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, 1999
[ ] 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 executive offices) (Zip Code)
(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___
7,564,702 shares of common stock $.01 par value were outstanding
as of February 10, 2000.
FORM 10-QSB
2nd QTR.
FY 2000
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1999 and
June 30, 1999 (unaudited) 1
Consolidated Statements of Operations -
Three and Six Months Ended
December 31, 1999 and 1998 (unaudited) 3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 1999 and
Six Months Ended December 31, 1999 (unaudited) 4
Consolidated Statements of Cash Flows -
Three and Six Months Ended
December 31, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis
Or Plan of Operations 12
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
The terms "Delta", "Company", "we", "our", and "us" refer to
Delta Petroleum Corporation unless the context suggests otherwise.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
December 31, June 30,
1999 1999
ASSETS
Current Assets:
<S> <C> <C> <C>
Cash $ 758,977 99,545
Trade accounts receivable, net of
allowance for doubtful accounts of $50,000
December 31, 1999 and June 30, 1999 903,885 113,841
Accounts receivable - related parties 137,322 116,855
Other current assets 239,927 10,100
Total current assets 2,040,111 340,341
Property and Equipment:
Oil and gas properties, at cost (using
the successful efforts method
of accounting):
Undeveloped offshore California properties 8,759,310 7,369,830
Undeveloped onshore domestic properties 476,795 506,363
Undeveloped foreign properties 623,920 623,920
Developed offshore California properties 4,020,755 -
Developed onshore domestic properties 5,171,012 2,231,187
Office furniture and equipment 86,800 82,489
19,138,592 10,813,789
Less accumulated depreciation and depletion (1,857,294) (1,650,228)
Net property and equipment 17,281,298 9,163,561
Long term assets:
Deferred financing costs 429,910 -
Investment in Bion Environmental 420,381 257,180
Partnership net assets 986,000 -
Deposit on purchase of oil and gas properties - 1,616,050
Total long term assets 1,836,291 1,873,230
$ 21,067,700 11,377,132
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
(Unaudited)
<TABLE>
December 31, June 30,
1999 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C> <C>
Accounts payable $ 982,664 393,542
Other accrued liabilities 31,181 10,000
Royalties payable 89,412 127,166
Current portion of long-term debt:
Related party - 105,268
Other 2,503,293 -
Total current liabilities 3,606,550 635,976
Long-term debt:
Related party - 894,732
Other 6,223,000 -
Total long-term debt 6,223,000 894,732
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 7,311,902
shares at December 31, 1999 and 6,390,302
at June 30, 1999 73,119 63,903
Additional paid-in capital 31,953,584 29,476,275
Accumulated other comprehensive loss 25,611 (115,395)
Accumulated deficit (21,049,164) (19,578,359)
Total stockholders' equity 11,003,150 9,846,424
Commitments
$ 20,832,700 11,377,132
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended
December 31, December 31,
1999 1998
Revenue:
<S> <C> <C> <C>
Oil and gas sales $ 555,159 104,427
Gain on sale of oil and gas properties - 957,147
Other revenue 31,847 60,580
Total revenue 587,006 1,122,154
Operating expenses:
Lease operating expenses 372,800 47,115
Depreciation and depletion 172,432 24,810
Exploration expenses 20,715 14,578
Dry hole costs - 122,489
General and administrative 411,475 305,446
Stock option expense 102,079 21,830
Total operating expenses 1,079,501 536,268
Income (loss) from operations (492,495) 585,886
Other income and expenses:
Interest and financing costs (449,733) -
Loss on sale of securities available for sale - (9,053)
Total other income and expenses (449,733) (9,053)
Net income (loss) $ (942,228) 576,833
Net income (loss) per common share:
Basic $ (0.14) 0.10
Diluted $ (0.14) 0.09
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Six Months Ended
December 31, December 31,
1999 1998
Revenue:
<S> <C> <C> <C>
Oil and gas sales $ 671,699 306,906
Gain on sale of oil and gas properties - 957,147
Other revenue 62,135 121,740
Total revenue 733,834 1,385,793
Operating expenses:
Lease operating expenses 411,947 125,094
Depreciation and depletion 207,066 93,526
Exploration expenses 22,244 56,292
Dry hole costs - 219,707
General and administrative 791,558 674,592
Stock option expense 212,065 28,675
Total operating expenses 1,644,880 1,197,886
Income (loss) from operations (911,046) 187,907
Other income and expenses:
Interest and financing costs (557,208) (10,000)
