- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Commission File Number 0-6580
[GRAPHIC OMITTED]
PEASE OIL AND GAS COMPANY
(Exact name of small business issuer as specified in its charter)
Nevada 87-0285520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
751 Horizon Court, Suite 203
Grand Junction, Colorado 81506
(Address of principal executive offices)
(970) 245-5917
(Registrant's telephone number, including area code)
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 past 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____
As of November 12, 1999 the registrant had 1,731,398 shares of its
$0.10 par value Common Stock issued and outstanding.
Transitional Small Business Issuer Disclosure Format (check one):
Yes ____ No X
- --------------------------------------------------------------------------------
-1-
<PAGE>
TABLE OF CONTENTS
PAGE
NUMBER
PART I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 3
September 30, 1999 (unaudited) and December 31, 1998
Consolidated Statements of Operations (unaudited) . . . . . . 4
For the Three and Nine Months Ended September 30, 1999
and 1998
Consolidated Statements of Cash Flows (unaudited) . . . . . . 5-6
For the Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
Liquidity, Capital Expenditures and Capital Resources 8-10
Results of Operations . . . . . . . . . . . . . . . . 10
Overview . . . . . . . . . . . . . . . . . . . . . . . 10
Divestment of Rocky Mountain Assets . . . . . . . . . 10
Total Revenue . . . . . . . . . . . . . . . . . . . . 11
Oil and Gas . . . . . . . . . . . . . . . . . . . . . 11
General and Administrative . . . . . . . . . . . . . 13
Consulting Arrangement - Related Party . . . . . . . 13
Depreciation, Depletion and Amortization . . . . . . 13
Interest Expense. . . . . . . . . . . . . . . . . . . .14
Impairment Expense - Oil and Gas Properties. . . . . 14
Dividends and Net Loss Per Common Share. . . . . . . 14
Other Matters. . . . . . . . . . . . . . . . . . . . . . 15
Disclosure Regarding Forward-Looking Statements . . . 15
Year 2000 Issue. . . . . . . . . . . . . . . . . . . . 16
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 17
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 18
Part III - Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-2-
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash and equivalents ........................... $ 777,835 $ 1,049,582
Trade receivables .............................. 341,966 420,460
Prepaid expenses and other ..................... 81,544 170,687
------------ ------------
Total current assets ...................... 1,201,345 1,640,729
------------ ------------
ASSETS HELD FOR SALE .............................. -- 100,000
------------ ------------
OIL AND GAS PROPERTIES, at cost (full cost method):
Unevaluated properties ......................... 3,061,987 2,816,475
Costs being amortized .......................... 17,215,012 16,834,274
------------ ------------
Total oil and gas properties .............. 20,276,999 19,650,749
Less accumulated amortization .................. (14,664,073) (13,883,174)
------------ ------------
Net oil and gas properties ................ 5,612,926 5,767,575
------------ ------------
OTHER ASSETS:
Debt issuance costs, net ....................... 218,874 322,551
Office equipment and vehicles, net ............. 59,257 74,623
Deposits and other ............................. 7,493 7,493
------------ ------------
Total other assets ...................... 285,624 404,667
------------ ------------
TOTAL ASSETS ...................................... $ 7,099,895 $ 7,912,971
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ............. $ 5,741 $ 5,825
Accounts payable, trade .......................... 206,185 310,447
Accrued expenses ................................. 151,161 322,569
----------- -----------
Total current liabilities .................. 363,087 638,841
----------- -----------
LONG-TERM DEBT, less current maturities: ............ 2,453,506 2,293,261
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share, 2,000,000 shares authorized,
105,828 and 107,336 shares of Series B 5% PIK Cumulative Convertible
Preferred Stock issued and outstanding, respectively (liquidation preference
of 5,313,145
at September 30, 1999) ................. 1,058 1,073
Common Stock, par value $0.10 per share, 4,000,000
shares authorized, 1,731,398 and 1,601,062 shares
issued and outstanding respectively ............ 173,140 160,106
Additional paid-in capital ...................... 37,636,191 37,811,006
Accumulated deficit ............................. (33,527,087) (32,991,316)
----------- -----------
Total stockholders' equity ................ 4,283,302 4,980,869
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 7,099,895 $ 7,912,971
=========== ===========
-3-
<PAGE>
PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ------------ ---------- ------------
REVENUE:
<S> <C> <C> <C> <C>
Oil and gas sales ......................... $ 541,206 $ 606,016 $ 1,504,065 $ 1,853,284
Gas plant, service and supply ............. -- 131,055 -- 528,418
Well administration and other income ...... -- 4,116 80 22,640
----------- ----------- ----------- -----------
Total revenue ........................ 541,206 741,187 1,504,145 2,404,342
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Oil and gas production .................... 104,580 285,888 276,014 995,995
Gas plant, service and supply ............. -- 165,819 -- 564,832
General and administrative ................ 305,588 544,669 691,605 1,071,555
Consulting agreement-related party ........ -- 63,925 37,750 189,386
Depreciation, depletion and amortization .. 250,289 708,431 798,278 1,460,562
Impairment ................................ -- 2,100,000 -- 2,739,043
----------- ----------- ----------- -----------
Total operating costs and expenses 660,456 3,868,732 1,803,647 7,021,373
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS ......................... (119,250) (3,127,545) (299,502) (4,617,031)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense .......................... (89,948) (398,230) (269,859) (398,746)
Interest income ........................... 8,662 21,525 33,590 167,695
Gain (Loss) on sale of assets ............. -- 2,500 -- 2,957
----------- ----------- ----------- -----------
Total other income (expenses), net ... 81,286 (374,205) (236,269) (228,094)
----------- ----------- ----------- -----------
NET LOSS ..................................... $ (200,537) $ (3,501,750) $ (535,771) $(4,845,125)
=========== =========== =========== ===========
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS ............................ $ (245,846) $ (3,992,024) $ (713,588) $(6,569,779)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE .................... $ (0.15) $ (2.51) $ (0.43) $ (4.15)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ............... 1,689,600 1,593,000 1,668,400 1,584,200
=========== =========== =========== ===========
</TABLE>
-4-
<PAGE>
PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For The Nine Months
