UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number: 0-14731
HALLADOR PETROLEUM COMPANY
COLORADO 84-1014610
(State of incorporation) (IRS Employer Identification No.)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264-2701
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303.839.5504 Fax: 303.832.3013
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.Ol par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of he Exchange Act 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 the filing requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [XI
Our revenue for the year ended December 31, 1999 was $4,924,000.
At March 23, 2000, we had 7,093,150 shares outstanding and the aggregate market
value of such shares held by non-affiliates was about $1 million based on the
closing price that day of $1.19.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business
- -------------------------------
Hallador Petroleum Company, a Colorado corporation, was organized by our
predecessor in 1949.
About three years ago, Yorktown Energy Partners II and affiliates (Yorktown)
invested $5,025,000 in Hallador Petroleum, LLP, a newly formed limited
liability limited partnership. We are the general partner and received a 70%
interest in the partnership in return for contributing our net assets, and
Yorktown represents the limited partners and received a 30% interest for its
$5,025,000 cash contribution. As general partner, we consolidate the
activity of the partnership and present the 30% limited partners' interest as a
minority interest.
We and our principal operating subsidiaries, Hallador Production Company and
Hallador Petroleum, LLP, are engaged in the exploration, development and
production of oil and natural gas. our principal and administrative offices
are located at 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264, phone
303.839.5504, fax 303.832.3013. The South Cuyama field office is located in
New Cuyama, California. we have no website.
Over 87% of our oil and gas revenue is attributable to the South Cuyama field
(the "SC Field") located in Santa Barbara County, California, approximately
75 miles southwest from Bakersfield, California. We own 92% of Santa Barbara
Partners (SBP), an Oklahoma general partnership, which has a 93% working
interest (78% net revenue interest) in the SC Field. The SC Field's oil
reserves consist of light oil at 29 degree gravity.
we operate oil and natural gas properties for our own account and for the
account of others. we also review and evaluate producing oil and natural gas
properties, companies, or other entities, which meet certain guidelines for
acquisition purposes. In addition, we engage in the trading and acquisition
of non-producing oil and gas mineral leases and fee-simple minerals.
Markets
- -------
Our products are sold to various purchasers in the geographic area of the
properties. Natural gas, after processing, is distributed through pipelines.
oil and natural gas liquids (NGLS) are distributed through pipelines or
hauled by trucks. The principal uses for oil and natural gas are heating,
manufacturing, power, and transportation.
As of March 28, 2000, we were receiving $25 per barrel for our California oil
production which is about $8 more than the average price received during 1999
and about $13 above the average price received during 1998. The SC Field's oil
is sold to EOTT Energy Corp. pursuant to a "spot market" contract, which can be
cancelled by either party with 30 days notice. The contract pays an $.85 per
barrel premium to "spot market" postings.
The SC Field's natural gas is sold to Aera Energy, L.L.C., a joint venture
between Exxon Mobil and Shell, pursuant to a "spot market" contract, which can
be cancelled by either party with 30 days notice.
NGLs are sold to EOTT Energy Corp. pursuant to a "spot market" contract, which
can be cance*d by either party with 60 days notice.
Competition
- -----------
The oil and gas industry is highly competitive. We encounter competition from
major and independent oil companies in acquiring economically desirable
producing properties, drilling prospects, and even the equipment and labor
needed to drill, operate and maintain our properties. Competition is intense
with respect to the acquisition of producing and partially developed properties.
We compete with companies having financial resources and technical staffs
significantly larger than our own. We do not own any refining or retail
outlets and have minimal control over the prices of our products. Generally,
higher costs, fees and taxes assessed at the producer level cannont be passed
on to our customers.
We also face competition from imported products as well as alternative sources
of energy such as coal, nuclear, hydroelectric power, and a growing trend
toward solar. We could incur delays or curtailments of the purchase of our
available production. We may also encounter increasing costs of production and
transportation while sales price remain stable or decline. Any of these
competitive factors could have an adverse effect on our operating results.
Environmental and Other Regulations
- -----------------------------------
Our operations are affected in varying degrees by federal, state, regional and
local laws and regulations, including, but not limited to, laws governing
allowable rates of production, well spacing, air emissions, water discharges,
endangered species, marketing, prices and taxes. We are further affected by
changes in such laws and by constantly changing administrative regulations.
Most natural gas pricing is presently deregulated and the remaining regulation
has no material impact on our prices. We cannot predict the long-term impact of
future natural gas price regulation or deregulation.
We are subject to various federal, state, regional and local laws and
regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the owner or the lessee for the cost of pollution clean-up
resulting from operations, subject the owner or lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas or impose restrictions on injection into subsurface aquifers that may
contaminate ground water. Such regulation has increased the resources
required in, and costs associated with, planning, designing, drilling,
installing, operating, and abandoning our oil and natural gas wells and
other facilities. We spend a significant amount of technical and managerial
time to comply with environmental regulations and permitting requirements.
We have and will continue to make expenditures to comply with these
requirements, which we believe are necessary business costs. Although
environmental requirements do have a substantial impact upon the energy
industry, generally these requirements do not appear to effect us any
differently or to any greater or lesser extent than other companies in
California.