Loss on sale of securities available for sale (2,551) (22,042)
Total other income and expenses (559,759) (32,042)
Net income (loss) $ (1,470,805) 155,865
Net income (loss) per common share:
Basic $ (0.22) 0.03
Diluted $ (0.22) 0.02
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Year ended June 30, 1999 and six months ended December 31, 1999
(Unaudited)
<TABLE>
Additional
Common Stock paid-in
Shares Amount capital
<S> <C> <C> <C>
Balance, June 30, 1998 5,513,858 $ 55,139 25,571,921
Comprehensive loss:
Net loss - - -
Other comprehensive loss, net of tax
Unrealized loss on equity securities - - -
Less: Reclassification adjustment for losses included in net loss - - -
Comprehensive loss - - -
Stock options granted as compensation - - 2,081,423
Shares issued for cash upon exercise of options 120,000 1,200 158,800
Shares issued for cash 196,444 1,964 354,011
Shares issued for services 10,000 100 15,650
Shares issued for oil and gas properties 250,000 2,500 621,420
Shares issued for deposit on oil and gas properties 300,000 3,000 613,050
Fair value of warrant extended and repriced - - 60,000
Balance, June 30, 1999 6,390,302 63,903 29,476,275
Comprehensive loss:
Net loss - - -
Other comprehensive gain, net of tax
Unrealized gain on equity securities - - -
Less: Reclassification adjustment for losses included in net loss - - -
Comprehensive loss - - -
Stock options granted as compensation - - 212,065
Shares issued for cash 428,000 4,280 669,720
Shares issued for cash upon exercise of options 263,600 2,636 482,039
Shares and options issued with financing 15,000 150 566,072
Shares issued for oil and gas properties 115,000 1,150 244,663
Shares issued for deposit on oil and gas properties 100,000 1,000 302,750
Balance, December 31, 1999 7,311,902 $ 73,119 31,953,584
</TABLE>
<TABLE>
Accumulated
other
comprehensive
income Comprehensive Accumulated
(loss) loss deficit Total
<S> <C> <C> <C> <C>
Balance, July 1, 1998 457,594 (16,579,600) 9,505,054
Comprehensive loss:
Net loss (2,998,759) (2,998,759) (2,998,759)
Other comprehensive loss, net of tax
Unrealized loss on equity securities (669,542) -
Less: Reclassification adjustment for losses
included in net loss 96,553 (572,989) (572,989)
Comprehensive loss (3,571,748)
Stock options granted as compensation - - 2,081,423
Shares issued for cash upon exercise of options - - 160,000
Shares issued for cash - - 355,975
Shares issued for services - - 15,750
Shares issued for oil and gas properties - - 623,920
Shares issued for deposit on oil and gas properties - - 616,050
Fair value of warrant extended and repriced - - 60,000
Balance, June 30, 1999 (115,395) (19,578,359) 9,846,424
Comprehensive loss:
Net loss (1,470,805) (1,470,805) (1,470,805)
Other comprehensive gain, net of tax
Unrealized gain on equity securities 138,455 -
Less: Reclassification adjustment for losses
included in net losss 2,551 141,006 141,006
Comprehensive loss (1,329,799)
Stock options granted as compensation - - 212,065
Shares issued for cash - - 674,000
Shares issued for cash upon exercise of options - - 484,675
Shares and options issued with financing 566,222
Shares issued for oil and gas properties - - 245,813
Shares issued for deposit on oil and gas properties - - 303,750
Balance, December 31, 1999 25,611 (21,049,164) 11,003,150
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six Months Ended
December 31, December 31,
1999 1998
<S> <C> <C>
Net cash used in operating activities $ (1,986,423) (768,483)
Cash flows from investing activities:
Additions to property and equipment (6,159,190) (160,573)
Proceeds from sale of oil and gas properties - 1,384,000
Proceeds from sale of securities available for sale 2,551 71,837
Net cash provided by (used in) investing activities (6,156,639) 1,295,264
Cash flows from financing activities:
Stock issued for cash upon exercise of options 484,675 -
Issuance of common stock for cash 674,000 5,975
Proceeds from borrowings 12,816,851 -
Repayment of borrowings (5,158,728) -
Decrease (increase) in accounts receivable from
related parties (14,304) (26,417)
Net cash provided by (used in) financing activities 8,802,494 (20,442)
Net increase in cash 659,432 506,339
Cash at beginning of period 99,545 17,135
Cash at end of period $ 758,977 523,474
Supplemental cash flow information -
Cash paid for interest $ 259,353 10,000
Non-cash financing activities:
Common stock issued for the purchase
of oil and gas properties $ 549,563 -
Common stock and options issued
for services relating to debt financing $ 800,622 -
Common stock issued for undeveloped foreign properties $ - 623,920
See accompanying notes to consolidated financial statements.
</TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Three and Six Months Ended December 31, 1999 and 1998 (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. For a more complete understanding of the Company's
operations and financial position, reference is made to the
consolidated financial statements of the Company, and
related notes thereto, filed with the Company's annual
report on Form 10-KSB for the year ended June 30, 1999,
previously filed with the Securities and Exchange
Commission.
Liquidity
The Company has incurred losses from operations over
the past several years coupled with significant deficiencies
in cash flow from operations for the same period. As of
December 31, 1999, the Company had a working capital deficit
of $1,656,439. These factors among others may indicate that
without increased cash flow from operations, sale of oil and
gas properties or additional financing the Company may not
be able to meet its obligations in a timely manner.
The Company is taking steps to reduce losses and
generate cash flow from operations which management believes
will generate sufficient cash flow to meet its obligations
in a timely manner. Should the Company be unable to achieve
its projected cash flow from operations additional financing
or sale of oil and gas properties could be necessary. The
Company believes that it could sell oil and gas properties
or obtain additional financing, although, there can be no
assurance that such financing would be available on a timely
basis or acceptable terms.
(2) Investments
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.
During the six months ended December 31, 1999, the Company
received an additional 21,162 shares of Bion's common stock
for rent provided by the Company. Also during the six
months ended December 31, 1999, the Company realized a loss
on the sale of securities available for sale of $2,551.
The cost and estimated market value of the Company's
investment in Bion at December 31, 1999 and June 30, 1999
are as follows:
Estimated
Unrealized Market
Cost Gain (Loss) Value
December 31, 1999 $394,771 25,611 420,382
June 30, 1999 $372,575 (115,395) 257,180
(3) (3) Oil and Gas Properties
On November 1, 1999, the Company acquired interests in
11 oil and gas producing properties located in New Mexico
and Texas for a cost of $2,879,850.
On December 1, 1999, the Company completed the
acquisition of a 6.07% working interest in the Point
Arguello Unit, its three platforms (Hidalgo, Harvest and
Hermosa), along with a 100% interest in two and an 11.11%
interest in one of the three leases within the adjacent
undeveloped Rocky Point Unit from an unrelated entity. The
seller is unrelated and will retain its proportionate share
of future abandonment liability associated with both the
onshore and offshore facilities of the Point Arguello Unit.
The acquisition had a purchase price of approximately
$6,758,550 consisting of $5,625,000 in cash and 500,000
shares of the Company's restricted common stock with a fair
market value of $1,133,500.
In addition, the agreement provides that if development
and operating expenses are greater than production revenues
then, at Delta's election, until December 31, 2000, the
seller will invest up to $1,000,000 in Delta through the
purchase of Delta Preferred Stock to cover excess expenses
incurred by Delta.
(4) Long Term Debt - Related Party
On May 24, 1999, the Company borrowed $1,000,000 at 18%
per annum from the Company's officers maturing on June 1,
2001. On December 1, 1999 the Company paid the loan in
full.
(5) Long Term Debt - Other
On July 30, 1999, the Company borrowed $2,000,000 at
18% per annum from an unrelated entity which was personally
guaranteed by the officers of the Company. On December 1,
1999, the Company paid a portion of the principal and
accrued interest leaving a principal balance of $726,293.
The Company paid a 2% origination fee to the lender. As
consideration for the guarantee of the Company indebtedness,
the Company entered into an agreement with its officers,
under which a 1% overriding royalty interest in the
properties acquired with the proceeds of the loan
(proportionately reduced to the interest in each property)
will be assigned to each of the officers. Each overriding
royalty has a fair market of approximately $125,000 which
was recorded as an adjustment to the purchase price.
