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 March 31, 1996
[ ] 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___
4,428,783 shares of common stock $.01 par value were outstanding
as of May 10, 1996.
FORM 10-QSB
3rd QTR.
FY 1996
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1996 and
June 30, 1995 (unaudited). . . . . . . . . . . . . . 1
Consolidated Statements of Operations -
Three and Nine Months Ended
March 31, 1996 and 1995 (unaudited). . . . . . . . . 3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 1995 and
Nine Months Ended March 31, 1996 (unaudited) . . . . 5
Consolidated Statements of Cash Flows -
Nine Months Ended
March 31, 1996 and 1995 (unaudited). . . . . . . . . 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
Or Plan of Operations . . . . . . . . . . . . . . 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities. . . . . . . . . . . . . . . 18
Item 3. Defaults upon Senior Securities. . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . 18
Item 5. Other Information. . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 18
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
1996 1995
ASSETS
Current Assets:
Cash $956,993 55,833
Trade accounts receivable, net of
allowance for doubtful accounts of $48,722
at March 31, 1996 and June 30, 1995 492,111 327,185
Other current assets 2,100 2,100
Total current assets 1,451,204 385,118
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 675,670 498,799
Developed onshore domestic properties 2,883,737 2,703,762
Office furniture and equipment 76,788 60,830
10,741,615 10,368,811
Less accumulated depreciation and depletion (1,579,810) (1,426,818)
Net property and equipment 9,161,805 8,941,993
Investment in Bion Environmental
Technologies, Inc. (Bion) 443,135 316,525
Accounts receivable from officer
and affiliates 86,370 83,137
$11,142,514 9,726,773
March 31, June 30,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ - 100,000
Accounts payable trade 389,996 602,738
Accrued interest payable - 8,000
Other accrued liabilities 161,833 182,998
Consulting fees payable to stockholders - 162,500
Royalties payable held in suspense 260,095 241,233
Recoupment gas royalties payable 669,841 669,841
Liabilities payable by Underwriters Financial
(UFG) (the Company's former parent)
Note payable, including accrued interest 2,553,024 2,232,855
Total current liabilities 4,034,789 4,200,165
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 4,428,783
shares at March 31, 1996 and 2,949,847
at June 30, 1995 44,287 35,509
Obligation payable in common stock - 46,400
Additional paid-in capital 19,495,820 15,627,201
Unamortized consulting expense (272,900) -
Cumulative unrealized loss (223,532) (350,142)
Accumulated deficit (11,935,950) (9,832,360)
Total stockholders' equity 7,107,725 5,526,608
Commitments and contingencies
$11,142,514 9,726,773
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 31,
1996 1995
Revenue:
Oil and gas sales $347,791 222,773
Other revenue 10,882 9,600
Total revenue 358,673 232,373
Expenses:
Lease operating expenses 166,162 109,017
Depreciation and depletion 58,827 117,545
Exploration expenses 14,312 -
Abandoned and impaired properties - 9,679
Minimum royalty-related party 250,000 250,000
General and administrative 398,084 342,570
Interest on notes payable 111,634 81,010
Total expenses 999,019 909,821
Net loss before extraordinary item ($640,346) (677,448)
Loss per common share ($.15) (.22)
Weighted average number of common
shares outstanding 4,274,810 3,052,334
Nine Months Ended
March 31, March 31,
1996 1995
Revenue:
Oil and gas sales, including recoupment
of $167,009 in fiscal 1995 $807,077 990,517
Other revenue 39,868 28,899
Gain on sale of oil and gas properties - 182,852
Total revenue 846,945 1,202,268
Expenses:
Lease operating expenses 359,452 350,577
Depreciation and depletion 190,641 375,347
Exploration expenses 49,123 14,169
Abandoned and impaired properties - 74,704
Minimum royalty-related party 250,000 250,000
General and administrative 1,485,495 1,156,746
Stock option expense 293,125 1,508,750
Interest on notes payable 322,699 372,874
Interest on recoupment gas obligation - 113,285
Total expenses 2,950,535 4,216,452
Net loss before extraordinary item (2,103,590) (3,014,184)
Extraordinary gain on settlement of
recoupment gas obligation - 493,850
Net loss ($2,103,590) (2,520,334)
Loss per common share:
Net loss before extraordinary item ($.53) (1.00)
Extraordinary gain on settlement of
recoupment gas obligation - .16
Net loss per share ($.53) (.84)
Weighted average number of common
shares outstanding 4,004,384 3,013,770
<TABLE>
Consolidated Statement of Stockholders' Equity
Year ended June 30, 1995 and Nine Months
Ended March 31, 1996
(Unaudited)
<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 issued 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 140,478 1,405 - 637,710 -
Shares issued for cash upon exercise of options 291,850 2,918 - 1,431,807 -
Shares issued for undeveloped oil and gas properties 31,127 311 - 115,290 -
Shares issued for developed oil and gas properties 5,000 50 - 16,825 -
Shares issued for services 127,046 1,270 - 655,286 (638,750)
Stock options granted as compensation - - - 293,125 -
Amortization of obligation payable in common stock 6,400 64 (46,400) 46,336 -
Amortization of consulting expense - - - - 365,850
Shares issued for redeemable common stock 276,000 2,760 - 747,240 -
Commission paid on issuance of redeemable common - - - (75,000) -
Net loss - - - - -
Balance, March 31, 1996 4,428,783 $44,287 - 19,495,820 (272,900)
</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 - 126,610 - 126,610
Shares issued for cash - - - 639,115
