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 December 31, 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___
4,238,784 shares of common stock $.01 par value were outstanding
as of February 6, 1996.
FORM 10-QSB
2nd QTR
FY 1996
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1995 and
June 30, 1995 (unaudited). . . . . . . . . . . . . .1
Consolidated Statements of Operations -
Three and Six Months Ended
December 31, 1995 and 1994 (unaudited) . . . . . . .3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 1995 and
Six Months Ended December 31, 1995 (unaudited) . . .5
Consolidated Statements of Cash Flows -
Six Months Ended
December 31, 1995 and 1994 (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. . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities. . . . . . . . . . . . . . . 19
Item 3. Defaults upon Senior Securities. . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of
Security Holders. . .. . . . . . . . . . . . . . . 19
Item 5. Other Information. . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 19
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
1995 1995
ASSETS
Current Assets:
Cash $469,677 55,833
Trade accounts receivable, net of
allowance for doubtful accounts of $48,722
at December 31, 1995 and June 30, 1995 432,758 327,185
Other current assets 12,100 2,100
Total current assets 914,535 385,118
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 643,030 498,799
Developed onshore domestic properties 2,821,993 2,703,762
Office furniture and equipment 63,793 60,830
10,634,236 10,368,811
Less accumulated depreciation and depletion (1,520,983) (1,426,818)
Net property and equipment 9,113,253 8,941,993
Investment in Bion Environmental
Technologies, Inc. (Bion) 474,788 316,525
Accounts receivable from officer
and affiliates 77,580 83,137
$10,580,156 9,726,773
December 31, June 30,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ - 100,000
Accounts payable trade 421,945 602,738
Accrued interest payable - 8,000
Other accrued liabilities 142,179 182,998
Consulting fees payable to stockholders - 162,500
Royalties payable held in suspense 253,979 241,233
Recoupment gas royalties payable 669,841 669,841
Liabilities payable by Underwriters Financial
(UFG) (the Company's former parent)
Note payable, including accrued interest 2,441,500 2,232,855
Total current liabilities 3,929,444 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
4,174,283 shares, at December 31, 1995
and 2,949,847 issued
shares at June 30, 1995 41,742 35,509
Obligation payable in common stock - 46,400
Additional paid-in capital 18,326,553 15,627,201
Unamortized consulting expense (230,100) -
Cumulative unrealized loss (191,879) (350,142)
Accumulated deficit (11,295,604) (9,832,360)
Total stockholders' equity 6,650,712 5,526,608
Commitments and contingencies
$10,580,156 9,726,773
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31, December 31,
1995 1994
Revenue:
Oil and gas sales, including recoupment
gas of $80,904 in 1994 $255,417 368,734
Other revenue 14,914 8,452
Gain on sale of oil and gas properties - 182,852
Total revenue 270,331 560,038
Expenses:
Lease operating expenses 97,961 133,921
Depreciation and depletion 52,923 144,342
Exploration expenses 20,148 -
Abandoned and impaired properties - 65,025
General and administrative 735,813 468,900
Interest on notes payable 108,172 166,598
Interest on recoupment gas obligation - 54,025
Total expenses 1,015,017 1,032,811
Net loss before extraordinary item (744,686) (472,773)
Extraordinary gain on settlement of
recoupment gas obligation - 493,850
Net loss ($744,686) 21,077
Loss per common shares:
Net loss before extraordinary item (0.18) (0.16)
Extraordinary gain on settlement of
recoupment gas obligation - 0.17
Net loss ($0.18) 0.01
Weighted average number of common
shares outstanding 4,093,474 2,994,070
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
December 31, December 31,
1995 1994
Revenue:
Oil and gas sales, including recoupment
gas of $167,009 in 1994 $459,286 767,744
Other revenue 28,986 19,299
Gain on sale of oil and gas properties - 182,852
Total revenue 488,272 969,895
Expenses:
Lease operating expenses 193,290 241,560
Depreciation and depletion 131,814 257,802
Exploration expenses 34,811 14,169
Abandoned and impaired properties - 65,025
General and administrative 1,087,411 814,176
Stock option expense 293,125 1,508,750
Interest on notes payable 211,065 291,864
Interest on recoupment gas obligation - 113,285
Total expenses 1,951,516 3,306,631
Net loss before extraordinary item (1,463,244) (2,336,736)
Extraordinary gain on settlement of
recoupment gas obligation - 493,850
Net loss ($1,463,244) (1,842,886)
Loss per common shares:
Net loss before extraordinary item (0.38) (0.78)
Extraordinary gain on settlement of
recoupment gas obligation - 0.16
Net loss ($0.38) (0.62)
Weighted average number of common
shares outstanding 3,871,586 2,988,598
Consolidated Statement of Stockholders' Equity
Year ended June 30, 1995 and Six Months
Ended December 31, 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 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 25,478 255 - 88,860 -
Shares issued for cash upon exercise of options 182,350 1,823 - 991,090 -
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 97,046 970 - 475,586 (458,750)
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 - - - - 228,650
Shares issued for redeemable common stock 276,000 2,760 - 747,240 -
Commission paid on issuance of redeemable common
stock - - - (75,000) -
Net loss - - - - -
Balance, December 31, 1995 4,174,283 $41,742 0 18,326,553 (230,100)
</TABLE>
<TABLE>
<CAPTION>
Cumulative
unrealized
Treasury gain Accumulated
stock (loss) deficit Total
<S> <S> <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 - 158,263 - 158,263
Shares issued for cash - - - 89,115
Shares issued for cash upon exercise of options - - - 992,913
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 - - - 228,650
Shares issued for redeemable common stock - - - 750,000
Commission paid on issuance of redeemable common - - - (75,000)
Net loss - - (1,463,244) (1,463,244)
Balance, December 30, 1995 - (191,879) (11,295,604) 6,650,712
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31, December 31,
1995 1994
Net cash used in operating activities (1,078,143) (202,461)
Cash flows from investing activities:
Additions to property and equipment (170,598) (137,720)
Proceeds from sale of oil and gas properties - 337,903
Net cash (used in) provided by investing
activities (170,598) 200,183
Cash flows from financing activities:
Proceeds from borrowing - 100,000
Payment of notes payable (100,000) -
Issuance of common stock for cash 89,115 115,940
Stock issued for cash upon exercise
of options 992,913 -
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 5,557 60,377
Net cash provided by financing activities 1,662,585 276,317
Net increase in cash 413,844 274,039
Cash at beginning of period 55,833 6,860
Cash at end of period $469,677 280,899
Supplemental cashflow information:
Cash paid for interest $2,420 -
Non-cash financing activities:
Stock issued for oil and gas properties $132,476 -
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Six Months Ended December 31, 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.