On November 1, 1999, the Company borrowed approximately
$2,880,000 at 18% per annum from an unrelated entity
maturing on January 31, 2000, which was personally
guaranteed by the officers of the Company. The loan
proceeds were used to purchase the 11 producing wells and
associated acreage in New Mexico and Texas. On December 1,
1999, the Company paid the loan in full. The Company also
paid a 1% origination fee to the lender. As consideration
for the guarantee of the Company indebtedness, the Company
agreed to assign a 1% overriding royalty interest to each
officer in the properties acquired with the proceeds of the
loan (proportionately reduced to the interest acquired in
each property). Each overriding royalty has a fair market
of approximately $37,500 which was recorded as an adjustment
to the purchase price. The Company also paid a 1% origination
fee to the lender.
On December 1, 1999, the Company borrowed $8,000,000 at
prime plus 1-1/2% from an unrelated entity. The loan
agreement provides for a 4-1/2 year loan with additional
compensation to the lender if paid after September 1, 2000.
The proceeds from this loan were used to pay off existing
debt and the balance of the Point Arguello Unit purchase.
The Company is required to make minimum monthly payments
equal to the greater of $150,000 or 75% of net cash flows
from the acquisitions completed on November 1, 1999 and
December 1, 1999. The Company has assumed the minimum
payments of $150,000 per month for the determination of the
current portion of long term debt. The loan is
collateralized by the Company's oil and gas properties
acquired with the loan proceeds to date in the current
fiscal year.
(6) Earnings Per Share
The following table sets forth the computation of basic
and diluted earnings per share:
Three Months Ended
December 31,
1999 1998
Numerator:
Numerator for basic and diluted
earned per share-income available
to common stockholders $(942,228) $576,833
Denominator:
Denominator for basis earnings
per share-weighted average shares 6,855,761 5,763,071
Effect of dilutive securities stock options * 789,451
Denominator for diluted earnings per
Common share-adjusted weighted
Average shares assuming conversion 6,855,761 6,552,522
Basic earnings per common share $(.14) .10
Diluted earnings per common share $(.14) .09
*stock options are anti-dilutive for the three and six
Six Months Ended
December 31,
1999 1998
Numerator:
Numerator for basic and diluted
earned per share-income available
to common stockholders $(1,470,805) $155,865
Denominator:
Denominator for basis earnings
per share-weighted average shares 6,719,152 5,643,148
Effect of dilutive securities
stock options * 871,993
Denominator for diluted earnings per
Common share-adjusted weighted
Average shares assuming conversion 6,719,152 6,515,141
Basic earnings per common share $(.22) .03
Diluted earnings per common share $(.22) .02
*stock options are anti-dilutive for the three and six
(7) Subsequent Event
On January 4, 2000, the Company completed the sale of
175,000 shares of the Company's common stock in a private
transaction to an unrelated entity for $350,000.
Item 2. Management's Discussion and Analysis or Plan of
Operations
Forward Looking Statements
The statements contained in this report which are not
historical fact are "forward looking statements" that involve
various important risks, uncertainties and other factors which
could cause the Company's actual results to differ materially
from those expressed in such forward looking statements. These
factors include, without limitation, the risks and factors set
forth below as well as other risks previously discussed in the
Company's annual report on Form 10-KSB.
Liquidity and Capital Resources.
At December 31, 1999, we had a working capital deficit of
$1,566,439 compared to a working capital deficit of $295,635 at
June 30, 1999. Our current assets include accounts receivable
from related parties (including affiliated companies) of $137,322
at December 31, 1999 which is primarily for drilling costs, and
lease operating expense on wells owned by the related parties and
operated by us. The amounts are due on open account and are non-
interest bearing. Our current liabilities include current
portion of long-term debt of $2,503,293 at December 31, 1999. We
borrowed these funds to acquire certain oil and gas properties.
Our working interest share of the future estimated
development costs based on estimates developed by the partners
relating to four of our five undeveloped offshore California
properties approximates $217 million. No significant amounts are
expected to be incurred during fiscal 2000 and $1.0 million and
$4.2 million are expected to be incurred during fiscal 2001 and
2002, respectively. There are additional as yet undetermined
costs that we expect in connection with the development of the
fifth undeveloped property in which we have an interest (Rocky
Point Unit). The amounts required for development of these
undeveloped properties are so substantial relative to our present
financial resources, we may ultimately determine to farmout all
or a portion of our interest. If we were to farmout our
interests, our interest in the properties would be decreased
substantially. In the event that we are not able to pay our
share of expenses as a working interest owner as required by the
respective operating agreements, it is possible that we might
lose some portion of our ownership interest in the properties
under some circumstances, or that we might be subject to
penalties which would result in the forfeiture of substantial
revenues from the properties. Alternatively, we may pursue
other methods of financing, including selling equity or debt
securities. There can be no assurance that we can obtain any
such financing. If we were to sell additional equity securities
to finance the development of the properties, the existing common
shareholders' interest would be diluted significantly.
