SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-16203
Delta Petroleum Corporation
(Exact name of registrant as specified in its charter)
Colorado 84-1060803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 17th Street, Suite 3310
Denver, Colorado 80202
(Address of principal (Zip Code)
executive offices)
(303) 293-9133
(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 preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
4,060,805 shares of common stock $.01 par value were outstanding
as of November 15, 1995.
FORM 10-QSB
1st QTR.
FY 1996
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 1995 and
June 30, 1995 (unaudited). . . . . . . . . . . . . .1
Consolidated Statements of Operations -
Three Months Ended
September 30, 1995 and 1994 (unaudited). . . . . . .3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 1995 and
Three Months Ended September 30, 1995 (unaudited). .4
Consolidated Statements of Cash Flows -
Three Months Ended
September 30, 1995 and 1994 (unaudited). . . . . . .5
Notes to Consolidated Financial Statements
(unaudited). . . . . . . . . . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis
Or Plan of Operations . . . . . . . . . . . . . . . 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities. . . . . . . . . . . . . . . 17
Item 3. Defaults upon Senior Securities. . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . 17
Item 5. Other Information. . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 17
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1995 1995
ASSETS
Current Assets:
Cash $444,442 55,833
Trade accounts receivable, net of
allowance for doubtful accounts
of $48,722 in 1995 and $92,552 in 1994 326,563 327,185
Other current assets 11,100 2,100
Total current assets 782,105 385,118
Property and Equipment:
Oil and gas properties, at cost (using
the successful efforts method
of accounting):
Undeveloped offshore California
properties 6,786,580 6,786,580
Undeveloped foreign properties 318,840 318,840
Undeveloped onshore domestic properties 621,068 498,799
Developed onshore domestic properties 2,750,492 2,703,762
Office furniture and equipment 63,793 60,830
10,540,773 10,368,811
Less accumulated depreciation
and depletion (1,505,709) (1,426,818)
Net property and equipment 9,035,064 8,941,993
Investment in Bion Environmental
Technologies, Inc. (Bion) 451,058 316,525
Accounts receivable from officer
and affiliates 87,265 83,137
$10,355,492 9,726,773
September 30, June 30,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ - 100,000
Accounts payable trade 263,285 602,738
Accrued interest payable - 8,000
Other accrued liabilities 243,592 182,998
Consulting fees payable to stockholders - 162,500
Royalties payable held in suspense 245,108 241,233
Recoupment gas royalties payable 669,841 669,841
Liabilities payable by Underwriters Financial
(UFG) (the Company's former parent)
Note payable, including accrued
interest 2,333,333 2,232,855
Total current liabilities 3,755,159 4,200,165
Redeemable common stock 750,000 -
Stockholders' Equity
Preferred stock, $.10 par value;
authorized 3,000,000 shares; none issued - -
Common stock, $.01 par value;
authorized 300,000,000 shares, issued 3,782,280
shares, net of 256,000 redeemable common shares,
in 1995 and 2,949,847 issued shares in 1994 37,822 35,509
Obligation payable in common stock 29,000 46,400
Additional paid-in capital 16,917,338 15,627,201
Unamortized consulting expense (367,300) -
Cumulative unrealized loss (215,609) (350,142)
Accumulated deficit (10,550,918) (9,832,360)
Total stockholders' equity 5,850,333 5,526,608
Commitments and contingencies $10,355,492 $9,826,773
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30, September 30,
1995 1994
Revenue:
Oil and gas sales, including recoupment
gas $0 in 1995 and $86,105 in 1994 $203,869 399,010
Other revenue 14,072 10,847
Total revenue 217,941 409,857
Expenses:
Lease operating expenses 95,329 107,639
Depreciation and depletion 78,891 113,460
Exploration expenses 14,663 14,169
General and administrative 351,598 345,276
Stock option expense 293,125 1,508,750
Interest on notes payable 102,893 125,266
Interest on recoupment gas obligation - 59,260
Total expenses 936,499 2,273,820
Net loss ($718,558) (1,863,963)
Net loss per common share ($0.20) (0.64)
Weighted average number of common
shares outstanding 3,649,698 2,908,557
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Year ended June 30, 1995 and Three Months
Ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Obligation Additional Unamortized
Common Stock payable in paid-in consulting
Shares Amount common stock capital expense
