UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
Amendment No. 2
x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the fiscal year ended June 30, 2004
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |
for the transition period from .
Commission File No. 0-16203
DELTA PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Colorado | 84-1060803 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
475 17th Street, Suite 1400 Denver, Colorado | 80202 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (303) 293-9133
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Check whether issuer (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. x Yes ¨ No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) ¨ Yes No x
The aggregate market value as of September 7, 2004 of voting stock held by non-affiliates of the registrant was approximately $407,611,000.
As of September 10, 2004, 39,314,949 shares of registrant’s Common Stock $.01 par value were issued and outstanding.
Documents incorporated by reference: The information required by Part III of this Form 10-K is incorporated by reference to the Company’s Definitive Proxy Statement for the Company’s 2004 Annual Meeting of Shareholders.
Explanatory Note:
This amendment is being filed for the purpose of adding proved non-producing reserves to the quantities of proved reserves as of June 30, 2002 and 2003 that are contained only in Note 14 - Information Regarding Proved Oil and Gas Reserves (unaudited) on page F-29 of the financial statements. The previous disclosure only included proved producing reserves and did not include quantities of proved non-producing reserves which resulted in an understatement of our aggregate proved reserves as of the dates indicated. Total quantities of proved reserves stated elsewhere in the Report are not affected by the amendment to Note 14. We are also filing the consents of our independent engineers with this amendment.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
(a)(2) Financial Statement Schedules. None.
(a)(3) Exhibits. The Exhibits listed in the Index to Exhibits appearing at page 46 are filed as part of this report. Management contracts and compensatory plans required to be filed as exhibits are marked with a “*”.
(b) Reports on Form 8-K. During the quarter ended June 30, 2004, the Registrant filed Reports on Form 8-K during the last quarter covered by this Report as follows:
1. Form 8-K; April 12, 2004; Item 5.
2. Form 8-K; April 23, 2004; Items 2 and 7.
3. Form 8-K; May 11, 2004; Item 5.
4. Form 8-K; June 29, 2004; Items 2 and 7.
45
INDEX TO EXHIBITS
2. | Plans of Acquisition, Reorganization, Arrangement, Liquidation, or Succession. Not applicable. | |
3. | Articles of Incorporation and By-laws. | |
3.1 | Articles of Incorporation and Articles of Amendment to Articles of Incorporation. Previously filed. | |
3.2 | By-laws. Incorporated by reference from Exhibit 3.3 to the Company’s Form 10 Registration Statement under the Securities Exchange Act of 1934, filed September 9, 1987. | |
4. | Instruments Defining the Rights of Security Holders. Not applicable. | |
9. | Voting Trust Agreement. Not applicable. | |
10. | Material Contracts. | |
10.1 | Burdette A. Ogle “Assignment, Conveyance and Bill of Sale of Federal Oil and Gas Leases Reserving a Production Payment,” “Lease Interests Purchase Option Agreement” and “Purchase and Sale Agreement.” Incorporated by reference from Exhibit 28.1 to the Company’s Form 8-K dated January 3, 1995. | |
10.2 | Delta Petroleum Corporation 1993 Incentive Plan, as amended. Incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K dated November 1, 1996. * | |
10.3 | Delta Petroleum Corporation 1993 Incentive Plan, as amended June 30, 1999. Incorporated by reference to the Company’s Notice of Annual Meeting and Proxy Statement dated June 1, 1999. * | |
10.4 | Agreement between Burdette A. Ogle and Delta Petroleum Corporation effective December 17, 1998. Incorporated by reference from Exhibit 99.2 to the Company’s Form 10-QSB for the quarterly period ended December 31, 1998. | |
10.5 | Agreement between Whiting Petroleum Corporation and Delta Petroleum Corporation (including amendment) dated June 8, 1999. Incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K dated June 9, 1999. | |
10.6 | Purchase and Sale Agreement dated October 13, 1999 between Whiting Petroleum Corporation and Delta Petroleum Corporation. Incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K dated November 1, 1999. | |
10.7 | Agreement between Delta Petroleum Corporation, Roger A. Parker and Aleron H. Larson, Jr. dated November 1, 1999. Incorporated by reference from Exhibit 99.3 to the Company’s Form 8-K dated November 1, 1999.* | |
10.8 | Conveyance and Assignment from Whiting Petroleum Corporation dated December 1, 1999. Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated December 1, 1999. | |
10.9 | Agreement dated December 30, 1999 between Burdette A. Ogle and Delta Petroleum Corporation. Incorporated by reference from Exhibit 99.4 to the Company’s Form 8-K dated January 4, 2000. | |
10.10 | Purchase and Sale Agreement dated June 1, 2000 between Whiting Petroleum Corporation and Delta Petroleum Corporation. Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated July 10, 2000. |
46
10.11 | Delta Petroleum Corporation 2001 Incentive Plan. Incorporated by reference to the Company’s Notice of Annual Meeting and Proxy Statement dated July 26, 2001 for fiscal year 2000 ended June 30, 2000.* | |
10.12 | Employment Agreements with Aleron H. Larson, Jr., Roger A. Parker and Kevin K. Nanke, from Exhibit 10.4 a, b, and c to the Company’s Form 8-K dated October 25, 2001. * | |
10.13 | Delta Petroleum Corporation 2002 Incentive Plan incorporated by reference from Exhibit A to the Company’s definitive proxy statement filed May 1, 2002. * | |
10.14 | Agreement between Delta Petroleum Corporation and Amber Resources Company dated July 1, 2001, incorporated by reference from Exhibit 10.3 to the Company’s Form 8-K dated October 25, 2001. | |
10.15 | Letter agreement dated December 3, 2001 between Delta Petroleum Corporation and Ogle Properties LLC, incorporated by reference from Exhibit 10.4 to the Company’s Form 8-K dated October 25, 2001. | |
10.16 | Purchase and Sale Agreement between Castle Energy Company and Delta Petroleum Corporation dated December 31, 2001 incorporated by reference from Exhibit 2.1 to the Company’s Form 8-K dated January 15, 2002. | |
10.17 | Purchase and Sale Agreement between Delta Petroleum Corporation and Tipperary Oil & Gas Corporation dated May 8, 2002 incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated April 30, 2002. | |
10.18 | Credit Agreement dated May 31, 2002 by and among Delta Petroleum Corporation, Delta Exploration Company, Inc., Piper Petroleum Company and Bank of Oklahoma, N.A. Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated May 24, 2002. | |
10.19 | First Amendment to Credit Agreement dated June 20, 2003 by and among Delta Petroleum Corporation, Delta Exploration Company, Inc., Piper Petroleum Company and Bank of Oklahoma, N.A. Incorporated by reference from Exhibit 10.3 to the Company’s Form 8-K dated June 20, 2003. | |
10.20 | Agreement with Arguello, Inc. Incorporated by reference from Exhibit10.22 to the Company’s Form 10-K for the fiscal year ended June 30, 2003. | |
10.21 | Purchase and Sale Agreement dated as of June 5, 2003 between JAED Production Company, Inc. and Delta Petroleum Corporation. Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated June 20, 2003. | |
10.22 | Purchase and Sale Agreement with Edward Mike Davis and Edward Mike Davis, L.L.C. Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated September 19, 2003. | |
10.23 | First Amendment to Purchase and Sale Agreement with Edward Mike Davis and Edward Mike Davis, L.L.C. Incorporated by reference from Exhibit 10.2 to the Company’s Form 8-K dated September 19, 2003. | |
10.24 | Amended and Restated Credit Agreement dated December 30, 2003, by and among Delta Petroleum Corporation, Delta Exploration Company, Inc., Piper Petroleum Company and Bank of Oklahoma, N.A. Incorporated by reference from Exhibit 10.1 to the Company’s Form 10-Q dated December 31, 2003. | |
10.25 | Second Amendment to Purchase and Sale Agreement with Edward Mike Davis and Edward Mike Davis, L.L.C. Incorporated by reference from Exhibit 10.4 to the Company’s Form 8-K dated April 23, 2004. |
47
10.26 | Purchase and Sale Agreement dated June 10, 2004 with various sellers related to Alpine Resources, Inc. Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K dated June 29, 2004. | |
10.27 | Second Amendment of Amended and Restated Credit Agreement dated June 29, 2004 with Bank of Oklahoma, N.A., US Bank National Association and Hibernia National Bank. Incorporated by reference from Exhibit 10.2 to the Company’s Form 8-K dated June 29, 2004. | |
10.28 | Amendment No. 1 to Purchase and Sale Agreement dated July 7, 2004 with Edward Mike Davis and entities controlled by him. Incorporated by reference from Exhibit 10.3 to the Company’s Form 8-K dated June 29, 2004. | |
11. | Statement Regarding Computation of Per Share Earnings. Not applicable. | |
12. | Statement Regarding Computation of Ratios. Not applicable. | |
21. | Subsidiaries of the Registrant. Previously filed. | |
23.1 | Consent of KPMG LLP. Filed herewith electronically. | |
23.2 | Consent of Ralph E. Davis Associates, Inc. Filed herewith electronically. | |
23.3 | Consent of Mannon Associates, Inc. Filed herewith electronically. | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith electronically. | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith electronically. | |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. Filed herewith electronically. | |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. Filed herewith electronically. |
* | Management contracts and compensatory plans. |
48
Report of Independent Registered Public Accounting Firm
The Board of Directors
Delta Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Delta Petroleum Corporation and subsidiaries as of June 30, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Delta Petroleum Corporation and subsidiaries as of June 30, 2004 and 2003, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
As described in Note 2 to the consolidated financial statements, the Company changed its method of accounting for asset retirement obligations as of July 1, 2002.