Ended September 30,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................... $ (535,771) $(4,845,125)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for depreciation and depletion .... 798,278 1,460,562
Provision for impairment .................... -- 2,739,043
Amortization of intangible assets ........... 268,180 396,742
(Gain) Loss on sale of property and equipment -- (2,957)
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade receivables ........................... 78,494 207,297
Inventory ................................... -- 128,418
Prepaid expenses and other assets ........... 19,143 (33,902)
Increase (decrease) in:
Accounts payable ............................ (93,928) 145,521
Accrued expenses ............................ (104,323) (107,465)
---------- ----------
Net cash provided by operating activities .... 430,073 88,134
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (638,597) (6,250,614)
Proceeds from sale of property and equipment ... 100,000 2,987,150
Proceeds from redemption of certificate of
deposit ................................. 70,000 --
---------- ----------
Net cash used in investing activities ....... (468,597) (3,263,464)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt .................... (4,342) (1,201,327)
Proceeds from exercise of common stock
options and warrants .................... -- 939
Offering costs ................................. -- (146,765)
Payment of Preferred Stock dividends ........... (177,817) (141,357)
Purchase and retirement of Series B preferred .. (51,064) (31,250)
---------- ----------
stock
Net cash used in financing activities ....... (233,223) (1,519,760)
---------- ----------
INCREASE (DECREASE) IN CASH &
EQUIVALENTS ................................. (271,747) (4,695,090)
CASH & EQUIVALENTS, beginning of period .......... 1,049,582 6,547,804
---------- ----------
CASH & EQUIVALENTS, end of period ................ $ 777,835 $ 1,852,714
========== ==========
-5-
<PAGE>
PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
For The Nine Months
Ended September 30,
1999 1998
-------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest ......................... $ 209, 795 $ 299,646
========= ========
Cash paid for income taxes ..................... $ -- $ --
========= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in accounts payable for the
purchase of property and equipment -
principally oil and gas properties ........ $ (10,342) $ (725,456)
========= ========
Capitalized portion of debt issuance/discount
costs ..................................... $ -- $ 396,141
========= ========
Long-term debt incurred for purchase of vehicles $ -- $ 32,610
========= ========
Accrued Preferred Stock dividends .............. $ -- $ 69,585
========= ========
-6-
<PAGE>
PEASE OIL AND GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Annual Report on Form 10-KSB of Pease Oil and Gas Company )"Pease") for
the year ended December 31, 1998. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the periods presented are
not necessarily indicative of the results that may be expected for the full
year.
The accounting policies followed by Pease are set forth in Note 1 to our
financial statements in Form 10-KSB for the year ended December 31, 1998. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes included in the Form 10-KSB.
Note 2 - Pending Merger:
On September 1, 1999 Pease Oil and Gas Company and Carpatsky Petroleum, Inc.
signed an agreement to combine the two companies through a reverse triangular
merger. The contemplated merger is more thoroughly discussed under Item 2 in
Management's Discussion and Analysis.
Note 3 - Long-term Debt:
Long-term debt consists of the following:
September 30, December 31,
1999 1998
Convertible debentures, interest at 10%,
due April 2001, unsecured, $ 2,782,500 $ 2,782,500
Less unamortized discount (347,284) (511,787)
--------------- --------------
Net carrying value 2,435,216 2,270,713
--------------- --------------
Note payable to bank, interest at 8.5%,
monthly payments of $669, due March 2003,
collateralized by vehicle 24,031 28,373
--------------- --------------
Total long-term debt 2,459,247 2,299,086
Less current maturities (5,741) (5,825)
--------------- --------------
Long-term debt, less current maturities $ 2,453,506 $ 2,293,261
============= =============
-7-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity, Capital Expenditures and Capital Resources
At September 30, 1999, our cash balance was $777,835 with a positive working
capital position of $838,258, compared to a cash balance of $1,049,582 and a
positive working capital position of $1,101,888 at December 31, 1998. The change
in our cash balance is summarized as follows:
Cash balance at December 31, 1998 $ 1,049,582
Sources of Cash:
Cash provided by operating activities 430,073
Proceeds from the sale of property and equipment 100,000
Proceeds from redemption of certificate of deposit 70,000
---------------
Total Sources of Cash 600,073
Uses of Cash:
Capital expenditures for exploration activities (428,466)
Interest paid and capitalized in full cost pool (208,116)
Series B Preferred Stock dividends (177,817)
Purchase and retirement of Series B Preferred Stock (51,064)
Payments on long term debt (4,342)
Capital expenditures for office equipment (2,015)
---------------
Total uses of cash (871,820)
---------------
Cash balance at September 30, 1999 $ 777,835
===============
Pease's uses of cash for exploration activities in the Gulf Coast are summarized
as follows (the difference between the total cash paid for exploration
activities in the above table and the amount illustrated below, represents the
net decrease in accounts payable between December 31, 1998 and September 30,
1999):
<TABLE>
<CAPTION>
PROGRAM OPERATOR
Category ........ NEGX (1) Parallel(3) AHC(2) Other Total %
- ------------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Successful Efforts ......... $ (6,879) $ -- $214,001 $ -- $207,122 50%
Exploratory Dry Holes ...... (7,096) 23,666 -- -- 16,570 4%
Land, G&G-Seismic Programs . 15,446 157,725 -- -- 173,171 41%
Other Exploration Costs .... -- -- -- 21,261 21,261 5%
-------- -------- -------- -------- -------- --------
Total Exploration Costs $ 1,471 $181,391 $214,001 $ 21,261 $418,124 100%
======== ======== ======== ======== ======== ========
Percent ............. 1% 43% 51% 35% 100%
======== ======== ======== ======== ========
</TABLE>
For the remainder of 1999 and continuing into 2000, we will focus our activities
on cultivating the existing exploration program in the Gulf Coast region,
principally in Louisiana and Texas. This activity will focus on what we consider
our three core areas in the Gulf Coast, which are:
1. The East Bayou Sorrel Area in Iberville Parish,
Louisiana, operated by National Energy
Group, Inc. ("NEGX");
2. The Maurice Prospect in Fayetteville Parish,
Louisiana, operated by Amerada Hess Corporation
("AHC"); and
3. The Formosa, Texana and Ganado 3-D prospects
encompassing 130,000 acres in and around Jackson
County, Texas, operated by Parallel Petroleum
("Parallel").
