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 June 30, 1999
[ ] 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 August 13, 1999: 7,093,150
PART I. FINANCIAL INFORMATION
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998*
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,682 $ 3,073
Marketable securities (cost-$1,343 and $2,029) 1,007 1,224
Accounts receivable-
Oil and gas sales 279 226
Well operations 184 234
Right-of-way rental 166
Prospect sale 167
------- -------
Total current assets 3,152 5,090
------- -------
Oil and gas properties (successful efforts), at cost:
Unproved properties 256 264
Proved properties 19,383 18,878
Less - accumulated depreciation
depletion, amortization and impairment (13,747) (13,508)
------- -------
5,892 5,634
------- -------
Oil and gas operator bonds 228 155
Investment in Catalytic Solutions 70 70
Other assets 122 113
------- -------
$ 9,464 $ 11,062
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Brokerage account-marketable securities $ 339 $ 284
Accounts payable and accrued liabilities 226 224
Oil and gas sales payable 40 70
------- -------
Total current liabilities 605 578
------- -------
Bank debt 1,385 3,231
------- -------
Key employee bonus plan 226 218
------- -------
Other 101 101
------- -------
Minority interest 4,540 4,614
------- -------
Stockholders' equity:
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
Net unrealized gain (loss) on marketable securities 155 (305)
Accumulated deficit (15,680) (15,507)
------- -------
2,607 2,320
------- -------
$ 9,464 $ 11,062
======= =======
</TABLE>
- -----------------------------
*Derived from the Form 10-KSB.
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Oil $1,102 $1,383 $ 661 $ 710
Gas 184 321 89 222
NGLs 91 170 47 85
Gain on sale of prospects 343 23
Interest and other 45 197 15 88
Non-recurring water disposal fee, net 208
Gain on stock sales 216 141
----- ----- ----- -----
1,846 2,414 953 1,128
----- ----- ----- -----
Costs and expenses:
Lease operating 1,175 1,395 652 715
General and administrative 329 330 179 190
Exploration costs 266 102 174 29
Interest 84 229 30 109
Depreciation, depletion and amortization 239 242 148 142
----- ----- ----- -----
2,093 2,298 1,183 1,185
----- ----- ----- -----
Income (loss) before minority interest (247) 116 (230) (57)
Minority interest 74 (35) 69 17
----- ----- ----- -----
Net income (loss) $ (173) $ 81 $ (161) $ (40)
===== ===== ===== =====
Net income (loss) per share $ (.02) $ .01 $ (.02) (1)
===== ===== =====
Weighted average shares outstanding 7,093 7,093 7,093 7,093
===== ===== ===== =====
</TABLE>
(1) Less than $.01.
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
------- -------
<S> <C> <C>
Net cash provided by operating activities $ 99 $ 524
------ ------
Cash flows from investing activities:
Marketable securities 471 1,135
Properties (263) (878)
Other assets (82) (24)
Prospect sales 175
------ ------
Net cash provided by investing activities 301 233
------ ------
Cash flows from financing activities:
Repayments of debt (1,846) (1,941)
Brokerage account 55 115
------ ------
Net cash used in financing activities (1,791) (1,826)
------ ------
Net decrease in cash and cash equivalents (1,391) (1,069)
Cash and cash equivalents, beginning of period 3,073 6,047
------ ------
Cash and cash equivalents, end of period $ 1,682 $ 4,978
====== ======
Notes to Financial Statements
1. The interim financial data is unaudited; however, in our opinion, 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 data has been prepared pursuant to the SEC's rules and
regulations; accordingly, certain information and footnote disclosures
normally included in annual financial statements have been omitted.
We strongly encourage readers of this quarterly report to read our 1998
Form 10-KSB which includes information about the company's organization and
accounting policies.
2. Commencing January 1, 1999, we began amortizing, using the units-of-
production method, the estimated future costs to P&A the Field's 276 wells.
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>
<TABLE>
<CAPTION>
1999 1998
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Oil - barrels 90,300 $12.20 116,750 $11.84
Gas - mcf 103,000 1.79 153,850 2.08
NGLs - barrels 9,500 9.62 14,500 11.72
</TABLE>
Because of low oil prices in the early part of the year, we performed a study to
weigh the benefits of higher production versus higher LOE. Consequently even
though our oil production levels have dropped, so has the LOE. During the first
half of 1998 we had 20 field employees compared to 17 for the 1999 period.