/s/ KPMG LLP |
KPMG LLP |
Denver, Colorado |
September 3, 2004 |
F-1
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2004 | June 30, 2003 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 2,078 | $ | 2,271 | ||||
Marketable securities available for sale | 912 | 662 | ||||||
Trade accounts receivable, net of allowance for doubtful accounts | 9,092 | 4,410 | ||||||
Prepaid assets | 1,136 | 764 | ||||||
Inventory of oil field equipment | 1,350 | — | ||||||
Other current assets | 385 | 560 | ||||||
Total current assets | 14,953 | 8,667 | ||||||
Property and Equipment: | ||||||||
Oil and gas properties, successful efforts method of accounting | 272,892 | 90,151 | ||||||
Drilling and trucking equipment | 3,965 | — | ||||||
Other | 1,147 | 336 | ||||||
Total property and equipment | 278,004 | 90,487 | ||||||
Less accumulated depreciation and depletion | (21,665 | ) | (12,669 | ) | ||||
Net property and equipment | 256,339 | 77,818 | ||||||
Long term assets: | ||||||||
Investment in LNG project | 1,022 | — | ||||||
Deferred financing costs | 131 | 117 | ||||||
Partnership net assets | 259 | 245 | ||||||
Total long term assets | 1,412 | 362 | ||||||
$ | 272,704 | $ | 86,847 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Current portion of long-term debt | $ | 109 | $ | 10,039 | ||||
Accounts payable | 12,326 | 3,604 | ||||||
Other accrued liabilities | 1,855 | 1,087 | ||||||
Derivative instruments | — | 468 | ||||||
Current foreign tax payable | — | 703 | ||||||
Total current liabilities | 14,290 | 15,901 | ||||||
Long-term Liabilities: | ||||||||
Bank debt, net | 69,375 | 22,175 | ||||||
Asset retirement obligation | 2,542 | 868 | ||||||
Other debt, net | 255 | — | ||||||
Total long-term liabilities | 72,172 | 23,043 | ||||||
Minority Interest | 245 | — | ||||||
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 38,447,000 shares at June 30, 2004 and 23,286,000 shares at June 30, 2003 | 384 | 233 | ||||||
Additional paid-in capital | 207,811 | 75,642 | ||||||
Accumulated other comprehensive (loss) income | 342 | (376 | ) | |||||
Accumulated deficit | (22,540 | ) | (27,596 | ) | ||||
Total stockholders’ equity | 185,997 | 47,903 | ||||||
Commitments and contingencies | $ | 272,704 | $ | 86,847 | ||||
See accompanying notes to consolidated financial statements.
F-2
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Revenue: | ||||||||||||
Oil and gas sales | $ | 37,235 | $ | 22,576 | $ | 8,013 | ||||||
Realized gain (loss) on derivative instruments, net | (859 | ) | (1,858 | ) | 39 | |||||||
Total revenue | 36,376 | 20,718 | 8,052 | |||||||||
Operating expenses: | ||||||||||||
Production costs | 9,776 | 8,410 | 4,257 | |||||||||
Drilling and trucking operations | 232 | — | — | |||||||||
Exploration expense | 2,406 | 140 | 155 | |||||||||
Depreciation and depletion | 9,914 | 4,999 | 3,326 | |||||||||
Dry hole costs | 2,132 | 537 | 396 | |||||||||
Abandoned and impaired oil and gas properties | — | — | 1,480 | |||||||||
Professional fees | 1,174 | 842 | 1,322 | |||||||||
General and administrative (includes stock compensation of $329,000, $123,000 and $143,000 for the years ended June 30, 2004, 2003 and 2002 respectively.) | 6,875 | 4,295 | 2,060 | |||||||||
Total operating expenses | 32,509 | 19,223 | 12,996 | |||||||||
Income (loss) from continuing operations | 3,867 | 1,495 | (4,944 | ) | ||||||||
Other income and (expense): | ||||||||||||
Other income | 122 | 31 | 113 | |||||||||
Minority interest | 70 | — | — | |||||||||
Interest and financing costs | (1,762 | ) | (1,767 | ) | (1,325 | ) | ||||||
Total other expense | (1,570 | ) | (1,736 | ) | (1,212 | ) | ||||||
Income (loss) before discontinued operations and cumulative effect of change in accounting principle | $ | 2,297 | $ | (241 | ) | $ | (6,156 | ) | ||||
Discontinued operations: | ||||||||||||
Income (loss) from operations of properties sold, net | 872 | 1,241 | (9 | ) | ||||||||
Gain (loss) on sale of properties | 1,887 | 277 | (88 | ) | ||||||||
Income (loss) before cumulative effect of change in accounting principle | 5,056 | 1,277 | (6,253 | ) | ||||||||
Cumulative effect of change in accounting principle | — | (20 | ) | — | ||||||||
Net income (loss) | $ | 5,056 | $ | 1,257 | $ | (6,253 | ) | |||||
Basic income (loss) per common share: | ||||||||||||
Income (loss) before discontinued operations and cumulative effect of change in accounting principle | $ | .09 | $ | (.01 | ) | $ | (.49 | ) | ||||
Discontinued operations | .10 | .06 | * | |||||||||
Income (loss) before cumulative effect of change in accounting principle | .19 | .05 | (.49 | ) | ||||||||
Cumulative effect of change in accounting principle | — | * | — | |||||||||
Net income (loss) | $ | .19 | $ | .05 | $ | (.49 | ) | |||||
Diluted income (loss) per common share: | ||||||||||||
Income (loss) before discontinued operations and cumulative effect of change in accounting principle | $ | .08 | $ | (.01 | ) | $ | (.49 | ) | ||||
Discontinued operations | .09 | .06 | * | |||||||||
Income (loss) before cumulative effect of change in accounting principle | .17 | .05 | (.49 | ) | ||||||||
Cumulative effect of change in accounting principle | — | * | — | |||||||||
Net income (loss) | $ | .17 | $ | .05 | $ | (.49 | ) | |||||
* | Less than $.01 per common share |
See accompanying notes to consolidated financial statements.
F-3
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’
Equity and Comprehensive Income (Loss)
Common stock | Additional capital | Put option on Delta stock | Accumulated income/(loss) | Comprehensive income (loss) | Accumulated deficit | Total | |||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||||||||
Balance July 1, 2001 | 11,160 | $ | 112 | $ | 40,700 | $ | — | $ | 69 | $ | (22,600 | ) | $ | 18,281 | |||||||||||||||
Comprehensive loss: | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (6,253 | ) | (6,253 | ) | (6,253 | ) | ||||||||||||||||||
Other comprehensive loss, net of tax | |||||||||||||||||||||||||||||
Unrealized loss on equity securities | — | — | — | — | (154 | ) | (154 | ) | (154 | ) | |||||||||||||||||||
Comprehensive loss | — | — | — | — | — | (6,407 | ) | ||||||||||||||||||||||
Stock options granted as compensation | — | — | 143 | — | — | — | 143 | ||||||||||||||||||||||
Shares issued for cash, net of commissions | 72 | 1 | 224 | — | — | — | 225 | ||||||||||||||||||||||
Shares issued for cash upon exercise of options | 266 | 2 | 405 | — | — | — | 407 | ||||||||||||||||||||||
Shares issued for services | 14 | — | 48 | — | — | — | 48 | ||||||||||||||||||||||
Shares issued for oil and gas properties | 9,703 | 97 | 26,862 | — | — | — | 26,959 | ||||||||||||||||||||||
Put option on Delta Stock | — | — | 2,886 | (2,886 | ) | — | — | — | |||||||||||||||||||||
Shares issued for all outstanding shares of Piper Petroleum Company | 1,377 | 14 | 5,220 | — | — | — | 5,234 | ||||||||||||||||||||||
Shares issued for debt | 51 | — | 157 | — | — | — | 157 | ||||||||||||||||||||||
Shares reacquired and retired | (25 | ) | — | (131 | ) | — | — | — | (131 | ) | |||||||||||||||||||
Balance, June 30, 2002 | 22,618 | 226 | 76,514 | (2,886 | ) | (85 | ) | (28,853 | ) | 44,916 | |||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 1,257 | 1,257 | 1,257 | |||||||||||||||||||||
Other comprehensive income, net of tax | |||||||||||||||||||||||||||||
Change in fair value of derivative hedging instruments | — | — | — | — | (468 | ) | (468 | ) | — | (468 | ) | ||||||||||||||||||
Unrealized gain on equity securities, net | — | — | — | — | 177 | 177 | — | 177 | |||||||||||||||||||||
Comprehensive income | — | — | — | — | — | 966 | |||||||||||||||||||||||
Stock options granted as compensation | 124 | — | — | — | 124 | ||||||||||||||||||||||||
Put option on Delta Stock | — | — | (2,886 | ) | 2,886 | — | |||||||||||||||||||||||
Shares issued for oil and gas properties | 200 | 2 | 920 | — | — | — | 922 | ||||||||||||||||||||||
Shares issued for cash upon exercise of options | 468 | 5 | 970 | — | — | — | 975 | ||||||||||||||||||||||
Balance, June 30, 2003 | 23,286 | 233 | 75,642 | — | (376 | ) | (27,596 | ) | 47,903 | ||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 5,056 | 5,056 | 5,056 | |||||||||||||||||||||
Other comprehensive gain, net of tax | |||||||||||||||||||||||||||||
Change in fair value of derivative hedging instruments | — | — | — | — | 468 | 468 | — | 468 | |||||||||||||||||||||
Unrealized gain on equity securities, net | — | — | — | — | 250 | 250 | — | 250 | |||||||||||||||||||||
Comprehensive income | — | — | — | — | — | 5,774 | |||||||||||||||||||||||
Stock options granted as compensation | 329 | — | — | — | 329 | ||||||||||||||||||||||||
Shares issued for cash, net | 10,000 | 100 | 97,802 | — | — | — | 97,902 | ||||||||||||||||||||||
Shares issued for oil and gas properties | 3,728 | 37 | 30,489 | — | — | — | 30,526 | ||||||||||||||||||||||
Shares issued for cash upon exercise of options | 1,433 | 14 | 3,549 | — | — | — | 3,563 | ||||||||||||||||||||||
Balance, June 30, 2004 | 38,447 | $ | 384 | $ | 207,811 | $ | — | $ | 342 | $ | (22,540 | ) | $ | 185,997 | |||||||||||||||
See accompanying notes to consolidated financial statements.
