1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended Commission File No.
June 30, 2001 0-9120
THE EXPLORATION COMPANY OF DELAWARE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 84-0793089
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
500 NORTH LOOP 1604 E., SUITE 250 SAN ANTONIO, TEXAS 78232
(Address of principal executive offices)
Registrant's telephone number, including area code: (210) 496-5300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 2001.
Common Stock $0.01 par value 17,397,049
(Class of Stock) (Number of Shares)
Total number of pages is 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Assets June 30, 2001 December 31, 2000
- ------ ------------- -----------------
Current Assets
Cash $ 6,665,189 $ 5,898,015
Accounts receivable, net 3,022,590 3,404,666
Prepaid expenses 340,292 226,916
Deferred tax asset, current portion 1,700,000 1,489,402
------------ -----------
Total Current Assets 11,728,071 11,018,999
Property and Equipment
Gas and oil properties, net 17,601,884 13,921,843
Other equipment, net 214,347 161,762
----------- -----------
17,816,231 14,083,605
Other Assets
Deferred tax asset, net of current portion 3,362,718 3,743,316
Other assets 358,286 359,721
----------- -----------
3,721,004 4,103,037
----------- -----------
Total Assets $ 33,265,306 $ 29,205,641
=========== ===========
See notes to consolidated financial statements.
3
THE EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Liabilities and Stockholders' Equity June 30, 2001 December 31, 2000
- ------------------------------------ ------------- -----------------
Current Liabilities
Accounts payable and accrued expenses $ 3,746,849 $ 1,632,581
Due to joint interest owners 2,148,586 2,620,644
Current portion of long term debt 261,880 416,149
----------- ----------
Total Current Liabilities 6,157,315 4,669,374
Long-term debt, net of current portion 675,040 779,042
Minority interest in consolidated subsidiaries 413,870 435,489
Stockholders' Equity
Preferred stock, par value $.01 per share,
authorized 10,000,000, none issued - -
Common stock, par value $.01 per share; authorized
50,000,000 shares; issued and outstanding
17,496,849 shares at June 30, 2001 and
17,471,849 shares at December 31, 2000 174,968 174,718
Additional paid-in capital 44,017,983 43,986,983
Accumulated deficit (18,173,870) (20,839,965)
----------- -----------
Total Stockholders' Equity 26,019,081 23,321,736
----------- -----------
Total Liabilities and Stockholder's Equity $ 33,265,306 $ 29,205,641
=========== ===========
See notes to consolidated financial statements.
4
THE EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 2001 June 30, 2000
------------- -------------
Revenues:
Gas and oil sales $ 3,625,011 $ 2,660,600
Other income 306,104 213,073
---------- ----------
3,931,115 2,873,673
Costs and Expenses:
Lease operations 679,792 386,317
Production taxes 257,980 189,317
Exploration expenses 809,306 369,609
Impairment of mineral properties 613,000 390,000
Depreciation, depletion and amortization 639,008 424,375
General and administrative 560,336 428,787
---------- ----------
Total costs and expenses 3,559,422 2,188,405
---------- ----------
Income from Operations 371,693 685,268
Other Income (Expense):
Interest income 69,022 78,634
Interest expense (36,612) (19,217)
Loan fee amortization -0- (9,000)
---------- ----------
32,410 50,417
---------- ----------
Income before income taxes
and minority interest 404,103 735,685
Minority interest in income of subsidiaries (30,401) -0-
---------- ----------
Income before income taxes 373,702 735,685
Income tax expense (17,000) (60,918)
---------- ----------
Net Income $ 356,702 $ 674,767
========== ==========
Earnings Per Share:
Basic $ 0.02 $ 0.04
========== ==========
Diluted $ 0.02 $ 0.04
========== ==========
See notes to consolidated financial statements.
