U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-14731
HALLADOR PETROLEUM COMPANY
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1014610
(State of incorporation) (IRS Employer Identification
No.)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264
(Address of principal executive offices)
303-839-5504 FAX: 303-832-3013
(Issuer's telephone numbers)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Shares outstanding as of November 3, 1998: 7,093,150
<PAGE>
PART I. FINANCIAL INFORMATION
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
September 30, December 31,
1998 1997*
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 3,440 $ 6,047
Available-for-sale securities 978 1,800
Accounts receivable-
Oil and gas sales 265 331
Well operations 384 336
------ ------
Total current asset 5,067 8,514
------ ------
Oil and gas properties (successful efforts), at cost:
Unproved properties 669 378
Proved property 18,797 18,366
Less - accumulated depreciation depletion,
amortization and impairment (13,405) (13,039)
------ ------
6,061 5,705
------ ------
Other assets 288 266
------ ------
$11,416 $14,485
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 390 $ 360
Oil and gas sales payable 101 211
Debt to TCW 3,177 2,492
------ ------
Total current liabilities 3,668 3,063
------ ------
Debt to TCW 2,831
------ ------
Deferred bonus plan 214 205
------ ------
Other 101 105
------ ------
Minority interest 4,848 4,926
------ ------
Stockholders' equity:
Net unrealized loss on available-for-sale securities (587)**
Preferred stock, $.10 par value; 10,000,000
shares authorized; no shares issued
Common stock, $.01 par value; 100,000,000
shares authorized; 7,093,150 shares issued 71 71
Additional paid-in capital 18,061 18,061
Accumulated deficit (14,960) (14,777)
------ ------
2,585 3,355
------ ------
$11,416 $14,485
====== ======
- ----------------------
*Derived from the Form 10-KSB.
**At November 2, 1998 this amount was a ($293,000).
See accompanying notes.
<PAGE>
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
(restated) (restated)
<S> <C> <C> <C> <C>
Revenue:
Oil $2,052 $2,978 $ 669 $ 949
Gas 520 260 199 93
NGLs 227 310 57 89
Interest and other 294 168 97 82
Gain on sale of prospects 343 113 106
----- ----- ----- -----
3,436 3,829 1,022 1,319
----- ----- ----- -----
Costs and expenses:
Lease operating 2,148 2,048 753 766
Depreciation, depletion
and amortization 366 329 124 118
General and
administrative 479 314 149 111
Impaired leasehold costs 26 12
Geological and geophysical 305 696 203 171
Dry hole 73 357 73 33
Interest 326 379 97 125
----- ----- ----- -----
3,697 4,149 1,399 1,336
----- ----- ----- -----
Loss before minority interest (261) (320) (377) (17)
Minority interest 78 5 113 5
----- ----- ----- -----
Net loss $ (183) $ (315) $ (264) $ (12)
----- ----- ----- -----
Net loss per share $ (.03) $ (.04) $ (.04) $ (.00)
===== ===== ===== =====
Weighted average shares
outstanding 7,093 7,093 7,093 7,093
===== ===== ===== =====
</TABLE>
See accompanying notes.
<PAGE>
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997*
-------- -------
(restated)
<S> <C> <C>
Net cash provided by operating activities $ 48 $ 92
------ ------
Cash flows (used in) investing activities:
Short-term investments 235 (3,212)
Additions to properties (722) (1,060)
Other assets (22) (88)
------ ------
Net cash (used in) investing activities (509) (4,360)
------ ------
Cash flows from financing activities:
Yorktown investment 5,025
Repayments of debt (2,146) (498)
------ ------
Net cash provided by (used in) financing activities (2,146) 4,527
------ ------
Net increase (decrease) in cash and cash equivalents (2,607) 259
Cash and cash equivalents, beginning of period 6,047 2,898
------ ------
Cash and cash equivalents, end of period $ 3,440 $ 3,157
====== ======
</TABLE>
See accompanying notes.
<PAGE>
HALLADOR PETROLEUM COMPANY
Notes to Financial Statements
1. The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only
of normal recurring adjustments necessary for a fair statement of the
results for the interim periods. The financial statements included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principals have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures
included herein are adequate to make the information presented not
misleading.
The organization and business of the Company, accounting policies
followed by the Company and other information are contained in the
notes to the Company's financial statements filed as part of the
Company's 1997 Form 10-KSB. This quarterly report should be read in
conjunction with such annual report.
2. During the fourth quarter of 1997, the Company changed from the full
cost method to the successful efforts method of accounting for its oil
and operations.
3. Comprehensive loss for the nine-month period ended September 30, 1998
is approximately $594,000 and the loss for the three-month period
ended September 30, 1998 is approximately $675,000. Per share amounts
are losses of $.08 and $.10, respectively.
<PAGE>
HALLADOR PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
YEAR-TO-DATE COMPARISON
- -----------------------
The table below provides sales data and average prices for the period.