Although we are not fully insured against all environmental and other risks,
we maintain insurance coverage, which we believe, is customary in the industry.
We are not aware of any environmental claims, which could have a material
impact upon the our financial condition.
During 1999, we incurred about $82,000 to comply with these recurring
environmental regulations. We estimate that such expenditures for 2000 and
for each year thereafter in the foreseeable future will approximate $86,000.
we will continue to use our best efforts to comply with all applicable
environmental laws and regulations. See Item 6 - Management's Discussion and
Analysis (MD&A) for a discussion regarding idle wells in the SC Field.
To the extent these environmental expenditures reduce funds available for
could be adversely impacted. Despite the fact that all of our competitors
have to comply with similar regulations, many are much larger and have greater
resources with which to deal with these regulations.
Other
- -----
We have no significant patents, trademarks, licenses, franchises, or
concessions.
The oil business is not generally seasonal in nature; although unusual weather
extremes for extended periods may increase or decrease demand. Natural gas
prices tend to increase in the fall and winter months and to decrease in the
spring and summer.
We have 28 employees; seven are located at our executive office in Denver and
21 are located at the SC Field. When needed we also engage consulting
petroleum engineers, environmental professionals, geologists, geophysicists,
landmen, accountants and attorneys on a fee basis.
ITEM 2. DESCRIPTION OF PROPERTY
Location and General Character
- ------------------------------
Our various operating areas consist of (i) the SC Field located 75
miles southwest from Bakersfield, California, (ii) the Sac Basin located 70
miles north of Sacramento, (iii) "South Texas", located 75 miles west of Houston
and, (iv) the San Juan Basin, located in the northwest corner of New Mexico.
Revenue from the SC Field accounted for 87% of 1999 oil and gas revenue, South
Texas accounted for 2%, the Sac Basin accounted for 7%, and San Juan accounted
for 4%.
We hold our working interests in oil and natural gas properties either through
recordable assignments, leases, or contractual arrangements such as operating
agreements. Consistent with industry practices, we do not make a detailed
examination of title when we acquire undeveloped acreage. Title to such
properties is examined by legal counsel prior to commencement of drilling
operations. This method of title examination is consistent with industry
practices.
In the acquisition and operation of oil and natural gas properties, burdens such
as royalty, overriding royalty, liens incident to operating agreements, liens by
taxing authorities as well as other burdens and minor encumbrances are
customarily created. We believe that no such burdens materially affect the
value or use of our properties.
Proved Oil and Gas Reserves
- ---------------------------
Information concerning our reserve estimates is set forth in Note 7 to the
financial statements. The reserve estimates were prepared by a consulting
petroleum engineer. All of our oil and gas reserves are located onshore.
The South Cuyama Field
- ----------------------
Discovered in 1949 in the Cuyama Valley, Santa Barbara County, California, the
SC Field became the largest oil field found to date in the valley and is located
approximately 75 miles southwest from Bakersfield. By 1951, the SC Field
contained 200 wells producing approximately 40,000 barrels of oil per day.
Since inception, the SC Field is estimated to have produced and sold over 222
million barrels of crude oil. Current oil production to the 100% is about 900
barrels per day. Currently, there are 67 producing wells. The wells produce
from a depth range of 3,900 to 4,800 feet.
Sales and Price Data for all Properties
- ---------------------------------------
See Item 6 - MD&A.
Producing Wells
- ---------------
As of March 27, 2000, we had a working interest in 59 gross (52 net) oil wells
and 33 gross (10 net) gas wells.
Leasehold Interests
- -------------------
The following table sets forth our gross and net acres of undeveloped oil and
gas leases as of March 27, 2000:
<TABLE>
<CAPTION>
State Gross Net
----- ----- ---
<S> <C> <C>
South Cuyama, California 3,375 3,054
Sac Basin, California 1,605 461
North Dakota 47,326 7,209
Texas 1,325 236
Utah 8,048 8,048
Wyoming 37,187 33,835
------ ------
Total 98,866 52,843
====== ======
</TABLE>
We have an interest in 3,077 gross (2,707 net) developed acres in the SC Field.
Drilling Activity
- -----------------
During 1999, we drilled six development oil wells in the SC Field. Four were
successful and two were dry. In the Sac Basin we drilled three exploratory
gas wells.
One was successful and the other two were dry. In South Texas we drilled four
exploratory gas wells. Three were successful and one experienced mechanical
problems after producing for several months and will be P & A. We have an
88% WI in the SC Field, a 30% WI in the Sac Basin and a 19% WI in South Texas.
During 1998, we drilled two exploratory gas wells in the Sac Basin, one was
successful and the other was dry. We have a 30% WI in this field. We also
drilled an unsuccessful exploratory gas well in South Texas where we had a
15% WI.
ITEM 3. LEGAL PROCEEDINGS: None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the OTC Bulletin Board under the symbol "HPCO".