On May 24, 1999, we borrowed $1,000,000 at 18% per annum
from our officers under a promissory note maturing on June 1,
2001. This promissory note was identical in terms to the
promissory note under which these officers borrowed the money
which they, in turn, loaned to us. On December 1, 1999, we paid
the loan in full.
On July 30, 1999, we borrowed $2,000,000 at 18% per annum
from an unrelated entity maturing on August 1, 2001 which was
personally guaranteed by our officers. The loan proceeds were
used as deposit funds for the Point Arguello acquisition. We
paid a 2% origination fee to the lender. In addition, as
consideration for the guarantee of our indebtedness, we entered
into an agreement with our officers, under which a 1% overriding
royalty interest in the properties acquired with the proceeds
form the loans (proportionately reduced to the interest in each
property acquired) will be assigned to each of the officers.
Each overriding royalty has a fair market value of approximately
$125,000 which was recorded as an adjustment to the purchase
price. On December 1, 1999, we paid a portion of the principal
and accrued interest leaving a principal balance of $726,293.
On November 1, 1999, we acquired interests in 11 oil and gas
producing properties located in New Mexico and Texas for a cost
of $2,879,850.
Also on November 1, 1999, we borrowed the funds for the
above mentioned acquisition at 18% per annum from an unrelated
entity maturing on January 31, 2000, which was personally
guaranteed by the officers of the Company. As consideration for
the guarantee of our indebtedness we agreed to assign a 1%
overriding royalty interest to each officer in the properties
acquired with the proceeds of the loan (proportionately reduced
to the interest acquired in each property). Each overriding
royalty has a fair market value of approximately $37,500 which
was recorded as an adjustment to the purchase price. We also
paid a 1% origination fee to the lender. On December 1, 1999, we
paid the loan in full.
On December 1, 1999, we acquired a 6.07% working interest in
the Point Arguello Unit, its three platforms (Hidalgo, Harvest,
and Hermosa), along with a 100% interest in two and an 11.11%
interest in one of the three leases within the adjacent Rocky
Point Unit for $5.6 million in cash consideration and the
issuance of 500,000 shares of the Company's common stock with an
estimated fair value of $1,133,550.
On December 1, 1999, we borrowed $8,000,000 at prime rate
plus 1-1/2% from an unrelated entity. The loan agreement
provides for a 4-1/2 year loan with additional compensation to
the lender if paid after September 1, 2000. The proceeds from
this loan were used to payoff existing debt and the balance of
the Point Arguello Unit purchase. We are required to make
monthly payments equal to the greater of $150,000 or 75% of net
cash flows from the acquisitions completed on November 1, 1999
and December 1, 1999. The loan is collateralized by our oil and
gas properties acquired with the loan proceeds.
We expect to raise additional capital by selling our common
stock in order to fund our capital requirements for our portion
of the costs of the drilling and completion of development wells
on our proved undeveloped properties during the next twelve
months. There is no assurance that we will be able to do so or
that we will be able to do so upon terms that are acceptable. We
do not currently have a credit facility for future development
costs with any bank and we have not determined the amount, if
any, that we could borrow against our existing properties. We
will continue to explore additional sources of both short-term
and long-term liquidity to fund our operations and our capital
requirements for development of our properties including
establishing a credit facility, sale of equity or debt securities
and sale of properties. Many of the factors which may affect our
future operating performance and liquidity are beyond our
control, including oil and natural gas prices and the
availability of financing.
After evaluation of the considerations described above, we
presently believe that our cash flow from our existing producing
properties, proceeds from the sale of producing properties, and
other sources of funds will be adequate to fund our operating
expenses and satisfy our other current liabilities over the next
year or longer.
Results of Operations
Income (loss). We reported a loss for the three and six
months ended December 31, 1999 of $942,228 and $1,470,805
compared to net income of $576,833 and $155,865 for the three and
six months ended December 31, 1998. The losses for the three and
six months ended December 31, 1999 and 1998 were effected by
numerous items, described in detail below.