<TABLE>
<CAPTION>
1998 1997
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Oil - barrels 173,810 $11.80 163,690 $18.19
Gas - mcf 243,390 2.14 105,200 2.47
NGLs- barrels 21,520 10.54 22,962 13.51
</TABLE>
Significantly lower oil prices caused the reduction in oil revenues. Gas
production more than doubled due to the two new gas wells in the Merlin
prospect, see below. The increase in oil production is attributable
primarily to TCW relinquishing its 18% net profits interest in the South
Cuyama field pursuant to the debt restructuring as discussed below.
South Cuyama field oil and gas prices at November 3, 1998, were $11.72/bbl
and $1.80/mcf. Gas prices in the Merlin prospect are currently $2.06/mcf.
QUARTER-TO-DATE COMPARISON
- --------------------------
The table below provides sales data and average prices for the third
quarters.
<TABLE>
<CAPTION>
1998 1997
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Oil - barrels 57,060 $11.72 57,292 $16.56
Gas - mcf 89,550 2.23 39,400 2.35
NGLs- barrels 7,008 8.12 7,766 11.51
</TABLE>
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons; except that during the third quarter 1997,
upon resolution of an ownership matter, the Company received approximately
$27,000 in oil revenue that related to prior periods. Consequently, 2,300
bbls of the third quarter production related to those periods.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash, short-term investments, and cash to be provided from operations are
expected to enable the Company to meet its obligations as they come due
and fund current planned activities.
THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 1997
FORM 10-KSB AND SHOULD BE READ IN CONJUNCTION THEREWITH.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
- ---------------------------------------------
THE MERLIN PROSPECT OF THE SAC BASIN - NORTHERN CALIFORNIA
-----------------------------------------------------------
There are two producing gas wells in this field. Due to depletion and
high line pressure, the current production from both wells has declined to
1.3 mmcfpd. Field compression is being installed which should bring the
combined production to 2 mmcfpd. There are additional reserves behind
pipe that will be perforated when the existing zones are depleted.
During September, another well was drilled resulting in a dry hole. The
existing 3-D seismic data and the new subsurface information gained from
this dry hole are being evaluated to identify future drilling prospects.
Based on the results of this evaluation, two wells are tentatively
scheduled to be drilled during early 1999.
BIG HORN BASIN - WYOMING
-----------------------
In January 1998, the Company sold a half interest in four of the nine
prospects it is developing for $597,000 to MCNIC Oil and Gas Corporation,
a large public utility headquartered in Detroit, Michigan resulting in a
gain of $320,000. During the third quarter, seismic operations were
completed on five prospect areas where the Company has working interests
ranging from 50% to 100%. The Company has incurred $154,000 in seismic
cost ($94,000 net to the Company), and depending on the results, plans to
drill a horizontal well when oil prices improve. The Company will be the
operator and the well is estimated to cost $500,000 ($250,000 net to the
Company).
In late April, the joint venture with Blackstone Energy was terminated;
the Company continues to remain active in the area.
SOUTH TEXAS
-----------
On May 4, 1998, the Company entered into a joint venture with Indexgeo &
Associates of Houston, Texas to acquire seismic options in Colorado
County, Texas (75 miles west of Houston). The costs for the seismic
options to Hallador's 90% JV interest are $153,000. It is the intent of
the JV to turn the options to a third party to shoot 3-D seismic. 3-D
seismic has been successful in this area in identifying economic drilling
locations in the Yegua and Wilcox formations. To date, the Company has
entered into options to lease approximately 4,500 acres. The joint venture
has sold 43% of the prospect on a promoted basis (1/3 for 1/4) and plans
to sell an additional 32% by year-end. If successful, the joint venture
will recover all of its costs and be carried for a 25% interest in the
seismic costs. If well locations are identified from the 3-D seismic, the
joint venture will be responsible for its 25% share.
PARADOX BASIN - UTAH
--------------------
During June, approximately 6,000 acres were leased in the Paradox Basin,
Utah (within 25 miles of the Four Corners) within the Rapids Prospect
area. Geologic and geophysical studies are underway in support of a
future 3-D seismic survey. The Company plans to invest $200,000 in this
area.
The Company plans to sell 75% of this prospect on a promoted basis (1/3
for 1/4) which would result in a 25% carried interest in the acreage and
seismic costs.
CARBON COUNTY - MONTANA
-----------------------
During October, the Company participated in a new discovery located in the
Dry Creek field of Carbon County, Montana. The Company has a 7.5% WI
(4.875% APO) and a 6% NRI (3.9% APO). The well was drilled based on 3-D
surveys. In mid-1999, the Company plans to participate in additional
wells. The total prospect covers 3,000 acres.
