... (116,740) (31,486)
Other assets ..................................................... -0- 40,000
----------- -----------
Net cash (used) in investing activities ............................... (5,437,304) (1,644,771)
Financing Activities:
Issuance of common stock, net of offering costs .................. 2,810,248 -0-
Proceeds from debt obligations ................................... 793,992 390,773
Payments on debt obligations ..................................... (1,442,274) (2,175,579)
----------- -----------
Net cash provided (used) in financing activities ...................... 2,161,966 (1,784,806)
----------- -----------
Change in cash and equivalents ........................................ 914,878 (1,146,163)
Cash and equivalents at beginning of period ........................... 3,381,793 2,112,890
----------- -----------
Cash and equivalents at end of period ................................. $ 4,296,671 $ 966,727
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
THE EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 (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 August 31, 1999 audited
financial statements contained in the Company's annual report on Form 10-K.
On December 16, 1999, the Company's Board of Directors elected to
change its annual reporting period from a fiscal year ending August 31 to a
calendar year ending December 31, as announced in its Form 8-K filed on December
29, 1999. The Company's next report on Form 10-K will be as of December 31,
2000, reporting audited results of operations for the twelve month period then
ended as well as audited results for the four month period ended December 31,
1999. All financial information previously presented on a fiscal year basis has
been restated on a calendar year basis for comparative purposes.
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, 1999, which is incorporated herein by
reference.
2. COMMON STOCK AND EARNINGS PER SHARE
As of September 30, 2000, the Company had outstanding and exercisable
warrants and options to purchase 3,100,229 shares of common stock at prices
ranging from $0.98 to $6.00 per share. The warrants and options expire at
various dates through September 2009.
The following table sets forth the determination of the number of shares
used in the earnings per share computations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding-basic 17,421,849 15,938,516 17,178,137 15,721,849
Net number of shares issued
On the assumed exercise of
stock options and warrants 457,425 219,698 381,251 45,654
----------- ----------- ----------- -----------
Number of shares used in the
computation of diluted
earnings per share 17,879,274 16,158,214 17,559,388 15,767,503
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
3. DEBT
During the second quarter the Company retired its long-term debt under its
existing financing agreement with Range Energy Finance Corporation (NYSE:RRC) a
publicly held energy company ("Range").
During the current quarter, the Company entered into a lease purchase agreement
to finance the purchase of two natural gas compressors at a cost of $1,012,404.
The lease term is for 60 months with monthly payments of $22,404 which includes
interest at 12.6 per cent. The gas compressors are owned through a limited
partnership of which the Company owns 62.5 per cent.
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 included in this Form 10-Q, and with the
Company's most recently audited financial statements and notes thereto as of and
for the annual period ended August 31, 1999, as reported in its Form 10-K as of
August 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash reserves of $3,381,793 at December 31, 1999 were increased by cash provided
from operating activities of $4,190,216 for the nine months ended September 30,
2000. Additionally during the nine month period, cash provided from debt
obligations of $793,992 and cash obtained through a private placement of common
stock of $2,810,248, net of offering costs, resulted in total working capital of
$11,176,249 available for use in meeting the Company's ongoing operational and
development needs.
During the first quarter, portions of this working capital were used to fund
payments on debt totaling $838,110 and related interest of $81,448. The Company
applied $2,347,848 to fund the expansion and ongoing development of its gas and
oil producing properties which included the acquisition of a significant
leasehold acreage block for future exploration. The Company also incurred
$674,000 in drilling and completion costs for wells drilled or completed during
the period and expended $194,000 in lease extension costs related to its
existing Maverick Basin lease block.
During the second quarter, portions of this working capital were used to fund
payments on debt totaling $419,617 and related interest of $19,217. The Company
applied $513,406 to fund the expansion and ongoing development of its gas and
oil producing properties. These expenditures included $441,000 in drilling and
completion costs for wells drilled or completed during the period and the
purchase of an option to lease additional acreage contiguous to the Company's
Maverick Basin lease block.
During the third quarter ended September 30, 2000, portions of this capital were
used to fund payments on debt totaling $184,547 and related interest of $29,196.