The following table sets forth the high and low closing price for the periods
indicated:
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
2000
First quarter (through March 23, 2000) $1.19 $ .66
1999
First quarter .75 .75
Second quarter 1.00 .75
Third quarter 1.06 .88
Fourth quarter .75 .66
1998
First quarter 1.75 1.37
Second quarter 1.31 1.25
Third quarter 1.00 .88
Fourth quarter 1.19 .75
</TABLE>
The quotations reflect inter-dealer prices, without retail mark-up, markdowns,
or commissions and may not represent actual transactions.
During the last two years no dividends were paid. We have no present intention
to pay any dividends in the foreseeable future.
As of March 23, 2000 there were 439 holders of record of our common stock and
the closing price was $1.19.
ITEM 6. MANAGEMENTIS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
- --------
Our financial statements should be read in conjunction with this discussion.
Our various operating areas consist of (i) the South Cuyama field located 75
miles southwest from Bakersfield, California, (ii) the Sac Basin located 70
miles north of Sacramento, (iii) "South Texas" located 75 miles west of
Houston and (iv) the San Juan Basin located in the northwest corner of
New Mexico. Due to its significance, our value depends on the estimated
future cash flows from the SC Field. We intend to maximize cash flow by
continuing to increase oil production and keeping operating expenses low.
Future operations will also be affected by the results of the development
and exploration activity discussed below.
About three years ago, Yorktown Energy Partners II and affiliates (Yorktown)
invested $5,025,000 in Hallador Petroleum, LLP, a newly formed limited
liability limited partnership. We are the general partner and received a
70% interest in the partnership in return for contributing our net assets
and Yorktown represents the limited partners and received a 30% interest for
its $5,025,000 cash contribution. As general partner, we consolidate the
activity of the partnership and present the 30% limited partners' interest as
a minority interest.
Our profitability in any particular accounting period will be directly
related to: (i) prices, (ii) production, (iii) lifting costs, and (iv)
exploration activities. Accordingly, operating results will fluctuate from
period to period based on these factors, among others.
At a March 9, 2000 Board meeting, we were directed to explore means to
enhance shareholder value. Some of the alternatives being considered are:
(i) our selling or merging, (ii) selling the SC Field, and/or (iii) a
restructuring of our current ownership.
What follows is a discussion of our various operating areas.
South Cuyama Field
------------------
In late September 1999, we decided to terminate the 3-D seismic project.
Exit costs were about $20,000. The money originally budgeted for the 3-D
seismic project was used for the drilling of six development oil wells.
Of the six wells drilled, two are producing 80 bopd each, one is at 20 bopd,
one is at 12 bopd, one was a dry hole, and one is temporarily abandoned.
The cost for these wells to the 100% were $1,750,000 ($1,500,000 net to us).
We have an 88% WI (74% NRI) in the SC Field. Our PV10 resulting from these
new wells is $3.8 million.
Our pre-tax PV10 for the SC Field, including these new wells, is $20 million
based on year-end oil prices of $23.45 per barrel. The SC Field has an
estimated remaining life of 20 years.
In late November 1999, we purchased an eight-percent (8%) WI from SMR Inc. for
$462,000 net to us. We sold this same interest to SMR in 1992 for
$1,700,000. At current prices, we expect payback in less than 14 months.
We are substantially complete with the electrification program of the
SC Field. When we started the project we had 78 gas engines, presently
only nine remain. we plan to electrify these nine engines before year-end
2000.
In April 1999, we purchased two used service rigs for a total of $125,000
($110,000 net to us). Six additional employees were hired to work these two
rigs. We estimate that we are saving about $200,000 ($176,000 net to us)
per year by using our employees and equipment compared to an outside third
party.
The Merlin Prospect of the Sac Basin - Northern California
----------------------------------------------------------
The Merlin prospect is located about 70 miles north of Sacramento, California.
Presently, we have three producing gas wells and no further drilling is
planned. Current production to the 100% is 2,200 mcfpd (521 mcfpd net to
us). This field has an estimated remaining life of three years. Our PV10
for this field is $287,000.
Davis Ranch Prospect of the Sac Basin
--------------------------------------
This prospect which is approximately 20 miles south of the Merlin prospect
was brought to us by Equity Oil Company, the operator of the Merlin prospect.
During May 2000, we plan to participate in the drilling of two exploratory
gas wells. We have a 29% WI (23% NRI). The AFE to drill and complete each
well is about $500,000 to the 100%. Our investment would be about $300,000.
South Texas
----------
We drilled four exploratory wells in this prospect during the year. Three
were successful and one experienced a mechanical problem, after producing
for several months, and will be plugged and abandoned. Current production
to the 100% is 1,200 mcfpd (188 mcfpd net to us). Our PVIO for this field
is $568,000. This field has an estimated remaining life of four years.
During the summer, we plan to drill another exploratory gas well in this
area. AFE to the 100% is $250,000 (about $50,000 net to us).
San Juan Basin
--------------
During the second quarter of 2000, we plan to drill three development gas
wells. We will be the operator and have a 6% WI (5% NRI). Each well has
an AFE of $600,000, to the 100%, to drill and complete. If successful, this
drilling program could double the current production in the field.