5
THE EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 2001 June 30, 2000
------------- -------------
Revenues:
Gas and oil sales $ 9,182,410 $ 5,220,809
Other income 563,142 456,371
---------- ----------
9,745,552 5,677,180
Costs and Expenses:
Lease operations 1,041,671 747,686
Production taxes 665,478 366,824
Exploration expenses 1,837,413 708,243
Impairment of mineral properties 964,000 755,000
Depreciation, depletion and amortization 1,264,663 902,832
General and administrative 1,068,757 838,567
---------- ----------
Total costs and expenses 6,841,982 4,319,152
---------- ----------
Income from Operations 2,903,570 1,358,028
Other Income (Expense):
Interest income 149,921 111,770
Interest expense (71,660) (100,665)
Loan fee amortization -0- (12,000)
---------- ---------
78,261 (895)
---------- ---------
Income before income taxes
and minority interest 2,981,831 1,357,133
Minority interest in income of subsidiaries (78,735) -0-
---------- -----------
Income before income taxes 2,903,096 1,357,133
Income tax expense (237,000) (60,918)
---------- -----------
Net Income $ 2,666,096 $ 1,296,215
========== ===========
Earnings Per Share:
Basic $ 0.15 $ 0.08
========== ===========
Diluted $ 0.15 $ 0.07
========== ===========
See notes to consolidated financial statements.
6
THE EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 2001 June 30, 2000
------------- -------------
Operating Activities:
Net income $ 2,666,096 $ 1,296,215
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 170,000 -0-
Impairment of mineral properties 964,000 755,000
Depreciation, depletion and amortization 1,264,663 914,832
Minority interest in income of subsidiaries 78,735 -0-
Changes in operating assets and liabilities:
Receivables 382,076 (190,933)
Prepaid expenses and other (113,376) 4,447
Accounts payable and accrued expenses 1,642,210 (1,593,118)
----------- -----------
Net cash provided in operating activities 7,054,404 1,186,443
Investing Activities:
Development and purchases
of gas and oil properties (7,861,421) (2,861,254)
Purchase of other equipment (112,559) (111,783)
Proceeds from the sale of
gas and oil properties 2,005,133 -0-
Proceeds from the sale of
of other equipment 8,993 -0-
Distributions to minority interests (100,355) -0-
----------- -----------
Net cash (used) in investing activities (6,060,209) (2,973,037)
Financing Activities:
Issuance of common stock, net of offering costs 31,250 2,810,248
Proceeds from debt obligations 51,893 137,448
Payments on debt obligations (310,164) (1,257,727)
----------- -----------
Net cash provided (used) in financing activities (227,021) 1,689,969
----------- -----------
Change in cash and equivalents 767,174 (96,625)
Cash and equivalents at beginning of period 5,898,015 3,381,793
----------- -----------
Cash and equivalents at end of period $ 6,665,189 $ 3,285,168
=========== ===========
See notes to consolidated financial statements
7
THE EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000 (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Exploration Company (TXCO or the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. The accounting policies followed by the Company are set forth in
Note A to the December 31, 2000 audited consolidated financial statements
contained in the Company's annual report on Form 10-K.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant Company's annual
report on Form 10-K for the year ended December 31, 2000, which is incorporated
herein by reference.
In June, 2001, the FASB issued SFAS No. 141 Business Combinations which
requires all business combinations initiated after June 30, 2001 be accounted
for using the purchase method of accounting. The FASB also issued SFAS No. 142,
Goodwill and Other Intangible Assets which addresses how intangible assets
should be accounted for upon their acquisition. This statement is effective for
calendar year 2002, but is permitted to be early adopted. Neither of these two
Statements is expected to have an impact on the Company's financial position or
results of operations.
2. COMMON STOCK AND BASIC INCOME OR LOSS PER SHARE
As of June 30, 2001, the Company had outstanding and exercisable warrants
and options to purchase 2,975,229 shares of common stock at prices ranging from
$0.98 to $6.00 per share. The warrants and options expire at various dates
through October 2010.
The following table sets forth the determination of the number of shares
used in the earnings per share computations:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Weighted average number of
shares outstanding-basic 17,484,761 17,421,849 17,478,305 17,056,281
Net number of shares issued
on the assumed exercise of
stock options and warrants 110,860 313,790 206,777 317,507
---------- ---------- ---------- ----------
Number of shares used in the
computation of diluted
earnings per share 17,595,621 17,735,639 17,685,082 17,373,788
========== ========== ========== ==========
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3. INCOME TAXES
The Company has recorded a deferred tax asset for the amount expected to be
realized through taxable earnings. In determining taxable earnings, the Company
uses three-year income projections reduced by graduating percentages to
compensate for uncertainties inherent in future years' projections. Total income
tax expense is computed based on the Company's estimated annualized federal
income tax for the year, considering the impact of any change in the amount of
deferred tax asset.
ITEM 2. MANAGEMEN'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in this Form 10-Q,
and with the Company's latest audited consolidated financial statements and
notes thereto, as reported in its Form 10-K for the year ended December 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash reserves of $5,898,015 at December 31, 2000 were increased by cash provided
from operating activities of $7,054,404 for the six months ended June 30, 2001.
