March 7, 2005
via facsimile and U.S. mail
Mr. David W. Vreeman
Chief Financial Officer
Credo Petroleum Corporation
1801 Broadway, Suite 900
Denver, Colorado 80202
Re: Credo Petroleum Corporation
Form 10-KSB, Filed January 27, 2005
File No. 000-08877
Dear Mr. Vreeman:
We have reviewed the above filing and have the following
comments. Our review has been limited to the areas commented on
below. Where indicated, we think you should revise your document
in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
10-KSB for the year ended October 31, 2004
Management`s Discussion and Analysis, page 7
Drilling Activities, page 9
1. We note your statement that you "replaced 183% of the reserves
produced in 2004" and that your "reserve replacement cost was
$1.98
per Mcf of gas-equivalent." Due to the variable components of
this
measure, please revise your discussion to address each of the
following, without limitation.
* Describe how the ratio is calculated. We would expect the
information used to calculate this ratio to be derived directly
from
the line items disclosed in the reconciliation of beginning and
ending proved reserve quantities, which is required to be
disclosed
by paragraph 11 of SFAS 69.
* Identify the status of the proved reserves that have been added
(e.g., proved developed vs. proved undeveloped). It is not
appropriate to calculate this ratio using:
o non-proved reserve quantities, or,
o proved reserve additions that include both proved reserve
additions
attributable to consolidated entities and investments accounted
for
using the equity method.
* Identify the reasons why proved reserves were added.
o The reconciliation of beginning and ending proved reserves,
referred to above, includes several line items that could be
identified as potential sources of proved reserve additions.
Explain
to investors the nature of the reserve additions, and whether or
not
the historical sources of reserve additions are expected to
continue,
and the extent to which external factors outside of managements`
control impact the amount of reserve additions from that source
from
period to period.
* Explain the nature of and the extent to which uncertainties
still
exist with respect to newly discovered reserves, including, but
not
limited to regulatory approval, changes in oil and gas prices, the
availability of additional development capital and the
installation
of additional infrastructure.
* Indicate the time horizon of when the reserve additions are
expected to be produced to provide investors a better
understanding
of when these reserve additions could ultimately be converted to
cash
inflows.
* Disclose how management uses this measure.
* Disclose the limitations of this measure.
Critical Accounting Policies and Estimates, page 11
2. We note that you identify three areas of accounting where
critical
accounting policies are used to record activity. However, your
disclosures appear to lack association with specific accounting
estimates that may be necessary to an understanding of your
liquidity, capital resources, and results of operations. Please
expand your disclosures to address the specific instances where
uncertainties exist in your estimates. Your disclosures should
provide information about the quality and variability of your
earnings and cash flow so that investors may ascertain the
indicative
value of your reported financial information. We generally find
that
disclosures including both a sensitivity analysis and discussion
of
historical experience making the critical estimate are effective
in
conveying this information. Please refer to FRC Section 501.14
for
further guidance on this subject.
Financial Statements
Consolidated Balance Sheets
3. We note that you have not provided footnote disclosure, as
required by paragraphs 44 - 46 of SFAS 142 for your exclusive
license
agreement intangible asset. Please revise your financial
statements
to include such disclosure and ensure to include a description of
the
nature of the amount capitalized and the manner by which you have
tested the asset for impairment under paragraphs 14 and 15 of SFAS
142.
Consolidated Statements of Stockholders` Equity
4. Please revise your presentation of the components of other
comprehensive income to comply with paragraph 25 of SFAS 130,
which
requires disclosure of the amount of income tax expense or benefit
allocated to each component either on the face of the statement in
which those components are displayed or in the notes to the
financial
statements. Refer to paragraphs 24 and 25 of SFAS 130.
5. Please revise your presentation of the Change in fair value of
derivatives to comply with paragraph 47 of SFAS 133, which
requires
you to separately disclose the beginning and ending accumulated
derivative gain or loss, the related net change associated with
current period hedging transactions, and the net amount of any
reclassification into earnings.