Presently, we have an interest in 19 wells in this field, which collectively
produce about 2,100 mcfpd to the 100% (178 mcfpd net to us). Our PV10 for this
field is $400,000. This field has an estimated remaining life of 20
years.
Paradox Basin - Utah
--------------------
During June 1998, we leased about 6,000 acres in the Paradox Basin, Utah
(about 25 miles from the Four Corners area). Geological and geophysical
studies are underway in support of a future 3-D seismic survey. We invested
$200,000 in this area and plan to turn this prospect before year-end 2000.
Catalytic Solutions Investment
- ------------------------------
During 1998, we invested $62,000 for a half percent (.005) ownership in
Catalytic Solutions, Inc. (CSI) located in Oxnard, California (a Los Angeles
suburb). CSI manufactures catalytic converters that reduce toxic emissions
from internal combustion engines. In November 2000, we plan to exercise a
$100,000 warrant which would give us an additional half percent in CSI,
resulting in a total ownership of about 1%.
Marketable Securities
- ---------------------
In June 1998 and through November 1999, we invested in several publicly traded
drilling and services companies. we sold all of our interest in these companies
in late November and have no plans to make similar investment in the future.
During this 18 month period, we recognized a net gain of about $161,000 from
these investments.
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 liability in the future.
In January 1999, the California legislature passed a bill, which increased our
operator's bond from $100,000 to $250,000 over a five-year period. In
addition, an idle well bill was passed to ensure 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 SC Field's operator, are required to place in
an interest-bearing escrow account $500 per year for each idle well in the
SC 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
SC 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 280 wells in the SC Field, 119 of which are classified
as "idle".
During 1999, we began amortizing, using the units-of-production method, our
share of the estimated future costs ($1,215,000) to P&A the SC Field's 280
wells. Included in the DD&A expense for 1999 was $85,000 associated with
these estimated future costs.
Liquidity and Capital Resources
- --------------------------------
Cash and cash to be provided from operations are expected to enable us to
meet our obligations as they become due during the next several years.
The SC Field, our principal asset, is pledged to U. S. Bank National
Association under a $3,500,000 revolving line of credit. Presently, we owe
$1,231,000 under this line.
RESULTS OF OPERATIONS
YEAR-TO-DATE COMPARISON
- -----------------------
The table below (in thousands) 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
South Cuyama field 195 $16.83 214 $11.59
Other 2 15.00 9 11.44
Gas - mcf
South Cuyama field 35 2.44 61 2.11
Other 210 2.17 239 2.11
NGLS- barrels
South Cuyama field 16 12.25 23 9.83
Other 4 10.75 4 13.75
</TABLE>
LOE per equivalent barrel was $10.23 for 1999 and $9.50 for 1998.
Higher oil prices offset lower oil production from the SC Field.
Gas production continues to decline in the SC Field. New production from
the Merlin and South Texas prospect has offset this to some degree; however,
production from the Merlin wells declined compared to last year.
Hedging Activities
- ------------------
We have never entered into such transactions and at this time do not expect to.
New Accounting Pronouncements
- -----------------------------
None of the new accounting pronouncements that have been released will affect
our 2000 financial reporting.
2000 Outlook
- ------------
Assuming current oil prices remain in the $25 range and we drill no dry holes,
we estimate net income for the year 2000 to be in the $1 million range. This
is a "forward-looking" statement and actual results will differ due to
changing oil and gas prices, potential dry holes, lifting costs, and the five
issues listed below.
Risk Factors
- ------------
The five issues that cause us worry are:
1. OPEC deciding to significantly increase production, which would result in a
free fall of oil prices.
2. Although the SC Field has a 50-year operating history, the reserve
estimates could be overstated.
3. We never know what adverse rules or regulations could be passed by our
regulatory agencies such as the EPA (Environment Protection Agency), BLM
(Bureau of Land Management), DOG (California Division of Oil & Gas),
and the SBAPCD (Santa Barbara County Air Pollution Control District).
4. The SC Field is a high-water-cut oil field meaning that we move about 30,000
barrels of water per day in order to produce about 900 barrels of oil per
day. Such fields have a high break-even point and consequently depend on a
relatively high oil'price to make money.
5. California is prone to earthquakes. Certain types of earthquakes could
shear the casing heads resulting in catastrophic damage to the SC Field.
Earthquake insurance is cost prohibitive.
ITEM 7. FINANCIAL STATEMENTS
Report of Independent Public Accountants
----------------------------------------
To Hallador Petroleum Company:
We have audited the accompanying consolidated balance sheet of Hallador
Petroleum Company (a Colorado corporation) and subsidiaries as of December 31,
1999 and the related consolidated statements of operations and cash flows for
each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hallador Petroleum Company
and subsidiaries as of December 31, 1999 and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 23, 2000
Consolidated Balance Sheet
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,957
Accounts receivable-
Oil and gas sales 600
Well operations 211
------
Total current assets 2,768
------
Oil and gas properties (successful efforts), at cost:
Unproved properties 236
Proved properties 21,133
Less - accumulated depreciation,
depletion, amortization and impairment (14,247)
------
7,122
------
Oil and gas operator bonds 228
Investment in Catalytic Solutions 62
Other assets 132
------
$10,312
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities 1,036
Oil and gas sales payable 74
------
Total current liabilities 1,110
------
Bank debt 1,231
------
Key employee bonus plan 234
------
Minority interest 4,763
Commitments and contingent liabilities (Note 6)
Stockholders, equity:
Preferred stock, $.l0 par value;
10,000,000 shares authorized; none issued
Common stock, $.Ol par value;
100,000,000 shares authorized; 7,093,150 shares issued 71
Additional paid-in capital 18,061
Accumulated deficit (15,158)
------
2,974
------
$10,312
======
</TABLE>
See accompanying notes.