Pease is a non-operating partner in all three areas. Accordingly, we have little
control over the timing of new wells or the ability to control costs. However,
we can elect not to participate in a proposed well and have the opportunity to
farmout proposals to other parties should we elect not to participate in a
particular exploratory proposal. Accordingly, we have the right, not the
obligation, to participate in future exploratory drilling prospects within these
areas. However, assuming sufficient working capital is available, it is our
intent to participate in all the exploratory or development proposals that are
fundamentally sound and adequately supported with competent geologic and
geophysical data. Under the present known circumstances, should we elect to
participate in all of the
-8-
<PAGE>
anticipated proposals for these three areas, the following table summarizes the
range of expected capital requirements, by program, through the end of 2000:
Estimated Investment
Operator Minimum Maximum
- ------------------------------------- ---------- ------------
East Bayou Sorrel Area $ - $ 400,000
Formosa, Texana, and Ganado Prospects 200,000 600,000
Maurice Prospect 50,000 600,000
----------- -------------
Total $ 250,000 $ 1,600,000
========= ===========
Our current and anticipated cash position may not be sufficient to cover the
future working capital and exploration opportunities that may be proposed within
our three core areas.
As discussed in previous filings, we began actively searching for a merger
candidate in August 1998 in order to, among other things, increase Pease's asset
base and improve the chances of financing future opportunities. On September 1,
1999, we signed an Agreement and Plan of Merger ("Merger Agreement") with
Carpatsky Petroleum, Inc. ("Carpatsky"), a publicly held company traded on the
Alberta Stock Exchange under the symbol "KPY". Carpatsky is engaged in
production and development of oil, gas and condensate in the Republic of Ukraine
with proven reserves much greater than ours. The transaction is still
conditioned upon, among other things, regulatory and shareholder approvals.
Pursuant to the terms of the proposed merger transaction, Pease will issue
approximately 34.5 million shares of common stock to acquire all the outstanding
stock of Carpatsky. In addition, all of Pease's currently outstanding Series B
Preferred Stock will be exchanged for approximately 8.9 million shares of common
stock at the close of the transaction. All holders of the Series B Preferred
stock have agreed that no more dividends shall accrue or be paid on their
holdings if the contemplated transaction with Carpatsky is ultimately
consummated. They have also agreed not to sell or convert any outstanding shares
of the Series B Preferred until the contemplated transaction with Carpatsky is
either completed or abandoned. Should a merger occur, Pease will be obligated to
pay out of its existing working capital approximately $220,000 to the
President/CFO of Pease in connection with the severance terms included in his
employment agreement.
The Carpatsky assets consist of interests held in two separate fields: 1.) the
Rudovsko-Chervonozavodskoye natural gas and condensate field (the "RC" field)
located in the Poltava District of Eastern Ukraine; and 2.) the Bitkov-
Babchensky oil field (the "Bitkov"field) located in the Ivano-Frankns'k District
of southwest Ukraine. Common to the oil and gas industry in many foreign
countries, Carpatsky does not own an interest in any real property. But rather
Carpatsky's rights and obligations are governed by and structured through joint
ownership or joint venture arrangements. The agreements governing the RC field
provide Carpatsky with a net revenue interest ("NRI") in the project that varies
based on their proportionate cumulative capital contributions. Therefore, the
actual NRI is determined by: a.) dividing Carpatsky's total capital
contributions by the total capital contributions of the Joint Account (this
computes Carpatsky's proportionate share of the total capital contributions);
and b.) multiplying this quotient by 90%. Using this formula, Carpatsky's NRI as
of September 30, 1999 was 40% and is redetermined on a quarterly basis. Pursuant
to the terms of the agreements, Carpatsky's NRI in the RC field may not exceed
45%. Unlike the governing documents associated with the RC field, Carpatsky's
ownership and NRI in the Bitkov Joint Venture is not subject to adjustment and
is fixed at 45%. In both fields, Carpatsky's planned operations will primarily
focus on exploitation activities -- drilling development wells and performing
workovers on existing wellbores -- in order to monetize proven reserves.
Most of Carpatsky's current oil and gas reserve value is attributable to the RC
field. Carpatsky has reported that the 8/8's daily production from the RC field
for October 1999 was in excess of 20 million cubic feet of natural gas and 120
bbls of condensate from 3 wells. Two other wells are in the final stages of
completion and should be on production during the fourth quarter of this year.