Additionally during the six month period, cash of $2,014,126 was obtained from
the sale of gas and oil properties and other equipment, $51,893 was provided
from debt obligations, and $31,250 resulted from the exercise of an outstanding
option for the purchase of the company's common stock. This resulted in total
cash of $15,049,688 available for use in meeting the Company's ongoing
operational and development needs.
During the first quarter, portions of this cash were used to fund payments on
debt totaling $188,404. The Company applied $2,350,473 to fund the expansion and
ongoing development of its gas and oil producing properties which included the
acquisition of a significant leasehold acreage block for future exploration.
These expenditures included $1,198,000 for drilling and completion costs for
wells drilled, re-entered or completed during the period and $146,000 for its
3-D seismic acquisition program and infrastructure costs related to its Comanche
Ranch Prospect coalbed methane (CBM) project.
During the current quarter ending June 30, 2001 additional portions of this
capital were used to fund payments of debt totaling $121,760. The Company
applied $5,510,948 to fund the expansion and ongoing development of its gas and
oil producing properties. These expenditures included $4,369,000 for drilling
and completion costs for wells drilled, re-entered or completed during the
period and infrastructure costs related to its CBM project. Approximately
$967,800 was expended for the ongoing 3-D seismic acquisition program on its
Comanche Ranch Prospect. Also during the period, an additional 48 well bores
were purchased at a cost of $150,000 on the Comanche Ranch Prospect for the
expansion of its CBM project.
As a result of the ongoing drilling and re-entry activities, the Company's
working capital balance has decreased from $6,349,625 at December 31, 2000 to
$5,570,756 at June 30, 2001, with its current ratio declining to 1.90 to 1
compared to 2.36 to 1 for the previous period. However, cash flow from operating
activities rose 495% to $7,054,404 from $1,186,443 in the comparative prior year
period. Net income for the current quarter was $356,702 and $2,666,096 for the
six months ended June 30, 2001. EBITDA (earnings before interest, taxes,
depletion, depreciation, amortization and exploration expenses) reached
$7,040,832 for the six months ended June 30, 2001 as compared to $3,835,873 for
the same prior year period, an increase of 84%.
9
Domestic U.S. exploration and development activity throughout the industry has
increased significantly during the past year, including in the Company's core
areas of operation in South Texas. The resultant competition for goods and
services has caused an industry-wide limited availability of oilfield personnel,
services and materials, including drilling, completion and tubular goods. Market
forces are expected to continue to exert upward pressure on prices and costs for
the Company's ongoing and planned exploration and development activities for the
balance of the year.
However, Management remains confident that financial resources will remain
available, enabling the Company to continue the rapid development of its gas and
oil properties, and to continue to meet its normal debt service obligations. If
realized gas and oil prices for its Maverick Basin or Williston Basin production
are substantially less than expected, or if prices for goods and services used
in the Company's exploration, development and operating activities rise
significantly above budgeted levels or Management's efforts to raise additional
working capital are not successful, the Company's financial condition and
liquidity could be adversely affected. Should this occur, Management retains its
ability to extend the timing of currently planned development activities to
match available working capital, while maintaining its current operating
obligations on a timely basis.
RESULTS OF OPERATIONS
The increase by 36% and 76% in gas and oil revenues for the second quarter and
year-to-date periods of year 2001 over the same periods in year 2000 is
attributable primarily to increased gas prices realized during the current
periods while being partially offset by fluctuations in production volumes. As
reflected in the following table, gas prices realized were 42% and 110% higher
respectively while oil prices declined 4% for the quarter and 1% for the six
months ended June 30, 2001. Gas sales volumes increased 3% for the current
quarter while being down 7% for the current six month period. Oil sales volumes
decreased 19% and 25% respectively, over the comparable prior periods.
2001 2000
---- ----
Sales Average Sales Average
Volume Prices Volume Prices
------ ------ ------ ------
Three months ended June 30,
Gas (Mcf) 672,975 $ 4.91 651,338 $ 3.45
Oil (Bbls) 12,874 $ 24.85 15,932 $ 25.96
Six months ended June 30,
Gas (Mcf) 1,333,953 $ 6.40 1,430,643 $ 3.04
Oil (Bbls) 25,085 $ 25.73 33,632 $ 25.76
Lease operating expenses increased 76% and 39% respectively for the three and
six months ended June 30, 2001 as compared to the same periods of 2000. The
increase primarily reflects higher costs of salt water disposal and H2S removal
from 3 wells added to production during the current quarter along with higher
operating costs associated with the de-watering phase of the CBM pilot program
initiated in 2001. Production taxes increased proportionately with increases in
gas and oil revenues compared to the previous periods.