F-4
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Cash flows operating activities: | ||||||||||||
Net income (loss) | $ | 5,056 | $ | 1,257 | $ | (6,253 | ) | |||||
Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||||||
Depreciation and depletion | 9,854 | 4,942 | 3,326 | |||||||||
Depreciation and depletion – discontinued operations | 328 | 791 | 21 | |||||||||
Accretion of abandonment obligation | 60 | 57 | — | |||||||||
Stock compensation expense | 329 | 124 | 143 | |||||||||
Amortization of financing costs | 324 | 456 | 582 | |||||||||
Minority interest | (70 | ) | — | — | ||||||||
Abandoned and impaired properties | — | — | 1,480 | |||||||||
(Gain) loss on sale of oil and gas properties | (1,887 | ) | (277 | ) | 88 | |||||||
Shares issued for services | — | — | 48 | |||||||||
Cumulative effect of change in accounting principle | — | 20 | — | |||||||||
Net changes in operating assets and operating liabilities: | ||||||||||||
Increase in trade accounts receivable | (4,878 | ) | (101 | ) | (1,265 | ) | ||||||
(Increase) decrease in prepaid assets | (372 | ) | 21 | (191 | ) | |||||||
Increase in inventory | (1,350 | ) | — | — | ||||||||
(Increase) decrease in other current assets | 205 | (78 | ) | (6 | ) | |||||||
Increase in accounts payable | 1,361 | 116 | 172 | |||||||||
Increase (decrease) in other accrued liabilities | 663 | 671 | (15 | ) | ||||||||
Net cash provided by (used in) operating activities | 9,623 | 7,999 | (1,870 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property and equipment, net | (158,504 | ) | (15,637 | ) | (17,959 | ) | ||||||
Proceeds from sale of oil and gas properties | 10,787 | 850 | 4,313 | |||||||||
Merger with Piper Petroleum | — | — | 74 | |||||||||
Minority interest contributions | 315 | — | — | |||||||||
Payment on investment transaction | (1,022 | ) | — | — | ||||||||
Increase (decrease) in long term assets | (14 | ) | 139 | 460 | ||||||||
Net cash used in investing activities | (148,438 | ) | (14,648 | ) | (13,112 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Stock issued for cash upon exercise of options | 3,563 | 975 | 407 | |||||||||
Issuance of common stock for cash | 97,902 | — | 225 | |||||||||
Proceeds from borrowings | 69,979 | 9,000 | 21,778 | |||||||||
Payment of financing fees | (368 | ) | (354 | ) | (249 | ) | ||||||
Repayment of borrowings | (32,454 | ) | (1,725 | ) | (6,673 | ) | ||||||
Net cash provided by financing activities | 138,622 | 7,896 | 15,488 | |||||||||
Net (decrease) increase in cash and cash equivalents | (193 | ) | 1,247 | 506 | ||||||||
Cash at beginning of period | 2,271 | 1,024 | 518 | |||||||||
Cash at end of period | $ | 2,078 | $ | 2,271 | $ | 1,024 | ||||||
Supplemental cash flow information – Cash paid for interest and financing costs | $ | 1,818 | $ | 1,312 | $ | 779 | ||||||
Non-cash financing activities: | ||||||||||||
Common stock issued for the purchase of oil and gas properties | $ | 30,526 | $ | 922 | $ | 26,959 | ||||||
Common stock issued for all outstanding shares of Piper Petroleum Company | $ | — | $ | — | $ | 5,234 | ||||||
Common stock reacquired and retired for oil and gas properties and option exercise | $ | — | $ | — | $ | 131 | ||||||
Common stock issued for note payable and accrued interest or accounts payable | $ | — | $ | — | $ | 157 | ||||||
See accompanying notes to consolidated financial statements.
F-5
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(1) Nature of Organization
Delta Petroleum Corporation (“Delta”) was organized December 21, 1984 and is principally engaged in acquiring, exploring, developing and producing oil and gas properties. The Company owns interests in developed and undeveloped oil and gas properties in federal units offshore California, near Santa Barbara, and developed and undeveloped oil and gas properties in the continental United States.
At June 30, 2004 the Company owned 4,277,977 shares of the common stock of Amber Resources Company (“Amber”), representing 91.68% of the outstanding common stock of Amber. Amber is a public company that owns undeveloped oil and gas properties in federal units offshore California, near Santa Barbara.
On February 19, 2002, the Company acquired 100% of the outstanding shares of Piper Petroleum Company (“Piper”), a privately owned oil and gas company headquartered in Fort Worth, Texas. Piper was merged into a subsidiary wholly owned by Delta.
The Company’s results of operations are substantially dependent on the price received for its crude oil and natural gas products and the results of our exploration and development activities. Prices for these products are subject to fluctuations in response to changes in supply, market uncertainty and political instability.
(2) Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Delta, Amber and Piper (collectively, the Company). All intercompany balances and transactions have been eliminated in consolidation. As Amber is in a net shareholders’ deficit position for the periods presented, the Company has recognized 100% of Amber’s earnings/losses for all periods. Certain reclassifications have been made to amounts reported in previous years to conform to the 2004 presentation.
In March 2004, the Company acquired a 50% interest in Big Dog Drilling, LLC (“BDDC”) and a 50% interest in Shark Trucking Company, LLC (“STC”). Delta controls both entities and has consolidated the activities of both BDDC and STC in 2004. The results of operations and minority interest were not significant.
Cash Equivalents
Cash equivalents consist of money market funds. The Company considers all highly liquid investments with maturities at date of acquisition of three months or less to be cash equivalents.
Marketable Securities
The Company classifies its investment securities as available-for-sale securities. Pursuant to Statement of Financial Accounting Standards No. 115 (SFAS 115), such securities are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income. At the time securities are sold or otherwise disposed of, gains or losses are included in earnings.
F-6
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(2) Summary of Significant Accounting Policies, Continued
Cost | Unrealized Gain (Loss) | Estimated Market Value | ||||||||
(In thousands) | ||||||||||
June 30, 2004 | ||||||||||
Bion Environmental Technologies, Inc. | $ | 152 | $ | (138 | ) | $ | 14 | |||
Tipperary Oil & Gas Company | 418 | 480 | 898 | |||||||
$ | 570 | $ | 342 | $ | 912 | |||||
June 30, 2003 | ||||||||||
Bion Environmental Technologies, Inc. | $ | 152 | $ | (140 | ) | $ | 12 | |||
Tipperary Oil & Gas Company | 418 | 232 | 650 | |||||||
$ | 570 | $ | 92 | $ | 662 | |||||
June 30, 2002 | ||||||||||
Bion Environmental Technologies, Inc. | $ | 152 | $ | (92 | ) | $ | 60 | |||
Tipperary Oil & Gas Company | 418 | 7 | 425 | |||||||
$ | 570 | $ | (85 | ) | $ | 485 | ||||
Inventories
Inventories consist of pipe, other production equipment and natural as placed in storage. Inventories are stated at the lower of cost (principally first-in, first-out) or estimated net realizable value.
Revenue Recognition
Revenues are recognized when title to the products transfer to the purchaser. The Company follows the “sales method” of accounting for its natural gas and crude oil revenue, so that the Company recognizes sales revenue on all natural gas or crude oil sold to its purchasers, regardless of whether the sales are proportionate to the Company’s ownership in the property. A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property greater than the expected remaining proved reserves. As of June 30, 2004 and 2003, the Company’s aggregate natural gas and crude oil imbalances were not material to its consolidated financial statements.
Property and Equipment
The Company accounts for its natural gas and crude oil exploration and development activities under the successful efforts method of accounting. Under such method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological geophysical expenses and delay rentals for gas and oil leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.
Unproved properties with significant acquisition costs are assessed quarterly on a property-by-property basis and any impairment in value is charged to expense. If the unproved properties are determined to be productive, the related costs are transferred to proved gas and oil properties. Proceeds from sales of partial interests in unproved leases are accounted for as a recovery of cost without recognizing any gain or loss.
Depreciation and depletion of capitalized acquisition, exploration and development costs is computed on the units-of-production method by individual fields as the related proved reserves are produced.
F-7
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(2) Summary of Significant Accounting Policies, Continued
Other property and equipment are recorded at cost or estimated fair value upon acquisition and depreciated using the straight-line method over their estimated useful lives.
Certain of the Company’s oil and gas activities are conducted through partnerships and joint ventures. The Company includes its proportionate share of assets, liabilities, revenues and expenses from these entities in its consolidated financial statements. Partnership net assets represent the Company’s share of net working capital in such entities.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) requires that long-lived assets be reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
Estimates of expected future cash flows represent management’s best estimate based on reasonable and supportable assumptions and projections. If the expected future cash flows exceed the carrying value of the asset, no impairment is recognized. If the carrying value of the asset exceeds the expected future cash flows, an impairment exists and is measured by the excess of the carrying value over the estimated fair value of the asset. Any impairment provisions recognized in accordance with SFAS No. 144 are permanent and may not be restored in the future.
The Company assesses developed properties on an individual field basis for impairment on at least an annual basis. For developed properties, the review consists of a comparison of the carrying value of the asset with the asset’s expected future undiscounted cash flows without interest costs. As a result of such assessment, the Company recorded no impairment provision attributable to certain producing properties for the years ended June 30, 2004 and 2003 and $878,000 for the year ended June 30, 2002.
For undeveloped properties, the need for an impairment reserve is based on the Company’s plans for future development and other activities impacting the life of the property and the ability of the Company to recover its investment. When the Company believes the costs of the undeveloped property are no longer recoverable, an impairment charge is recorded based on the estimated fair value of the property. As a result of such assessment, the Company recorded no impairment provision attributable to certain undeveloped properties for the years ended June 30, 2004, 2003 and 2002.
In addition, the Company recorded an impairment provision attributed to certain undeveloped foreign properties of $602,000 for the year ended June 30, 2002 and had no similar foreign impairment for the years ended June 30, 2004 and 2003.
F-8
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(2) Summary of Significant Accounting Policies, Continued
Asset Retirement Obligations
In July 2001, the Financial Accounting Standards Board approved for issuance SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liability for retirement obligations of acquired assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS No. 143 on July 1, 2002 and recorded a cumulative effect of a change in accounting principle on prior years of $20,000, net of tax effects, related to the depreciation and accretion expense that would have been reported had the fair value of the asset retirement obligations, and corresponding increase in the carrying amount of the related long-lived assets, been recorded when incurred. The Company’s asset retirement obligations arise from the plugging and abandonment liabilities for its oil and gas wells. The Company has no obligation to provide for the retirement of most of its offshore properties as the obligations remained with the seller. The following is a reconciliation of the Company’s asset retirement obligations for the years ended June 30, 2004 and 2003.
Years Ended June 30, | ||||||
2004 | 2003 | |||||
(In thousands) | ||||||
Asset retirement obligation – beginning of period | $ | 868 | $ 644 | |||
Accretion expense | 60 | 57 | ||||
Change in estimate | 438 | — | ||||
Obligations acquired | 1,522 | 181 | ||||
Obligations settled | (3 | ) | (14) | |||
Obligations on sold properties | (238 | ) | — | |||
Asset retirement obligation – end of period | 2,647 | 868 | ||||
Less: Current asset retirement obligation | (105 | ) | — | |||
Long-term asset retirement obligation | $ | 2,542 | $ 868 | |||
The pro forma effects of the application of SFAS No. 143 on net income would have been immaterial and there would have been no effect on earnings per share.