Furthermore, our electrical expenses dropped by more than 1/3. We continue to
monitor this relation. If higher oil prices continue, we will bring on to
production wells that are currently shut-in just as long as the incremental
revenue is greater than the incremental LOE.
Gas production continues to decline in the field. New production from the
Merlin prospect has offset this to some degree; however, production from these
wells has dropped compared to last year. During the third quarter we expect
the two new South Texas gas wells to alleviate part of our declining gas
production.
The Field's oil price on August 12, 1999 was $18.30/bbl. Gas prices in the
Merlin prospect are currently $2.30/mcf.
During January 1999, we earned over $242,000 in non-recurring fees for allowing
a third party to dispose water in the Field's disposal system from a blowout gas
well 80 miles away. Associated expenses were approximately $34,000.
We recently decided to begin amortizing, using the units-of-production method,
the estimated future costs to P&A the Field's 276 wells. Included in DD&A
expense for the six months ended June 30, 1999 is $37,000 associated with these
estimated future costs.
QUARTER-TO-DATE COMPARISON
- --------------------------
The table below provides sales data and average prices for the period.
<TABLE>
<CAPTION>
1999 1998
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Oil - barrels 46,000 $14.37 63,250 $11.22
Gas - mcf 53,000 1.67 109,900 2.02
NGLs - barrels 4,970 9.60 7,990 10.58
</TABLE>
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash, marketable securities, and cash to be provided from operations are
expected to enable the Company to meet its obligations as they come due and fund
planned activities.
The Field, our principal asset, is pledged to U. S. Bank under a $3,000,000
revolving line of credit executed on March 10, 1999. The proceeds from this
revolver were used to payoff Trust Company of the West. The principal is due
on March 31, 2002. On March 15, 1999, at our discretion, we paid down
$2,000,000 on the revolver.
THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 1998 FORM
10-KSB AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
- ---------------------------------------------
South Cuyama Field
------------------
During June and July the permitting and surveying was completed for the initial
stage of the 3-D seismic project. During September the shooting will commence.
Western Geophysical (a subsidiary of Baker Hughes) has been contracted to
perform the shooting and processing. Results of the seismic project will not be
known for several months.
Two oil wells were drilled during July. One was to test a theory of down-
spacing and the second was to test a theory for production in new zones. The
first well reached total depth and is still being evaluated. Preliminary
results indicate that the well will produce. The second well spud on July
30, and results will not be known for several more weeks. The wells in the
field are based on 10-acre spacing. The first well is the first down-spaced
well drilled in the field. If it proves successful, up to ten more wells may
be drilled using five-acre spacing. The second well was drilled in an unproven
area of the field and if it proves successful, up to five additional wells could
be drilled next year.
We have budgeted over $1,000,000 (a substantial portion of our liquidity) for
the seismic and drilling projects described above. These types of investments
are high-risk, high-reward.
San Juan Basin
--------------
During the first quarter, we thought we might participate in a 14,000'
exploratory well which Burlington Resources planned to drill in June. Now,
we plan to farm out our working interest to Burlington Resources and not
participate.
A study is in process to investigate down-spacing of some of the wells in the
field. This could involve the drilling of five or six additional wells. The
results of the study will not be known for several months.
Merlin Prospect of the Sac Basin - Northern California
-------------------------------------------------------
The two wildcats drilled in March and April resulted in one dry hole and one
successful well. The wildcat well originally planned for June has been delayed
indefinitely. Equity Oil Company of Salt Lake City, Utah is the operator.
Big Horn Basin - Wyoming
------------------------
The horizontal well planned for June has been cancelled. We plan to sell all of
our interest in this area.
South Texas
-----------
The first two wells were drilled and completed in June. Both wells are on
production making about 250 mcfpd each. We have a 19% working interest (15%
revenue interest). Indexgeo & Associates of Houston, Texas is the operator.
A third well, to test the Wilcox sand, should spud before the end of August.
Our share of dry-hole costs are estimated to be $50,000 and completion costs
another $45,000.
Paradox Basin - Utah
--------------------
Now that oil prices have rebounded we plan to devote more time in turning this
prospect.
Catalytic Solutions Investment
- ------------------------------
There has been no change from what we discussed in the Form 10-KSB.