In addition, one other well is currently drilling and is expected to reach its
proposed target depth of 18,000' early next year. Carpatsky expects two to seven
additional development wells will be drilled (or start to be drilled) in this
field between now and the end of 2000. As previously stated, Carpatsky's NRI in
the RC field on September 30, 1999 was 40%. However, on October 1, 1999,
Carpatsky's NRI was effectively reduced to 20% when its Ukrainian partner
increased their equity position through an additional contribution to the Joint
Account. The Ukrainian partner has asserted that Carpatsky has until December
31, 1999 to make an additional contribution of approximately $2.9 million. A
failure to do so may cap Carpatsky's right in the RC field to a maximum NRI of
20% and could possibly prevent them from participating in future wells in the RC
field. Carpatsky will attempt to meet this obligation, but will need to raise
additional capital to do so.
-9-
<PAGE>
The recent reduction in Carpatsky's NRI in the RC field from 40% to 20%, along
with the knowledge that additional capital would ultimately be required in the
project, had been anticipated by both Carpatsky and Pease prior to entering into
the Merger Agreement. However, at that time neither party knew exactly when the
Ukrainian partner was going to contribute additional equity and additional funds
would be required by Carpatsky, Accordingly, the exchange ratio between Pease
and Carpatsky was determined using a 20% NRI in the RC Field. The Merger
Agreement provides for an adjustment to the share exchange ratio in the event
additional capital is raised by Carpatsky before the merger is consummated. The
spirit of the adjustment provision contemplates that the dilution necessary to
increase, and then maintain, the NRI in the RC field above the 20% that the
merger was structured on, should be borne by both companies on a pro-rata basis.
Specifically, Carpatsky will receive 183,353 additional shares of Pease for each
$50,000 in net proceeds raised before closing the merger, as long as the
proceeds are used to increase its NRI in the RC field. Although Carpatsky's
management is vigorously pursuing various financing alternatives to meet this
and future obligations, there can be no assurance at this time that Carpatsky
will raise any capital before December 31, 1999 or before the merger can be
closed.
If the proposed merger with Carpatsky is ultimately consummated and assuming
Carpatsky does not raise any additional capital between now and the closing of
the merger, the newly combined entity will be required to seek additional
financing. Carpatsky's capital requirements for drilling and development
activities in the Republic of Ukraine during 1999 and 2000 are expected to range
between $1.5 and $8.3 million depending on their NRI in the RC field (the $8.3
million assumes a NRI of 45% and includes the $2.9 million that is due the Joint
Account by December 31, 1999). In addition, Carpatsky's management expects it
will need an additional $1.5 million to meet its current and expected working
capital requirements regardless of the NRI in the RC field. Carpatsky's projects
are expected to fund themselves beginning sometime in 2000 through operating
cash flows but exactly when, or if, this will actually occur cannot be
determined at this time. Therefore, the amount of future capital that will be
sought assuming the merger occurs, cannot be determined at this time, but it can
be reasonably assured to be at least $3.0 million. There can be no assurance
given at this time that the necessary capital can or will be raised under terms
acceptable to the newly combined entity.
If the contemplated merger with Carpatsky cannot be consummated within a
reasonable period of time, then we may have to seek additional financing.
However, our common stock was delisted from the Nasdaq SmallCap electronic
market system on January 14, 1999 for failure to maintain an average bid price
of at least $1.00 per share. The stock is now listed on the over-the-counter
market on the NASD Bulletin Board (OTC BB). It is believed that this delisting
will have a material negative impact on our ability to raise additional equity
capital. Given the delisting, combined with our historically poor financial
performance and the fact only four wells are responsible for most of our current
cash flow and production, it is unclear at this time what alternatives for
future working capital will be available, if any, or to what extent the
potential dilution to the existing shareholders may be. If additional sources of
financing are not ultimately available, we may have to consider other
alternatives, including the sale of existing assets, cancellation of existing
exploration agreements, nonconsenting on proposed wells or workovers, farmouts,
joint ventures, restructuring under the protection of the Federal Bankruptcy
Laws and/or liquidation.
RESULTS OF OPERATIONS
Overview
Our largest source of operating revenue is from the sale of produced oil,
natural gas, and natural gas liquids. Therefore, the level of our revenues and
earnings are affected by prices at which natural gas, oil and natural gas
liquids are sold. Accordingly, our operating results for any prior period are
not necessarily indicative of future operating results because of the
fluctuations in natural gas, oil and natural gas liquid prices and the lack of
predictability of those fluctuations as well as changes in production levels.
Divestment of Rocky Mountain Assets
As thoroughly discussed in our 1998 Annual Report on Form 10-KSB, Pease
substantially completed the sale of its Rocky Mountain assets in 1998.
Accordingly, the Rocky Mountain revenues, costs, operating margins and cash
flows historically generated and discussed under the captions "Oil and Gas",
"Gas Plant, Service and Supply" and "Other Income" will no longer be part of
Pease's future operations. Since these assets included a significant portion of
our historical operations, the sale of these assets has and will have an
immediate and material negative impact on our future cash flows and results of
operations.