Derivative Financial Instruments
The Company periodically enters into commodity derivative contracts and fixed-price physical contracts to manage its exposure to oil and natural gas price volatility. The Company primarily utilizes future contracts, swaps or options which are generally placed with major financial institutions or with counterparties of high credit quality that the Company believes are minimal credit risks. The oil and natural gas reference prices of these commodity derivatives contracts are based upon crude oil and natural futures which have a high degree of historical correlation with actual prices received by the Company
F-9
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(2) Summary of Significant Accounting Policies, Continued
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. It also requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of Other Comprehensive Income and be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings.
At June 30, 2004, the Company had no outstanding derivative financial instruments. At June 30, 2003, the Company had a current derivative liability and a corresponding accumulated other comprehensive loss of $468,000.
Stock Option Plans
The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. In December, 2002 the FASB issued SFAS No. 148, “Accounting for Stock-based Compensation-Transition and Disclosure.” SFAS 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on the reported results. The provisions of SFAS 148 has no material impact on the Company, as we do not plan to adopt the fair-value method of accounting for stock options at the current time. Accordingly, no compensation cost is recognized for options granted at a price equal to or greater than the fair market value of the common stock.
Had compensation cost for the Company’s stock-based compensation plan been determined using the fair value of the options at the grant date, the Company’s net income (loss) for the years ended June 30, 2004, 2003 and 2002 would have been as follows:
Year Ended June 30, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net income (loss) | $ | 5,056 | $ | 1,257 | $ | (6,253 | ) | |||||
FAS 123 compensation effect | (4,316 | ) | (209 | ) | (790 | ) | ||||||
Net Income (loss) after FAS 123 compensation effect | $ | 740 | $ | 1,048 | $ | (7,043 | ) | |||||
Income (loss) per common share: | ||||||||||||
Basic | $ | .03 | $ | .05 | $ | (.55 | ) | |||||
Diluted | $ | .02 | $ | .04 | $ | (.55 | ) | |||||
F-10
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(2) Summary of Significant Accounting Policies, Continued
Income Taxes
The Company uses the asset and liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the results of operations in the period that includes the enactment date.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net earnings (loss) attributed to common stock by the weighted average number of common shares outstanding during each period, excluding treasury shares. Diluted earnings (loss) per share is computed by adjusting the average number of common shares outstanding for the dilutive effect, if any, of convertible preferred stock, stock options and warrants. The effect of potentially dilutive securities outstanding was antidilutive during year ended June 30, 2002.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include oil and gas reserves, bad debts, oil and gas properties, depletion and impairment, marketable securities, income taxes, derivatives, asset retirement obligations, contingencies and litigation. Actual results could differ from these estimates.
Recently Issued Accounting Standards and Pronouncements
In January 2003, the FASB issued Financial Interpretation No. 46, “Consolidation of Variable Interest Entities - an interpretation of ARB No. 51” (“FIN 46”). FIN 46 is an interpretation of Accounting Research Bulletin 51, “Consolidated Financial Statements,” and addresses consolidation by business enterprises of variable interest entities (“VIE’s”). The primary objective of FIN 46 is to provide guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights. Such entities are known as VIE’s. FIN 46 requires an enterprise to consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both.
An enterprise shall consider the rights and obligations conveyed by its variable interests in making this determination. This guidance applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. At this time, we do not have an interest in an unconsolidated VIE.
F-11
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties
Unproved Undeveloped Offshore California Properties
The Company has ownership interests ranging from 2.49% to 100% in five unproved undeveloped offshore California oil and gas properties with aggregate carrying values of $10.8 million and $10.2 million at June 30, 2004 and 2003, respectively. These property interests are located in proximity to existing producing federal offshore units near Santa Barbara, California and represent the right to explore for, develop and produce oil and gas from offshore federal lease units. Preliminary exploration efforts on these properties have occurred and the existence of substantial quantities of hydrocarbons has been indicated. The recovery of the Company’s investment in these properties will require extensive exploration and development activities (and costs) that cannot proceed without certain regulatory approvals that have been delayed and is subject to other substantial risks and uncertainties as discussed herein.
The Company is not the designated operator of any of these properties but is an active participant in the ongoing activities of each property along with the designated operator and other interest owners. If the designated operator elected not to or was unable to continue as the operator, the other property interest owners would have the right to designate a new operator as well as share in additional property returns prior to the replaced operator being able to receive returns. Based on the Company’s size, it would be difficult for the Company to proceed with exploration and development plans should other substantial interest owners elect not to proceed. However, to the best of its knowledge, the Company believes the designated operators and other major property interest owners intend to proceed with exploration and development plans under the terms and conditions of the operating agreement.
The ownership rights in each of these properties have been retained under various suspension notices issued by the Mineral Management Service (MMS) of the U.S. Federal Government whereby as long as the owners of each property were progressing toward defined milestone objectives, the owners’ rights with respect to the properties continue to be maintained. The issuance of the suspension notices has been necessitated by the numerous delays in the exploration and development process resulting from regulatory requirements imposed on the property owners by federal, state and local agencies.
On June 22, 2001, however, a Federal Court in the case of California v. Norton, et al. ruled that the MMS does not have the power to grant suspensions on the subject leases without first making a consistency determination under the Coastal Zone Management Act (“CZMA”), and ordered the MMS to set aside its approval of the suspensions of the Company’s offshore leases and to direct suspensions for a time sufficient for the MMS to provide the State of California with the required consistency determination. No such consistency determination has as yet been made.
The delays have prevented the property owners from submitting for approval an exploration plan on four of the properties. If and when plans are submitted for approval, they are subject to review for consistency with the CZMA, and by the MMS for other technical requirements.
Even though the Company is not the designated operator of the properties and regulatory approvals have not been obtained, the Company believes exploration and development activities on these properties will occur and is committed to expend funds attributable to its interests in order to proceed with obtaining the approvals for the exploration and development activities.
F-12
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties, continued
Based on the preliminary indicated levels of hydrocarbons present from drilling operations conducted in the past, the Company believes the fair value of its property interests are in excess of their carrying value at June 30, 2004 and June 30, 2003 and that no impairment in the carrying value has occurred. Should the required regulatory approvals not be obtained or plans for exploration and development of the properties not continue, the carrying value of the properties would likely be impaired and written off.
The forty undeveloped leases are located in the Offshore Santa Maria Basin off the coast of Santa Barbara and San Luis Obispo counties, and in the Santa Barbara Channel off Santa Barbara and Ventura counties. None of these leases is currently impaired, but in the event that there is some future adverse ruling by the California Coastal Commission under the CZMA and the Company decides not to appeal such ruling to the Secretary of Commerce, or the Secretary of Commerce either refuses to hear the Company’s appeal of any such ruling or ultimately makes an adverse determination, it is likely that some or all of these leases would become impaired and written off at that time.
As the ruling in the Norton case currently stands, the United States has been ordered to make a consistency determination under the Coastal Zone Management Act, and the leases are still valid. If the leases are found not to be valid for some reason, or if the United States either does not comply with the order requiring it to make a consistency determination or finds that development is inconsistent with the CZMA, it would appear that the leases would become impaired even though the Company would undoubtedly proceed with its litigation. It is also possible that other events could occur that would cause the leases to become impaired, and the Company will continuously evaluate those factors as they occur.
On January 9, 2002, the Company and several other plaintiffs filed a lawsuit in the United States Court of Federal Claims in Washington, D.C. alleging that the U.S. Government has materially breached the terms of forty undeveloped federal leases, some of which are part of the Company’s Offshore California properties. The Complaint is based on allegations by the collective plaintiffs that the United States has materially breached the terms of certain of their Offshore California leases by attempting to deviate significantly from the procedures and standards that were in effect when the leases were entered into, and by failing to carry out its own obligations relating to those leases in a timely and fair manner. More specifically, the plaintiffs have alleged that the judicial determination in the Norton case that a 1990 amendment to the CZMA required the Government to make a consistency determination prior to granting lease suspension requests in 1999 constitutes a material change in the procedures and standards that were in effect when the leases were issued.
The plaintiffs have also alleged that the United States has failed to afford them the timely and fair review of their lease suspension requests which has resulted in significant, continuing and material delays to their exploratory and development operations.
The suit seeks compensation for the lease bonuses and rentals paid to the Federal Government, exploration costs and related expenses. The total amount claimed by all lessees for bonuses and rentals exceeds $1.2 billion, with additional amounts for exploration costs and related expenses. The Company’s claim for lease bonuses and rentals paid by it and its predecessors is in excess of $152 million. In addition, The Company’s claim for exploration costs and related expenses will also be substantial. In the event, however, that the Company receives any proceeds as the result of such litigation, it will be obligated to pay a portion of any amount received by it to landowners and other owners of royalties and similar interests, and to pay expenses of litigation and to fulfill certain pre-existing contractual commitments to third parties.
F-13
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties, continued
Fiscal 2004 – Significant Acquisitions
On June 29, 2004, the Company acquired substantially all of the oil and gas assets owned by several entities controlled by Alpine Resources, Inc (“Alpine”) for a total purchase price of $120.6 million, net of a $1.9 million downward purchase price adjustment, which reflect the net revenues after operating costs and related acquisition costs from the effective date of June 1, 2004 through closing at June 29, 2004. Alpine was a privately held exploration and production company, active primarily in South East Texas and Louisiana. Based on a preliminary valuation assessment, the total acquisition cost was allocated $38 million to proved developed producing, $73.9 million to proved undeveloped and $8.7 to unproved properties. See sale of oil and gas properties in Note 15.
On September 19, 2003, the Company completed an acquisition of certain producing and drilling prospects in Colorado (the “South Tongue Prospect”) and Wyoming from Edward Mike Davis LLC and Edward Mike Davis, individually (collectively, “Davis”), pursuant to the terms of a Purchase and Sale Agreement effective as of August 1, 2003. The total consideration paid for these properties was 1,000,000 shares of the Company’s common stock, $8 million, of which $2 million was paid in cash and $6 million in the form of a short-term promissory note payable that was paid on October 3, 2003 and 26,000 shares of the Company’s common stock to an unrelated individual who introduced the two parties. The shares issued were recorded at a price of $5.15 per share, a five day average surrounding the announcement of the transaction. The Company recorded an upward purchase price adjustment of approximately $220,000 which reflects the operating and acquisition related costs in excess of net revenue from the effective date of August 1, 2003 through the closing date of September 19, 2003. The total acquisition cost of $13.1 million was allocated between proved developed producing of $5.2 million and unproved undeveloped of $7.9 million based on preliminary information.