The cost and estimated fair market value of its investment
in Bion at December 31, 1995 and June 30, 1995 are as follows:
Estimated
Unrealized Market
Cost (Loss) Value
December 31, 1995 $666,667 (191,879) 474,788
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 December 31,
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. 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 December 31, 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 December 31,
1995 are summarized as follows:
Assets:
Current Assets $ 111,619
Oil and gas properties:
Undeveloped offshore California properties 5,006,276
Developed onshore properties, net 1,430,583
6,436,859
Accumulated depreciation and depletion (664,582)
Net oil and gas properties 5,772,277
Total Assets 5,883,896
Liabilities -
Current liabilities 1,579,071
Net assets $ 4,304,825
The revenue and expenses of Amber included in the
accompanying consolidated financial statements for the six months
ended December 31, 1995 are as follows:
Revenue $ 229,664
Expenses (662,223)
Net loss $ (392,559)
(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 commissions) 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.
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 February 5, 1995, 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 December 31, 1995, the Company had a working capital
deficit of $3,014,909 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 $2,441,500 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 shares of its common stock for $992,913 during the
six months ended December 31, 1995. In addition, the
Company received $89,115 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, net $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. 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 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 six months ended December 31, 1995 of $744,686 and
$1,463,244 compared to net income of $21,077 and
a net loss of $1,842,886 for the three and six months ended
December 31, 1994. The loss for the six months ended December
31, 1995 and 1994 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 six month ended
December 31, 1995 were $270,331 and $488,272 compared to $560,038
and $969,895 for the three and six months ended
December 31, 1994, respectively. Oil and gas sales for the
three and six months ended December 31, 1995 were $255,417 and
$459,286 compared to $368,734 and $767,744 for the
three and six months ended December 31, 1994, 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 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 $80,904 and $167,009 for the three and six months
ended December 31, 1994,respectively. 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 six months ended December 31, 1995 and 1994 are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
Production:
Oil (barrels) 2,221 2,612 4,374 5,010
Gas (Mcfs) 25,477 219,769 242,272 442,307
Average Price:
Oil (per barrel) $15.72 $15.80 $16.14 $16.40
Gas (per Mcf) $ 1.76 $1.49 $1.60 $1.55
Lease Operating Expenses. Lease operating expenses were
$97,961 and $193,290 for the three and six months ended December
31, 1995 and $133,921 and $241,560 for the three
and six months ended December 31, 1994, respectively. On a Mcf
equivalent basis, production expenses and taxes were $.71 and
$.72, respectively, per Mcf equivalent during the three and
six months ended December 31, 1995 compared to $.56 and $.51,
respectively, per Mcf equivalent for the same periods in 1994.
During the six months ended December 31, 1995, the
Company incurred additional expenses relating to several
workovers.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the three and six months ended December 31,
1995 were $52,923 and $131,814 compared to $144,342
and $257,802 for the same period in 1994. On a Mcf equivalent
basis, depreciation and depletion expense were $.38 and $.49,
respectively, per Mcf equivalent during the three and six
months ended December 31, 1995 compared to $.61 and $.54,
respectively, per Mcf equivalent for the same periods in 1994.
Abandoned and Impaired Expense. The company recorded an
expense for abandonment and impairment of oil and gas properties
of $65,025 and $65,025 for the three and six months
ended December 31, 1994, respectively. There were no abandonment
and impairment expenses by the company for the same periods in
1995.
Exploration Expenses. Exploration expenses consist of
geological and geophysical costs and lease rentals. Exploration
expenses the three and six months ended December 31, 1995
were $20,148 and $34,811 compared to $0 and $14,169 for the same
period in 1994.
General and Administrative Expenses. General and
administrative expenses for the three and six months ended
December 31, 1995 were $735,813 and $1,087,411 compared to
$468,900 and $814,176 for the same periods in 1994. General and
Administrative expenses increased from 1994 to 1995 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 $0 for the
three and six months ended December 31, 1995 and
$54,025 and $113,285 for the three and six months ended December
31, 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 were
$108,172 and $211,065 for the three and six months ended
December 31, 1995 and $166,598 and $291,864 for the three
and six months ended December 31, 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.
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 alterative
courses of action are being reviewed by its management, 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 six
months ended December 31, 1995 amounted to $229,562 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, 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, 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:
Form 8-K dated November 1, 1995;
Item 5. Other Events
Form 8-K dated December 14, 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: February 9, 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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