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 2,949,847 $29,498 - 11,465,704 (100,000)
Cumulative effect of adoption of SFAS 115 - - - - -
Unrealized gain on equity securities - - - - -
Shares issued for cash 39,000 390 - 134,200 -
Capital contributions from UFG - - - 284,073 -
Shares issued for cash upon exercise of options 63,150 632 - 269,331 -
Shares isued for undeveloped oil and gas properties 90,000 900 - 309,600 -
Shares issued for services 20,000 200 - 68,800 -
Treasury stock contributed by UFG - - - 633,304 -
Retirement of treasury stock (92,117) (921) - (632,383) -
Stock options granted as compensation - - - 1,508,875 -
Shares to be issued to former employee under a
severance agreement - - 46,400 - -
Shares issued for reduction of note payable and
accrued interest 461,002 4,610 - 1,516,697 -
Amortization of consulting expense - - - - 100,000
Shares issued for settlement agreement 20,000 200 - 69,000 -
Net loss - - - - -
Balance, June 30, 1995 3,550,882 35,509 46,400 15,627,201 -
Unrealized gain on equity securities - - - - -
Shares issued for cash 6,000 60 - 20,220 -
Shares issued for cash upon exercise of options 101,825 1,018 - 477,026 -
Shares issued for undeveloped oil and gas properties 26,627 266 - 99,585 -
Shares issued for services 94,546 945 - 457,805 (458,750)
Stock options granted as compensation - - - 293,125 -
Amortization of obligation payable in common stock 2,400 24 (17,400) 17,376 -
Amortization of consulting expense - - - - 91,450
Shares issued for redeemable common stock 256,000 - - - -
Commission paid on issuance of redeemable common - - - (75,000) -
Net loss - - - - -
Balance, September 30, 1995 4,038,280 $37,822 29,000 16,917,338 (367,300)
</TABLE>
<TABLE>
<CAPTION>
Cumulative
unrealized
Treasury gain Accumulated
stock (loss) deficit Total
<S> <C> <C> <C> <C>
Balance, June 30, 1994 - - (6,259,043) 5,136,159
Cumulative effect of adoption of SFAS 115 - 266,666 - 266,666
Unrealized loss on equity securities - (616,808) - (616,808)
Shares issued for cash - - - 134,590
Capital contributions from UFG - - - 284,073
Shares issued for cash upon exercise of options - - - 269,963
Shares isued for undeveloped oil and gas properties - - - 310,500
Shares issued for services - - - 69,000
Treasury stock contributed by UFG (633,304) - - -
Retirement of treasury stock 633,304 - - -
Stock options granted as compensation - - - 1,508,875
Shares to be issued to former employee under a
severance agreement - - - 46,400
Shares issued for reduction of note payable and
accrued interest - - - 1,521,307
Amortization of consulting expense - - - 100,000
Shares issued for settlement agreement - - - 69,200
Net loss - - (3,573,317) (3,573,317)
Balance, June 30, 1995 - (350,142) (9,832,360) 5,526,608
Unrealized gain on equity securities - 134,533 - 134,533
Shares issued for cash - - - 20,280
Shares issued for cash upon exercise of options - - - 478,044
Shares issued for undeveloped oil and gas properties - - - 99,851
Shares issued for services - - - -
Stock options granted as compensation - - - 293,125
Amortization of obligation payable in common stock - - - -
Amortization of consulting expense - - - 91,450
Shares issued for redeemable common stock - - - -
Commission paid on issuance of redeemable common - - - (75,000)
Net loss - - (718,558) (718,558)
Balance, September 30, 1995 - (215,609) (10,550,918) 5,850,333
</TABLE>
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30, September 30,
1995 1994
Net cash used in operating activities (608,476) (29,937)
Cash flows from investing activities:
Additions to property and equipment (72,111) (25,121)
Net cash used in investing activities (72,111) (25,121)
Cash flows from financing activities:
Payment of notes payable (100,000) -
Issuance of common stock for cash 20,280 59,250
Stock issued for cash upon exercise
of options 478,044 -
Issuance of redeemble common stock 750,000 -
Commission paid on issuance of redeemable
common stock (75,000) -
Increase in accounts receivable from
officer and affiliates (4,128) (5,893)
Net cash provided by financing activities 1,069,196 53,357
Net increase (decrease) in cash 388,609 (1,701)
Cash at beginning of period 55,833 6,860
Cash at end of period 444,442 5,159
Supplemental cashflow information:
Cash paid for interest - -
Non-cash financing activities:
Stock issued for oil and gas properties $99,851 -
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Three Months Ended September 30, 1995 and 1994
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-QSB and, in accordance with those rules, do not
include all the information and notes required by generally
accepted accounting principles for complete financial statements.