Consolidated Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------ ------
<S> <C> <C>
Revenue:
Oil $3,303 $2,585
Gas 542 633
NGLs 239 281
Gain (loss) on sale of prospects (26) 397
Interest and other 87 285
Non-recurring water disposal fee, net 208
Non-recurring right-of-way road rentals 129
Gain on stock sales 571 90
----- -----
4,924 4,400
----- -----
Costs and expenses:
Lease operating 2,639 2,848
Exploration costs 344 657
Depreciation, depletion and amortization 638 469
General and administrative 662 606
Interest 143 360
Impairment of marketable securities 500
----- -----
4,426 5,440
----- -----
Income (loss) before minority interest 498 (1,040)
Minority interest (149) 311
----- -----
Net income (loss) $ 349 $ (729)
===== =====
Basic and diluted income (loss) per share $ .05 $ (.10)
===== =====
Weighted average number of shares outstanding 7,093 7,093
</TABLE>
Comprehensive loss for 1998 was about $942,000. Other than the results of
operations, there were no changes in stockholders, equity during 1999 and 1998.
See accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 349 $ (729)
Depreciation, depletion, and amortization 638 469
Minority interest 149 (311)
Change in accounts receivable (18) 40
Change in payables and accrued liabilities 140 (212)
Impairment of marketable securities 500
Gain on marketable securities (571)
Other 26
----- -----
Net cash provided by (used in)
operating activities 713 (243)
----- -----
Cash flows from investing activities:
Marketable securities 2,100 (229)
Properties (1,571) (622)
Other assets (74) (72)
----- -----
Net cash provided by (used in)
investing activities 455 (923)
----- -----
Cash flows from financing activities:
Repayment of borrowings (2,000) (2,092)
Brokerage account (284) 284
----- -----
Net cash used in financing activities (2,284) (1,808)
----- -----
Net decrease in cash and cash equivalents (1,116) (2,974)
Cash and cash equivalents, beginning of year 3,073 6,047
----- -----
Cash and cash equivalents, end of year $1,957 $3,073
===== =====
Interest paid $ 143 $ 360
</TABLE>
See accompanying notes.
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
- ---------------------------------------
The accompanying consolidated financial statements include the accounts of
Hallador Petroleum Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. we are engaged in
the exploration, development, and production of oil and natural gas primarily in
California.
On July 21, 1997, Yorktown Energy Partners II and affiliates (Yorktown) invested
$5,025,000 in Hallador Petroleum, LLP, a newly formed limited liability limited
partnership. We are the general partner and received a 70% interest in the
partnership in return for contributing our net assets, and Yorktown represents
the limited partners and received a 30% interest for its $5,025,000 cash
contribution. As general partner, we consolidate the activity of the
partnership and present the 30% limited partners' interest as a minority
interest.
We are a 92% partner in Santa Barbara Partners (SBP), a general partnership,
and account for our investment using the proportionate consolidation method.
SBP has a 93% working interest in the South Cuyama field.
Oil and Gas Properties
- ----------------------
We account for our oil and gas activities using the successful efforts method of
accounting. Under the successful efforts method, the costs of successful
wells, development dry holes and productive leases are capitalized and
amortized on a units-of-production basis over the remaining life of the related
reserves. Exploratory dry hole costs and other exploratory costs, including
geological and geophysical costs, are expensed as incurred. Delay rentals are
also expensed as incurred. Cost centers for amortization purposes are
determined on a field-by-field. Estimated future abandonment and site
restoration costs, net of anticipated salvage values, are accrued based on
units-of-production. Unproved properties with significant acquisition costs are
periodically assessed for impairment in value, with any impairment charged to
expense.
The carrying value of each field is assessed for impairment on a quarterly
basis. If estimated future undiscounted net revenues are less than the
recorded amounts, an impairment charge is recorded.
Statement of Cash Flows
- -----------------------
Cash equivalents include investments (primarily commercial paper) with
maturities of three months or less from the date of purchase.
Income Taxes
- ------------
Income taxes are provided based on the liability method of accounting pursuant
to FAS 109, Accounting for Income Taxes. The provision for income taxes is
based on pretax financial taxable income. Deferred tax assets and liabilities
are recognized for the future expected tax consequences of temporary
differences between income tax and financial reporting and principally relate
to differences in the tax basis of assets and liabilities and their reported
amounts, using enacted tax rates in effect for the year in which differences
are expected to reverse. If it is more likely than not that some portion or all
of a deferred tax asset will not be realized, a valuation allowance is
recognized.