Shares issued for cash upon exercise of options - - - 1,434,725
Shares issued for undeveloped oil and gas properties - - - 115,601
Shares issued for developed oil and gas properties - - - 16,875
Shares issued for services - - - 17,806
Stock options granted as compensation - - - 293,125
Amortization of obligation payable in common stock - - - -
Amortization of consulting expense - - - 365,850
Shares issued for redeemable common stock - - - 750,000
Commission paid on issuance of redeemable common - - - (75,000)
Net loss - - (2,103,590) (2,103,590)
Balance, March 31, 1996 - (223,532) (11,935,950) 7,107,725
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
Net cash used in operating activities ($1,466,470) (407,552)
Cash flows from investing activities:
Additions to property and equipment (277,977) (314,526)
Proceeds from sale of oil and gas properties - 374,989
Net cash (used in) provided by investing activities (277,977) 60,463
Cash flows from financing activities:
Proceeds from borrowing - 100,000
Payment of notes payable (100,000) -
Issuance of common stock for cash 639,115 56,850
Stock issued for cash upon exercise of options 1,434,725 130,350
Issuance of redeemble common stock 750,000 -
Commission paid on issuance of redeemable
common stock (75,000) -
(Increase) decrease in accounts receivable from
officer and affiliates (3,233) 59,845
Net cash provided by financing activities 2,645,607 347,045
Net increase (decrease) in cash 901,160 (44)
Cash at beginning of period 55,833 6,860
Cash at end of period $956,993 6,816
Supplemental cashflow information:
Cash paid for interest $2,530 -
Non-cash financing activities:
Stock issued for oil and gas properties $132,476 -
</TABLE>
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Nine Months Ended March 31, 1996 and 1995
(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.
The cost and estimated fair market value of its investment
in Bion at March 31, 1996 and June 30, 1995 are as follows:
Estimated
Unrealized Market
Cost (Loss)
Value
March 31, 1996 $666,667 (223,532) 443,135
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 were 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 March 31, 1996.
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 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. The Company holds 888,063 shares of
Delta's common stock owned by the Company's former parent as
collateral pending discharge of the obligation.
At March 31, 1996 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 March 31,
1996 are summarized as follows:
Assets:
Current Assets $ 167,878
Oil and gas properties:
Undeveloped offshore California properties 5,006,276
Developed onshore properties, net 1,429,950
6,436,859
Accumulated depreciation and depletion (699,733)
Net oil and gas properties 5,736,493
Total Assets 5,904,371
Liabilities -
Current liabilities 1,631,830
Net assets $ 4,272,541
The revenue and expenses of Amber included in the
accompanying consolidated financial statements for the nine
months ended March 31, 1996 are as follows:
Revenue $ 393,332
Expenses (818,175)
Net loss $ (424,843)
(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. During
the quarter ended December 31, 1995 the redeemable shares were
sold privately thereby waiving all rights of
redemption. The Company delivered a total of 276,000 shares
before the redeemable shares were sold privately. As a result of
the sale, $750,000 ($675,000 net of certain commission) was
credited to equity during the quarter ended December 31, 1995.
(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 for the six months ended December 31,
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 for
the six months ended December 31, 1995 based on
the difference between the option price and the quoted market
price on the date of grant.
During the nine months ended March 31, 1996, the Company
sold 140,478 shares of its common stock to three unrelated
entities for $639,115.
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.
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.
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 May 10, 1996, the registration
statement has been filed with the SEC but has not yet 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.
On December 11, 1995, UFG filed for Chapter 11 bankruptcy
protection with the United States Bankruptcy Court for the
Southern District of New York. Delta's position and alternative
courses of action are being reviewed by its management, legal
counsel.
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 March 31, 1996, the Company had a working capital deficit
of $2,583,585 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 $2,553,024 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 no longer be obligated to El Paso
for recoupment gas from the remaining wells subject to the
recoupment agreement. Consequently, the Company has lost 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 proceeds from the exercise of options
to purchase 291,850 shares of its common stock for $1,434,725
during the nine months ended March 31, 1996. In addition,
the Company received $1,314,115 from the following 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. During the quarter
ended December 31, 1995 the redeemable shares were sold privately
thereby waiving all rights of redemption. The Company delivered
a total of 276,000 shares before the redeemable shares were sold
privately. As a result of the sale, $750,000 ($675,000 net of
certain commissions) was credited to equity during the quarter
ended December 31, 1995. During the nine months ended March 31,
1996, the Company also sold 140,478 shares of its common stock to
three unrelated entities for $639,115.