As a result, these unaudited consolidated financial statements
should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto filed with
the Company's most recent annual report on Form 10-KSB. In the
opinion of management, all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation
of the financial position of the Company and the
results of its operations have been included. Operating results
for interim periods are not necessarily indicative of the results
that may be expected for the complete fiscal year.
(2) Investments
The Company adopted Statement of Financial Standards No. 115
as of July 1, 1994. The Company's investment in Bion
Environmental Technologies, Inc. (Bion) is classified as an
available for sale security and reported at its fair market
value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity.
Prior to July 1, 1994, the Company's investment in Bion was
accounted for at the lower of cost or market.
The cost and estimated fair market value of its investment
in Bion at September 30, 1995 and June 30, 1995 are as follows:
Estimated
Unrealized Market
Cost (Loss) Value
September 30, 1995 $666,667 (215,609) 451,058
June 30, 1995 $666,667 (350,142) 316,525
(3) Note Payable
In December 1994, the Company borrowed $100,000 from a third
party. The note is unsecured and is payable on or before
September 1, 1995, with interest at 18%. In connection
with the borrowing, the Company granted options to purchase
50,000 shares of the Company's common stock at $6.00 per share,
expiring the later of September 30, 1997 or 30 days after
registration of the underlying shares. During the first quarter,
the note payable and accrued interest was paid in full.
(4) Contingencies
Investment in Offshore California Property:
The Company has an investment in certain undeveloped
offshore California properties of $6,786,580 at September 30,
1995. The Company's ability to ultimately develop the
properties is subject to a number of uncertainties, including the
operator's ability to obtain the necessary permits and
authorizations relating to the development activities. The
Company's ability to realize its investment in the offshore
California properties is dependent on its ability
to develop the properties or to sell some or all of its interests
in the properties. Accordingly, the financial statements do not
include any adjustments that would result if the Company could
not realize its investment.
Investment in Amber - Note Payable by UFG:
A portion of the shares of Amber Resources Company, a
majority owned subsidiary of the Company, are pledged to secure a
note payable by the Company's former parent, which note
is currently in default. There exists an uncertainty as to
whether the Company's former parent's has the ability to
ultimately repay or otherwise satisfy the obligation. If the
encumbered portion of the Amber shares were lost the company's
interest in Amber would be reduced from 91.68%
to 19.74%. The ultimate outcome of the matter cannot presently
be determined. Accordingly, the financial statements do not
include any adjustments that would result if the holder of the
note were to foreclose on the Amber shares held as collateral and
the Company were otherwise unable to satisfy the obligation and
retain the shares.
At September 30, 1995 and June 30, 1995, the note payable
recorded in the accompanying financial statements represents
UFG's obligation under the Snyder Note, which
was recorded upon the transfer of the common stock of Amber to
the Company by UFG in connection with the Plan of Reorganization.
The note payable bears interest at 18% and was
due January 15, 1995. The note is currently in default. Past
due amounts accrue interest compounded at 18% per year. The note
is secured by 3,357,003 shares of common stock of
Amber. The note has been recorded in the accompanying
consolidated financial statements as a liability of the Company
since a portion of the common shares of Amber owned by the
Company are pledged to secure the note and because of the
uncertainties regarding UFG's ability to fulfill its obligations
under the note.
The net assets and liabilities of Amber included in the
accompanying consolidated financial statements as of September
30, 1995 are summarized as follows:
Assets:
Current Assets $ 116,562
Oil and gas properties:
Undeveloped offshore California properties 5,006,276
Developed onshore properties, net 1,418,240
6,424,516
Accumulated depreciation and depletion (640,716)
Net oil and gas properties 5,783,800
Total Assets 5,900,362
Liabilities -
Current liabilities 1,362,543
Net assets $ 4,537,819
The revenue and expenses of Amber included in the
accompanying consolidated financial statements for the three
months ended September 30, 1995 are as follows:
Revenue $ 97,860
Expenses ( 257,425)
Net loss $ (159,565)
(5) Redeemable Common Stock
On August 18, 1995, the Company completed the sale of
231,000 shares of the Company's common stock to a third party and
its designees for $750,000 with net proceeds to
the Company of $675,000 after the payment of certain fees. Under
the purchase agreement, the Company committed to register the
shares within 30 days or to increase the number of shares
to be delivered by 25,000 shares with an increase of an
additional 5,000 shares each 30 days thereafter until the
expiration of six months after which the Company has agreed to
repurchase all shares issued for $750,000 and to deliver a
promissory note therefore until payment has been
made at 15% per annum from the date funds were received.