Note 1. Summary of Significant Accounting Policies, page 17
General
6. Please expand your policy footnote to include a discussion of
your
revenue recognition policies for both your oil and gas sales and
your
operating income line items. We note your disclosure on page 2,
stating a majority of gas sales are made under contractual
agreements. Your revised disclosure should describe the
significant
terms of such contractual arrangements and how these terms affect
the
recognition of revenue, if applicable. In this regard, ensure
that
your policies meet the criteria outlined in SAB Topic 13.1. Also,
please include a discussion on (i) the nature of your operating
income and (ii) whether you use the entitlements or sales method
to
account for your gas sales and gas imbalances, if applicable. We
believe these disclosures are required by paragraph 12(b) of APB
22.
Oil and Gas Properties, page 17
7. Please expand your policy footnote to address the following
items
identified in Article 4-10(c) of Regulation S-X, which we believe
are
required by paragraph 12(b) of APB 22:
* Disclose how you account for the costs relating to production
activities. Refer to Article 4-10(c) (5) of Regulation S-X.
* Disclose how the transactions described in Article 4-
10(c)(6)(i)-
(iv) of Regulation S-X affect your accounting, if applicable.
* Provide a description of the current status of the significant
properties or projects included in your unevaluated properties
line
item on your consolidated balance sheets, including the
anticipated
timing of the inclusion of the costs in the amortization
computation,
if applicable. We note your statement that "Unevaluated
properties
consist primarily of lease acquisition and maintenance costs."
Present the table required by Article 4-10(c)(7)(ii) of Regulation
S-
X.
Asset Retirement Obligations, page 19
8. Please tell us and clarify within your disclosure the facts and
circumstances surrounding the $503,000 change in estimate to your
asset retirement obligation during 2004.
Note 5. Exclusive License Agreement Obligation, page 22
9. Please tell us and clarify within your disclosure the meaning
of
"carried interest" as it pertains to the amount the licensor will
receive for any installation of the Calliope technology. In
addition, explain your use of the 10% discount factor used to
determine the present value of the balance of the license purchase
price.
Item 8A. Controls and Procedures, page 26
10. We note that your certifying officers disclose their
conclusions
as to the effectiveness of your disclosure controls and procedures
"Within 90 days prior to the filing date of this report."
However,
Item 307 of Regulation S-B requires that your certifying officers
disclose their conclusions regarding the effectiveness of your
disclosure controls and procedures "as of the end of the period
covered by the report." See also Regulation S-B, paragraph 4(c)
of
Exhibit 31. Please revise accordingly.
11. Under Rules 13a-15(e) and 15d-15(e), the definition of
disclosure
controls and procedures also includes controls and procedures to
ensure that information required to be disclosed by an issuer in
the
reports it submits under the Act are accumulated and communicated
to
the issuer`s management, including its principal executive and
financial officers. Please modify your disclosed definition of
"disclosure controls and procedures" or make reference to the
definition of such controls and procedures in Rules 13a-15(e) and
15d-15(e), if appropriate, to address this requirement.
12. We note your reference to Securities Exchange Act Rule 13a-
14(c).
We believe this reference is no longer current with the amendments
made in conjunction with Release No. 33-8238, effective August 14,
2003. Please revise as appropriate.
13. You also state that there were no "significant changes" in
your
"internal controls" and no factors that could "significantly
affect"
these controls subsequent to the date of their evaluation.
However,
Item 308(c) of Regulation S-B requires that you disclose any
change
in the registrant`s "internal control over financial reporting"
identified in connection with the evaluation required by paragraph
(d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during
the
fourth fiscal quarter that has "materially affected, or is
reasonably
likely to materially affect, the small business issuer`s internal
control over financial reporting." See also Regulation S-B,
paragraph 4(d) of Exhibit 31. Revise your disclosure accordingly.
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
your amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to the company`s disclosure, they
are responsible for the accuracy and adequacy of the disclosures
they
have made. In connection with responding to our comments, please
provide, in writing, a statement from the company acknowledging
that:
the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
staff comments or changes to disclosure in response to staff
comments
do not foreclose the Commission from taking any action with
respect
to the filing; and
the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
You may contact Jennifer Goeken at (202) 824-5287 or Shannon
Buskirk at (202) 942-1826 if you have questions regarding comments
on
the financial statements and related matters. Please contact me
at
(202) 942-1870 with any other questions. Direct all
correspondence
to the following ZIP code: 20549-0405.
Sincerely,
H. Roger Schwall
Assistant Director
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Credo Petroleum Corporation
March 7, 2005
page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0405
DIVISION OF
CORPORATION FINANCE