UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-14731
HALLADOR PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
COLORADO 84-1014610
(State of incorporation) (I.R.S. Employer Identification No.)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264-2701
(Address of principal executive offices)
303-839-5504 FAX: 303-832-3013
(Issuer's telephone numbers)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months, and (2)
has been subject to such filing requirements for the past 90 days:
Yes [x] No [ ]
Shares outstanding as of August 13, 2001: 7,093,150
PART I. FINANCIAL INFORMATION
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
June 30, December 31,
2001 2000*
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,035 $ 2,489
Accounts receivable-
Oil and gas sales 849 716
Well operations 193 583
------ ------
Total current assets 4,077 3,788
------ ------
Oil and gas properties at cost (successful efforts):
Unproved properties 308 313
Prepaid drilling cost 176 477
Proved properties 23,029 21,597
Less - accumulated depreciation,
depletion, amortization and impairment (15,316) (14,934)
------ ------
8,197 7,453
------ ------
Oil and gas operator bonds 396 312
Investment in Catalytic Solutions 175 175
Other assets 50 51
------ ------
$12,895 $11,779
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 215 $ 626
Oil and gas sales payable 511 440
Bank debt 231
------ ------
Total current liabilities 957 1,066
------ ------
Bank debt 231
------
Key employee bonus plan 320 295
------ ------
Future site restoration 250 189
------ ------
Minority interest 5,852 5,441
------ ------
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000
shares authorized; no shares issued
Common stock, $.01 par value; 100,000,000
shares authorized; 7,093,150 shares issued 71 71
Additional paid-in capital 18,061 18,061
Accumulated deficit (12,616) (13,575)
------ ------
5,516 4,557
------ ------
$12,895 $11,779
====== ======
- ------------------------------
*Derived from the Form 10-KSB.
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Operations
(in thousands, except per share amounts)
Six months ended Three months ended
June 30, June 30,
2001 2000 2001 2000
------ ------ ------ ------
Revenue:
Oil $2,685 $3,158 $1,398 $1,529
Gas 1,761 439 1,276 213
NGLs 204 188 76 95
Interest and other 78 71 35 47
Gain on prospect sale 67 120 67 120
----- ----- ----- -----
4,795 3,976 2,852 2,004
----- ----- ----- -----
Costs and expenses:
Lease operating 2,091 1,693 971 796
Exploration costs
Geological and geophysical 20 17
Dry hole expense 32 239 32 209
Delay rentals 32 47 14 18
Contract termination fee 30 30
Depreciation, depletion and
amortization 452 519 238 286
General and administrative 462 413 215 171
Purchase of employee stock options 300
Interest 26 62 12 34
----- ----- ----- -----
3,425 2,993 1,512 1,531
----- ----- ----- -----
Income before minority interest 1,370 983 1,340 473
Minority interest (411) (295) (402) (142)
----- ----- ----- -----
Net income $ 959 $ 688 $ 938 $ 331
===== ===== ===== =====
Basic net income per share $ .14 $ .10 $ .13 $ .05
===== ===== ===== =====
Diluted net income per share $ .13 $ .09 $ .12 $ .04
===== ===== ===== =====
Basic weighted average shares
outstanding 7,093 7,093 7,093 7,093
===== ===== ===== =====
Diluted weighted average shares
outstanding 7,492 7,305 7,545 7,516
===== ===== ===== =====
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
Six months ended June 30,
2001 2000
--------- --------
Net cash provided by operating activities $1,696 $1,552
----- -----
Cash flows from investing activities:
Properties (1,126) (835)
Other assets (91) (96)
Prospect sale 67 120
----- -----
Net cash used in investing activities (1,150) (811)
----- -----
Net increase in cash and cash equivalents 546 741
Cash and cash equivalents, beginning of period 2,489 1,957
----- -----
Cash and cash equivalents, end of period $3,035 $2,698
===== =====
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Notes to Financial Statements
1. The interim financial data is unaudited; however, in our opinion, it
includes all adjustments, consisting only of normal recurring adjustments
necessary for a fair statement of the results for the interim periods.
The financial statements included herein have been prepared pursuant to
the SEC's rules and regulations. Certain information and footnote
disclosures normally included in GAAP financial statements have been
condensed or omitted pursuant to the SEC's rules and regulations.
Certain amounts have been reclassified to the 2001 presentation.
2. Our organization and business, the accounting policies we follow and other
information are contained in the notes to our financial statements filed
as part of our 2000 Form 10-KSB. This quarterly report should be read in
conjunction with that annual report.
HALLADOR PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
YEAR-TO-DATE COMPARISON
- -----------------------
The table below provides sales data and average prices for the periods.
