SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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___
10,287,536 shares of common stock $.01 par value were outstanding
as of November 6, 2000.
FORM 10-QSB
1st QTR.
FY 2001
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 2000 and
June 30, 2000 (unaudited) 1
Consolidated Statements of Operations -
Three Months Ended
September 30, 2000 and 1999 (unaudited) 3
Consolidated Statement of Stockholders' Equity
Year Ended June 30, 2000 and
Three Months Ended September 30, 2000 (unaudited) 4
Consolidated Statements of Cash Flows -
Three Months Ended
September 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
Or Plan of Operations 13
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
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)
September 30, June 30,
2000 2000
ASSETS
Current Assets:
Cash $ 555,208 302,414
Trade accounts receivable, net of
allowance for doubtful accounts
of $50,000 at September 30, 2000
and June 30, 2000 1,115,924 613,527
Accounts receivable - related parties 132,827 142,582
Prepaid assets 511,307 373,334
Other current assets 220,495 198,427
Total current assets 2,535,761 1,630,284
Property and Equipment:
Oil and gas properties, at cost (using
the successful efforts method
of accounting):
Undeveloped offshore California
properties 10,410,810 10,809,310
Undeveloped onshore domestic
properties 451,795 451,795
Undeveloped foreign properties 623,920 623,920
Developed offshore California
properties 3,618,471 3,285,867
Developed offshore Louisiana
properties 3,252,504 -
Developed onshore domestic
properties 9,989,830 5,154,295
Office furniture and equipment 91,627 89,019
28,438,957 20,414,206
Less accumulated depreciation
and depletion (3,003,219) (2,538,030)
Net property and equipment 25,435,738 17,876,176
Long term assets:
Deferred financing costs 480,704 366,996
Investment in Bion Environmental 215,617 228,629
Partnership net assets 839,147 675,185
Deposit on purchase of oil and gas
properties 675,184 280,002
Total long term assets 2,210,652 1,550,812
$30,182,151 21,057,272
September 30, June 30,
2000 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,250,976 1,765,653
Accounts payable 1,844,369 1,636,651
Other accrued liabilities 186,003 154,388
Royalties payable 44,050 58,733
Total current liabilities 8,325,398 3,615,425
Total long-term debt 6,220,522 6,479,115
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 9,759,492
shares at September 30, 2000
and 8,422,079 at June 30, 2000 97,595 84,221
Additional paid-in capital 38,150,243 33,746,861
Accumulated other comprehensive loss 64,047 77,059
Accumulated deficit (22,675,654) (22,945,409)
Total stockholders' equity 15,636,231 10,962,732
Commitments
$30,182,151 21,057,272
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30, September 30,
2000 1999
Revenue:
Oil and gas sales $2,358,602 116,540
Other revenue 53,845 30,288
Total revenue 2,412,447 146,828
Operating expenses:
Lease operating expenses 942,732 39,147
Depreciation and depletion 465,189 34,634
Exploration expenses 13,147 415
Abandoned and impaired properties - 1,114
Professional fees 229,760 138,394
General and administrative 292,601 241,689
Stock option expense 211,042 109,986
Total operating expenses 2,154,471 565,379
Income (loss) from operations 257,976 (418,551)
Other income and expenses:
Other income 350,000 -
Interest and financing costs (338,221) (107,475)
Loss on sale of securities available for - (2,551)
Total other income and expenses 11,779 (110,026)
Net income (loss) $ 269,755 (528,577)
Net income (loss) per common share:
Basic $ 0.03 (0.08)
Diluted $ 0.03 *
* Potentially dilutive securities outstanding were anti-dulutive
<TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Year ended June 30, 2000 and three months ended September 30, 2000
(Unaudited)
Additional
Common Stock paid-in
Shares Amount capital
<S> <C> <C> <C>
Balance, July 1, 1999 6,390,302 $ 63,903 29,476,275
Comprehensive loss:
Net loss - - -
Other comprehensive loss, net of tax
Unrealized gain on equity securities - - -
Less: Reclassification adjustment for losses included
in net loss - - -
Comprehensive loss - - -
Stock options granted as compensation - - 500,208
Shares issued for cash 603,000 6,030 1,017,970
Shares issued for cash upon exercise of options 1,048,777 10,488 1,367,048
Shares and options issued with financing 75,000 750 565,472
Shares issued for oil and gas properties 215,000 2,150 547,413
