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, 1997
[ ] 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___
5,141,784 shares of common stock $.01 par value were outstanding
as of May 10, 1997.
FORM 10-QSB
3rd QTR
FY 1997
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1997 and
June 30, 1996 (unaudited). . . . . . . . . . . . . .1
Consolidated Statements of Operations -
Three and Nine Months Ended
March 31, 1997 and 1996 (unaudited). . . . . . . . .3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 1996 and
Nine Months Ended March 31, 1997 (unaudited) . . . .5
Consolidated Statements of Cash Flows -
Nine Months Ended
March 31, 1997 and 1996 (unaudited). . . . . . . . .6
Notes to Consolidated Financial Statements (unaudited) 7
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)
March 31, June 30,
1997 1996
ASSETS
Current Assets:
Cash $427,976 1,629,738
Trade accounts receivable, net of
allowance for doubtful accounts of $48,722
at March 31, 1997 and June 30, 1996 511,840 377,260
Other current assets 10,100 12,100
Total current assets 949,916 2,019,098
Property and Equipment:
Oil and gas properties, at cost (using
the successful efforts method
of accounting):
Undeveloped offshore California
properties 6,959,830 6,786,580
Undeveloped onshore domestic properties 1,187,508 971,648
Developed onshore domestic properties 3,341,199 2,919,451
Office furniture and equipment 80,446 78,188
11,568,983 10,755,867
Less accumulated depreciation and depletion (2,038,059) (1,787,443)
Net property and equipment 9,530,924 8,968,424
Investment in Bion Environmental
Technologies, Inc. (Bion) 745,671 411,483
Accounts receivable from officer
and affiliates 124,144 116,727
$11,350,655 11,515,732
March 31, June 30,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable trade $500,255 304,050
Other accrued liabilities 55,346 68,297
Royalties payable 521,579 649,835
Liabilities payable by Underwriters Financial
Group (UFG) (the Company's former parent)
Note payable, including accrued interest 2,669,642 2,669,642
Total current liabilities 3,746,822 3,691,824
Stockholders' Equity
Preferred stock, $.10 par value;
authorized 3,000,000 shares; none issued - 16
Common stock, $.01 par value;
authorized 300,000,000 shares, issued 5,137,714
shares at March 31, 1997 and 4,488,283
at June 30, 1996 51,376 44,882
Additional paid-in capital 22,273,379 21,299,784
Unamortized consulting expense - (105,000)
Cumulative unrealized loss 28,374 (255,184)
Accumulated deficit (14,749,296) (13,160,590)
Total stockholders' equity 7,603,833 7,823,908
Commitments and contingencies
$11,350,655 11,515,732
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 31,
1997 1996
Revenue:
Oil and gas sales $448,772 347,791
Other revenue 67,710 10,882
Total revenue 516,482 358,673
Expenses:
Lease operating expenses 158,340 166,162
Depreciation and depletion 71,213 58,827
Exploration expenses 51,191 14,312
Abandoned and impaired properties 21,718 -
Minimum royalty-related party 350,000 250,000
General and administrative 482,819 398,084
Stock option expense 9,397 -
Interest on notes payable - 111,634
Total expenses 1,144,678 999,019
Net loss ($628,196) (640,346)
Loss per common share: ($0.12) (0.15)
Weighted average number of common
shares outstanding 5,122,216 4,274,810
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
March 31, March 31,
1997 1996
Revenue:
Oil and gas sales $1,228,121 807,077
Other revenue 188,543 39,868
Total revenue 1,416,664 846,945
Expenses:
Lease operating expenses 406,944 359,452
Depreciation and depletion 250,616 190,641
Exploration expenses 340,925 49,123
Abandoned and impaired properties 202,226 -
Minimum royalty-related party 350,000 250,000
General and administrative 1,421,226 1,485,495
Stock option expense 33,433 293,125
Interest on notes payable - 322,699
Total expenses 3,005,370 2,950,535
Net loss ($1,588,706) (2,103,590)
Loss per common share: ($0.32) (0.53)
Weighted average number of common
shares outstanding 4,982,443 4,004,384
<TABLE>
Consolidated Statement of Stockholders' Equity
Year ended June 30, 1996 and nine months ended
March 31, 1997
Unaudited)
<CAPTION>
Obligation
Preferred Stock Common Stock payable in
Shares Amount Shares Amount common stock
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 - $- 3,550,882 35,509 46,400
Unrealized gain on equity securities - - - - -
Shares issued for cash -- preferred stock 160 16 - - -
Commission paid on issuance of preferred stock - - - - -
Shares issued for cash - common stock - - 140,478 1,405 -
Shares issued for cash-redeemable common stock - - 276,000 2,760 -