Earnings (Loss) per Common Share
- --------------------------------
We follow the provisions of FAS 128, Earnings Per Share. Basic earnings per
share is computed based on the weighted average number of common shares
outstanding. Diluted earnings per share is computed based on the weighted
average number of common shares outstanding adjusted for the incremental shares
attributed to outstanding stock options. Options to purchase 750,000 of common
shares were not included in the 1999 computation of diluted earnings per share
because the option exercise prices was greater than the average market price of
our common stock. All stock options were excluded from the computation of
diluted earnings per share in 1998 because they were antidilutive, as a result
of recording a net loss.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period. Actual
amounts could differ from those estimates.
(2) BANK DEBT
The South Cuyama field, our principal asset, is pledged to U. S. Bank National
Association under a $3,500,000 revolving line of credit. The loan is interest
only, payable quarterly, at LIBOR + 1.75%. The LIBOR rate at December 31, 1999
was 5.12%. The principal is due on March 31, 2002.
(3) INCOME TAXES
------------
We have the following tax carryforwards at December 31, 1999 (in thousands):
Statutory depletion $ 3,500
Tax net operating losses (NOLs), utilization limited
(expires in 2000-2003) 5,300
Tax NOLS, utilization not limited (expires in 2005-2018) 5,300
We have fully reserved our net deferred tax asset account of about $3,200,000.
(4) STOCK OPTIONS AND BONUS PLANS
------------------------------
Stock Option Plan
- -----------------
In December 1995, we granted to our CEO 620,000 options and another 62,000
options to other employees at an exercise price of $1.00. These options are
fully vested. No options were granted in 1998. At December 31, 1998, 71,000
options were available for grant under the plan and 682,000 were outstanding.
During 1999, we issued 71,000 options with an exercise price of $1.00 which
vested one-third upon grant date with the remainder over the next two years.
At December 31, 1999, there were 750,000 options outstanding of which 706,669
are exercisable. No options were exercised during the last three years.
Options to purchase a 3% partnership interest in Hallador Petroleum, LLP are
outstanding as of December 31, 1999. The exercise price for these options was
based on the fair market value on the date of grant.
We account for our option plans under APB 25, Accounting for Stock Issued
to Employees. Had compensation costs for the plan been determined consistent
with FAS 123, Accounting for Stock-Based Compensation, the effect on 1999
operations would have been immaterial.
401-(k) Plan
- ------------
We maintain a 401-(k) Plan, which all full-time employees are able to
participate after six months of service. We match dollar-for-dollar up to 4%
of all employee contributions when oil prices are $13.00 or greater per barrel;
vesting occurs immediately. Our contributions for 1999 and 1998 were $27,000
and $25,000, respectively.
Key Employee Bonus Plan
- -----------------------
At present, Mr. Stabio, CEO, is the only participant in the key employee bonus
plan. Bonuses are computed based on cash flow attributed to the SC Field plus
accrued interest at 30-day risk free rates. Amounts accrued for 1999 and 1998
were $16,000 and $13,000, respectively. As of December 31, 1999, the amounts
owing Mr. Stabio were $234,000. The amounts owing will not be paid until the
earliest of the following events occur; (i) voluntary or involuntary
termination of the participant's employment; (ii) our merger or sale or a sale
of substantially all of our assets, or (iii) the exercise by a participant of
any of our stock options which requires a payment by the participant of more
than $100,000. The amounts accrued are unfunded and unsecured.
Catalytic Solutions Investment
- ------------------------------
During 1998, we invested $62,000 for a half percent (.005) ownership in
Catalytic Solutions, Inc. (CSI) located in Oxnard, California (a Los Angeles
suburb). CSI manufactures catalytic converters that reduce toxic emissions
from internal combustion engines. In November 2000, we plan to exercise a
$100,000 warrant which would give us an additional half percent in CSI,
resulting in a total ownership of about 1%. Mr. Stabio and other employees own
less than a quarter percent (.0025) in CSI.
(5) MAJOR CUSTOMERS
---------------
The SC Field's oil production is purchased by EOTT Energy Corp. For 1998 the
purchaser was Tosco.
(6) COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
In January 1999, 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 ensure 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 SC Field's operator, are required
to place in an interest-bearing escrow account $500 per year for each idle well
in the SC Field until such well is plugged an 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 SC 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 280 wells
in the SC Field, 119 of which are classified as "idle".
During 1999, we began amortizing, using the units-of-production method,
our share of the estimated future costs ($1,215,000) to P&A the SC Field's 280
wells. Included in the DD&A expense for 1999 was $85,000 associated with these
estimated future costs.
(7) OIL AND GAS RESERVE DATA (UNAUDITED)
------------------------------------
The following reserve estimates for the year ended December 31, 1998 and 1999
were prepared by one of our consulting petroleum engineers based on data we
supplied. Be cautious that there are many uncertainties inherent in estimating
proved reserve quantities and in projecting future production rates.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and NGLs which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas reserves are
those reserves expected to be recovered through existing wells with existing
equipment and operating methods.