-10-
<PAGE>
Total Revenue
Total Revenue from all operations was as follows:
For the Three Months Ended September 30,
1999 1998
------------- ----------------
Amount % Amount %
Oil and gas sales ................. $ 541,206 100% $ 606,016 82%
Gas plant, services and supply .... -- -- 131,055 18%
Other ............................. -- -- 4,116 *
---------- ----- ---------- -----
Total revenue ................ $ 541,206 100% $ 741,187 100%
========== === ========== =====
For the Nine Months Ended September 30,
1999 1998
--------------- ----------------
Amount % Amount %
Oil and gas sales .............. $1,504,065 100% $1,853,284 77%
Gas plant, services and supply . -- -- 528,418 22%
Other .......................... 80 * 22,640 1%
----------- --- ---------- ------
Total revenue ............. $1,504,145 100% $2,404,342 100%
========== === ========== =======
* Less than 1%
The decrease in total revenue, along with any known trends or changes that
effect revenue on a line-by-line basis, are discussed in the following
paragraphs under their respective captions.
Oil and Gas
Operating statistics for oil and gas production for the periods presented are as
follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
Production:
Oil (Bbls)
Rocky Mtns ..... -- 12,900 -- 47,900
Gulf Coast ..... 16,900 13,700 53,800 37,300
Gas (Mcf)
Rocky Mtns ..... -- 70,900 -- 228,300
Gulf Coast ..... 68,500 90,100 281,500 197,400
BOE (6:1)
Rocky Mtns ..... -- 24,700 -- 86,000
Gulf Coast ..... 28,300 28,700 100,700 70,200
Average Collected Price:
Oil (per Bbl)
Rocky Mtns ..... $ -- $ 11.19 $ -- $ 12.32
Gulf Coast ..... $ 20.30 $ 11.13 $ 15.54 $ 12.96
Gas (per Mcf)
Rocky Mtns .... $ -- $ 1.28 $ -- $ 1.39
Gulf Coast .... $ 2.89 $ 2.43 $ 2.37 $ 2.34
Per BOE (6:1)
Rocky Mtns .... $ -- $ 9.51 $ -- $ 10.56
Gulf Coast .... $ 19.11 $ 12.93 $ 14.93 $ 13.46
-11-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- -------------------------------
1999 1998 1999 1998
------------ ---------- ---------- -----------
Operating Margins
(Excl. DD&A/Impairment):
Rocky Mtns:
Revenue -
<S> <C> <C> <C> <C>
Rocky Mtns. - Oil ....... $ -- $ 144,664 $ -- $ 590,067
Rocky Mtns. - Gas ....... -- 90,573 -- 318,034
----------- ----------- ----------- -----------
-- 235,237 -- 908,101
Production Costs ............ -- (236,720) -- (870,227)
----------- ----------- ----------- -----------
Operating Margin ........ $ -- $ (1,483) $ -- $ 37,874
=========== =========== =========== ===========
Operating Margin % ...... -- (1%) -- 4%
Gulf Coast:
Revenue -
Gulf Coast - Oil ........ $ 343,201 $ 152,164 $ 836,569 $ 484,016
Gulf Coast - Gas ........ 198,005 218,615 667,496 461,167
----------- ----------- ----------- -----------
541,206 370,779 1,504,065 945,183
Production Costs ............ (104,580) (49,168) (276,014) (125,768)
----------- ----------- ----------- -----------
Operating Margin ........ $ 436,626 $ 321,611 $ 1,228,051 $ 819,415
=========== =========== =========== ===========
Operating Margin % ...... 81% 87% 82% 87%
Production Costs per BOE before DD&A:
Rocky Mtn Region ............ $ -- $ 9.58 $ -- $ 10.12
Gulf Coast Region ........... $ 3.70 $ 1.71 $ 2.74 $ 1.79
Change in Total Revenue
Attributable to:
Production ........................ $ (260,428) $ (659,938)
Price ............................. 195,618 310,719
----------- -----------
Total Revenue Decrease .......... $ (64,810) $ (349,219)
=========== ===========
</TABLE>
In May 1999 the J. P. Owen well located in the Maurice Prospect in Fayetteville
Parish, Louisiana, operated by AHC, began experiencing significant water
production as a result of a very poor primary cement job in the completion
casing. Accordingly, the well was shut in and during the third quarter of 1999
AHC performed various remedial operations attempting to squeeze the zones, shut
off the water source and restore production. However, the procedures were
unsuccessful and the well has been temporarily abandoned. We do not believe the
loss of the well bore at that interval will impair our total reserves quantities
because our independent petroleum reservoir engineers have advised us that these
reserves will probably be classified as "Proved Undeveloped". However, because
production has been lost, it will negatively impact current and anticipated cash
flows for at least the near future. In 1999, Pease's proportionate share of
production from this well totaled 13,360 Mcf of gas and 490 Bbls of oil before
it was shut in. There was no production from this well in 1998. At December 31,
1998, this well represented approximately 14.5% of our estimated proven reserves
(PV-10).
Therefore, as of the date of this report, substantially all of Pease's current
oil and gas production is generated from four of the ten wells in which we hold
a working interest. Of the four main producing wells, three are operated by
National Energy Group, Inc., and the other one is operated by Amerada Hess
Corporation ("AHC"). All these wells are deep, high pressure, water driven
reservoirs that are inherently laden with geologic, geophysical, and mechanical
risks and uncertainties. The unexpected loss of any one of these wells would
have a material negative impact on our estimated reserves, future production and
future cash flows.
-12-
<PAGE>
General and Administrative
The net decrease in G&A expenses between the periods presented is summarized
below:
Comparison of the Decrease or (Increase) in Costs between the Periods
presented.