On April 22, 2004, the Company amended its agreement with Davis to, among other things, add certain oil and gas leases located in Colorado known as the “North Tongue Prospect,” decrease the amount of Davis’s reversionary working interest after payout in the properties acquired under the initial agreement from 50% to 42.5%, change the definition of payout, change certain drilling obligations and modify the Company’s obligation to issue additional shares of stock to Davis upon the designation of Bonus Prospects. The initial consideration required to be paid to Davis upon execution of the Amended Agreement was 1,525,000 shares of the Company’s common stock, valued at $17.3 million. The entire amount was allocated to unproved undeveloped properties.
The amended agreement eliminates the Company’s obligation to issue shares for Bonus Prospects that existed under the initial agreement with respect to the South Tongue Prospect, but it added a new obligation to issue additional shares for Bonus Prospects that are designated with respect to the North Tongue Prospect. With regard to the North Tongue Prospect only, for any prospect that is identified at any time after drilling, coring, testing and logging to contain in combination from specified formations at least one million barrels of recoverable oil or six billion cubic feet of recoverable gas or a combination of oil or gas equal to or exceeding one million barrels of oil equivalent using a six million cubic feet to one barrel gas-to-oil ratio, as determined by independent engineers, then such acreage is required to be designated as a “Bonus Prospect.”
Upon designation of a Bonus Prospect, the Company is required to issue to Davis as additional purchase price, up to 190,000 shares of the Company’s common stock, or such lesser amount so that the value of such stock based upon the average closing price of the stock for the immediately preceding 30-day period may equal but does not exceed $950,000, for each Bonus Prospect (a “Bonus”). This requirement applies only to the North Tongue Prospect and is limited to a maximum of five Bonus Prospects. No Bonus or additional shares are payable for prospects located on the South Tongue Prospect, regardless of potential or ultimate production. The Company is obligated to file additional registration statements at the Company’s expense covering the re-sale of each issuance of shares for each Bonus Prospect designation.
F-14
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties, Continued
The following unaudited pro forma consolidated statements of operations information assumes that the Alpine and Davis property acquisitions occurred as of July 1, 2002:
Years Ended June 30, | ||||||
2004 | 2003 | |||||
(In thousands, except per share amounts) | ||||||
Oil and gas sales | $ | 69,683 | $ | 58,433 | ||
Net income, net of tax | $ | 14,246 | $ | 15,796 | ||
Net income per common share: | ||||||
Basic | $ | .43 | $ | .53 | ||
Diluted | $ | .40 | $ | .51 |
The above unaudited adjusted Pro Forma Consolidated Statements of Operations, based on the historical producing property operating results of Alpine, Davis and Delta’s adjusted for Delta’s proforma depletion, an estimate of additional administrative costs and approximately $3 million of pro forma income tax expense in 2004 are not necessarily indicative of the results of operations if Delta would have acquired the Alpine and Davis properties at July 1, 2002.
Fiscal 2004 – Additional Acquisitions
On December 10, 2003, the Company completed an acquisition of certain production and acreage located primarily in Eland and Stadium fields in Stark County, North Dakota, from Sovereign Holdings, LLC, a privately - held Colorado limited liability company (“Sovereign”), pursuant to the terms of a Purchase and Sale Agreement effective as of December 1, 2003. The total consideration paid for these properties was 773,500 shares of the Company’s common stock. The shares issued were recorded at a price of $5.58, a five day average surrounding the closing of the transaction. The Company recorded a downward purchase price adjustment of approximately $84,000 which reflects the operating and acquisition related costs in excess of net revenue from the effective date of December 1, 2003 through the closing date of December 5, 2003. The total acquisition cost of $4.2 million was allocated to proved developed producing properties.
On February 24, 2004, the Company acquired certain properties in Texas from Labyrinth Enterprises, LLC, an unrelated entity, for $1.5 million in cash and 185,000 shares of the Company’s common stock valued at $1.6 million based on a five day average surrounding the closing of the transaction.
On February 26, 2004, the Company acquired approximately 135,000 leasehold acres in the Columbia River Basin project in eastern Washington from an unrelated entity for $1.4 million in cash. The Company will become the operator once drilling begins on this acreage. Subsequent to the quarter end, the Company purchased approximately 23,000 additional net acreage in this project through State and Federal lease sales.
In March 2004, the Company acquired a 50% interest in Big Dog Drilling Company, LLC (“BDDC”) for an initial investment of approximately $3 million. The remaining interest is owned by Davis. BDDC’s primary assets include two drilling rigs rated at drilling depths of up to 10,000 feet and certain additional drilling equipment.
F-15
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties, Continued
Also in March 2004, the Company acquired a 50% interest in Shark Trucking Company, LLC (“STC”) for an initial investment of approximately $276,000. STC has a similar ownership structure to that of BDDC. STC’s primary assets include the ownership of trucking equipment used for the mobilization of drilling rigs and equipment.
The drilling rigs and trucking company will be used primarily for drilling activities on Delta’s properties. Increasing drilling rig rates, periodic lack of availability of drilling rigs and increased drilling by Delta were contributing factors to this venture.
On April 21, 2004, the Company acquired a fifty percent interest in approximately 1,300 leasehold acres in the Midway Loop Project located in Polk County, Texas from Wilsource Enterprises, LLC for $340,000 and 31,250 shares of the Company’s common stock valued at $289,000.
Also on April 21, 2004, the Company acquired a seventy five percent interest in approximately 9,800 leasehold acres in the Divide Creek Extension Project located in Mesa County, Colorado from Wilsource Enterprises, LLC for $90,000 in cash and 187,500 shares of the Company’s common stock valued at $1.7 million.
During the current fiscal year, the Company agreed to invest an aggregate of $1 million for a 6.25% interest as a member of an unaffiliated Delaware limited liability company that is currently in the process of attempting to obtain the rights to own and operate a liquid natural gas facility from an existing platform located offshore California. If the limited liability company is successful in obtaining these rights, it intends to engage in the business of accepting and vaporizing liquid natural gas delivered by liquid natural gas tankers, transporting the vaporized liquid natural gas through proprietary gas pipelines and selling the vaporized natural gas to third party customers located in California. As of the date of this report, the limited liability company had not yet engaged in any revenue generating activities. The Company has accounted for its investment at cost. This investment is recorded under Long term assets.
Fiscal 2003 - Acquisitions
On June 20, 2003, the Company acquired producing oil and gas interests and related undeveloped acreage in Kansas from JAED Production Company “JAED”, an unrelated entity. The Company paid $9 million and issued 200,000 shares of common stock. The shares issued were recorded at a stock price of $4.61, a five day average closing price surrounding the announcement of the transaction. The Company recorded a purchase price adjustment of approximately $291,000 which reflects the net revenues after operating costs and acquisition related costs from the effective date of June 1, 2003 through the closing date of June 20, 2003. The total acquisition cost of $9.6 million was allocated between proved developed producing of $7.6 million and proved undeveloped of $2 million.
F-16
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties, Continued
Fiscal 2002 - Acquisitions
On February 19, 2002, Delta completed the acquisition of Piper Petroleum Company (“Piper”), a privately owned oil and gas company headquartered in Fort Worth, Texas. Delta issued 1,377,240 shares of restricted common stock for 100% of the shares of Piper. The 1,377,240 shares of restricted common stock were valued at approximately $5.2 million based on the five-day average closing price surrounding the announcement of the merger. In addition, Delta issued 51,000 shares for the cancellation of certain debt of Piper. As a result of the acquisition, the Company acquired Piper’s working and royalty interests in over 700 gross (4.6 net) wells which are primarily located in Texas, Oklahoma and Louisiana along with a 5% working interest in the Comet Ridge coal bed methane gas project in Queensland, Australia. On May 24, 2002 the Company completed the sale of our undivided interests in Australia, to Tipperary Corporation, in exchange for Tipperary’s producing properties in the West Buna Field (Hardin and Jasper counties, Texas) which had a fair market value of approximately $4.1 million, $700,000 in cash, and 250,000 unregistered shares of Tipperary common stock. No gain or loss was recorded on this transaction. In addition, on May 28, 2002, the Company sold a commercial office building obtained in the merger with Piper located in Fort Worth, Texas to a non-affiliate for its fair value of $417,000. No gain or loss was recorded on this transaction. The total acquisition cost, net of purchase price adjustments, of approximately $4.8 million was allocated between proved developed producing of $3.9 million, proved developed non-producing of $336,000, and proved undeveloped of $585,000. Net daily production from the West Buna Field approximates 900,000 cubic feet equivalent.
On May 31, 2002, the Company acquired all of the domestic oil and gas properties of Castle Energy Corporation. The properties acquired from Castle consist of interests in approximately 525 producing wells located in fourteen (14) states, plus associated undeveloped acreage. The Company issued 9,566,000 shares of Common Stock to Castle Energy Corporation as part of the purchase price. The shares issued were recorded at a stock price of $3.97, the closing stock price at May 31, 2002, discounted by 30% according to a fair market appraisal of Delta’s stock obtained from Snyder & Company, an independent valuation expert.
The Company was entitled to repurchase up to 3,188,667 of our shares from Castle for $4.50 per share for a period of one year after closing (May 31, 2003). The Company did not repurchase its shares on May 31, 2003. This right is reflected in stockholders’ equity at its fair value as a put option on Delta stock until expiration. The Company’s agreement with Castle was effective as of October 1, 2001 and the net operating revenues from the properties between the effective date and the May 31, 2002 closing date were recorded as an adjustment to the purchase price. As a part of the acquisition, upon closing, Delta granted an option to acquire a 4% working interest in the properties acquired for a cost of $878,000 to BWAB Limited Liability Company (“BWAB”), a less than 10% shareholder of Delta. The difference between the $878,000 paid by BWAB which was less than fair value, and 4% of the cost of the Castle properties was treated as an additional acquisition cost by Delta for its consultation and assistance related to the transaction.
The Company recorded a purchase price adjustment of approximately $5.8 million which reflects the net revenues after operating costs and acquisition related costs from the effective date of October 1, 2001 through the closing date of May 31, 2002. The total acquisition cost of approximately $40.8 million 767,000 was allocated between proved developed producing of $32.6 million and proved undeveloped of $8.2 million. The Company recorded oil and gas revenues of $1.1 million and operating expenses of $485,000 for the month of June 2002 relating to these properties.
F-17
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(3) Oil and Gas Properties, Continued
In addition to the acquisitions described above, the Company acquired additional oil and gas properties in Colorado, Oklahoma and Texas during fiscal 2002. The consideration for these acquisitions was $667,000 and 137,476 shares of the Company’s restricted common stock with a fair value of $375,000 based on the market price on the date of closing.
Discontinued Operations
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the results of operations and gain (loss) relating to the sale of the following property interests have been reflected as discontinued operations.