Commission paid on issuance of redeemable
common stock - - - - -
Capital contributions from UFG - - - - -
Shares issued for cash upon exercise of options - - 351,350 3,513 -
Shares issued for undeveloped oil and gas properties - - 31,127 311 -
Shares issued for developed oil and gas properties - - 5,000 50 -
Stock options granted as compensation - - - - -
Shares issued for services - - 127,046 1,270 -
Amortization of consulting expense - - - - -
Common stock issued for amortization
of obligation payable - - 6,400 64 (46,400)
Net loss - - - - -
Balance, June 30, 1996 160 16 4,488,283 44,882 -
Unrealized gain on equity securities - - - - -
Preferred stock converted into common stock (160) (16) 396,601 3,966 -
Shares issued for cash upon exercise of options - - 185,900 1,859 -
Shares issued for undeveloped oil and gas properties - - 63,000 630 -
Shares issued for developed oil and gas properties - - 500 5 -
Stock options granted as compensation - - - - -
Shares issued for services - - 7,500 75 -
Amortization of consulting expense - - - - -
Reacquired common stock - - (4,070) 41 -
Net loss - - - - -
Balance, March 31, 1997 - $- 5,137,714 51,376 -
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Additional Unamortized unrealized
paid-in consulting gain Accumulated
capital expense (loss) deficit Total
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 15,627,201 - (350,142) (9,832,360) 5,526,608
Unrealized gain on equity securities - - 94,958 - 94,958
Shares issued for cash -- preferred stock 1,599,984 - - - 1,600,000
Commission paid on issuance of preferred stock (160,000) - - - (160,000)
Shares issued for cash - common stock 637,710 - - - 639,115
Shares issued for cash-redeemable common stock 747,240 - - - 750,000
Commission paid on issuance of redeemable
common stock (75,000) - - - (75,000)
Capital contributions from UFG 62,098 - - - 62,098
Shares issued for cash upon exercise of options 1,660,837 - - - 1,664,350
Shares issued for undeveloped oil and gas properties 115,290 - - - 115,601
Shares issued for developed oil and gas properties 16,825 - - - 16,875
Stock options granted as compensation 365,977 - - - 365,977
Shares issued for services 655,286 (656,556) - - -
Amortization of consulting expense - 551,556 - - 551,556
Common stock issued for amortization
of obligation payable 46,336 - - - -
Net loss - - - (3,328,230) (3,328,230)
Balance, June 30, 1996 21,299,784 (105,000) (255,184) (13,160,590) 7,823,908
Unrealized gain on equity securities - - 283,558 - 283,558
Preferred stock converted into common stock (3,950) - - - -
Shares issued for cash upon exercise of options 757,985 - - - 759,844
Shares issued for undeveloped oil and gas properties 172,620 - - - 173,250
Shares issued for developed oil and gas properties 1,604 - - - 1,609
Stock options granted as compensation 33,433 - - - 33,433
Shares issued for services 29,925 - - - 29,925
Amortization of consulting expense - 105,000 - - 105,000
Reacquired common stock - - - - (18,063)
Net loss - - - (1,588,706) (1,588,706)
Balance, March 31, 1997 22,273,379 - 28,374 (14,749,296) 7,603,833
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31, March 31,
1997 1996
Net cash used in operating activities ($1,238,543) (1,466,470)
Cash flows from investing activities:
Additions to property and equipment (638,257) (277,977)
Proceeds from sale of oil and gas properties - -
Net cash (used in) investing activities (638,257) (277,977)
Cash flows from financing activities:
Stock issued for cash upon exercise of options 741,781 1,434,725
Payment of notes payable - (100,000)
Issuance of common stock for cash - 639,115
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 (66,743) (3,233)
Net cash provided by financing activities 675,038 2,645,607
Net (decrease) increase in cash (1,201,762) 901,160
Cash at beginning of period 1,629,738 55,833
Cash at end of period $427,976 956,993
Supplemental cashflow information:
Cash paid for interest - 2,530
Non-cash financing activities:
Stock issued for oil and gas properties $174,859 132,476
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Nine Months Ended March 31, 1997 and 1996
(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, 1997 and June 30, 1996 are as follows:
Estimated
Unrealized Market
Cost Gain/(Loss) Value
March 31, 1997 $717,297 28,374 745,671
June 30, 1996 $666,667 (255,184) 411,483
(3) Contingencies
Investment in Offshore California Property:
The Company has an investment in certain undeveloped
offshore California properties of $6,786,580 at March 31, 1997.