For the 3 months For the 9 months
ended 9/99 vs 9/98 ended 9/99 vs 9/98 Description
$ 73,486 $ 173,774 Reduction of payroll as a result of
eliminating executive and
administrative positions
150,000 150,000 Nonrefundable fee paid to San Jacinto
Securities to assist the Company in
seeking a merger candidate
71,992 101,992 Legal and accounting
15,554 25,276 Travel
26,469 19,604 Consulting
4,132 12,475 Filing fees associated with NASDAQ
(1,825) 3,308 All other, net
(100,727) (106,479) Costs associated with pursuing the
merger with Carpatsky
- ----------- --------------
$ 239,081 $ 379,950 Net decrease between the periods
=========== ============== presented
We have taken steps to significantly reduce G&A costs, and expect "core" G&A
costs in 1999 and 2000 to be approximately $60,000 to $70,000 per month.
However, we expect additional amounts (aggregating $25,000 to $50,000) will be
incurred in connection with efforts to consummate the merger transaction with
Carpatsky.
Consulting Arrangement - Related Party
In March 1996 we entered into a three-year consulting agreement with Beta
Capital Group, Inc. ("Beta") located in Newport Beach, California. Beta's
chairman, Steve Antry, has been a director of Pease since August 1996. The
consulting agreement, which ended in February 1999, provided for minimum monthly
cash payments of $17,500 plus reimbursement for out-of-pocket expenses.
Depreciation, Depletion and Amortization
Depreciation, Depletion and Amortization ("DD&A") for the periods presented by
cost center consisted of the following:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------ --------------------------
1999 1998 1999 1998
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Oil and Gas Properties - Gulf Coast $ 245,007 $ 526,841 $ 780,899 $ 866,477
Oil and Gas Properties - Rocky Mtns -- 79,429 -- 265,510
Gas Plant, Service and Supply
Operations ..................... -- 90,671 -- 291,766
Furniture and Fixtures ............. 5,282 11,490 17,379 36,809
---------- ---------- ---------- ----------
Total .......................... $ 250,289 $ 708,431 $ 798,278 $1,460,562
========== ========== ========== ==========
</TABLE>
DD&A for the oil and gas properties, per BOE, for the periods presented is as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Rocky Mountains $ - $ 3.21 $ - $ 3.09
Gulf Coast $ 8.67 $ 18.36 $ 7.75 $ 12.33
Combined Total $ 8.67 $ 11.35 $ 7.75 $ 7.25
</TABLE>
DD&A for the oil and gas properties is computed based on one full cost pool
using the total estimated reserves at the end of each period presented and prior
to applying the ceiling test discussed later in this section under "Impairment
Expense". The estimated portion of DD&A for the Rocky Mountains and the Gulf
Coast are illustrated here for analysis purposes only. Total DD&A for the oil
and gas properties decreased in 1999 when compared to
-13-
<PAGE>
1998 principally as a result of the impairment charges recognized in 1998
significantly reduced the net value of full cost pool being amortized in 1999.
Interest Expense
Total interest incurred, and its allocation, for the periods presented is as
follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Interest paid or accrued .......... $ 70,690 $ 101,680 $ 209,795 $ 299,313
Amortization of debt discount ..... 54,834 323,784 164,503 485,676
Amortization of debt issuance costs 34,559 205,005 103,677 307,208
----------- ----------- ----------- -----------
Total interest incurred .. 160,083 630,469 477,975 1,092,197
Interest capitalized .............. (70,135) (232,239) (208,116) (693,451)
----------- ----------- ----------- -----------
Interest expense .... $ 89,948 $ 398,230 $ 269,859 $ 398,746
=========== =========== =========== ===========
</TABLE>
The lower interest incurred in 1999 is substantially attributed to the reduction
of outstanding debt during the third quarter of 1998. In connection with the
sale of the Rocky Mountain assets, we paid down $1.2 million (or 30%) of the
outstanding convertible debentures in September 1998, thereby reducing the
outstanding principal from $4.0 million to $2.8 million. At the same time, we
charged to interest expense $396,742, representing 30% of the unamortized debt
discount and debt issuance costs associated with the debt.
Impairment Expense - Oil and Gas Properties
Pease uses the full cost method of accounting for oil and gas activities. The
full cost method regards all costs of acquisition, exploration, and development
activities as being necessary for the ultimate production of reserves. All of
those costs are incurred with the knowledge that many of them relate to
activities that do not result directly in finding and developing reserves.
However, the benefits obtained from the prospects that do prove successful,
together with benefits from past discoveries, may ultimately recover the costs
of all activities, both successful and unsuccessful. Thus, all costs incurred in
those activities are regarded as integral to the acquisition, discovery, and
development of reserves that ultimately result from the efforts as a whole and
are thereby associated with our proved reserves. Establishing a direct
cause-and-effect relationship between costs incurred and specific reserves
discovered, which is the premise under the successful efforts accounting method,
is not relevant to the full cost concept. However, the costs accumulated in our
full cost pool are subject to a "ceiling", as defined by Regulation SX Rule
4-10(e)(4). As prescribed by the corresponding accounting standards for full
cost, all the accumulated costs in excess of the ceiling, are to be expensed
periodically by a charge to impairment.
Accordingly, we incurred an impairment charge of $2,739,043 during the first
nine months of 1998 as a result of costs incurred with dry holes (which
increased the accumulated costs) and the continuing collapse of oil and gas
prices between December 31, 1997 and September 30, 1998 that substantially
lowered the "ceiling" of the full cost pool. No impairment charge was recognized
during the first nine months of 1999 because the net book value of full cost
pool is less than the estimated "ceiling".
Dividends and Net Loss Per Common Share
Net loss per common share is computed by dividing the net loss applicable to
common stockholders by the weighted average number of common shares outstanding
during the year. All potential common shares have been excluded from the
computations because their effect would be antidilutive.
The net loss applicable to common stockholders is determined by adding any
dividends accruing to the benefit of the preferred stockholders to the net loss.