Shares issued for deposit on oil and gas properties 90,000 900 272,475
Balance, June 30, 2000 8,422,079 84,221 33,746,861
Comprehensive loss:
Net loss - - -
Other comprehensive gain, net of tax
Unrealized loss on equity securities - - -
Less: Reclassification adjustment for losses included
in net loss - - -
Comprehensive loss - - -
Stock options granted as compensation - - 186,042
Fair value of warrants issued for common stock
investment agreement - - 1,435,797
Warrant issued in exchange for common stock
investment agreement - - (1,435,797)
Shares issued for cash 258,621 2,586 672,415
Shares issued for cash upon exercise of options 335,650 3,357 753,659
Shares issued for oil and gas properties 609,719 6,097 2,164,205
Shares issued for deposit on oil and gas properties 133,423 1,334 627,061
Balance, September 30, 2000 9,759,492 $ 97,595 38,150,243
</TABLE>
<TABLE>
Accumulated
other
comprehensive
income Comprehensive Accumulated
(loss) loss deficit Total
<S> <C> <C> <C> <C>
Balance, July 1, 1999 (115,395) (19,578,359) 9,846,424
Comprehensive loss:
Net loss (3,367,050) (3,367,050) (3,367,050)
Other comprehensive loss, net of tax
Unrealized gain on equity securities 79,665 -
Less: Reclassification adjustment for losses included
in net loss 112,789 192,454 192,454
Comprehensive loss (3,174,596)
Stock options granted as compensation - - 500,208
Shares issued for cash - - 1,024,000
Shares issued for cash upon exercise of options - - 1,377,536
Shares and options issued with financing - - 566,222
Shares issued for oil and gas properties - - 549,563
Shares issued for deposit on oil and gas properties - - 273,375
Balance, June 30, 2000 77,059 (22,945,409) 10,962,732
Comprehensive loss:
Net loss 269,755 269,755 269,755
Other comprehensive gain, net of tax
Unrealized loss on equity securities (13,012) -
Less: Reclassification adjustment for losses included
in net loss - (13,012) (13,012)
Comprehensive loss 256,743
Stock options granted as compensation - - 186,042
Fair value of warrants issued for common stock
investment agreement - - 1,435,797
Warrant issued in exchange for common stock
investment agreement - - (1,435,797)
Shares issued for cash - - 675,001
Shares issued for cash upon exercise of options - - 757,016
Shares issued for oil and gas properties - - 2,170,302
Shares issued for deposit on oil and gas properties - - 628,395
Balance, September 30, 2000 64,047 (22,675,654) 15,636,231
</TABLE>
<TABLE>
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30, September 30,
2000 1999
<S> <C> <C>
Net cash provided by (used in) operating activities $ 335,528 (345,369)
Cash flows from investing activities:
Additions to property and equipment (5,704,447) (47,923)
Deposit on purchase of oil and gas properties (46,789) (2,000,000)
Proceeds from sale of securities available for sale - 2,551
Net cash used in investing activities (5,751,236) (2,045,372)
Cash flows from financing activities:
Stock issued for cash upon exercise of options 757,016 303,425
Issuance of common stock for cash 675,001 -
Proceeds from borrowings 5,208,532 2,000,000
Repayment of borrowings (981,802) -
Decrease (increase) in accounts receivable from
related parties 9,755 27,331
Net cash provided by financing activities 5,668,502 2,330,756
Net increase (decrease) in cash 252,794 (59,985)
Cash at beginning of period 302,414 99,545
Cash at end of period $ 555,208 39,560
Supplemental cash flow information -
Cash paid for interest and financing costs $ 281,479 15,000
Non-cash financing activities:
Common stock issued for the purchase
of oil and gas properties $2,170,302 -
Common stock issued for deposit on purchase
of oil and gas properties $ 628,395 303,750
Overriding royalties issued for
debt financing $ 130,000 -
</TABLE>
See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2000 and 1999 (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/A. 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/A for the year ended June 30, 2000, previously filed
with the Securities and Exchange Commission.
Liquidity
The Company has incurred losses from operations over the
past several years, prior to the quarter ended September 30,
2000, coupled with significant deficiencies in cash flow from
operations for the same periods. As of September 30, 2000, the
Company had a working capital deficit of $5,789,637. These
factors among others may indicate the Company may not be able to
meet its obligations in a timely manner.