(6) Stockholders' Equity
On July 25, 1995, the Company's Incentive Plan Committee
granted to each of two officers options to purchase 7,000 shares
of common stock at $2.50 per share under the
Incentive Plan. The options are immediately exercisable and
expire July 25, 2005. Also on July 25, 1995, each officer
surrendered to the Company 7,000 Class D warrants to purchase
stock at $2.50 per share owned by them. Stock option expense of
$43,750 has been recorded on the three months ended September 30,
1995 based on the difference between the option price and
the quoted market price on the date of grant.
On August 7, 1995, the Company extended to a director and
two unrelated consultants the expiration date to thirty days
after registration on the Company's Class D warrants to
purchase 57,000 shares of the Company's common stock at $1.25 per
share. Stock option expense of $249,375 has been recorded on the
three months ended September 30, 1995 based on the difference
between the option price and the quoted market price on the date
of grant.
Item 2. Management's Discussion and Analysis or Plan of
Operations
Background
In October 1992, Delta concluded a series of agreements with
Underwriters Financial Group, Inc. ("UFG") (collectively, the
"UFG Agreement") to participate in a plan to reorganize
and recapitalize Delta (the "Plan of Reorganization"). Prior to
the reorganization, UFG owned approximately 89% of the
outstanding shares of common stock of Delta. Under the terms of
the UFG Agreement, UFG transferred its oil and gas properties and
certain other related assets to Delta as a contribution to the
capital of Delta. The assets transferred included producing and
non-producing oil and gas properties, accounts receivable, oil
field equipment, and office furniture and equipment. UFG also
transferred 4,110,660 shares of common stock of Amber
to Delta. The shares transferred represented an 88.09% interest
in Amber.
Also in connection with the Plan of Reorganization, Delta
issued 1,030,000 shares of common stock to Messrs. Burdette A.
Ogle and Ronald Heck (collectively, "Ogle") in exchange
for their working interests in two federal offshore California
oil and gas units and 167,317 shares of common stock of Amber.
The oil and gas properties and shares of common stock of
Amber received from Ogle were recorded at Ogle's predecessor cost
of approximately $45,000. The assets transferred to
Delta by UFG were recorded at the predecessor cost of the assets
to UFG, as adjusted.
UFG followed the full cost method of accounting for its oil
and gas properties. The predecessor cost of the producing
properties transferred was adjusted to conform to the
Company's policy of accounting for oil and gas properties under
the successful efforts method of accounting. The predecessor
cost of each oil and gas property was further adjusted, if
necessary, to reduce the amount recorded to the estimated fair
value of the oil and gas reserves attributable to the property,
if less than the adjusted predecessor cost of the property.
Under the terms of the UFG Agreement, UFG agreed to assume
certain existing liabilities of Delta and Amber totaling
$1,325,175. On April 14, 1993, the Company entered into an
agreement with UFG (the "Clarification Agreement") which provided
for the issuance by UFG of a non-interest bearing promissory note
payable to the Company in the amount of $1,325,175
to evidence UFG's obligation to repay the Company for the
obligations UFG had assumed under the UFG Agreement. The
Clarification Agreement also provided for the pledge of 556,289
shares of common stock of the Company held by UFG as collateral
for performance under the promissory note and clarification and
revision of certain other provisions of the UFG
Agreement. On February 23, 1995, the Company and UFG executed
and entered into a letter agreement dated February 22, 1995, in
which Delta agreed to convert $736,932 of principal and
interest due from UFG under its promissory note dated March 31,
1993 into 491,300 shares of UFG common stock. In addition, UFG
and Delta agreed that the remaining $736,932 owed by
UFG to Delta would be satisfied by the transfer of 92,117 shares
of Delta common stock from UFG to Delta. Delta agreed to file a
registration statement covering the registration of the
remaining 888,063 shares of Delta's common stock owned by UFG and
UFG agreed that the shares would be held by Delta as collateral
pending the discharge of UFG's obligations to
Snyder Oil Corporation. Upon the effectiveness of the
registration statement, UFG will have the right to sell all or
some of the Delta shares covered by the registration statement at
a price of not less than $6.875 or the bid price on the effective
date, whichever is higher. As of November 15, 1995, the
registration statement has not been declared effective. An
escrow will be established for the 888,063 shares pending sale to
assure that the shares are sold pursuant to
the terms of the agreement and to assure that the first proceeds
are used to discharge UFG's promissory note to Snyder Oil
Corporation ("SOCO") thereby releasing to Delta the Amber
Resources Company common stock held by SOCO as collateral for the
promissory note.