The Company applied $2,459,310 to fund the expansion and ongoing development of
its gas and oil producing properties. These expenditures included $1,523,000 in
drilling and completion costs for wells drilled or completed during the period
and $843,000 (net) for the upgrade of its existing gas gathering facilities,
including the purchase of two natural gas compressors and the installation of an
additional 2.5 miles of 6 inch pipeline to its Paloma Lease gathering system.
As a result of these activities, the Company's working capital balance
significantly increased to $3,330,432 at September 30, 2000 from $207,660 at
December 31, 1999, while its current ratio improved to 1.76 to 1 as compared to
1.04 to 1 for the previous period. During the same period cash flow from
operating activities rose 84 percent to $4,190,216 from $2,283,414. The Company
has now achieved quarterly profitability for eight consecutive quarters, with
record net income of $1,045,795 for the current quarter and $2,342,010 for the
nine months ended September 30, 2000. EBITDA (earnings before interest, taxes,
depletion, depreciation, amortization and exploration expenses) also attained
all-time record levels, reaching $3,205,156 for the current quarter and
$7,041,029 year to date.
8
<PAGE>
With the July completion of its gathering and compression facilities the
Company's gross gas production for the current quarter averaged 19.6 million
cubic feet (MMcf) per day. During the quarter, the Company has realized natural
gas prices ranging from $3.90 per Mcf to $4.97 per Mcf while reaching $5.83 per
Mcf for its October production. During the same period, oil prices ranged from
$25.45 per barrel to $31.75 per barrel for its oil sales. While there is no
assurance that the current strength in commodity markets is sustainable, current
gas prices continue to significantly enhance the Company's ability to meet its
ongoing operating cash obligations and development plans.
Management remains confident that financial resources will remain available,
enabling the Company to continue the rapid development of its gas and oil
properties, and continue to meet its remaining debt service obligations. If
Management's efforts to obtain additional working capital are not successful or
if realized gas and oil prices for gas production from the Maverick Basin or oil
production from the Williston Basin are substantially less than expected, the
Company's financial condition and liquidity could be adversely affected. Should
this occur, Management retains its ability to extend the timing of currently
planned development activities to match available working capital, while
maintaining its current operating obligations on a timely basis.
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.
RESULTS OF OPERATIONS
The increase by 54% and 48% respectively, in gas and oil sales for the third
quarter and year-to-date period of year 2000 over the same periods in year 1999
is primarily attributable to improved gas and oil prices. This increase was
partially offset by a 6% and 12% decline in production volumes from the
respective periods of the prior year due to natural decline rates and past
gathering system constraints. The increases in lease operating expenses and
production taxes are related to and increased proportionately with gas and oil
sales revenues compared to the previous periods.
Exploration expense increased 190% to $712,000 and 228% to $1,421,000
respectively for the three and nine month periods ended September 30, 2000, as
compared to the prior year periods primarily due to higher dry hole costs
resulting from accelerated exploration activities initiated during the current
periods. The increase in impairment expense of $415,000 for the current period
and $1,003,000 year to date reflects the current years' higher impairment
provision for the possible future expirations of portions of the Company's
Williston Basin acreage plus an additional provision for marginal producing
properties of $285,000 for the current period and $560,000 year to date. This
compares to a lower lease expiration rate experienced in the respective periods
of the prior year. Depreciation, depletion and amortization decreased by 54% and
30% over the respective prior periods. These decreases were due primarily to
lower depletion rates in the current periods reflecting the impact of higher gas
and oil prices on the latest reserve estimates versus the lower prices reflected
in the earlier periods.
General & administrative expense increased by 14% over the prior periods,
reflecting the higher sustained level of Company operations. Included in the
increase are $36,000 for costs associated with corporate investor activities,
$36,000 in insurance related costs and $87,000 related to increases in staffing
and pay rate levels over the respective prior year periods. Interest income
increased over respective prior periods reflecting higher cash balances due to
increased internally generated working capital plus the cash proceeds from the
private equity placement closed in February, 2000. Interest expense decreased
$97,000 and $295,000 respectively for the current quarter and nine month period,
reflecting the decreasing balance due and final retirement in April, 2000 of the
Range obligation.