The Company has taken steps to produce 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 in future periods, 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 three months ended
September 30, 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 September 30, 2000 and June 30, 2000 are as
follows:
Estimated
Unrealized Market
Cost Gain Value
September 30, 2000 $151,570 64,047 215,617
June 30, 2000 $151,570 77,059 228,629
(3) Oil and Gas Properties
On July 10, 2000 and on September 28, 2000, the Company paid
$3,745,000 and $1,845,000, respectively, to acquire interests in
producing wells and acreage located in the Eland and Stadium
fields in Stark County, North Dakota. The July 10, 2000 and
September 28, 2000 payments resulted in the acquisition by the
Company of 67% and 33%, respectively, of the ownership interest
in each property acquired. The $3,745,000 payment on July 10,
2000 was financed through borrowings from an unrelated entity and
personally guaranteed by two of the Company's officers, while the
payment on September 28, 2000 was primarily paid out of the
Company's net revenues from the effective date of the
acquisitions through closing. Delta also issued 100,000 shares of
its restricted common stock to an unaffiliated party for its
consultation and assistance related to the transaction.
On September 29, 2000, Delta completed the acquisition of
100% of the working interest in the West Delta Block 52 Unit, a
producing property in Plaquemines Parish, Louisiana. The
Company paid $1,529,157 and issued 509,719 restricted shares of
its common stock as consideration for the properties. $1,463,532
was financed through borrowings from an unrelated entity and
personally guaranteed by two of the Company's officers.
(4) Deposit on Purchase of Oil and Gas Properties
During the quarter ended September 30, 2000, the Company
issued 133,423 shares of its restricted common stock as a deposit
for the option to purchase interests in 680 producing wells and
associated acreage in the Permian Basin located in eight counties
in West Texas and Southeastern New Mexico from Saga Petroleum
Corporation (SAGA) and its affiliates.
(5) Long Term Debt
September 30, June 30,
2000 2000
A $7,262,966 $7,504,306
B 3,745,000 --
C 1,463,532 --
D - 740,462
$12,473,498 $8,244,768
Current Portion 6,250,976 1,765,653
Long-Term Portion $ 6,220,522 $6,479,115
A. 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. The proceeds from
this loan were used to pay off existing debt and the balance
of the Point Arguello Unit and East Carlsbad field
purchases. The Company is required to make minimum monthly
payments of principal and interest 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
lender was given a 2.5% overriding royalty on the offshore
properties purchased as required by the loan agreement. The
estimated fair value of the overriding royalty interest of
$130,000 was recorded as a deferred financing cost. The
loan is collateralized by the Company's
oil and gas properties acquired with the loan proceeds.
B. On July 10, 2000, the Company borrowed $3,745,000 at 15%
per annum from an unrelated entity which was personally
guaranteed by two of the officers of the Company and matures
on November 30, 2000. The loan is collateralized by the
Company's oil and gas properties acquired with the loan
proceeds.
C. On September 29, 2000, the Company borrowed $1,463,532 at
15% per annum from an unrelated entity which was personally
guaranteed by two officers of the Company and matures on
November 30, 2000. The loan is collateralized by the
Company's oil and gas properties acquired with the loan
proceeds.
D. On July 30, 1999, the Company borrowed $2,000,000 at 18% per
annum from an unrelated entity which was personally guaranteed by
two of the officers of the Company. 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 two of 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) was assigned to each of the officers. The
estimated fair value of each overriding royalty interest of
$125,000 was recorded as a deferred financing cost. During the
quarter ended September 30, 2000, the Company paid off the loan
and expensed the unamortized costs.
(6) Stockholder's Equity
On July 5, 2000, the Company completed the sale of 258,621
shares of its restricted common stock to an unrelated entity for
$750,001. A fee of $75,000 was paid and options to purchase
100,000 shares of the Company's common stock at $2.50 per share
and 100,000 shares at $3.00 per share for one year were issued to
an unrelated individual and entity and as consideration for their
efforts and consultation related to the transaction.
On July 21, 2000, the Company entered into a definitive
agreement entitled "Investment Agreement" with Swartz Private
Equity LLC ("Swartz") whereby Swartz has given a firm commitment
to allow the Company to issue to Swartz up to a total of
$20,000,000 of the Company's common stock over three years from
time to time as often as monthly in amounts based upon certain
market conditions and at prices based upon market prices for our
common stock at the time of issuance. In order for the Company
to issue stock to Swartz, the Company must have an effective
Registration Statement on file with the Securities and Exchange
Commission. As consideration Swartz has received a warrant to
purchase 500,000 shares of our common stock at $3.00 per share
for five years and may receive additional warrants to purchase
our common stock under the terms of the Investment Agreement. A
warrant to purchase 150,000 shares of the Company's common stock
at $3.00 per share for five years was issued to another unrelated
company as consideration for its efforts in this transaction.