Certain of the oil and gas properties transferred had been
pledged by UFG to secure existing indebtedness, which
indebtedness remained an obligation of UFG under the terms of the
UFG Agreement. To the extent the existing secured indebtedness
on a particular property exceeded its adjusted predecessor cost,
the transfer of the property was recorded in the
accompanying financial statements at its adjusted predecessor
cost and a liability was recorded in an amount equal to the asset
recorded. To the extent the existing secured indebtedness on a
particular property was less than the adjusted predecessor cost,
the property was recorded at its adjusted predecessor cost, the
related liability was recorded and the net amount was reflected
as a capital contribution by UFG. Subsequent payments by UFG
which reduce the liabilities recorded by the Company are recorded
as a reduction of the liability and a capital contribution.
3,357,003 shares of common stock of Amber transferred to the
Company by UFG are pledged to secure a note payable to Snyder Oil
Corporation (the "Snyder Note"). The balance due on the note
payable at the time of the transfer of the Amber shares to Delta
of $2,292,456 was recorded as a liability of Delta because of the
uncertainty of the ability of UFG to fulfill its obligations
under the note.
Liquidity and Capital Resources.
At September 30, 1995, the Company had a working capital
deficit of $2,973,054 compared to a working capital deficit of
$3,815,047 at June 30, 1995. The Company's working
capital deficit is in part a result of the note payable to Snyder
Oil Corporation ("Snyder") of $2,333,333 which is non recourse to
Delta and which are payable by its former parent, UFG.
Although there is no assurance that it will do so, the Company
expects UFG to discharge this note and the other obligations
within the next twelve months through the sale of the stock it
owns in Delta and/or through other means, at which time the
Company's working capital deficit will be correspondingly
reduced. If UFG were unable to pay the promissory note payable
to Snyder, Delta's ownership interest in Amber could be reduced
to 19.74%. Although there is no assurance that it would succeed
in doing so, Delta would attempt to make other arrangements
to discharge the promissory note and thereby retain the Amber
shares securing the promissory note (see "Future Operations"
below). Nevertheless, although the loss of these Amber shares
would significantly reduce the Company's oil and gas revenues and
reserves attributable to its ownership of Amber (see "Future
Operations" below), the properties owned directly by Delta
and the revenues therefrom would not be affected.
The Company's current liabilities also include royalties
payable in suspense which represent the Company's estimate of
royalties payable on production attributable to Amber's
interest in certain wells in Oklahoma, including production prior
to the acquisition of Amber. The Company is attempting to
identify the royalty owners and calculate the amounts owed to
each owner, which it expects will require some time. To date, no
significant claims have been asserted against Amber by royalty
owners for amounts due for prior production. The
Company's current liabilities also include royalties payable on
recoupment gas produced on certain wells owned by Amber. The
Company is awaiting the outcome of litigation in various
courts which may impact the method of calculating the Company's
obligation for royalties payable on recoupment gas. To date no
claims have been asserted against Amber by royalty
owners for royalties due on recoupment gas produced. The Company
believes that the operators of the affected wells have paid some
of the royalties on behalf of the Company and have
withheld such amounts from revenues attributable to the Company's
interest in the wells. The Company has contacted the operators
of the wells in an attempt to determine what amounts the
operators have paid on behalf of the Company over the past five
years, which amounts would reduce the amounts owed by the
Company. To date the Company has not received information
adequate to allow it to determine the amounts paid by the
operators.
Although there is no assurance that it would not happen, the
Company believes that it is unlikely that all claims that might
be made for payment of royalties payable in suspense or for
recoupment royalties payable would be made at one time. Further,
Amber, rather than Delta, would be directly liable for payment of
any such claims. The Company believes, although there
can be no assurance, that it may ultimately be able to settle
with potential claimants for less than the amounts recorded for
royalties payable in suspense and recoupment royalties payable.