Analysis of Changes in Proved Developed Reserves
(in thousands)
<TABLE>
<CAPTION>
Oil NGLs Gas
(BBLS) (BBLS) (MCF)
------ ------ ------
<S> <C> <C> <C>
Balance at December 31, 1997 2,201 177 741
Revisions of previous estimates(l) (1,978)(1) (150)(1) 650
Discoveries 844
Production (223) (27) (300)
----- ----- -----
Balance at December 31, 1998 0 0 1,935
Revisions of previous estimates 2,705(2) 214(2) (62)
Discoveries 271 337
Purchases 260 18 57
Production (197) (20) (245)
----- ----- -----
Balance at December 31, 1999 3,039 212 2,022
===== ===== =====
Net of 30% minority interest 2,127 148 1,415
===== ===== =====
</TABLE>
(1) Due to low oil prices at December 31, 1998, no reserves could be assigned
to the SC Field.
(2) Represents the reinstatement of the SC Field.
There are no significant proved undeveloped reserves.
The following table (in thousands) sets forth a standardized measure of the
discounted future net cash flows attributable to our proved oil and gas
reserves (hereinafter referred to as "SMOG.") Future cash inflows were
computed using December 31, 1999 product prices of $23.45 for oil, $19.07
for NGLs and $2.46 for gas. Future production costs represent the estimated
future expenditures to be incurred in producing the reserves, assuming
continuation of economic conditions existing at year end. Discounting the
annual net cash inflows at 10% illustrates the impact of timing on these future
cash inflows. The future net revenue discounted at 10% using December 31, 1998
prices for our reserves were less than $800,000 and SMOG disclosures are not
presented for 1998 due to insignificance.
<TABLE>
<CAPTION>
1999
------
<S> <C>
Future Revenue
Oil $71,000
NGLs 4,000
Gas 4,000
Future cash inflows 79,000
Future cash outflows - production costs (45,000)
Future income taxes (6,000)
Future net cash flows 28,000
10% discount factor (9,000)
------
SMOG $19,000
======
Net of 30% minority interest $13,000
======
</TABLE>
The following table (in thousands) summarizes the principal factors comprising
the changes in SMOG:
<TABLE>
<CAPTION>
1999
------
<S> <C>
SMOG, beginning of year $ 800
Sales of oil and gas, net of production costs (1,500)
Net changes in prices and production costs 15,591
Discoveries 4,400
Change in income taxes (2,000)
Purchases 1,709
------
SMOG, end of year $19,000
======
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE: None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
CORTLANDT S. DIETLER, 77, has been one of our directors since November 1995.
from April 1995 to October 1999 he was CEO of TransMontaigne Inc. and is
currently Chairman of the Board. He also serves as a director of
Carbon Energy Corporation, Forest Oil Corporation and Key Production Company.
DAVID HARDIE, 49, is the Chairman of the Board and has served as a director
since July 1989. He is a General Partner of Hallador Venture Partners LLC,
the General Partner of Hallador Venture Fund II & III. He also serves as a
director and partner of other private entities that are owned by members of
his family.
STEVEN HARDIE, 45, has been a director since 1994. He and David Hardie are
brothers. For the last 14 years he has been a self-employed film producer.
He also serves as a director and partner of other private entities that are
owned by members of his family.
BRYAN H. LAWRENCE, 57, has been one of our directors since November 1995. He
is a founder and senior manager of Yorktown Partners LLC that manages
investment partnerships formerly affiliated with Dillon, Read & Co. Inc.,
an investment-banking firm (Dillon Read.) He had been employed with Dillon,
Read since 1966, serving most recently as a Managing Director until the
merger of Dillon Read with SBC Warburg in September 1997. He also serves as
a Director of D&K Healthcare Resources, Inc., TransMontaigne, Inc., and Vintage
Petroleum, Inc. (each a United States public company), Benson Petroleum, Ltd.
and Cavell Energy Corp. (each a Canadian public company) and certain non-public
companies in the energy industry in which Yorktown partnership hold equity
interests including Meenan Oil Co., Inc. PetroSantander Inc., Strega Energy
Inc., Savoy Energy, L.P., Concho Resources Inc., Ricks Exploration, Inc.,
Anthanor Resources Inc. and Carbon Energy Corporation. He is a graduate of
Hamilton College and also has a MDA from Columbia University.
VICTOR P. STABIO, 52, is our President, CEO, CFO and a director. He joined
us in March 1991 as our President and CEO and has been active in the oil and
gas business for the past 27 years.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------------------
Name and
Principal Other Annual
Position Year Salary Bonus (1) Compensation (2)
- ------------------ ---- --------- ---------- -----------------
<S> <C> <C> <C> <C>
Victor P. Stabio
CEO 1999 $105,000 $48,000 $4,400
1998 103,000 15,000 3,107
1997 103,000 29,000 4,300
</TABLE>
(1) Includes amounts, payment of, which is deferred, pursuant to the Key
Employee Bonus Plan.
(2) Our contribution to the 401(k) Plan.
During 1997, Mr. Stabio was granted an option to purchase 1.75% of Hallador
Petroleum, LLP for $294,000 that expires December 31, 2010.