<table>
<caption>
2001 2000
------------------------ ----------------------
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
<s> <c> <c> <c> <c> <c> <c>
Oil - barrels
South Cuyama field 107,950 $24.44 $2,638 120,140 $26.20 $3,148
Cox 41-5 755 25.40 19
Other 1,039 26.78 28 395 27.04 10
Gas - mcf
South Cuyama field 25,883 11.24 291 21,020 3.09 65
Cox 41-5 64,821 12.91 837
Northern California 33,335 11.01 367 70,710 2.68 190
South Texas 16,659 5.90 98 42,960 2.74 118
New Mexico 27,548 5.66 156 25,305 2.59 65
Other * * 12 * * 1
NGLs - barrels
South Cuyama field 6,631 23.41 155 8,094 18.43 149
New Mexico 2,530 18.90 48 2,254 16.77 38
Other * * 1 * * 1
- ----------------
* Not meaningful
</table>
Current oil and gas prices for the South Cuyama field are about $23.50 per
barrel for oil and $4.00 per MCF for gas. Current gas prices in Northern
California are $3.00, South Texas prices are $3.00 and New Mexico
prices are $2.85.
The table below (in thousands) shows lease operating expenses (LOE) by field.
<table>
<caption>
2001 2000
---- ----
<s> <c> <c>
South Cuyama field:
LOE excluding electricity $1,341 $1,201
Electricity 659 400
----- -----
2,000 1,601
Northern California 8 21
South Texas 14 20
New Mexico 51 32
Other 18 19
----- -----
Total $2,091 $1,693
===== =====
</table>
Oil revenue is down compared to last year due to lower prices and volumes.
The increase in gas revenue is due primarily to the Cox 41-5 and to the
abnormally high gas prices. NGL revenue increased due to higher prices as
indicated in the tables above.
LOE increased primarily due to higher electricity costs as set forth in the
table above.
In January 2001, we purchased from certain employees 177,777 options at a
cost of $1.6875 per option (about $300,000), which was recorded as
compensation expense.
QUARTER-TO-DATE COMPARISON
- -----------------------
The table below provides sales data and average prices for the periods.
<table>
<caption>
2001 2000
------------------------ ----------------------
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
<s> <c> <c> <c> <c> <c> <c>
Oil - barrels
South Cuyama field 54,945 $24.73 $1,359 58,690 $25.98 $1,524
Cox 41-5 755 25.40 19
Other 755 26.35 20 150 29.87 5
Gas - mcf
South Cuyama field 14,531 14.19 206 10,810 3.48 38
Cox 41-5 62,350 13.20 823
Northern California 15,194 10.31 157 25,375 3.20 81
South Texas 8,497 5.08 43 18,160 3.04 55
New Mexico 11,520 3.41 39 11,805 3.23 38
Other * * 8 * * 1
NGLs - barrels
South Cuyama field 2,967 18.19 54 4,493 16.69 75
New Mexico 1,318 16.30 21 1,088 18.30 20
Other * * 1 * * *
- ----------------
* Not meaningful
</table>
The table below (in thousands) shows lease operating expenses (LOE) by field.
<table>
<caption>
2001 2000
---- ----
<s> <c> <c>
South Cuyama field:
LOE excluding electricity $ 505 $ 525
Electricity 430 203
---- ----
935 728
Northern California 4 19
South Texas 5 17
New Mexico 22 18
Other 5 14
---- ----
Total $ 971 $ 796
===== =====
</table>
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash, cash flow from operations and bank borrowings are expected to enable
us to meet our obligations as they become due during the next several years.
THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 2000
FORM 10-KSB AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
- ---------------------------------------------
South Cuyama Field
------------------
During October 2000, we completed a 3-D project on adjoining acreage east
of the South Cuyama field (SC Field). The cost of this project was $350,000
to the 100%. We have a 70% WI in this project. The data was evaluated in
January 2001 and several drillable prospects were identified.
The first exploratory gas well (the Cox 41-5) was drilled in March 2001.
Currently, the well is producing 1,000 MCF per day from a depth of about 3,400
feet. The well is capable of additional production, but due to pipeline
constraints, this is all wee are able to produce. We have given written notice
for additional pipeline capacity, but other producers have a higher priority
than we do. In May 2001, the well began producing oil and is currently
producing about 100 barrels per day. We are the operator and own a 70% WI
(60% NRI). The cost to drill and complete this well was about $300,000 to the
100%. This well is an important step in validating our 3-D seismic project. We
are reviewing our 3-D seismic data to identify other locations to drill.