On November 18, 1994, the Company entered into an agreement
with El Paso Natural Gas Company ("El Paso") under which Amber
agreed to transfer to El Paso Amber's interest in four wells and
the associated acreage in complete satisfaction of Amber's
recoupment gas obligation. As a result of this agreement, the
Company will is longer obligated to El Paso for
recoupment gas from the remaining wells subject to the recoupment
agreement. Consequently, the Company will lose the revenues from
the wells transferred to El Paso and gain the revenues
from the remaining wells attributable to production amounts freed
from the recoupment requirements. As a result of the
transaction, the Company recorded an extraordinary gain on
settlement of recoupment gas obligation of $493,850.
The Company received the proceeds from the exercise of
options to purchase shares of its common stock for $477,026
during the three months ended September 30, 1995. In addition,
the Company received $20,280 from sales of its common stock. On
August 18, 1995, the Company completed the sale of 231,000 shares
of the Company's common stock to a third party and its designees
for $750,000 with net proceeds to the Company of $675,000 after
the payment of certain fees. Under the purchase agreement, the
Company committed to register the shares within 30 days or to
increase the number of shares to be delivered by 25,000 shares
with an increase of an additional 5,000 shares each 30 days
thereafter until the expiration of six months
after which the Company has agreed to repurchase all shares
issued for $750,000 and to deliver a promissory note therefore
until payment has been made at 15% per annum from the date funds
were received. The Company expects to raise additional capital
by selling its common stock in order to fund its capital
requirements for its portion of the costs of the drilling and
completion of development wells on its proved undeveloped
properties during the next twelve months. There is no assurance
that it will be able to do so or that it will be able to do so
upon terms that are acceptable. The Company does not currently
have a credit facility with any bank and it has not determined
the amount, if any, that it could borrow against its existing
properties. The Company will continue to explore additional
sources of both short-term and long-term liquidity
to fund its working capital deficit and its capital requirements
for development of its properties including establishing a credit
facility, sale of equity or debt securities and sale of
non-strategic properties. Many of the factors which may affect
the Company's future operating performance and liquidity are
beyond the Company's control, including oil and natural gas
prices and the availability of financing.
On January 3, 1995, Delta Petroleum Corporation ("Delta")
exercised an option from Burdette A. Ogle ("Ogle"), a 28%
shareholder of Delta, to acquire working interests in three
proved undeveloped offshore Santa Barbara, California, federal
oil and gas units. According to an independent engineering
report dated August 10, 1993, the proved undeveloped reserves
attributable to these working interests are approximately
28,000,000 barrels of oil and gas equivalent. Ogle has assigned
and conveyed the working interests in the properties to Delta
pursuant to the terms of the Purchase and Sale Agreement.
The purchase price of $8,000,000 is represented by a
production payment reserved in the documents of Assignment and
Conveyance and will be paid out of three percent (3%) of the oil
and gas production from the working interests with a requirement
for minimum annual payments. Delta has paid $250,000 for the
first year, will pay an additional $250,000 for the
second year and a minimum of $350,000 annually thereafter until
the earlier of: 1) when the production payments accumulate to the
$8,000,000 purchase price; 2) when 80% of the ultimate
reserves of any lease have been produced; or 3) 30 years from the
date of the conveyance.
After evaluation of the considerations described above, the
Company believes that its cash flow from its existing producing
properties, proceeds from the sale of producing properties, and
other sources of funds will be adequate to fund its operating
expenses and satisfy its other current liabilities over the next
year or longer.
Results of Operations
Net Earnings (Loss). The Company reported a net loss for
the three months ended September 30, 1995 was $718,558 compared
to a net loss of $1,863,963 for the three months
ended September 30, 1994. The loss for the three months ended
September 30, 1995 and 1994 included $293,125 and $1,508,750,
respectively, for a "stock option expenses" resulting from
the issuance of options during the quarter.
Revenue. Total revenue for the three month period ended
September 30, 1995 was $217,941 compared to $409,857 for the
three months ended September 30, 1994. Oil and gas
sales for the three months ended September 30, 1995 were $203,869
compared to $399,010 for the three months ended September 30,
1994. The Company's oil and gas sales were impacted
by a decline in gas price, the sale of oil and gas properties
during the last year and by the over production of gas by other
working interest owners in certain gas wells in Oklahoma. The
Company expects to recover the production attributable to its
underbalanced position in future periods, as the wells are
brought back into balance. Revenue from oil and gas sales
include amortization of the Company's recoupment gas obligation
of $86,105 for the three months ended September 30, 1994.