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
("Amber"), a majority owned subsidiary of the Company, are
pledged to secure a note payable by the Company's former parent,
Underwriters Financial Group, Inc. ("UFG") which note is
currently in default. On December 11, 1995, UFG filed Chapter 11
bankruptcy protection with the United States Bankruptcy Court for
the Southern District of New York. 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 March 31, 1997 and June 30, 1996, the note payable
recorded in the accompanying financial statements represents
UFG's obligation to Snyder Oil Corporation (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,
1997 are summarized as follows:
Assets:
Current Assets $134,536
Oil and gas properties:
Undeveloped offshore California properties 5,006,276
Developed onshore properties, net 1,447,628
6,453,904
Accumulated depreciation and depletion (833,953)
Net oil and gas properties 5,619,951
Total Assets 5,754,487
Liabilities -
Current liabilities 1,146,099
Net assets $ 4,608,388
The revenue and expenses of Amber included in the
accompanying consolidated financial statements for the nine
months ended March 31, 1997 are as follows:
Revenue $ 823,129
Expenses (762,587)
Net income $ 60,542
(4) Accounts Receivable from Affiliates
During the quarter ended March 31, 1997, the Company wrote
off a $59,326 receivable from a corporation affiliated with the
company's president. This amount has been recorded as
a bad debt expense and is included in general and administrative
expenses.
On January 7, 1997, the Company, with the consent of its
president, cancelled 21,573 of his options to purchase stock at
$3.75. The Company believes the estimated fair value of the
options cancelled on January 7, 1997 was $59,326.
At March 31, 1997, the Company's president, Roger A. Parker,
owed the Company approximately $61,000 and his affiliated companies
owed the Company approximately $63,000. On May 15, 1997, the
president's personal debt including interest at 10% to the Company
was approximately $42,000.
(5) Shareholders' Equity
During the quarter ended March 31, 1997, the Company s
president exercised options to purchase 14,450 shares of the
Company s common stock. Payment for these shares of
Common Stock purchased upon the exercise of an option was made in
shares of the Company's Common Stock owned by it s president
pursuant to the Company s 1993 incentive plan, as
amended. As a result of this transaction, the Company recorded
at cost, the 4,070 reacquired shares of the Company's common stock.
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. Effective March 31, 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. On
December 11, 1995, UFG filed Chapter 11 bankruptcy protection
with the United States Bankruptcy Court for Southern District of
New York. As of February 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.
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 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 this 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 $2,091,761 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, 1997, the Company had a working capital deficit
of $2,796,906 compared to a working capital deficit of $1,672,726
at June 30, 1996. The increase in working capital from June 30,
1996 to March 31, 1997 can be attributed to the increase in oil
and gas drilling including exploration costs attributable to the
shooting of 3-D seismic on four prospects in Northern California.
The Company's working capital deficit is also in part as a result
of the note payable to Snyder Oil Corporation ("Snyder") of
$2,669,642 which is non-recourse to Delta and which is 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 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. 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. The Company has been informed by its legal
counsel that the applicable statue of limitations period for
actions in the State of Oklahoma is five years. The statue of
limitations has expired for royalty owners to make a claim for a
portion of the estimated royalties that had previously been
accrued. Accordingly, these amounts have been written off and
recorded as other income.
The Company believes that it is unlikely that all claims
that might be made for payment of the royalties payable would be
made at one time. Further, Amber rather than Delta, would be
directly liable for payment of 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.