Revenue. Total revenues for the three and six months ended
December 31, 1999 were $587,006 and $733,834 compared to
$1,122,154 and $1,385,793 for the three and six months ended
December 31, 1998, respectively. Oil and gas sales for the
three and six months ended December 31, 1999 were $555,159 and
$671,699 compared to $104,427 and $306,906 for the three and six
months ended December 31, 1998, respectively. Our total revenue
decreased from 1998 to 1999 due to the 1998 sale of certain oil
and gas properties resulting in a gain of $957,147. However, oil
and gas revenue increased during 1999 resulting from two
acquisitions during the quarter ended December 31, 1999.
Production volumes and average prices received for the three
and six month periods ended December 31, 1999 and 1998 are as
follows:
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
Production - Onshore:
Oil (Bbls) 2,788 358 3,864 2,206
Gas (Mcfs) 117,478 50,431 170,897 144,570
Average Price-Onshore :
Oil (per Bbls) $18.92 11.47 $19.40 11.17
Gas (per Mcf) $2.23 1.99 $2.09 1.95
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
Production - Offshore-
Oil (Bbls) 24,765 - 24,765 -
Average Price-Offshore-
Oil (per Bbls) $ 9.54 - $9.54 -
Lease Operating Expenses. Lease operating expenses were
$372,800 and $411,947 for the three and six months ended December
31, 1999 compared to $47,115 and $125,094 for the three and six
months ended June 30, 1998, respectively. On a Bbl equivalent
basis, lease operating expenses were $7.91 and $7.21, per Bbl
equivalent during the three and six months ended December 31,
1999 compared to $5.38 and $4.76, per Bbl equivalent for the same
periods in 1998, respectively. The increase in lease operating
expense can be attributed to the purchase of certain oil and gas
properties during the quarter ended December 31, 1999.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the three and six months ended December 31,
1999 were $172,432 and $207,066 compared to $24,810 abd $93,526
for the same period in 1998, respectively. On a Bbl equivalent
basis, depreciation and depletion expense was $3.65 and $3.63 per
Bbl equivalent during the three and six months ended December 31,
1999 compared to $2.93 and $3.56 per Bbl equivalent for the same
period in 1998, respectively. The increase in depreciation and
depletion expense can be attributable to the acquisition of
certain oil and gas properties during the quarter ended December
31, 1999.
Exploration Expenses. We recorded exploration expenses of
$20,715 and $22,244 for the three and six months ended December
31, 1999 compared to $14,578 and $56,292 for the same period in
1998, respectively.
Dry Hole Costs. We recorded dry hole costs for six dry
holes during the three and six month period ended December 31,
1998.
General and Administrative Expenses. General and
administrative expenses for the three and six months ended
December 31, 1999 were $411,475 and $791,558 compared to $305,406
and $674,592 for the same periods in 1998, respectively.
Interest and Financing Costs. Interest and financing costs
for the three and six months ended December 31, 1999 were
$449,733 and $557,208 compared to $0 and $10,000 for the same
period in 1998, respectively. The increase in interest and
financing costs can be contributed to the debt established to
purchase certain oil and gas properties.
Future Operations
We, directly and through our subsidiary, Amber Resources
Company, own interests in five undeveloped federal units (plus
one additional lease) and in one producing federal unit
containing three platforms, all located in federal waters
offshore California near Santa Barbara.
Current Status. On October 15, 1992 the MMS directed a
Suspension of Operations ("SOO") effective January 1, 1993, for
the POCS non-producing leases and units, pursuant to CFR 250.110,
to enable the lease owners to participate in what became known as
the COOGER Study. This allowed the leases to be held under an
SOO during the term of the study thereby permitting the owners to
cease paying lease payments to the Federal government and
suspending the requirements relating to development of these
leases during this period. On November 12, 1999, the MMS
directed a Suspension of Production and required each of the
operators to carryout an agreed upon Schedule of Events with
respect to each of their respective leases and units.