Pursuant to the terms of this investment agreement the Company is
not obligated to sell to Swartz all of the common stock and
additional warrants referenced in the agreement nor does the
Company intend to sell shares and warrants to the entity unless
it is beneficial to the Company.
The Company received proceeds from the exercise of options
to purchase shares of its common stock of $757,016 during the
quarter ended September 30, 2000 and $1,377,536 during the year
ended June 30, 2000.
(7) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended
September 30,
2000 1999
Numerator:
Numerator for basic and diluted
earnings per share - income available
to common stockholders $269,755 (528,577)
Denominator:
Denominator for basic earnings
per share-weighted average shares
outstanding 8,972,677 6,574,445
Effect of dilutive securities-
stock options and warrants 1,496,741 1,281,124
Denominator for diluted
earnings per common share 10,469,418 7,855,569
Basic earnings per common share $.03 (.08)
Diluted earnings per common share $.03 *
*Potentially dilutive securities outstanding were anti-dilutive.
(8) Subsequent Events
On October 2, 2000, Delta elected to exercise its option to
purchase interests in 680 producing wells and associated acreage
in the Permian Basin located in eight counties in West Texas and
Southeastern New Mexico from Saga Petroleum Corporation and its
affiliates. Delta paid Saga and its affiliates $500,000 in cash
and issued an additional 156,160 (289,583 in total) shares of its
restricted common stock as a deposit required by the Purchase and
Sale Agreement between the parties. Delta has agreed to pay the
bulk of the remainder of the $49,500,000 purchase price by
December 1, 2000. Delta has not yet secured the financing and/or
industry participants that will be necessary to acquire the
properties. There are certain contract contingencies which must
be satisfied by the seller before Delta is obligated to close on
the purchase of the properties. If these contingencies are not
satisfied the agreement requires the consideration paid to date
to be returned to Delta.
On October 25, 2000, the Company entered into a term loan
agreement with US Bank through which the Company has borrowed
$3,000,000 at prime plus 3% secured by its recently acquired
interests in the Eland and Stadium fields in Stark County, North
Dakota repayable monthly and matures on October 31, 2002. The
loan proceeds were used to pay down other short-term debt used
to acquire these properties.
As part of the loan terms the Company entered into a
contract with Enron North America Corp. to sell 3,500 barrels per
month of the production from these properties at an equivalent
well head price of approximately $28.25 per barrel for one year
beginning November 1, 2000.
Item 2. Management's Discussion and Analysis or Plan of
Operations
Forward Looking Statement
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
included in the following text as well as other risks previously
discussed in the Company's annual report on Form 10-KSB/A.
Liquidity and Capital Resources.
At September 30, 2000, we had a working capital deficit of
$5,789,637 compared to a working capital deficit of $1,985,141 at
June 30, 2000. Our current assets include an increase in trade
accounts receivable from June 30, 2000 of approximately $500,000.
This increase is primarily due to the accrued revenue from the
two acquisitions completed at the end of the quarter. This
receivable was also impacted by an increase in oil and gas
prices. Our current liabilities include the current portion of
long-term debt of $6,250,976 at September 30, 2000. The increase
in the current portion of long-term debt from June 30, 2000 is
primarily attributed to borrowings of $3,745,000 and $1,463,532
relating to the acquisition of interests in the Eland and Stadium
fields in Stark County, North Dakota ("North Dakota") and the
100% working interest in the West Delta Block 52 Unit, a
producing property in Plaquemines Parish, Louisiana ("West
Delta"). These acquisitions were closed on September 28, 2000
and September 29, 2000, respectively. Subsequent to year-end, we
established a $3,000,000 term loan with US Bank. The loan
proceeds were used to pay down a portion of current debt.
On July 5, 2000, we completed the sale of 258,621
restricted shares of our common stock to an unrelated entity for
$750,001. A fee of $75,000 was paid and options to purchase
100,000 shares of our common stock at $2.50 per share and 100,000
shares at $3.00 per share for one year were issued to an
unrelated individual and entity and as consideration for their
efforts and consultation related to the transaction.
On July 21, 2000, we entered into a definitive agreement
entitled "Investment Agreement" with Swartz Private Equity LLC
("Swartz") whereby Swartz has given a firm commitment to allow us
to issue to the Swartz up to a total of $20,000,000 of its common
stock over three years from time to time as often as monthly in
amounts based upon certain market conditions and at prices based
upon market prices for our common stock at the time of issuance.