The dividends included for this calculation include: 1) paid dividends; 2)
accrued but unpaid dividends; and 3) any imputed dividends attributable to the
beneficial conversion feature. Accordingly, the net loss applicable to common
stockholders includes the following charges associated with the Series B
Preferred Stock that was issued on December 31, 1997:
-14-
<PAGE>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------ -----------------------
1999 1998 1999 1998
------------ ----------- ---------- -----------
Dividends declared ...... $ 45,309 $ 69,585 $ 177,817 $ 210,941
Imputed non-cash dividend -- 420,689 -- 1,513,713
---------- ---------- ---------- ----------
Total .............. $ 45,309 $ 490,274 $ 177,817 $1,724,654
========== ========== ========== ==========
The Series B Preferred Stock is convertible into common stock at a conversion
price equal to a 25% discount to the average trading price of the common stock
prior to conversion. This discount started at 12% in April 1998 and increased
periodically until it topped out at 25% (this discount is considered a
"beneficial conversion feature"). The additional non-cash imputed dividend
charge included in the net loss applicable to common stockholders represents the
intrinsic value of the discount applicable through the period presented. No
additional non-cash dividend charges have been or will be incurred subsequent to
December 31, 1998 since the conversion discount has topped out at 25%.
The holders of the Series B Preferred Stock are entitled to dividends equal to
$2.50 per annum, payable quarterly in cash or additional shares of Series B
Preferred Stock at our option. However, in connection with the contemplated
merger with Carpatsky Petroleum, Inc., the Preferred stockholders have signed
Agreements Not to Sell or Convert Securities which stated that our obligation to
accrue and pay additional dividends on the Series B Preferred stock shall be
deferred from the date that an Agreement and Plan of Merger with Carpatsky
Petroleum, Inc. is signed. Therefore, dividends were accrued and paid to the
Preferred stockholders through the close of business on September 1, 1999. If
the merger with Carpatsky Petroleum, Inc. is consummated, there will be no
further dividends accrued or paid. If the merger is not consummated, we shall at
that time accrue and pay dividends for the period from September 1, 1999 through
the date on which the merger is abandoned.
OTHER MATTERS
Disclosure Regarding Forward-Looking Statements
This report on Form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
facts included in this report, including, without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding Pease's contemplated merger, financial position, reserve
quantities, plans and objectives of Pease's management for future operations and
capital expenditures, and statements regarding the planned Carpatsky
transactions and the Carpatsky assets are forward-looking statements and the
assumptions upon which such forward-looking statements are based are believed to
be reasonable. We can give no assurance that such expectations and assumptions
will prove to be correct. Reserve estimates of oil and gas properties are
generally different from the quantities of oil and natural gas that are
ultimately recovered or found. This is particularly true for estimates applied
to exploratory prospects. Additionally, any statements contained in this report
regarding forward-looking statements are subject to various known and unknown
risks, uncertainties and contingencies, many of which are beyond our control.
Such risks and uncertainties may cause actual results, performance, achievements
or expectations to differ materially from the anticipated results, performance,
achievements or expectations. Factors that may affect such forward-looking
statements include, but are not limited to: the contemplated merger not be
consummated, our ability to generate additional capital to complete its planned
drilling and exploration activities; risks inherent in oil and gas acquisitions,
exploration, drilling, development and production; price volatility of oil and
gas; competition; shortages of equipment, services and supplies; U.S. and
foreign government regulation; environmental matters; implications to Carpatsky
from conducting its operations in Ukraine and related political and geographical
risks; financial condition of the other companies participating in the
exploration, development and production of oil and gas programs; and other
matters beyond our control. In addition, since all of the prospects in the Gulf
Coast are currently operated by another party, we may not be in a position to
control costs, safety and timeliness of work as well as other critical factors
affecting a producing well or exploration and development activities. All
written and oral forward-looking statements attributable to Pease or persons
acting on our behalf subsequent to the date of this report are expressly
qualified in their entirety by this disclosure.
-15-
<PAGE>
Year 2000 Issue
Pease has conducted a review of its computer systems to identify the systems
that could be affected by the "Year 2000" issue. The Year 2000 problem is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of our programs that have time-sensitive
software may recognize a date using '00' as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations.
We do not believe that the Year 2000 problem will pose a material operations
problem for Pease. Our computer software providers have assured us that all of
our software is or will be Year 2000 compliant (i.e. will function properly in
the year 2000 and beyond). Our accounting software providers have asserted they
will provide written assurance that its products are or will be Year 2000
compliant. To our knowledge, after investigation, no "imbedded technology" (such
as microchips in an electronic control system) of Pease poses a material Year
2000 problem.
Because we believe that we has no material internal Year 2000 problems, we have
not expended and do not expect to expend a significant amount of funds to
address Year 2000 issues. It is Pease's policy to continue to review our
suppliers' Year 2000 compliance and require assurance of Year 2000 compliance
from new suppliers; however, such monitoring does not involve a significant cost
to us.
Pease is materially dependent on Plains Marketing, L.P. ("Plains"), National
Energy Group, Inc. ("NEG") and Amerada Hess Corporation ("AHC") for the delivery
and payment of our oil and natural gas. These companies in turn are dependent on
various third party vendors for delivery and payment. We have or will request
written assurances from Plains, NEG and AHC that they have examined their Year
2000 issues. However, as of the date of this report, we have not received a
response. We will continue to request such assurance but it should be emphasized
that no assurance can be given at this time that Plains, NEG or AHC, or their
third party vendors are or will be Year 2000 compliant.