In order to carry out the requirements of the MMS, all
operators of the units in which we own non-operating interests
(described below) are currently engaged in studies to develop a
conceptual framework and general timetable for continued
delineation and development of the leases. For delineation, the
operators will outline the mobile drilling unit well activities,
including number and location. For development, the operators'
reports will cover the total number of facilities involved,
including platforms, pipelines, onshore processing facilities,
transportation systems and marketing plans. We are participating
with the operators in meeting the MMS schedules through meetings,
and consultations and in sharing in the costs as invoiced by the
operators.
Cost to Develop Offshore California Properties. The cost to
develop four of our five undeveloped units (plus one lease)
located offshore California, in which Delta owns an interest,
including delineation wells, environmental mitigation,
development wells, fixed platforms, fixed platform facilities,
pipelines and power cables, onshore facilities and platform
removal over the life of the properties (assumed to be 38 years),
is estimated by the partners to be slightly in excess of $3
billion. Our share based on our current working interest of such
costs over the life of the properties is estimated to be
approximately $216 million. There will be additional costs of a
currently undetermined amount to develop the Rocky Point Unit
which is the fifth undeveloped unit in which we own an interest.
To the extent that we do not have sufficient cash available
to pay our share of expenses when they become payable under the
respective operating agreements, it will be necessary for us to
seek funding from outside sources. Likely potential sources for
such funding are currently anticipated to include (a) public and
private sales of our Common Stock (which may result in
substantial ownership dilution to existing shareholders), (b)
bank debt from one or more commercial oil and gas lenders, (c)
the sale of debt instruments to investors, (d) entering into farm-
out arrangements with respect to one or more of our interests in
the properties whereby the recipient of the farm-out would pay
the full amount of our share of expenses and we would retain a
carried ownership interest (which would result in a substantial
diminution of our ownership interest in the farmed-out
properties), (e) entering into one or more joint venture
relationships with industry partners, (f) entering into financing
relationships with one or more industry partners, and (g) the
sale of some or all of our interests in the properties.
It is unlikely that any one potential source of funding
would be utilized exclusively. Rather, it is more likely that we
will pursue a combination of different funding sources when the
need arises. Regardless of the type of financing techniques that
are ultimately utilized, however, it currently appears likely
that because of our small size in relation to the magnitude of
the capital requirements that will be associated with the
development of the subject properties, we will be forced in the
future to issue significant amounts of additional shares, pay
significant amounts of interest on debt that presumably would be
collateralized by all of our assets (including its offshore
California properties), reduce our ownership interest in the
properties through sales of interests in the property or as the
result of farm-outs, industry financing arrangements or other
partnership or joint venture relationships, or to enter into
various transactions which will result in some combination of the
foregoing. In the event that we are not able to pay our share of
expenses as a working interest owner as required by the
respective operating agreements, it is possible that we might
lose some portion of our ownership interest in the properties
under some circumstances, or that we might be subject to
penalties which would result in the forfeiture of substantial
revenues from the properties.
While the costs to develop the offshore California
properties in which we own an interest are anticipated to be
substantial in relation to our small size, management believes
that the opportunities for us to increase our asset base and
ultimately improve our cash flow are also substantial in relation
to our size. Although there are several factors to be considered
in connection with our plans to obtain funding from outside
sources as necessary to pay our proportionate share of the costs
associated with developing our offshore properties (not the least
of which is the possibility that prices for petroleum products
could decline in the future to a point at which development of
the properties is no longer economically feasible), we believe
that the timing and rate of development in the future will in
large part be motivated by the prices paid for petroleum
products.
To the extent that prices for petroleum products were to
decline below their recent levels, it is likely that development
efforts will proceed at a slower pace such that costs will be
incurred over a more extended period of time. If petroleum
prices increase, however, we believe that development efforts
will intensify. Our ability to successfully negotiate financing
to pay our share of development costs on favorable terms will be
inextricably linked to the prices that are paid for petroleum
products during the time period in which development is actually
occurring on each of the subject properties.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not directly engaged in any material pending
legal proceedings to which we or our subsidiaries are a party or
to which any of our 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 November 1, 1999; Items 5 & 7.
Form 8-K/A November 1, 1999; Item 7
Form 8-K December 1, 1999; Items 2 & 5 & 7
Form 8-K/A December 1, 1999; Item 7
Form 8-K January 4, 2000; Items 5 & 7
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, and Treasurer
s/Kevin K. Nanke
Kevin K. Nanke, Chief Financial Officer
And Principle Accounting Officer
Date: February 16, 2000
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. Filed herewith electronically.
(99) Additional Exhibits.
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