In order for the Company to issue stock to Swartz, the Company
must have an effective Registration Statement on file with the
Securities and Exchange Commission. As consideration Swartz has
received a warrant to purchase 500,000 shares of our common
stock at $3.00 per share for five years and may receive
additional warrants to purchase our common stock under the terms
of the Investment Agreement. A warrant to purchase 150,000
shares of the our common stock at $3.00 per share for five
years was issued to another unrelated company as
consideration for its efforts in this transaction. Proceeds,
if any, will be used for property acquisitions, debt reduction
and working capital. Pursuant to the terms of this investment
agreement we are not obligated to sell to Swartz all of the
common stock and additional warrants referred in the agreement
nor do we intend to sell shares and warrants to the entity unless
it is beneficial to us.
On October 2, 2000, we have elected to exercise our option
to purchase interests in 680 producing wells and associated
acreage in the Permian Basin located in eight counties in West
Texas and Southeastern New Mexico from Saga Petroleum Corporation
and its affiliates. We paid Saga and its affiliates $500,000 in
cash and issued an additional 156,160 (289,583 in total) shares
of our restricted common stock as a deposit required by the
Purchase and Sale Agreement between the parties. We have agreed
to pay the bulk of the remainder of the $49,500,000 purchase
price by December 1, 2000. We have not yet secured the financing
and/or industry participants that will be necessary to acquire
the properties. There are certain contract contingencies which
must be satisfied by the seller before we are obligated to close
on the purchase of the properties. If these contingencies are
not satisfied the agreement requires the consideration paid to
date to be returned to us.
We received proceeds from the exercise of options to
purchase shares of its common stock of $757,016 during the
quarter ended September 30, 2000 and $1,377,536 during the year
ended June 30, 2000.
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 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 net income for the three
months ended September 30, 2000 of $269,755 compared to a net
loss of $528,577 for the three months ended September 30, 1999.
The net income and net loss for the three months ended September
30, 2000 and 1999 were effected by numerous items, described in
detail below.
Revenue. Total revenue for the three months ended
September 30, 2000 was $2,412,447 compared to $146,828 for the
three months ended September 30, 1999. Oil and gas sales for
the three months ended September 30, 2000 were $2,358,602
compared to $116,540 for the three months ended September 30,
1999. The increase of $2,242,062 in oil and gas revenue
comparing the quarter ended September 30, 2000 to the quarter
ended September 30, 1999 is primarily attributed to the
acquisitions that occurred during the fiscal year ended June 30,
2000 and the quarter ended September 30, 2000. During the
quarter ended September 30, 2000, the company sold 71,819 barrels
of oil from our interests in the Point Arguello Unit located in
federal waters offshore California and sold 64,415 Mcf of gas and
3,692 barrels of oil from our interests in the our New Mexico
properties. Both of these properties were acquired during fiscal
2000. The Company also sold 10,102 Mcf of gas and 17,956 barrels
of oil from the North Dakota acquisition that closed during the
quarter ended September 30, 2000. We have committed to sell 25,000
barrels per month through December 2000 at $14.65 per barrel under
fixed price contracts with production purchases.
Production volumes and average prices received for the
three-month periods ended September 30, 2000 and 1999 are as
follows:
Three Months Ended
September 30,
2000 1999
Production - Onshore:
Oil (Bbls) 22,589 1,076
Gas (Mcfs) 129,050 53,419
Average Price-Onshore :
Oil (per Bbl) $29.05 20.64
Gas (per Mcf) $4.40 1.77
Production - Offshore-
Oil (Bbls) 71,819 -
Average Price-Offshore-
Oil (per Bbl) $15.81 -
Lease Operating Expenses. Lease operating expenses were
$942,732 and $39,147 for the three months ended September 30,
2000 and 1999, respectively. On a Bbl equivalent basis, lease
operating expenses were $3.85 and $3.92, during the three months
ended September 30, 2000 and 1999, respectively for onshore
properties. On a barrel equivalent basis, lease operating
expenses were $10.77 during the three months ended September 30,
2000 for the offshore properties. The increase in lease
operating expenses can be attributed to the acquisitions
discussed above.
Depreciation and Depletion Expense. Depreciation and
depletion expense for the quarter ended September 30, 2000 was
$465,189 compared to $34,634 for the quarter ended September 30,
1999. On a barrel equivalent basis, the depletion rate was $6.63
for onshore properties and $2.34 for offshore properties during
the quarter ended September 30, 2000 compared to $3.47 for
onshore properties for the quarter ended September 30, 1999. The
increase in depletion rate per barrel equivalent for the onshore
properties can be attributable to acquisitions of properties with
shorter economic lives.