In the event that one or more of our vendors, including Plains, NEG, AHC and
their respective vendors, were to have a material Year 2000 problem, we believe
that the foreseeable consequences would be a temporary delay in revenue
collection caused by an interruption in computerized billing (and not an
interruption in the actual flow of our oil or natural gas), which may have a
substantial impact on our ability to conduct operations. We do not have any
contingency plan to address this possibility.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Pease may from time to time be involved in various claims, lawsuits, disputes
with third parties, actions involving allegations of discrimination, or breach
of contract incidental to the operation of our business. We are not currently
involved in any such incidental litigation which we believe could have a
materially adverse effect on our financial condition or results of operations.
Item 2. Changes in Securities
(a) and (b): not applicable
(c) Recent sales of unregistered securities. Pease issued and sold the
following securities without registration under the Securities Act of
1933, as amended ("Securities Act"), during the first nine months of
1998 and through the date of this Report.
1. On January 28,1999 we issued 16,209 shares of our common stock
upon conversion of 200 shares of Series B Preferred Stock. The
Certificates representing the shares issued upon conversion
bear a restrictive legend prohibiting transfer without
registration under the Securities Act or the availability of
an exemption from registration. The shares issued upon
conversion were registered by us for resale by the holders in
Registration No. 333-44305. We relied upon Section 3(a)(9) of
the Securities Act of 1933, as amended, in claiming exemption
from the registration requirements of the Securities Act for
issuance of the securities upon conversion.
2. On March 1, 1999 we issued 30,759 shares of our common stock
upon conversion of 233 shares of Series B Preferred Stock. The
Certificates representing the shares issued upon conversion
bear a restrictive legend prohibiting transfer without
registration under the Securities Act or the availability of
an exemption from registration. The shares issued upon
conversion were registered by us for resale by the holders in
Registration No. 333-44305. We relied upon Section 3(a)(9) of
the Securities Act of 1933, as amended, in claiming exemption
from the registration requirements of the Securities Act for
issuance of the securities upon conversion.
3. On March 23, 1999 we issued 40,668 shares of our common stock
upon conversion of 250 shares of Series B Preferred Stock. The
Certificates representing the shares issued upon conversion
bear a restrictive legend prohibiting transfer without
registration under the Securities Act or the availability of
an exemption from registration. The shares issued upon
conversion were registered by us for resale by the holders in
Registration No. 333-44305. We relied upon Section 3(a)(9) of
the Securities Act of 1933, as amended, in claiming exemption
from the registration requirements of the Securities Act for
issuance of the securities upon conversion.
4. On September 24, 1999, we issued a total of 42,700 shares to
five of our directors for compensation of services in lieu of
cash. The services were provided between January 1, 1997 and
August 31, 1999. For financial statement reporting purposes,
the issuance was recorded at $67,333 (or $1.58 per share)
representing the average market value of Pease's stock on the
various dates the services were rendered. The Certificates
representing the shares issued upon conversion bear a
restrictive legend prohibiting transfer without registration
under the Securities Act or the availability of an exemption
from registration.
In connection with the issuance of the above noted securities, we also
relied upon Section 4(2) of the Securities Act in claiming exemption
for the registration requirement of the Securities Act. All of the
persons to whom the securities were issued had full information
concerning our business and affairs and acquired the shares for
investment purposes. Certificates representing the securities issued
bear a restrictive legend and stop transfer instructions have been
entered prohibiting transfer of the securities except in compliance
with applicable securities law.
-17-
<PAGE>
Item 3. Defaults Upon Senior Securities
(a) There has been no material default in the payment of principal,
interest, or any other material default, with respect to any
indebtedness of the small business issuer during the period covered by
this report.
(b) There has been no material default in the payment of dividends for any
class of preferred stock during the period covered by this report.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders.
Item 5. Other Information
Discretionary Voting by Management
Unless we receive notice from a stockholder that the stockholder plans to
present a matter for consideration at the next annual meeting of stockholders,
including information about the matter to be presented, by March 14, 1999 (45
days before the date we mailed our proxy materials to stockholders in 1998), we
will have discretionary authority to vote all shares for which we hold proxies
in opposition to the matter if presented. This procedure is intended to be in
response to amendments to Rule 14a-4 under the Securities Exchange Act of 1934,
recently adopted by the Securities and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
(1) Exhibit 27, "Financial Data Schedule" - for the quarter
ended September 30, 1999.
(b) The following report on Form 8-K was filed during the quarter ended
September 30, 1998:
Item Reported Date Financial Statement
------------- ---------- ------------------------
(1) 5, 7 September 14, 1999 None - Not Applicable
There were no financial statements filed during the quarter ended September 30,
1999 other than Pease's Quarterly Report on Form 10-QSB for the second quarter
ended June 30, 1999.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PEASE OIL AND GAS COMPANY
Date: November 15, 1998 By: /s/ Patrick J. Duncan
Patrick J. Duncan
President and Principal
Accounting Officer
-18-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 777,835
<SECURITIES> 0
<RECEIVABLES> 355,611
<ALLOWANCES> 13,645
<INVENTORY> 0
<CURRENT-ASSETS> 1,201,345
<PP&E> 20,276,999
<DEPRECIATION> 14,664,073
<TOTAL-ASSETS> 7,099,895
<CURRENT-LIABILITIES> 363,087
<BONDS> 2,435,216
0
1,058
<COMMON> 173,140
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,099,895
<SALES> 1,504,065
<TOTAL-REVENUES> 1,504,145
<CGS> 276,014
<TOTAL-COSTS> 1,803,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 269,859
<INCOME-PRETAX> (535,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> (535,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (713,588)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