Exploration expense increased 119% and 159% as compared to the prior year
periods. These increases are due to accelerated exploration activity levels
initiated during the current periods. Current quarter exploration expenses
include $736,000 for dry hole costs while the prior year period included
$209,000. For the six months ended June 30, 2001, exploration expenses included
$1,657,000 for dry hole costs while the comparable prior year period contained
$456,000. Impairment expense increased 57% to $613,000 and 28% to $964,000
respectively over the prior periods. This increase is primarily attributable to
a $262,000 charge during the current quarter for marginal producing properties,
while there was no similar charge in the prior year. Depreciation, depletion and
amortization increased by 51% and 40% over the comparable prior year periods.
This increase was due to higher depletion rates over the same periods last year
due to lower estimated reserve volumes at June 30, 2001, while depreciation
increased due to the investment in equipment expanding the Paloma lease
gathering system in mid-year 2000.
10
General and administrative expense increased by 31% and 27% respectively over
the prior periods, reflecting higher sustained levels of Company operations and
is due primarily to increased salaries, wages and benefits associated with staff
increases subsequent to June, 2000. Also included in the increase are higher
costs for property and liability insurance coverage and increased investor
relations and associated compliance reporting activities. Year to date interest
income reflects the higher cash reserve levels in interest bearing assets. This
increase was marginally offset by declining interest rates during 2001.
Income tax expense for the current quarter declined over the prior quarter due
primarily to management's revised estimate of total taxable income for the
current year, as well as refinements made to its original estimate of the next
three years taxable income. For the respective six month periods, total tax
expense was 8.2% of pretax income in 2001 compared to 4.5% in 2000.
DRILLING ACTIVITIES
During the first quarter, the Company entered into a joint venture with Saxet
Energy, Ltd. (Saxet) and Tom Brown, Inc. (Tom Brown) covering TXCO's 100,000
acre Comanche Ranch prospect. The Company sold a 50% working interest (Saxet 20%
and Tom Brown 30%) in its rights below the base of the San Miguel formation for
cash. During the first quarter the joint venture partners initiated a
proprietary 78-square mile 3-D seismic survey. During the second quarter, data
collection was completed and ongoing data processing is expected to be completed
by late August or early September. Based on early interpretation of the
western-most portion of the seismic survey, a well targeting the Glen Rose
formation began drilling in June. Subsequent to the end of the current quarter,
the well reached total depth and casing was set. The partners are currently
evaluating the economic potential of the well. The extent of the ongoing
drilling program will be determined upon completion of processing of the entire
3-D seismic survey. The partners expect the new 3-D survey data will confirm and
potentially expand the existing Glen Rose reef inventory on their target acreage
currently consisting of over 40 reef prospects.
In February, the Company significantly expanded its growing CBM prospects, and
exercised its option to purchase a five-year oil and gas lease on the shallow
rights on 157,000 acres of the Chittim Ranch acreage in Maverick County, Texas.
With some exceptions, the Company controls drilling rights from the surface to
the base of the San Miguel formation. The Company's average working interest in
the Chittim lease is 99.3%. With this acquisition, the Company now has over
250,000 contiguous acres prospective for CBM gas production. During the first
quarter, the Company acquired 13 well bores on its adjoining Comanche Ranch
lease prospective for CBM development. During the second quarter, the Company
acquired an additional 48 well bores on the lease. Todate, the Company has
acquired a total of 103 existing well bores from previous operators on the
Comanche Ranch lease. Ongoing evaluation of geologic and available historic well
data indicates that approximately 93 of the well bores appear prospective for
re-completion as CBM producers, while the remaining well bores may be suitable
for future conversion as disposal or injection wells.
11
During the first quarter the Company initiated drilling activities on seven new
wells and re-entered eleven CBM well bores. Six of the seven wells drilled found
economic quantities of hydrocarbons. The Briscoe-Saner #2-25 (100% WI) was
completed as an Austin Chalk oil well at 2,390 feet. The second well, the
Briscoe-Saner #3-25 (100% WI) was drilled to test a Glen Rose reef and the
underlying Sligo formation but did not encounter economic quantities of
hydrocarbons in either formation and was plugged and abandoned. The Company's
third well was the Comanche Ranch #7-110 (100%WI), an Olmos test well. The well
was drilled to a depth of 1,100 feet, encountered 14 feet of Olmos sand pay and
flow tested at an absolute open flow rate of 1.5 MMcf gross per day on flowing
tubing pressure of 380 psi. The well was completed and placed on production as a
gas well early in the second quarter.