9
<PAGE>
During the first quarter the Company completed a private equity funding for
$2,810,248 net of offering costs, with Swisspartners Investment Network AG, a
private investment firm based in Zurich, Switzerland. Swisspartners received
1,333,333 shares of the Company's common stock at a purchase price of $2.25 per
share. Also included were warrants for 1,371,429 shares with a five-year term
exercisable at $3.00 per share. With the ongoing growth in the Company's
operating cash flows from operations and its success in equity funding
activities, TXCO accelerated acreage acquisition and development activities in
its core area of the Maverick Basin in South Texas. Its plans included leasing
additional on trend acreage in the Basin and targeted the drilling of 24 gas and
oil wells across its growing lease block.
In March, the Company closed a significant leasehold acquisition of 95,000 acres
(100% WI) on the Farias Ranch contiguous to Blue Star Oil and Gas, Ltd.'s (Blue
Star) Chittim Ranch Lease and southeast of the Company's existing Maverick Basin
acreage block. Initial geologic interpretation indicated multi-zone production
potential, including a deep Jurassic structure below 16,000 feet. During the
third quarter, the Company purchased an option to lease the shallow rights to a
150,000 acre portion of the adjoining Chittim Ranch. The shallow rights lay
above Blue Star's Chittim Ranch Lease and include the Olmos and San Miguel
Formations.
During the first quarter the Company drilled three new wells and re-entered two
existing wells. The Kincaid #1-258 (57.5% WI) was drilled to a total depth of
6,391 feet. This step-out well was located approximately five miles south of the
Company's closest Glen Rose production. Subsequently, the Paloma E #5-84 (62.5%
WI) was drilled to a total depth of 5,536 feet. Electric logs indicated neither
well was economically productive in the Glen Rose interval. The Kincaid #1-258
was plugged and abandoned while casing was cemented across the shallower
Georgetown interval on the Paloma E #5-84 which awaits re-completion after a
completion attempt in the Pryor Formation. The Company next drilled the
Briscoe-Saner #1-25 (25% carried WI), an exploratory test well drilled to a
total depth of 6,040 feet, as the second well under its joint venture agreement
with Castle Exploration Company, Inc., a wholly owned subsidiary of Castle
Energy Corporation (Nasdaq: CECX). The well encountered water at the Glen Rose
interval and was plugged and abandoned.
During the second quarter the Company drilled four wells in the Maverick Basin.
In April, the Chittim #1-130 (28.1% WI) was drilled to a depth of 1,881 feet and
completed in the Austin Chalk Formation. The Company is currently evaluating the
success of its fracturing of the Austin Chalk interval to maximize oil
production from the well. In May the Company drilled the Kincaid #1-201 (50% WI)
to a depth of 4,750 feet and completed it as an oil well in the Georgetown
Formation. Also in May, the Company drilled the Burr #1-23 (25% carried WI), an
exploratory Glen Rose test well that was drilled to a total depth of 5,617 feet,
as the third well under its joint venture agreement with Castle. The well did
not encounter hydrocarbons and was plugged and abandoned. In June the Paloma
#3-83 (62.5% WI) was drilled to a depth of 5,452 feet and was completed as a
Glen Rose reef gas well located in the Company's Prickly Pear field. The well
was placed on production in July at an initial producing rate of 2 MMcf per day.
During the current quarter ended September 30, 2000 the Company utilized three
drilling rigs to drill twelve additional wells in Maverick County. Seven
exploratory wells (100% WI) were drilled on the Farias Lease alone. These seven
wells were engineered to maximize data collection for the evaluation of the
potential production of coal bed methane gas (CBM) from the multiple shallow
coal seams found in the Olmos Formation and to test the underlying San Miguel
Formation potential for oil production. The Farias #2-110 and Farias #4-110 were
drilled to a depth of 1,900 feet and are currently being evaluated after
fracturing the San Miguel Formation. The Farias #5-110 and Farias #6-110 were
drilled to a depth of 1,900 feet and are being evaluated for potential CBM
production in the Olmos Formation. The Farias #1-110, Farias #29-40, and Farias
#1-108 were drilled to depths between 1,804 and 1900 feet and are currently
awaiting completion.