LOW OIL PRICES
- --------------
Due to low oil prices in the South Cuyama field, the Company implemented
cost reduction measures. These included the shut-in of marginal wells and
the reduction in the utilization of service rigs. These factors helped
the Company achieve lower operating costs, but also resulted in lower
production for the second and third quarters. Approximately 150 bopd in
marginal production have been shut-in. Based on current South Cuyama
field oil prices of $11.72, the field is generating minimal cash flow.
CATALYTIC CONVERTER INVESTMENT
- ------------------------------
On April 21, 1998, Hallador paid $20,000 for a six-month option to acquire
a 5% ownership position in Catalytic Solutions, Inc. located in Oxnard,
California (a Los Angeles suburb). The Company declined to exercise its
option on October 19, 1998. Negotiations are on going to restructure the
Company's potential $300,000 investment for a 5% ownership position.
TCW DEBT
- --------
The South Cuyama field, the Company's principal asset, is pledged to TCW.
On April 9, 1998, the debt was restructured. In return for (i) a cash
payment of $1.8 million on May 1, 1998, (ii) monthly payments of $92,000
beginning June 1, 1998, (iii) a balloon payment approximating $2.7 million
due on June 1, 1999, and (iv) an increase in the interest rate from 9% to
12% TCW agreed to relinquish its 18% net profits interest in the field
effective April 1, 1998.
AVAILABLE-FOR-SALE SECURITIES
- -----------------------------
<TABLE>
<CAPTION>
September 30, 1998
Shares Costs Market Value
------ -------- ------------
<S> <C> <C> <C>
R&B Falcon Corporation (FLC-NYSE) 26,000 $ 579,000 $ 314,000
Rowan Companies Inc. (RDC-NYSE) 26,000 513,000 294,000
Pool Energy Services Company (PESC-NASDAQ) 13,000 122,000 118,000
Ensco International Inc. (ESC-NYSE) 19,000 306,000 207,000
--------- ---------
Totals $1,520,000 $ 933,000
========= =========
</TABLE>
<TABLE>
<CAPTION>
November 2, 1998
Shares Costs Market Value
------ -------- ------------
<S> <C> <C> <C>
R&B Falcon Corporation (FLC-NYSE) 26,000 $ 579,000 $ 387,000
Rowan Companies Inc. (RDC-NYSE) 23,000 471,000 362,000
Pool Energy Services Company (PESC-NASDAQ) 10,000 95,000 142,000
Ensco International Inc. (ESC-NYSE) 13,000 228,000 189,000
--------- ---------
Totals $1,373,000 $1,080,000
========= =========
</TABLE>
During the second quarter, the Company decided to make several investments
in certain publicly traded drilling and service companies. Through
November 2, 1998 $77,500 in short-term gains were recognized from trading
the above securities.
THE YEAR 2000-Y2K
- -----------------
During 1997, the Company installed a new accounting system that is year
2000 compliant. The Company is investigating the computer system used in
the operations of the Field to determine what revisions are required in
order for the software to be year 2000 compliant. Such costs are not
expected to be material. The Company does not anticipate any Y2K problems
with any of its significant customers or suppliers.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
None of the new accounting pronouncements that have been issued will
affect the Company's future financial reporting.
OUTLOOK
- -------
If the low oil price environment continues, the Company anticipates a loss
for the year. Pursuant to FAS 121, Impairment of Long-lived Assets,
management periodically assesses the recoverability of the Company's
investment in oil and gas properties. Management believes that the low
oil price environment will not continue in the near term and that the
Company will ultimately recover its investment in the South Cuyama field.
Accordingly, no write-down is expected during 1998.
<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule; EDGAR filing only
(b) No reports on Form 8-K were filed during the quarter.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HALLADOR PETROLEUM COMPANY
Date: November 3, 1998 By: /s/ Victor P. Stabio
--------------------
Victor P. Stabio
Chief Executive Officer and
Chief Financial Officer
Signing on behalf of the registrant
and as principal financial officer.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000788965
<NAME> HALLADOR PETROLEUM COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,440
<SECURITIES> 978
<RECEIVABLES> 649
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,299
<PP&E> 18,797
<DEPRECIATION> 13,405
<TOTAL-ASSETS> 11,416
<CURRENT-LIABILITIES> 3,668
<BONDS> 3,177
0
0
<COMMON> 71
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,416
<SALES> 2,799
<TOTAL-REVENUES> 3,436
<CGS> 0
<TOTAL-COSTS> 3,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326
<INCOME-PRETAX> (183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (183)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains certain restated summary financial information for
the nine-month period ended September 30, 1997.
</LEGEND>
<CIK> 0000788965
<NAME> HALLADOR PETROLEUM COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<PP&E> 0
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<BONDS> 0
0
0
<COMMON> 0
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<TOTAL-REVENUES> 3,548
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<TOTAL-COSTS> 4,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 379
<INCOME-PRETAX> (315)
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<CHANGES> 0
<NET-INCOME> (315)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