The fourth well, the Paloma "E" #1-53 (62.5% WI), was drilled to a total depth
of 5,290 feet, was completed as a Glen Rose reef gas well and placed on
production on March 31. The well had an absolute open flow test of 8.5 MMcf
gross per day on flowing tubing pressure of 1,156 psi. The fifth well, the
Comanche Ranch #1-34 (100% WI), another Olmos test well, was drilled to a depth
of 1,390 feet and is currently undergoing completion. The Burr #2-31 (100% WI),
well number six, was drilled to the Glen Rose formation at 5,280 feet. This well
was completed and placed on production in April with an initial flow rate of 2.0
MMcf gross per day on flowing tubing pressure of 1,780 psi. The final well
drilled during the first quarter was the Chittim "B" #1-83 (100%WI), another
Olmos test. The well reached total depth of 1,390 feet early in the second
quarter and is being completed as an oil well in the basal Olmos sand.
During the second quarter the Company, as operator, initiated drilling of nine
wells on its core Maverick Basin acreage. Four wells tested formations from the
Austin Chalk to the Glen Rose intervals while the remaining five wells targeted
the San Miguel formation and the Olmos sands and coals. The Paloma "E"#1-192
(62.5% WI), originally a Glen Rose reef test, reached total depth in early May.
While not encountering economic levels of hydrocarbons in the targeted reef, the
well is being evaluated for completion in an overlying McKnight formation. The
Burr #3-31 (100% WI) was drilled and completed in a Glen Rose reef. This new
reef well had an absolute open flow test of 4.6 MMcf per day on flowing tubing
pressure of 1,700 psi and was placed on production in late June. The Johnston
#1-232 (68.8% WI) (the Johnston lease was formerly known as the Alkek lease) was
completed as an Austin Chalk oil producer at a depth of 1540 feet. The Kincaid
#1-218 (50% WI) had numerous gas shows while drilling to the targeted McKnight
formation below 4,500 feet. The Company set pipe on the new well and it is
awaiting completion.
Five wells were drilled on the newly acquired Chittim Ranch lease which targeted
the Olmos sands and coals and the deeper San Miguel formation. The Chittim B
#1-150 (100 % WI) was drilled to 1,313 feet, was perforated and acidized in the
Olmos coal formation. The Chittim "B" #1-607N (100% WI) was drilled to the Olmos
formation and was perforated in the San Miguel formation and is currently
awaiting further completion procedures. The Chittim "B" #1-609 (100% WI),
drilled in May targeted the Olmos coals, did not encounter economic quantities
of hydrocarbons and was plugged and abandoned. Drilling of the Chittim "B" #1-58
(100% WI) started on May 31 and it was perforated and acidized in the Olmos coal
formation. Drilling on the Chittim "B" #1-97 (100% WI) started in early June
targeting the San Miguel formation and the deeper Olmos sands and coals. TXCO
found all three targets, and the well is presently awaiting completion. Although
four of the five wells drilled encountered the targeted Olmos coals, the
prospectivity of establishing future CBM production will occur with the addition
of dewatering/production facilities after additional wells are drilled or
reentered.
Also during the current quarter the Company, in conjunction with the U.S.
Geologic Survey (USGS), continued its extensive engineering and geologic study
of its CBM acreage. The joint effort by TXCO and the USGS to study the quality,
aerial extent and thickness of the Olmos coals is well underway. During the
second quarter, the USGS drilled two CBM wells on the Comanche lease under its
agreement with TXCO in addition to performing desorption tests on 4 additional
wells. The Comanche Ranch #1-613 (100% WI) was perforated and acidized and is
awaiting final connection, while the Comanche Ranch #1-117 (100% WI) is
currently awaiting completion.
12
RE-ENTRY ACTIVITIES
During the first quarter the Company re-entered 11 existing well bores to
develop the coal zones in the Olmos formation on its Comanche lease. Nine of the
wells were perforated and acidized with six of these undergoing additional
fracturing procedures. These wells were connected to production equipment in
April and have commenced the process of dewatering and production of gas. The
remaining two wells were perforated and acidized in the second quarter. One well
was connected to production equipment for dewatering and the remaining well is
being use to monitor pressure within the formation.