Revenue was recorded as the recoupment gas was produced and
delivered to the gas purchaser. The amount of revenue recorded
varied with the amount of gas recouped by the purchaser and the
current price of gas.
Production volumes and average prices received for the three
month period ended September 30, 1995 and 1994 are as follows:
Three Months Ended
September 30,
1995 1994
Production:
Oil (barrels) 2,153 2,398
Gas (Mcfs) 116,795 222,538
Average Price:
Oil (per barrel) $16.50 $15.70
Gas (per Mcf) $1.44 $1.62
Lease Operating Expenses. Lease operating expenses were
$95,329 and $107,639 for the three months ended September 30,
1995 and 1994, respectively. On a MCF equivalent basis,
production expenses and taxes were $.73 and $.45, respectively,
during the three months period ended September 30, 1995 and 1994.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the three months ended September 30, 1995
and 1994, respectively, were $78,891 and $113,460. On
a MCF equivalent basis, depreciation and depletion expense were
$.61 and $.49, respectively, per Mcf equivalent during the three
months period ended September 30, 1995 and 1994.
Abandoned and Impaired Expense. The company recorded an
expense for abandonment and impairment of oil and gas properties
of $9,679 and $74,704 for the three and nine months
ended March 31, 1995, respectively. There were no abandonment
and impairment expenses by the company for the same periods in
1994.
General and Administrative Expenses. General and
administrative expenses for the three months ended September 30,
1995 were $351,598 compared to $345,276 for the three months
ended September 30, 1994. General and Administrative expenses
increased from 1993 to 1994 primarily because of the Company's
increased level of activity following the reorganization.
Interest on Recoupment Gas Obligation Expense. Imputed
interest expense on the recoupment gas obligation was $0 for the
three months ended September 30, 1995 and $59,260
for the three months ended September 30, 1994. Effective
December 1, 1994, the Company will not be subject to interest on
its recoupment gas obligation because the recoupment gas
obligation was eliminated in the settlement with El Paso Natural
Gas.
Interest on Notes Payable. Interest on notes payable was
$102,893 for the three months ended September 30, 1995 and
$125,266 for the three months ended September 30, 1994.
Interest expense includes interests on the Company's convertible
note payable issued in November 1992 and interest on the Snyder
Note which was recorded in October 1992. Although
the Company is not obligated to make payments on the Snyder Note,
the Company records interest expense pursuant to the terms of the
note. This note is non-recourse to the Company
and, although there is no assurance that it will do so, the
Company expects that its former parent, UFG, will discharge this
note during the next twelve months thereby eliminating interest
expense on this note.
Future Operations
The Company believes there is risk that UFG will be
unable to timely repay one or more of the obligations encumbering
the assets contributed by UFG and that such UFG assets
could be lost to Delta unless Delta is able to make other
arrangements to allow it to keep the assets and/or to realize the
equivalent value from UFG. Such other arrangements might include
legal action by Delta against UFG. In addition, the Company
holds as collateral certificates representing 888,063 shares of
Delta common stock which are in the name of UFG. This
collateral is held to secure the discharge of liabilities payable
by UFG including UFG's obligations to Snyder and the release of
Amber's shares held by Snyder as collateral for the
Snyder note. It is and has been the Company's position that
Delta could either cancel such collateral shares and reduce the
number of shares outstanding or attempt to resell some or all
of these shares and use the proceeds therefrom to pay the debt
owed by UFG encumbering Delta's assets or contractually owed
directly to Delta. In April 1995, the Company filed with
the Securities and Exchange Commission a Registration Statement
on Form S-3 (amended October 31, 1995) to register 1,360,888
shares of common stock previously issued to certain
shareholders, including UFG along with 1,187,000 shares
underlying outstanding warrants and options. While the Company
will not receive any of the proceeds, UFG has agreed that the
proceeds from sales of shares owned by UFG, will be used to
reduce the liabilities payable by UFG including the Snyder note.
Payments by UFG on the note payable and other liabilities are
accounted from as a capital contribution to the Company.