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 both
development and exploratory 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 each for
the first and second years, and will pay 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 and nine months ended March 31, 1996 of $640,346 and
$2,103,590 compared to net loss of $677,448 and
$2,520,334 for the three and nine months ended March 31, 1995.
The loss for the nine months ended March 31, 1996 and 1995
included $293,125 and $1,508,750, respectively, for "stock
option expenses" resulting from the issuance of options.
Revenue. Total revenue for the three and nine months ended
March 31, 1996 were $358,673 and $846,945 compared to $232,373
and $1,202,268 for the three and nine months
ended March 31, 1995, respectively. Oil and gas sales for the
three and nine months ended March 31, 1996 were $347,791 and
$807,077 compared to $222,773 and $990,517 for the three
and nine months ended March 31, 1995, respectively. The
Company's oil and gas sales were impacted by the settlement of
the recoupment gas obligation, the sale of oil and gas properties
during the last year, by the over production of gas by other
working interest owners in certain gas wells in Oklahoma and the
increase in oil and gas prices during the quarter. 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 $167,009 for the nine months ended March 31,
1995. 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
and nine months ended March 31, 1996 and 1995 are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
Production:
Oil (barrels) 6,559 3,356 10,933 9,665
Gas (Mcfs) 127,050 194,728 369,322 541,325
Average Price:
Oil (per barrel) $17.27 $16.10 $16.12 $16.50
Gas (per Mcf) $1.84 $1.88 $1.71 $1.54
Lease Operating Expenses. Lease operating expenses were
$166,162 and $359,452 for the three and nine months ended March
31, 1996 and $109,017 and $350,577 for the three and
nine months ended March 31, 1995, respectively. On a Mcf
equivalent basis, production expenses and taxes were $.99 and
$.83, respectively, per Mcf equivalent during the three and
nine months ended March 31, 1996 compared to $.51 and $.58,
respectively, per Mcf equivalent for the same periods in 1995.
During the nine months ended March 31, 1996, the Company
incurred additional expenses relating to several workovers.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the three and nine months ended March 31,
1996 were $58,827 and $190,641 compared to $117,545 and
$375,347 for the same period in 1995. On a Mcf equivalent
basis, depreciation and depletion expense were $.35 and $.44,
respectively, per Mcf equivalent during the three and nine months
ended March 31, 1996 compared to $.55 and $.63, respectively, per
Mcf equivalent for the same periods in 1995.
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
1996.
Exploration Expenses. Exploration expenses consist of
geological and geophysical costs and lease rentals. Exploration
expenses the three and nine months ended March 31, 1996 were
$14,312 and $49,123 compared to $0 and $14,169 for the same
period in 1995.
General and Administrative Expenses. General and
administrative expenses for the three and nine months ended March
31, 1996 were $398,084 and $1,485,495 compared to $342,570
and $1,156,746 for the same periods in 1995. General and
administrative expenses increased from 1995 to 1996 primarily
because of the Company's increased level in investor and broker
relation costs.
Interest on Recoupment Gas Obligation Expense. Imputed
interest expense on the recoupment gas obligation was $113,285
for the nine months ended March 31, 1995. 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 were
$111,634 and $322,699 for the three and nine months ended March
31, 1996 and $81,010 and $372,874 for the three and
nine months ended March 31, 1995. 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 for as a capital contribution to the Company.
On December 11, 1995, UFG filed for Chapter 11 bankruptcy
protection with the United States Bankruptcy Court for the
Southern District of New York. Delta's position and alternative
courses of action are being reviewed by management and its legal
counsel.
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 nine
months ended March 31, 1996 amounted to $393,215 which
constituted approximately 50% 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, 1995. 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, 1995. 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's Offshore California proved undeveloped
reserves are attributable to its interests in four federal units
(plus one additional lease) located offshore California near
Santa Barbara. While these interests represent ownership of
substantial oil and gas reserves classified
as proved undeveloped, the cost to develop the reserves will be
very substantial. 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 the development costs. There can be no assurance
that the Company can farm out its interests on acceptable terms.
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. The Company may
also incur substantial dilution of its interests in the
properties if it elects to use other methods of financing the
development costs.
These units have been formally approved and are regulated by
the Minerals Management Service of the Federal Government.
However, due to a history of opposition to offshore drilling
and production in California by some individuals and groups, the
process of obtaining all of the necessary permits and
authorizations to develop the properties will be lengthy and even
after all required approvals are obtained, lawsuits may possibly
be filed to attempt to further delay the development of the
properties. While the Federal Government has recently attempted
to expedite this process, there can be no assurance that it will
be successful in doing so. The Company does not have a
controlling interest in 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. Management and its
independent engineering consultant have considered these factors
relating to timing of the development of the reserves in the
preparation of the reserve information relating to these
properties. As additional information becomes available in the
future, the Company's estimates of the proved undeveloped
reserves attributable to these properties could change, and such
changes could be substantial.
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: April 5, 1996
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: May 14, 1996
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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