On March 31, 2004, the Company completed the sale of all of our Pennsylvania properties to Castle Energy Corporation, a 25% shareholder of Delta at March 31, 2004, for cash consideration of $8 million, which the Company believes is fair value, with an effective date of January 1, 2004 and resulted in a gain on sale of oil and gas properties of $1.9 million. Revenues from the sale of these oil and properties were approximately $1.2 million for the nine months ended March 31, 2004 and $1.8 million for the year ended June 30, 2003.
On December 5, 2003, the Company completed the sale of certain properties located in Texas to Sovereign for cash consideration of $2.6 million. The effective date of the transaction is January 1, 2004 and it resulted in a loss on the sale of oil and gas properties of $28,000. Revenues attributed to the sale of these oil and gas properties were approximately $537,000 for the nine months ended March 31, 2004 and $1.2 million for the year ended June 30, 2003.
On March 1, 2002, Delta completed the sale of 21 producing wells and acreage located primarily in the Eland and Stadium fields of Stark County, North Dakota, to Sovereign Holdings, LLC, a privately-held Colorado limited liability company, for cash consideration of $2.8 million pursuant to a purchase and sale agreement dated February 1, 2002 and effective January 1, 2002. The Company recorded an impairment on these properties of $102,000 prior to the sale. As a result of the sale, the Company recorded a loss on the sale of these oil and gas properties of $1,000. Approximately $1.3 million of the proceeds from the sale were used to pay existing debt.
During the years ended June 30, 2003 and 2002, the Company disposed of additional non-strategic oil and gas properties and related equipment to unaffiliated entities in addition to the dispositions described above. The Company has received proceeds from these sales of $850,000 and $1.5 million and such sales resulted in a net gain (loss) on sale of oil and gas properties of $277,000 and $(87,000) for the years ended June 30, 2003 and 2002, respectively.
F-18
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(4) Long Term Debt
Bank Debt
On June 29, 2004, the Company amended and restated its credit facility. The new $100 million facility with Bank of Oklahoma, U.S. Bank National Association and Hibernia National Bank (the “Banks”). At June 30, 2004, the Company had an available borrowing base of $70 million and was fully funded. The facility has a variable interest rate of LIBOR +1.75% to 2.85% and/or prime +.5% / - -.5% based on the total debt outstanding and no current monthly commitment reduction. The loan matures on June 30, 2007 and is collateralized by substantially all of Delta’s oil and gas properties. The Company’s borrowing base and monthly commitment amount will be redetermined at least semi-annually. See Subsequent event footnote for activity after year end.
If as a result of any such monthly commitment reduction or reduction in the amount of the borrowing base, the total amount of our outstanding debt ever exceeds the amount of the revolving commitment then in effect, then within 30 days after the Company is notified by the Bank of Oklahoma, the Company must make a mandatory prepayment of principal that is sufficient to cause the Company’s total outstanding indebtedness to not exceed the borrowing base. The Company is required to meet quarterly debt covenants and restrictions, which includes a current ratio to be not less than 1.0 to 1.0 and a funded debt ratio to not be greater than 3.0 to 1.0 after adjustments. At June 30, 2004, the Company was in compliance with its quarterly debt covenants and restrictions.
Kaiser Francis Oil Company - Debt
On December 1, 1999, the Company borrowed $8 million at prime plus 1 1/2% from Kaiser Francis Oil Company. The proceeds from this loan were used to pay off existing debt and the balance of the Point Arguello Unit and New Mexico acquisitions. During the third quarter of fiscal 2004, the loan was paid in full.
Maturities of long-term debt, in thousands of dollars based on contractual terms are as follows:
YEAR ENDING June 30, | |||
2005 | $ | 109 | |
2006 | 112 | ||
2007 | 69,486 | ||
2008 | 24 | ||
2009 | 8 | ||
$ | 69,739 | ||
(5) Stockholders’ Equity
Preferred Stock
The Company has 3,000,000 shares of preferred stock authorized, par value $.10 per share, issuable from time to time in one or more series. As of June 30, 2004, 2003 and 2002, no preferred stock was issued.
F-19
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2003, 2004 and 2002
(5) Stockholders’ Equity, Continued
Common Stock
In addition to the common stock transactions described earlier in Note (2), the Company raised additional capital through the sale of shares of its common stock, net of commissions, of $97.9 million and $225,000 during the years ended June 30, 2004 and 2002, respectively. The Company did not raise capital through the issuance of shares of its common stock during the year-ended June 30, 2003. Offering costs of $6.1 million and $25,000 respectively consisted of cash commission and legal service relating to the transactions and were accounted for as an adjustment to stockholders’ equity.
Non-Qualified Stock Options-Directors and Employees
On May 31, 2002 at the annual meeting of the shareholders, the shareholders ratified the Company’s 2002 Incentive Plan (the “Incentive Plan”) under which it reserved up to an additional 2,000,000 shares of common stock. This plan supercedes the Company’s 1993 and 2001 Incentive Plans.
Incentive awards under the Incentive Plan may include non-qualified or incentive stock options, limited appreciation rights, tandem stock appreciation rights, phantom stock, stock bonuses or cash bonuses. Options issued to date under our various incentive plans have been non-qualified stock options as defined in such plans. Options are generally issued at market price at the date of grant with various vesting and expiration terms based on the discretion of the Incentive Plan Committee.
A summary of the stock option activity under the Company’s various plans and related information for the years ended June 30, 2004, 2003 and 2002 follows:
2004 | 2003 | 2002 | |||||||||||||||||||
Weighted-Average Exercise | Weighted-Average Exercise | Weighted-Average Exercise | |||||||||||||||||||
Options | Price | Options | Price | Options | Price | ||||||||||||||||
Outstanding-beginning of year | 3,410,987 | $ | 3.15 | 3,378,487 | $ | 3.07 | 2,956,215 | $ | 3.14 | ||||||||||||
Granted | 1,736,000 | $ | 5.63 | 255,000 | $ | 2.79 | 547,500 | $ | 2.32 | ||||||||||||
Exercised | (435,215 | ) | $ | 2.51 | (217,500 | ) | $ | (1.59 | ) | (95,228 | ) | $ | (0.62 | ) | |||||||
Expired / Returned | (11,000 | ) | $ | (6.39 | ) | (5,000 | ) | $ | 3.20 | (30,000 | ) | $ | (4.56 | ) | |||||||
Outstanding-end of year | 4,700,772 | $ | 4.10 | 3,410,987 | $ | 3.15 | 3,378,487 | $ | 3.07 | ||||||||||||
Exercisable at end of year | 4,300,772 | $ | 4.11 | 3,240,987 | $ | 3.15 | 3,358,487 | $ | 3.06 | ||||||||||||
The Company issued options to its Non-employee Directors. Accordingly, the Company recorded stock option expense in the amount of $329,000, $114,000 and $113,000 for options issued to its Directors for the years ended June 30, 2004, 2003 and 2002, respectively, for options issued below market.
F-20
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(5) Stockholders’ Equity, Continued
Exercise prices for options outstanding under our various plans as of June 30, 2004 ranged from $.05 to $9.75 per share. The weighted-average remaining contractual life of those unvested options is 6.5 years. All but 400,000 options are fully vested at June 30, 2004. A summary of the outstanding and exercisable options at June 30, 2004, segregated by exercise price ranges, is as follows:
Exercise Price Range | Options Outstanding | Weighted Average Exercise Price | Weighted (in years) | Exercisable Options | Weighted Average Exercise Price | |||||||
$0.05 - $1.12 | 180,000 | $ | 0.05 | 4.25 | 180,000 | $ | 0.05 | |||||
$1.13 - $3.25 | 1,119,272 | 2.05 | 5.95 | 1,119,272 | 2.05 | |||||||
$3.26 - $9.75 | 3,401,500 | 4.99 | 7.43 | 3,001,500 | 5.12 | |||||||
4,700,772 | $ | 4.10 | 6.95 | 4,300,772 | $ | 4.11 | ||||||
The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following Weighted-average assumptions for the years ended June 30, 2004, 2003 and 2002, respectively, risk-free interest rate of 4.32%, 2.84% and 4.73%, dividend yields of 0%, 0% and 0%, volatility factors of the expected market price of the Company’s common stock of 50.43%, 65.32% and 65.68% and a weighted-average expected life of the options of 5.56, 4.16 and 6.37 years.
Non-Qualified Stock Options (Non-Employee)
The Company has also issued options to non-employees. Accordingly, the Company recorded stock option expense in the amount of zero, $10,000 and $30,000 to non-employees for the years ended June 30, 2004, 2003 and 2003, respectively.
A summary of the stock option and warrant activity and related information for the years ended June 30, 2004, 2003 and 2002 is as follows:
2004 | 2003 | 2002 | |||||||||||||||||||
Weighted-Average Exercise | Weighted-Average Exercise | Weighted-Average Exercise | |||||||||||||||||||
Options | Price | Options | Price | Options | Price | ||||||||||||||||
Outstanding-beginning of year | 1,255,000 | $ | 3.38 | 1,954,000 | $ | 3.62 | 2,140,000 | $ | 3.56 | ||||||||||||
Granted | — | $ | — | — | $ | — | 35,000 | $ | 3.25 | ||||||||||||
Exercised | (1,197,500 | ) | $ | (2.48 | ) | (250,761 | ) | $ | (2.51 | ) | (171,000 | ) | $ | (2.04 | ) | ||||||
Expired | — | $ | — | (448,239 | ) | $ | 4.76 | (50,000 | ) | $ | (6.00 | ) | |||||||||
Outstanding-end of year | 57,500 | $ | 3.80 | 1,255,000 | $ | 3.38 | 1,954,000 | $ | 3.62 | ||||||||||||
Exercisable at end of year | 57,500 | $ | 3.80 | 1,255,000 | $ | 3.38 | 1,954,000 | $ | 3.62 | ||||||||||||
F-21
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(5) Stockholders’ Equity, Continued
Exercise prices for options outstanding as of June 30, 2004 ranged from $3.25 to $5.00 per share. All options are fully vested at June 30, 2004. The weighted-average remaining contractual life of those options is .25 years. A summary of the outstanding and exercisable options at June 30, 2004, segregated by exercise price ranges, is as follows:
Exercise Price Range | Options Outstanding | Weighted Average Exercise Price | Weighted (in years) | Exercisable Options | Weighted Average Exercise Price | |||||||
$3.25 - $5.00 | 57,500 | $ | 3.80 | 0.25 | 57,500 | $ | 3.80 | |||||
(6) Employee Benefits
The Company adopted a profit sharing plan on January 1, 2002. All employees are eligible to participate in and contributions to the profit sharing plan are voluntary and must be approved by the Board of Directors. Amounts contributed to the Plan will vest over a six year service period.