The principal asset at risk of loss is the encumbered
portion of the Amber shares owned by Delta. The loss of the
encumbered Amber shares would reduce Delta's ownership
interest in Amber to 19.74%. Amber's oil and gas revenue during
the three months ended September 30, 1995 amounted to $97,805
which constituted approximately 48% of the Company's consolidated
oil and gas revenues. Amber's proved oil and gas reserves
attributable to its onshore properties are estimated to be
approximately 17,000 Bbls of oil and 3.85 Bcf of
gas at June 30, 1994. Amber's proved undeveloped oil and gas
reserves attributable to its offshore California properties are
estimated to be 10,582,000 Bbls of oil and 12.96 Bcf of gas
at June 30, 1994. A loss of the encumbered Amber shares would
significantly reduce the Company's oil and gas revenue and
reserves and have a material effect on the operations of the
Company.
The Company owns interests (directly and through Amber)
in four federal units (plus one additional lease) located
offshore near Santa Barbara, California. While these interests
appear to have substantial oil and gas reserves, the cost to
develop them will be extremely high. The Company may be required
to farm out all or a portion of its interests in these properties
if it cannot fund its share of development costs. There can be
no assurance that the Company can farm out its interests on
acceptable terms, if at all. If the Company were to farm out its
interests in these properties, its share of the proved reserves
attributable to the properties would be decreased substantially.
In addition, environmental issues in California make the timing
of their development somewhat uncertain. These units have been
formally approved and are regulated by the Minerals Management
Service of the Federal Government. However, due to persistent
opposition to offshore drilling and production in California, the
process of obtaining the necessary permits and authorizations
will probably be lengthy and even after all required
approvals are obtained, environmental lawsuits may possibly be
filed to delay or prevent development and/or production. While
the Federal Government has recently attempted to
expedite the process, there can be no assurance when and if one
or more of the offshore units in which the Company owns an
interest will be able to go on production. The Company does
not have a controlling interest and does not act as the operator
of any of the offshore California properties and consequently
will not control the timing of either the development of the
properties or the expenditures for development.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. The Company is not engaged in any
material pending legal proceedings to which the Company or its
subsidiaries are a party or to which any of its property is
subject.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K dated August 18, 1995;
Item 5. Other Events
Form 8-K dated November 1, 1995;
Item 5. Other Events
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DELTA PETROLEUM CORPORATION
(Registrant)
/s/ Aleron H. Larson, Jr.
Aleron H. Larson, Jr.
Chairman of the Board, Treasurer
and Chief Financial Officer
/s/Kevin K. Nanke
Kevin K. Nanke, Controller and
Principal Accounting Officer
Date: November 15, 1995
INDEX
(2) Plan of Acquisitions, Reorganization, Arrangement,
Liquidation, or Succession. Not applicable.
(3) Articles of Incorporation and By-laws. The Articles of
Incorporation and Articles of Amendment to Articles of
Incorporation and By-laws of the Registrant were filed as
Exhibits 3.1, 3.2, and 3.3, respectively, to the Registrant's
Form 10 Registration Statement under the Securities and Exchange
Act of 1934, filed September 9, 1987, with the Securities and
Exchange Commission and are incorporated herein by reference.
Statement of Designation and Determination of Preferences of
Series A Convertible Preferred Stock of Delta Petroleum
Corporation is incorporated by Reference to Exhibit
28.3 of the Current Report on Form 8-K dated June 15, 1988.
Statement of Designation and Determination of Preferences of
Series B Convertible Preferred Stock of Delta
Petroleum Corporation is incorporated by reference to Exhibit
28.1 of the Current Report on Form 8-K dated August 9, 1989.
(4) Instruments Defining the Rights of Security Holders.
Not applicable.
(9) Voting Trust Agreement. Not applicable.
(10) Material Contracts. Not applicable.
(11) Statement Regarding Computation of Per Share Earnings.
Not applicable.
(12) Statement Regarding Computation of Ratios. Not applicable.
(13) Annual Report to Security Holders, Form 10-Q or Quarterly
Report to Security Holders. Not applicable.
(16) Letter re: Change in Certifying Accountants. Not applicable.
(17) Letter re: Director Resignation. Not applicable.
(18) Letter Regarding Change in Accounting Principals.
Not applicable.
(19) Previously Unfiled Documents. Not applicable.
(21) Subsidiaries of the Registrant. Not applicable.
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders. Not applicable.
(23) Consent of Experts and Counsel. Not applicable.
(24) Power of Attorney. Not applicable.
(27) Financial Data Schedule.
(99) Additional Exhibits. Not applicable.
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