10
<PAGE>
Preliminary results from field and laboratory testing of the coal samples and
the electric logs from these wells confirm the presence of potentially economic
levels of CBM in the Olmos interval underlying the Farias Lease. In October, the
Company purchased 41 shut-in well bores on the Farias Lease from previous
operators in order to accelerate the evaluation of the expansive 95,000 acre
block. The ongoing evaluation of geologic and historic well data available to
the Company indicates that approximately 30 of these well bores appear
prospective for re-completion as CBM producers. The Company is in process of
contracting equipment for the re-entry and re-completion of the newly acquired
wellbores and expects to commence its first re-entry after year end. In addition
to prospective incremental revenues from possible new CBM production, the
Company hopes to gain significant additional proved undeveloped reserves
attributable to the prospective drilling locations offsetting each well
successfully re-completed as a CBM producer. Company geologists are also
encouraged that a large portion of TXCO's newly acquired option to lease the
contiguous Chittim Ranch acreage will also prove to be prospective for the
production of CBM from the Olmos interval. Construction of a gas gathering
system to connect the initial CBM production on the Farias Lease has begun and
should be operational during the first quarter of 2001.
In addition, early indications from the initial wells drilled and in process of
being completed in the underlying San Miguel Formation have confirmed the
presence of oil in this targeted zone. Preliminary evaluation of these wells
support the possible southerly extension of Conoco, Inc.'s (NYSE:COC) adjoining
Sacatosa Oil Field onto TXCO's Farias Lease acreage depending upon the final
results of the recently fractured Farias #2-110 and Farias #4-110 wells. TXCO is
in negotiations with multiple industry partners to create joint venture
development programs exploring all depths under its 95,000-acre Farias Lease
block and its adjoining 150,000-acre Chittim Lease (currently under option).
During the current quarter, drilling activity was also conducted on other
portions of the Company's Maverick Basin acreage. The Alkek #2-232 (42.9% WI)
was drilled to a total depth of 2,707 feet, while the Alkek #3-232 (32.2%) was
drilled to a total depth of 2,500 feet. Neither well encountered hydrocarbons
and were plugged and abandoned. The Radicke/Wipff #1-46 (100% WI), an
exploratory James test well, was drilled and casing cemented to a total depth of
5,502 feet, and is currently undergoing evaluation of production stimulation
alternatives after the initial completion attempt had poor results. A horizontal
Pearsall test well, the Paloma #1-68 (62.5% WI), was drilled to total true
vertical depth of 6,193 feet and total measured depth of 7,752 feet. The well is
currently scheduled to be acidized to remove damage in the horizontal Pearsall
interval. The Chittim #2-130 (38.4%WI) was drilled to a total depth of 5,800
feet. While the Glen Rose reef in the well was found to be depleted, completion
activities have been initiated in other sections of the Glen Rose interval which
exhibited strong gas shows during initial drilling.
Pursuant to its exploration joint venture with the Company, Blue Star continued
its seismic data acquisition and processing activities throughout the third
quarter targeting the deep Jurassic interval underlying portions of the
Company's acreage in the Maverick Basin. Blue Star has completed the field
acquisition of seismic data on over 230,000 acres in the Maverick Basin, as
called for in this phase of its joint venture with TXCO. Blue Star hopes to
complete the data migration, processing and final interpretation of the newly
acquired 3-D seismic data during the first quarter of 2001. Blue Star has
informed the Company that it has contracted a drilling rig capable of reaching
depths in excess of 18,000 feet and is currently drilling another well with the
rig in West Texas. Based on the encouraging preliminary interpretations of the
new 3-D seismic data available to date, Blue Star continues to make preparations
to initiate its option to drill the first Jurassic test well on TXCO's Maverick
Basin acreage sometime late in the first quarter or early in the second quarter
of 2001.
11
<PAGE>
OTHER MATTERS
On May 25, 2000 the Company's Board of Directors voted to expand the number of
seats on its board to six and elected an additional outside director, Mr. Alan
L. Edgar of Dallas, Texas, as reported in its press release of May 31, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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: November 9, 2000
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