Exploration Expenses. We recorded exploration expenses of
$13,147 for the three months ended September 30, 2000 compared to
$415 for the same period in 1999.
Professional fees Professional fees for the three months
ended September 30, 2000 were $229,760 compared to $138,394 for
the same period in 1999. The increase in professional general
and administrative expenses are primarily attributed legal fees
for representation in negotiations and discussions with various
state and federal governmental agencies relating to the company's
undeveloped offshore California leases.
General and Administrative Expenses. General and
administrative expenses for the three months ended September 30,
2000 were $292,601 compared to $241,689 for the same periods in
1999. The increase in general and administrative expenses are
primarily attributed to the increase in travel, corporate filings
and the addition of a new employee.
Stock Option Expense. Stock option expense has been
recorded for the quarter ended September 30, 2000 and 1999 of
$211,042 and $109,986, respectively, for options granted to
and/or re-priced for certain officers, directors, employees and
consultants at option prices below the market price at the date
of grant.
Other income. Other income represents the sale of our
unsecured claim in bankruptcy against our former parent,
Underwriters Financial Group.
Interest and Financing Costs. Interest and financing
costs for the three months ended September 30, 2000 and 1999 were
$338,221 and $107,475, 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 undeveloped leases and units, pursuant to 30 CFR
250.110. The SOO was directed for the purpose of preparing what
became known as the COOGER Study. Two-thirds of the cost of the
Study was funded by the participating companies in lieu of the
payment of rentals on the leases. Additionally, all operations
were suspended on the leases during this period. On November 12,
1999, as the COOGER Study drew to a conclusion, the MMS approved
requests made by the operating companies for a Suspension of
Production (SOP) status for the POCS leases and units. During the
period of a SOP the lease rentals resume and each operator is
required to perform exploration and development activities in
order to meet certain milestones set out by the MMS. Progress
toward the milestones is monitored by the operator in quarterly
reports submitted to the MMS. In February 2000 all operators
completed and timely submitted to the MMS a preliminary
"Description of the Proposed Project". This was the first
milestone required under the SOP. Quarterly reports were also
prepared and submitted for the last quarter of 1999, and the
first and second quarters of 2000.
In order to continue to carry out the requirements of the
MMS, all operators of the units in which we own non-operating
interests are currently engaged in studies and project planning
to meet the next milestone leading to development of the leases.
Where additional drilling is needed the operators will bring a
mobile drilling unit to the POCS to further delineate the
undeveloped oil and gas fields.
Cost to Develop Offshore California Properties. The cost
to develop four of the five undeveloped units (plus one lease)
located offshore California, 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 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 over $200 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 our 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 remain at current levels, 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.
Recently Issued Accounting Standards and Pronouncements
In March 2000, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation- and
interpretation of APB Opinion No. 25 ("FIN 44"). This opinion
provides guidance on the accounting for certain stock option
transactions and subsequent amendments to stock option
transactions. FIN 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. To the extent that FIN 44
covers events occurring during the period from December 15, 1998
and January 12, 2000, but before July 1, 2000, the effects of
applying this interpretation are to be recognized on a
prospective basis. Re-priced options mentioned above may impact
future periods. The Company's financial position and results of
operations were not impacted by the adoption of FIN 44.
In December 1999, the SEC released Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101B,
which delayed the implementations date of SAB 101 for registrants
with fiscal years ending on June 30, 2001. The effects of
implementation are to be reported with results no later than the
quarter beginning April 1, 2001. The Company has not yet
assessed the impact, if any, that SAB 101 might have on its
financial position or results of operations.
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), was issued in June 1998, by the Financial Accounting
Standards Board. SFAS 133 establishes new accounting and
reporting standards for derivative instruments and for hedging
activities. This statement required an entity to establish at
the inception of a hedge the method it will use for assessing the
effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to
managing risk. SFAS 133 was amended by SFAS 137 and is effective
for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company's financial position and results of operations
were not impacted by the adoption of SFAS 133.
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 dated July 10, 2000; Items 2,5 and 7
Form 8-K/A dated July 10, 2000; Item 7
Form 8-K dated August 3, 2000; Items 5 and 7
Form 8-K dated September 7, 2000; Items 5 and 7
Form 8-K dated September 29, 2000; Items 2, 5 and 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
Date: November 9, 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.