No options were exercised during the last three years. At December 31, 1999
Mr. Stabio had 620,000 exercisable options none of which were in-the-money.
Change in Control Arrangements
- ------------------------------
As of December 31, 1999, we have accrued $234,000 payable to Mr. Stabio
pursuant to the key employee bonus plan. The $234,000 will become payable
upon our merger/sale or sale of substantially all of our assets or his
voluntary or involuntary termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table is as of March 29, 2000.
<TABLE>
<CAPTION>
Name No. Shares (1) % of Class (1)
- ------------------------------------ --------------- -------------
<S> <C> <C>
David Hardie and Steven Hardie as 3,791,259 53
Nominee for Hardie Family Members (2)
Victor P. Stabio (3) 682,937 9
Cortlandt S. Dietler (4) 100,000 1
Bryan H. Lawrence (5) 2,328,500 33
SBC Warburg Dillion Read Inc. (6) 421,500 6
All directors and executive officer
as a group (3) 6,904,696 97
</TABLE>
(1) Based on total outstanding shares of 7,093,150 if no options are held
by the named directors, or based on a pro forma calculation of the
total outstanding shares including shares issued upon exercise of
options held by the named director or by members of the named group.
Beneficial ownership of certain shares have been, or is being,
specifically disclaimed by certain directors in ownership reports
filed with the SEC.
(2) The Hardie family business address is 740 University Avenue, Suite
110, Sacramento, California 95825.
(3) Includes 620,000 shares issuable upon the exercise of options by Mr.
Stabio.
(4) Mr. Dietler's address is P. 0. Box 5660, Denver, Colorado 80217.
All shares are held by Pinnacle Engine Company LLC, wholly owned by
Mr. Dietler.
(5) Mr. Lawrence's address is 410 Park Avenue, 19th Floor, New York, NY
10022. Mr. Lawrence owns 50,000 shares directly, and the remainder
is held by Yorktown Energy Partners II, L.P., an affiliate.
(6) SBC Warburg Dillon Read Inc.'s address is 535 Madison Avenue, New
York, NY 10022.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of Kimbark Oil and Gas
Company, effective September 24, 1987 (1)
3.2 Articles of Amendment to Restated Articles of Incorporation
of Kimbark Oil & Gas Company, effective December 14, 1989,
3.3 Amendment to Articles of Incorporation dated December 31,
1990 to effect the one-for-ten reverse stock split (2)
3.4 By-laws of Hallador Petroleum Company, effective November 9,
1993 (4)
10.1 Composite Agreement and Plan of Merger dated as of July 17,
1989, as amended as of August 24, 1989, among Kimbark Oil &
Gas Company, KOG Acquisition, Inc., Hallador Exploration
Company and Harco Investors, with Exhibits A, B, C and D
(1)
10.2 Hallador Petroleum Company 1993 Stock Option Plan *(3)
10.3 Not used
10.4 Not used
10.5 Hallador Petroleum Company Key Employee Bonus Compensation
Plan 1(3)
10.6 Not used
10.7 Not used
10.8 EOTT Contract (10)
10.9 First Amendment to the 1993 Stock Option Plan *(6)
10.10 First Amendment-to Key Employee Bonus Compensation Plan *(6)
10.11 Stock Purchase Agreement dated November 15, 1995 (6)
10.12 Second Amendment to Key Employee Bonus Compensation Plan
*(7)
10.13 Hallador Petroleum, LLP Agreement (9)
10.14 Hallador Petroleum, LLP Stock Option Agreement *(9)
21.1 List of Subsidiaries (2)
27.1 Financial Data Schedule (10)
-------------------
(1) Incorporated by reference (IBR) to the 1989 Form 10-K.
(2) IBR to the 1990 Form 10-K.
(3) IBR to the 1992 Form 10-KSB.
(4) IBR to the 1993 Form 10-KSB.
(5) Not used.
(6) IBR to the 1995 Form 10-KSB.
(7) IBR to the September 30, 1996 Form 10-QSB.
(8) IBR to the September 30, 1997 Form 10-QSB.
(9) IBR to the December 31, 1997 Form 10-KSB.
(10) IBR to the November 30, 1999 Form 10-QSB.
*Management contracts or compensatory plans.
(b) No reports on Form 8-K were filed during the 1999 fourth quarter.
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.
HALLADOR PETROLEUM COMPANY
BY:/S/VICTOR P. STABIO
VICTOR P. STABIO, CEO
Dated: March 29, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/S/David Hardie Chairman March 29, 2000
/S/Victor P.Stabio CEO, Principal Financial March 29, 2000
and Accounting Officer
/S/Bryan Lawrence Chairman March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1957
<SECURITIES> 0
<RECEIVABLES> 811
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2768
<PP&E> 21133
<DEPRECIATION> 14247
<TOTAL-ASSETS> 10312
<CURRENT-LIABILITIES> 1110
<BONDS> 1231
0
0
<COMMON> 71
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10312
<SALES> 4320
<TOTAL-REVENUES> 4924
<CGS> 0
<TOTAL-COSTS> 4426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 349
<INCOME-TAX> 0
<INCOME-CONTINUING> 349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