Available-For-Sale Securities
- -----------------------------
During the second quarter of 1998, we made several investments in certain
publicly traded drilling and service companies. During the fourth quarter
of 1998 we recognized an impairment of $400,000 for the R&B Falcon investment
and an impairment of $100,000 for the Rowan investment. During the second
quarter $9,000 of the $400,000 impairment was recognized as profit due to the
sale of certain Falcon shares. The table below shows the positions at June
30, 1999 and August 12, 1999. Trading profits of $216,000 were recognized
during the first six months and from July 1, through August 12, they were
$83,000. Cumulative trading profits from the second quarter of 1998 through
August 12, 1999 have been $388,000.
<TABLE>
<CAPTION>
June 30, 1999
Shares Cost Market Value
------ -------- ------------
<S> <C> <C> <C>
R&B Falcon Corporation (FLC-NYSE) 47,000 $ 790,000 $ 441,000
Rowan Companies Inc. (RDC-NYSE) 20,000 415,000 365,000
Pool Energy Services Company (PESC-NASDAQ) 5,000 48,000 101,000
Ensco International Inc. (ESV-NYSE) 5,000 90,000 100,000
--------- ---------
Subtotal 1,343,000 1,007,000
Impairment (491,000)
--------- ---------
$ 852,000 $1,007,000
========= =========
</TABLE>
<TABLE>
<CAPTION>
August 12, 1999
Shares Cost Market Value
------ -------- ------------
<S> <C> <C> <C>
R&B Falcon Corporation (FLC-NYSE) 32,000 $ 652,000 $ 392,000
Rowan Companies Inc. (RDC-NYSE) 15,000 316,500 299,000
--------- ---------
Subtotal 968,500 691,000
Impairment (491,000)
--------- ---------
$ 477,500 $ 691,000
========= =========
Y2K
- ---
During June 1999, we upgraded our accounting software to be Y2K compliant. The
Company has no contingency plans because if necessary, all critical functions
can be performed without the aid of computers. The Company has no reason to
believe that there will be Y2K type problems with its customers or suppliers.
New Accounting Pronouncements
- -----------------------------
None of the new accounting pronouncements that have been released will affect
our 1999 financial reporting.
1999 Outlook
- ------------
If the recent increase in oil prices is sustained, we expect positive cash flow
from operations before exploration and G & G costs for the remainder of the
year.
Environmental and Regulation
- ----------------------------
We are directly affected by changing environmental rules and regulations.
Although we believe our operations and facilities are in compliance with
applicable environmental regulations, risk of substantial cost and liabilities
resulting from an unintentional breach of environmental regulations are inherent
to oil and gas operations. It is possible that other developments, such as
increasingly strict environmental laws, regulations, and enforcement policies
or claims for damages could result in significant costs and liabilities
in the future.
The California legislature passed a bill, which increased our operator's bond
from $100,000 to $250,000 to be phased in over a five-year period. In addition,
an idle well bill was passed to insure that funds will be available to
properly plug and abandon (P&A) California wells upon their depletion.
Over the next ten years we, as the Field's operator, are required to place in
an interest-bearing escrow account $500 per year for each idle well in the
Field until such well is plugged and abandoned or until $5,000 has been
deposited. The first $60,000 installment was paid in June 1999. We estimate
that after eight annual installments ($480,000) we will have met the current
funding obligation of $600,000 considering the interest to be earned. As the
Field depletes, and more wells move from the producing category to the idle-well
category we will have to make additional annual payments. Presently, there are
276 wells in the field, 119 of which are classified as "idle."
We recently decided to begin amortizing, using the units-of-production method,
the estimated future costs to P&A the Field's 276 wells. Included in DD&A
expense for the first six months ended June 30, 1999 is $37,000 associated with
these estimated future costs.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 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: August 13, 1999 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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,682
<SECURITIES> 1,007
<RECEIVABLES> 463
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,152
<PP&E> 19,383
<DEPRECIATION> 13,747
<TOTAL-ASSETS> 9,464
<CURRENT-LIABILITIES> 605
<BONDS> 1,385
0
0
<COMMON> 71
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,464
<SALES> 1,377
<TOTAL-REVENUES> 1,846
<CGS> 0
<TOTAL-COSTS> 2,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> (173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (173)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