During the current quarter an additional 8 existing well bores were re-entered
to further develop CBM production on the Comanche lease. While one well bore was
deemed unusable, seven were perforated and acidized with three of these
undergoing additional fracturing procedures. All of these wells were connected
to production equipment and have commenced the process of dewatering the coals.
TXCO's growing CBM pilot program on the Comanche lease now totals 24 active
wells, including 22 wells currently being de-watered. TXCO owns a 100% WI in its
CBM prospective acreage and wells. The company's estimate to drill or re-enter
36 CBM wells this year remains under review for expansion, helped by a strong
working capital position and the initial favorable results of its ongoing pilot
program.
Also during the current quarter the Company re-entered two existing well bores
on its Burr lease which had been plugged and abandoned by the previous operator.
While acidizing the perforations in the Georgetown formation for conversion to a
salt water disposal well, the Burr #1-48 began to flow an economic quantity of
natural gas. The well was placed on production and is currently producing 45 mcf
per day with flowing tubing pressure of 430 psi. Subsequently, the Burr #1-49
was re-entered in an attempt to convert the well to a salt water disposal well.
This re-entry attempt also resulted in the establishment of a flow of natural
gas. The Burr #1-49 is currently scheduled to be placed on production in August.
Throughout the current quarter, Blue Star Oil & Gas (Blue Star) has continued
working under its revised timetable for the application of enhanced 3-D seismic
processing techniques on the Jurassic formation seismic field data. During the
period and subsequent to June 30, 2001, Blue Star and TXCO continued discussions
regarding the status of Blue Star's compliance with the terms and intent of
their original joint operating agreement. TXCO continues to review its options
under the agreement in order to confirm the project is not being unreasonably
delayed and to further assure the ultimate development of the project.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Forward-looking statements in this 10-Q are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the costs of exploring and developing new oil and
natural gas reserves, the price for which such reserves can be sold,
environmental concerns effecting the drilling of oil and natural gas wells, as
well as general market conditions, competition and pricing. Please refer to
TXCO's Securities and Exchange Commission filings, copies of which are available
from the Company without charge, for additional information.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2001, the Company held the Annual Meeting of Shareholders
at the Petroleum Club of San Antonio, pursuant to the notice mailed to
shareholders of record on April 10, 2001. The following matters were
submitted for approval by vote at the meeting. All matters were
approved by the shareholders vote and the results of the voting is
shown below for each matter.
1. Election of Six Directors:
Nominee For Against
------- --- -------
Stephen M. Gose, Jr. 15,685,843 586,336
Michael Pint 15,984,917 297,262
Robert L. Foree, Jr. 15,715,917 566,262
Alan L. Edgar 15,632,917 649,262
James E. Sigmon 15,716,397 565,782
Thomas H. Gose 15,682,397 599,782
There were no changes in Directors of the Company
2. Proposal to amend the Company's Certificate of Incorporation that
would establish a classified board of directors.
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
9,294,804 1,172,596 28,152 5,786,627
3. Proposal to amend the Company's Certificate of Incorporation that
would eliminate the right of stockholders of the Company to act
by written consent.
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
9,175,835 1,237,642 82,075 5,786,627
4. Proposal to amend the Company's 1995 Flexible Incentive Plan to
increase by 200,000 the maximum number of shares of Common Stock
that may be issued with respect to awards under the plan.
For Against Abstain
--- ------- -------
15,023,365 1,214,551 44,263
5. Proposal to ratify the appointment of Akin, Doherty, Klein &
Feuge, P.C., as independent auditors of the Company and its
subsidiaries for the calendar year ending December 31, 2001.
For Against Abstain
--- ------- -------
15,985,905 279,468 16,806
14
ITEM 5. OTHER INFORMATION
On June 27, 2001 the Board of Directors approved a common share
buyback program to purchase up to $2 million of the Company's common
shares in open market or privately negotiated treasury purchases.
Subsequent to June 30, 2001, the Company has purchased 99,800 shares
of its common stock at a cost of $246,000 under this program.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EXPLORATION COMPANY
(Registrant)
/s/ Roberto R. Thomae
Roberto R. Thomae,
Chief Financial Officer
(Signing on behalf of the Registrant and as
chief accounting officer)
Date: August 13, 2001