Prior to the adoption of a profit sharing plan, the Company sponsored a qualified tax deferred savings plan in the form of a Savings Incentive Match Plan for Employees (“SIMPLE”) IRA plan available to companies with fewer than 100 employees. Under the SIMPLE plan, the Company’s employees made annual salary reduction contributions of up to 3% of an employee’s base salary up to a maximum of $6,000 (adjusted for inflation) on a pre-tax basis. The Company matched contributions on behalf of employees who met certain eligibility requirements.
For the years ended June 30, 2004, 2003 and 2002 the Company contributed $262,000, $147,000 and $68,000, respectively under the plans.
(7) Commodity Derivative Instruments and Hedging Activities
The Company periodically enters into commodity price risk transactions to manage its exposure to oil and gas price volatility. These transactions may take the form of futures contracts, swaps or options. All transactions are accounted for in accordance with requirements of SFAS No. 133 which the Company adopted on January 1, 2001. Accordingly, unrealized gains and losses related to the change in fair market value of derivative contracts which qualify and are designated as cash flow hedges are recorded as other comprehensive income or loss and such amounts are reclassified to realized gain (loss) on derivative instruments as the associated production occurs.
Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at market value in the consolidated balance sheet, and the associated unrealized gains and losses are recorded as current income or expense in the consolidated statement of operations. While such derivative contracts do not qualify for hedge accounting, management believes these contracts can be utilized as an effective component of commodity price risk activities.
As of June 30, 2004, the Company had no derivative instruments in place. The realized net losses from hedging activities were $859,000 and $1.9 million for the years ended June 30, 2004 and 2003.
F-22
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(8) Income Taxes
At June 30, 2004, 2003 and 2002, the Company’s significant deferred tax assets and liabilities are summarized as follows:
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Deferred tax assets: | ||||||||||||
Net operating loss/depletion carryforwards (1) | $ | 13,278 | $ | 13,927 | $ | 11,534 | ||||||
Other | 19 | 255 | 87 | |||||||||
Gross deferred tax assets | 13,297 | 14,182 | 11,621 | |||||||||
Less valuation allowance | (8,990 | ) | (10,279 | ) | (10,549 | ) | ||||||
Deferred tax liability: | ||||||||||||
Oil and gas properties principally due to differences in basis resulting from depreciation and depletion | (4,307 | ) | (3,903 | ) | (1,072 | ) | ||||||
Net deferred tax asset: | $ | — | $ | — | $ | — | ||||||
(1) | Included in net operating loss carryforwards is $1.1 million, $618,000 and $379,000, which relate to the tax effect of stock options exercised for which the benefit will be recognized in stockholders’ equity rather than in operations in accordance with FAS 123. |
No income tax benefit has been recorded for the years ended June 30, 2004, 2003 or 2002 since the benefit of the net operating loss carryforward and other net deferred tax assets arising in those periods has been offset by the valuation allowance for such net deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is not more likely than not that the Company will realize the benefits of these deductible differences at June 30, 2004. The amount of the deferred tax asset considered realizable to offset deferred tax liabilities, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
At June 30, 2004, the Company had net operating loss carryforwards for regular and alternative minimum tax purposes of approximately $35 million and $33.1 million, respectively. If not utilized, the tax net operating loss carryforwards will expire during the period from 2005 through 2024. If not utilized, approximately $2.8 million of net operating losses will expire over the next five years. Net operating loss carryforwards attributable to Amber prior to 1993 of approximately $362,000, included in the above amounts, are available only to offset future taxable income of Amber.
In addition, Delta Petroleum and its subsidiaries experienced a change in ownership in May 2002 with the acquisition of Castle’s oil and gas properties and as a result, its annual net operating loss carry-forward usage is limited. The annual limitation due to the ownership change is estimated to be approximately $3 million.
F-23
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(9) Related Party Transactions
Transactions with Officers
Until March 12, 2003, the Company’s Board of Directors had granted each of our officers the right to participate in the drilling on the same terms as the Company in up to a five percent (5%) working interest in any well drilled, re-entered, completed or recompleted by us on our acreage (provided that any well to be re-entered or recompleted was then producing economic quantities of hydrocarbons). On March 12, 2003, the Board of Directors rescinded this right. The officers did not participate in any Company wells during fiscal 2003.
Effective June 1, 2002, Mr. Parker exchanged properties with a fair market value of approximately $150,000 in exchange for a reduction in joint interest billing owed to the Company. The fair market value was initially determined by the Company’s engineer and verified by an independent engineer.
During fiscal 2001 and 2000, Mr. Larson and Mr. Parker guaranteed certain borrowings which have subsequently been paid in full. As consideration for the guarantee of the Company’s indebtedness, each officer was assigned a 1% overriding royalty interest (“ORRI”) in the properties acquired with the proceeds of the borrowings. Each officer earned approximately $66,000, $108,000 and $71,000 for their respective 1% ORRI during fiscal 2004, 2003 and 2002, respectively.
The Company’s officers have employment agreements, which among other things include termination and change of control clauses. These employment agreements terminate in November 2004.
Accounts Receivable Related Parties
At June 30, 2004, the Company had $18,000 of receivables from related parties. These amounts include drilling costs, and lease operating expense on wells owned by the related parties and operated by the Company. The amounts were paid in full subsequent to year end.
(10) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Years Ended June 30, | ||||||||||
2004 | 2003 | 2002 | ||||||||
(In thousands, except per share amounts) | ||||||||||
Numerator: | ||||||||||
Numerator for basic and diluted earnings per share – income available to common stockholders | $ | 5,056 | $ | 1,257 | $ | (6,253 | ) | |||
Denominator: | ||||||||||
Denominator for basic earnings per share-weighted average shares outstanding | 27,041 | 22,865 | 12,682 | |||||||
Effect of dilutive securities, stock options and warrants | 2,591 | 954 | * | |||||||
Denominator for diluted earnings per common share | 29,632 | $ | 23,819 | 12,682 | ||||||
Basic earnings per common share | $ | .19 | $ | .05 | $ | (.49 | ) | |||
Diluted earnings per common share | $ | .17 | $ | .05 | $ | (.49 | ) | |||
* | Potentially dilutive securities outstanding of 5,332 in 2002 were anti-dilutive. |
F-24
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(11) Commitments
The Company rents an office in Denver under an operating lease which expires in fiscal 2009. Rent expense, for the years ended June 30, 2004, 2003 and 2002 was approximately $272,000, $210,000 and $109,000, respectively. Future minimum payments under non-cancelable operating leases are as follows:
(In thousands) | |||
2005 | $ | 354 | |
2006 | 357 | ||
2007 | 360 | ||
2008 | 345 | ||
2009 | 87 | ||
$ | 1,503 | ||
(12) Selected Quarterly Financial Data (Unaudited)
Fiscal 2004 | 1st Quarter(1) | 2nd Quarter(1) | 3rd Quarter(1) | 4th Quarter | |||||||||
(In thousands, except per share amounts) | |||||||||||||
Total revenue | $ | 7,444 | $ | 8,006 | $ | 10,342 | $ | 11,641 | |||||
Income from continuing operations | 1,853 | 1,208 | 813 | 621 | |||||||||
Net income | 1,364 | 652 | 2,454 | 586 | |||||||||
Net income per common share: (2) | |||||||||||||
Basic | $ | .06 | $ | .03 | $ | .09 | $ | .02 | |||||
Diluted | $ | .05 | $ | .03 | $ | .08 | $ | .02 | |||||
Fiscal 2003 | 1st Quarter(1) | 2nd Quarter(1) | 3rd Quarter(1) | 4th Quarter(1) | |||||||||
(In thousands, except per share amounts) | |||||||||||||
Total revenue | $ | 5,648 | $ | 5,704 | $ | 6,975 | $ | 5,653 | |||||
Income (loss) from continuing operations | 634 | 850 | 1,715 | (186 | ) | ||||||||
Net income (loss) | 117 | 428 | 1,307 | (595 | ) | ||||||||
Net income (loss) per common share: (2) | |||||||||||||
Basic | $ | .01 | $ | .02 | $ | .06 | $ | (.03 | ) | ||||
Diluted | $ | ** | $ | .02 | $ | .05 | $ | * |
Fiscal 2003 4th Quarter includes bonuses of $676,000 and dry hole costs of $405,000.
* | Potentially dilutive securities outstanding were anti-dilutive |
** | less than $.01 per share |
(1) | Selected quarterly financial data represents information previously reported and not restated for the reclass adjustments relating to FAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. |
(2) | The sum of individual quarterly net income per share may not agree with year-to-date net income per share as each period’s computation is based on the weighted average number of common shares outstanding during the period. |
F-25
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(13) Disclosures About Capitalized Costs, Cost Incurred and Major Customers
Capitalized costs related to oil and gas activities are as follows:
June 30, | ||||||||
2004 | 2003 | |||||||
(In thousands) | ||||||||
Unproved undeveloped offshore California properties | $ | 10,844 | $ | 10,164 | ||||
Unproved undeveloped onshore domestic properties | 38,903 | 1,680 | ||||||
Proved undeveloped offshore California properties | — | 843 | ||||||
Proved undeveloped onshore domestic properties | 86,720 | 9,995 | ||||||
Proved developed offshore California properties | 9,103 | 7,190 | ||||||
Proved developed onshore domestic properties | 127,322 | 60,279 | ||||||
272,892 | 90,151 | |||||||
Accumulated depreciation and depletion | (21,317 | ) | (12,509 | ) | ||||
$ | 251,575 | $ | 77,642 | |||||
Costs incurred in oil and gas activities are as follows:
Years Ended June 30, | ||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||
(In thousands) | ||||||||||||||||||
Onshore | Offshore | Onshore | Offshore | Onshore | Offshore | |||||||||||||
Unproved property acquisition costs | $ | 37,223 | $ | 680 | $ | 694 | $ | 442 | $ | 9,115 | $ | 363 | ||||||
Proved property acquisition costs | 128,587 | — | 10,784 | — | 38,290 | — | ||||||||||||
Developed cost incurred on undeveloped reserves | 3,789 | 1,070 | 815 | 986 | 418 | 678 | ||||||||||||
Development costs – other | 20,986 | — | 4,335 | — | 569 | 521 | ||||||||||||
Exploration costs | 2,406 | — | 140 | — | 108 | 47 | ||||||||||||
$ | 192,991 | $ | 1,750 | $ | 16,768 | $ | 1,428 | $ | 48,500 | $ | 1,609 | |||||||
Transferred amounts from undeveloped to developed properties | $ | 3,795 | $ | 843 | $ | 168 | $ | — | $ | — | $ | 306 |
F-26
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(13) Disclosures About Capitalized Costs, Cost Incurred and Major Customers, Continued
A summary of the results of operations for oil and gas producing activities, excluding general and administrative cost, is as follows:
June 30, | ||||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Onshore | Offshore | Onshore | Offshore | Onshore | Offshore | |||||||||||||||
Revenue | ||||||||||||||||||||
Oil and gas revenues | $ | 33,260 | $ | 3,975 | $ | 17,987 | $ | 4,589 | $ | 4,257 | $ | 3,756 | ||||||||
Expenses: | ||||||||||||||||||||
Production costs | 6,519 | 3,257 | 5,140 | 3,270 | 1,213 | 3,044 | ||||||||||||||
Depletion | 8,978 | 705 | 3,860 | 1,075 | 2,216 | 1,099 | ||||||||||||||
Exploration | 2,406 | — | 140 | 108 | 47 | |||||||||||||||
Abandonment and impaired properties | — | — | — | — | 1,480 | — | ||||||||||||||
Dry hole costs | 2,132 | — | 537 | — | 396 | — | ||||||||||||||
Results of operations of oil and gas producing activities | $ | 13,225 | $ | 13 | $ | 8,310 | $ | 244 | $ | (1,156 | ) | $ | (434 | ) | ||||||
Income (loss) from operations of properties sold, net | 872 | — | 1,241 | — | (9 | ) | — | |||||||||||||
Gain (loss) on sale of properties | 1,887 | — | 277 | — | (88 | ) | — | |||||||||||||
Results of discontinued operations of oil and gas producing activities | $ | 2,759 | $ | — | $ | 1,518 | $ | — | $ | (97 | ) | $ | — | |||||||
Statement of Financial Accounting Standards 131 “Disclosures about segments of an enterprises and Related Information” (SFAS 131) establishes standards for reporting information about operating segments in annual and interim financial statements. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company’s business segment includes its onshore and offshore properties described above and its drilling and trucking companies. The drilling and trucking companies had minimal activity. As such, segment information relating to the drilling and trucking companies have not been presented.