The Company received proceeds from the exercise of options
to purchase 185,900 shares of its common stock for $741,781
during the nine months ended March 31, 1997.
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.
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, 1997 of $628,196 and
$1,588,706 compared to net loss of $640,346 and $1,780,891 for
the three and nine months ended March 31, 1996.
Revenue. Total revenue for the three and nine months ended
March 31, 1997 were $516,482 and $1,416,664 compared to $358,673
and $846,945 for the three and nine months ended March 31, 1996,
respectively. Oil and gas sales for the three and nine months
ended March 31, 1997 were $448,772 and $1,228,121 compared to
$347,791 and $807,077 for the three and nine months ended March
31, 1996, respectively. The Company's oil and gas sales were
impacted by an increase in oil and gas prices, the recovery of
production attributable to underbalanced positions and a increase
in production from newly drilled and recompleted wells. Included
in total revenue, are estimated royalty amounts written off as
the Statue of Limitations has expired of $52,612 and $128,256 for
the three and nine months ended March 31, 1997, respectively.
Production volumes and average prices received for the three
and nine months ended March 31, 1997 and 1996 are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
Production:
Oil (barrels) 2,187 6,559 6,908 10,933
Gas (Mcfs) 152,792 127,050 479,171 369,322
Average Price:
Oil (per barrel) $19.85 $17.27 $20.78 $16.12
Gas (per Mcf) $2.65 $1.84 $2.26 $1.71
Lease Operating Expenses. Lease operating expenses were
$158,340 and $406,944 for the three and nine months ended March
31, 1997 and $166,162 and $359,452 for the three and nine months
ended March 31, 1996, respectively. On a Mcf equivalent basis,
lease operating expenses were $.95 and $.78, respectively, per
Mcf equivalent during the three and nine months ended March 31,
1997 compared to $.99 and $.83, respectively, per Mcf equivalent
for the same periods in 1996.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the three and nine months ended March 31,
1997 were $71,213 and $250,616 compared to $58,827 and $190,641
for the same period in 1996. On a Mcf equivalent basis,
depreciation and depletion expense were $.43 and $.48,
respectively, per Mcf equivalent during the three and nine months
ended March 31, 1997 compared to $.35 and $.44, respectively, per
Mcf equivalent for the same periods in 1996.
Abandoned and Impaired Expense. The company recorded an
expense for abandonment and impairment of oil and gas properties
of $21,718 and $202,226 relating to a dry hole for the three and
nine months ended March 31, 1997, 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, 1997 were
$51,191 and $340,226 compared to $14,312 and $49,123 for the
same period in 1996. The increase in exploration costs can be
attributed to the Company s participation in the shooting of
3-D seismic on four prospects in Northern California.
General and Administrative Expenses. General and
administrative expenses for the three and nine months ended March
31, 1997 were $482,819 and $1,421,226 compared to $398,084 and
$1,485,495 for the same periods in 1996.
Interest on Notes Payable. Interest on notes payable were $111,634
and $322,699 for the three and nine months ended March 31, 1996. Interest
expense had included interest on the Company's convertible note payable
issued in November 1992 and paid in full during the first quarter of
fiscal 1996 and interest on the UFG note to Snyder Oil Corporation ("SOCO").
During the first quarter of fiscal 1997, the Company ceased accruing
interest for the UFG Note because bankruptcy rules preclude SOCO from
recovering post-petition interest on its claim against UFG. SOCO
is listed by UFG as an unsecured creditor in the Schedules and
Statements of Affairs filed by UFG with the Bankruptcy Court.
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, 1997 amounted to $698,503 which constituted
approximately 57% 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 5,300
Bbls of oil and 1.85 Bcf of gas at June 30, 1996. Amber's proved
undeveloped oil and gas reserves attributable to its offshore
California properties are estimated to be 10,162,000 Bbls of oil
and 14.38 Bcf of gas at June 30, 1996. 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 March 3, 1997; Item 5. Other Events
and Item 7. Financial Statements and Exhibits.
Form 8-K dated April 24, 1997; Item 5. Other
Events and Item 7. Financial Statements and Exhibits.
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, 1997
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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<PERIOD-END> MAR-31-1997
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