The Company’s sales of oil and gas to individual customers which exceeded 10% of the Company’s total oil and gas sales for the years ended June 30, 2004, 2003 and 2002 were:
2004 | 2003 | 2002 | |||||||
A | 17 | % | 13 | % | 3 | % | |||
B | 17 | % | — | % | — | % | |||
C | 14 | % | 17 | % | 2 | % | |||
D | 10 | % | 18 | % | 73 | % | |||
E | — | % | — | % | 10 | % |
F-27
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(14) Information Regarding Proved Oil and Gas Reserves (Unaudited)
Proved Oil and Gas Reserves. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. For the purposes of this disclosure, the Company has included reserves it is committed to and anticipates drilling.
(i) Reservoirs are considered proved if economic producability is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the “proved” classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as “indicated additional reserves”; (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (C) crude oil, natural gas, and natural gas liquids, that may occur in underlaid prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources.
Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.
Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.
F-28
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(14) Information Regarding Proved Oil and Gas Reserves (Unaudited), Continued
A summary of changes in estimated quantities of proved reserves for the years ended June 30, 2004, 2003 and 2002 are as follows:
Onshore | Offshore | ||||||||||||||
GAS (Mmcf) | OIL (MBbl) | GAS (Mmcf) | OIL (MBbl) | ||||||||||||
(In thousands) | |||||||||||||||
Balance at July 1, 2001 | $ | 4,682 | $ | 344 | $ | — | $ | 1,213 | |||||||
Revisions of quantity estimate | (269 | ) | 71 | — | (49 | ) | |||||||||
Extensions and discoveries | 42 | 2 | — | — | |||||||||||
Purchase of properties | 43,680 | 3,845 | — | — | |||||||||||
Sales of properties | (3,311 | ) | (256 | ) | — | — | |||||||||
Production | (871 | ) | (87 | ) | — | (262 | ) | ||||||||
Balance at June 30, 2002 | 43,953 | 3,919 | — | 902 | |||||||||||
Revisions of quantity estimate | 13,719 | (927 | ) | — | 244 | ||||||||||
Extensions and discoveries | 687 | — | — | 1,132 | |||||||||||
Purchase of properties | 236 | 1,024 | — | — | |||||||||||
Sale of properties | (457 | ) | (66 | ) | — | — | |||||||||
Production | (2,938 | ) | (252 | ) | — | (227 | ) | ||||||||
Balance at June 30, 2003 | 55,200 | 3,698 | — | 2,051 | |||||||||||
Revisions of quantity estimate | (3,136 | ) | 469 | — | (44 | ) | |||||||||
Extensions and discoveries | 6,560 | 69 | — | — | |||||||||||
Purchase of properties | 39,782 | 8,306 | — | — | |||||||||||
Sale of properties | (6,817 | ) | (596 | ) | — | — | |||||||||
Production | (3,110 | ) | (568 | ) | — | (180 | ) | ||||||||
Balance at June 30, 2004 | 88,479 | 11,378 | — | 1,827 | |||||||||||
Proved developed reserves: | |||||||||||||||
June 30, 2001 | 4,474 | 342 | — | 906 | |||||||||||
June 30, 2002 | 34,063 | 2,818 | — | 849 | |||||||||||
June 30, 2003 | 35,314 | 2,951 | — | 919 | |||||||||||
June 30, 2004 | 55,786 | 6,240 | — | 695 |
F-29
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(14) Information Regarding Proved Oil and Gas Reserves (Unaudited), Continued
Future net cash flows presented below are computed using year-end prices and costs and are net of all overriding royalty revenue interests.
Future corporate overhead expenses and interest expense have not been included.
Onshore | Offshore | Combined | |||||||
(In thousands) | |||||||||
June 30, 2004 | |||||||||
Future net cash flows | $ | 953,532 | $ | 51,625 | $ | 1,005,157 | |||
Future costs: | |||||||||
Production | 225,046 | 23,558 | 248,604 | ||||||
Development | 55,845 | 11,054 | 66,899 | ||||||
Income taxes | 165,492 | — | 165,492 | ||||||
Future net cash flows | 507,149 | 17,013 | 524,162 | ||||||
10% discount factor | 230,540 | 5,585 | 236,125 | ||||||
Standardized measure of discounted future net cash flows | $ | 276,609 | $ | 11,428 | $ | 288,037 | |||
Standardized measure of discounted future net cash flows before tax | $ | 367,679 | $ | 11,428 | $ | 379,107 | |||
Estimated future development cost anticipated for fiscal 2005 and 2006 on existing properties | $ | 53,129 | $ | 4,378 | $ | 57,507 | |||
June 30, 2003 | |||||||||
Future cash flows | $ | 377,458 | $ | 46,898 | $ | 424,356 | |||
Future costs: | |||||||||
Production | 99,243 | 24,787 | 124,030 | ||||||
Development | 20,104 | 13,137 | 33,241 | ||||||
Income taxes | 62,390 | — | 62,390 | ||||||
Future net cash flows | 195,721 | 8,974 | 204,695 | ||||||
10% discount factor | 93,734 | 3,750 | 97,484 | ||||||
Standardized measure of discounted future net cash flows | $ | 101,987 | $ | 5,224 | $ | 107,211 | |||
Standardized measure of discounted future net cash flows before tax | $ | 134,667 | $ | 5,224 | $ | 139,891 | |||
June 30, 2002 | |||||||||
Future cash flows | $ | 247,611 | $ | 16,600 | $ | 264,211 | |||
Future costs: | |||||||||
Production | 84,109 | 10,067 | 94,176 | ||||||
Development | 15,056 | 1,089 | 16,145 | ||||||
Income taxes | 28,078 | — | 28,078 | ||||||
Future net cash flows | 120,368 | 5,444 | 125,812 | ||||||
10% discount factor | 62,217 | 1,211 | 63,428 | ||||||
Standardized measure of discounted future net cash flows | $ | 58,151 | $ | 4,233 | $ | 62,384 | |||
Standardized measure of discounted future net cash flows before tax | $ | 72,073 | $ | 4,233 | $ | 76,306 | |||
F-30
DELTA PETROLEUM CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004, 2003 and 2002
(14) Information Regarding Proved Oil and Gas Reserves (Unaudited), Continued
The principal sources of changes in the standardized measure of discounted net cash flows during the years ended June 30, 2004, 2003 and 2002 are as follows:
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Beginning of the year | $ | 107,211 | $ | 62,384 | $ | 15,974 | ||||||
Sales of oil and gas production during the period, net of production costs | (27,459 | ) | (16,082 | ) | (3,807 | ) | ||||||
Purchase of reserves in place | 248,478 | 14,335 | 70,097 | |||||||||
Net change in prices and production costs | 26,088 | 37,957 | (1,879 | ) | ||||||||
Changes in estimated future development costs | 8,592 | (8,251 | ) | (233 | ) | |||||||
Extensions, discoveries and improved recovery | 11,599 | 3,032 | 96 | |||||||||
Revisions of previous quantity estimates, estimated timing of development and other | (25,807 | ) | 25,675 | (398 | ) | |||||||
Previously estimated development costs Incurred during the period | 4,859 | 1,801 | 1,869 | |||||||||
Sales of reserves in place | (17,934 | ) | (1,122 | ) | (7,011 | ) | ||||||
Change in future income tax | (58,311 | ) | (18,756 | ) | (13,921 | ) | ||||||
Accretion of discount | 10,721 | 6,238 | 1,597 | |||||||||
End of year | $ | 288,037 | $ | 107,211 | $ | 62,384 | ||||||
(15) Subsequent event
On August 19, 2004, the Company completed the sale of certain interests in five fields in Louisiana and South Texas previously acquired in the Alpine acquisition, which closed on June 29, 2004, to Whiting Petroleum Corporation for $19.3 million. The Company paid $8.8 million toward its credit facility relating to the sale of these properties. There was no gain or loss on this transaction.
F-31
SIGNATURES
Pursuant to the requirements of the Section 13 or 15 (d) or the Securities Exchange of Act of 1934, we have caused this Form 10-K/A Amendment No. 2 to be signed on our behalf by the undersigned, thereunto duly authorized, in the City of Denver and State of Colorado on the 8th day of March 2005.
DELTA PETROLEUM CORPORATION | ||
By: | /s/ Roger A. Parker | |
Roger A. Parker, President and | ||
Chief Executive Officer | ||
By: | /s/ Kevin K. Nanke | |
Kevin K. Nanke, Treasurer and Chief Financial Officer |
F-32