Because of the California electricity crisis natural gas prices were abnormally
high at during the first six months of the year. Due to the success of the Cox
41-5, in April, we sent our gas purchaser a contract termination notice. We
were able to cancel the contract prematurely effective April 1, 2001 by paying
the purchaser $50,000 ($30,000 net to us). Our new gas contract pays market
prices, is month to month, and can be canceled by either party with 30 days
notice. During the second quarter were selling the gas for as high at
$16 per MCF. Currently, the prices are about $4.
We estimate the gas reserves for this well to the 100% to be about 1,800,000
MCF (1.8 BCF). The zone we are currently producing from has estimated gas
reserves of 330,000 MCF. The zone above it has estimated reserves of
1,330,000 MCF and the upper most zone has estimated reserves of 165,000 MCF.
Oil reserves are estimated to be 20,000 barrels to the 100%. We would like to
drill an offset well or produce from the upper zones, but these plans are on
hold due to pipeline constraints.
Due to the California electricity crisis our electricity costs have increased
significantly. Last year our average monthly electricity cost in the field was
$73,000; currently our monthly electricity costs are double that amount. With
all of the current uncertainty and turmoil that exists in the California
electricity market, we can provide no assurance as to the timing and nature of
the resolution of this crisis. If electricity costs continue to increase, we
will have to shut in certain oil wells. As this crisis continues, future cash
flow will decrease and so will reserve estimates.
We are continuing to develop the proper strategy to optimize the cash flow from
the SC Field considering these high electricity costs.
Merlin Prospect of the Sac Basin - Northern California
--------------------------------------------------------
This field is located about 70 miles north of Sacramento, California. Equity
Oil Company of Salt Lake City, Utah is the operator. Presently, we have two
producing gas wells. These wells have an estimated remaining life of four
years. We participated in an exploratory, dry hole, gas well during July 2001.
Our share of the dry hole cost was about $118,000.
No more drilling is planned for this prospect.
South Texas - Alleyton
-----------------------
This gas field is located about 75 miles west of Houston in Colorado County.
Marquee Corporation of Corpus Christi, Texas is the operator of these gas wells.
We have a 14% WI (11% NRI) in this field. Presently, we have two gas wells.
These wells have an estimated remaining life of three years.
During March 2001, we recompleted an existing well, which produced for a few
months. It is currently shut-in pending evaluation.
We participated in an exploratory, dry hole, gas well during April 2001. Our
share of the dry hole cost was about $32,000.
South Texas - Bonus
-------------------
We are participating with Forest Oil Company of Denver in a nine-well
developmental prospect in Wharton County, Texas located about 70 miles
southwest of Houston. One of the wells has reached total depth of 14,000 feet
and the results look very encouraging. The second well is in the drilling
phase. Of the remaining seven wells, one is to be drilled this year and rest
next year. We have a 5% WI (4% NRI). These wells are very expensive and the
estimated costs to drill and complete are $5 million per well.
Our share of this prospect, if all of the wells are drilled, will be in the
$2 - $3 million range. Many of the wells in the area are producing 10,000 MCF
per day. Currently, there is litigation surrounding proper title. If we lose
the lawsuit, we will recover only our investment through net revenue from
successful wells. We are at risk for any dry hole costs.
San Juan Basin
--------------
This gas field is located in the northwest corner of New Mexico in San Juan
County. Three development wells were drilled in early spring 2000. We have an
interest in 20 wells and are the operator. These wells have long-lived
reserves. Our WIs in this field ranges from 5%-10% with NRIs between 4%-8%.
Due to regulators requiring an environmental impact statement, the nine
additional development wells planned to be drilled later this year and next
year will be delayed until 2002 and 2003. The costs to the 100% to drill and
complete these wells are about $700,000 each.
East Texas
----------
This is a new prospect located about 150 miles southeast of Dallas in
Nacogdoches County. We participated in an exploratory gas well (the Fulton -
Fuller 1H), which was completed in April 2001. The well is currently producing
about 400 MCF per day at a price of $2.75. The cost to drill and complete this
well to the 100% was about $2,000,000. We have a 25% WI (20% NRI) in this
well. The well may be fracted or placed on a compressor in order to increase
production. Pure Resources of Midland, Texas is the operator.
A second exploratory gas well is planned to be drilled in late August 2001 in
Shelby County, Texas, about 20 miles east from the Fulton - Fuller 1H. El Paso
Energy will be the operator. We have a 7% WI (6% NRI). The cost to drill and
complete this well to the 100% is about $2,000,000; our share would be about
$150,000.
Environmental and Regulation
- ----------------------------
We are directly affected by changing environmental rules and regulations.
Although we believe our operations and facilities are in compliance with
applicable environmental regulations, risk of substantial cost and liabilities
resulting from an unintentional breach of environmental regulations are
inherent to oil and gas operations. It is possible that other developments,
such as increasingly strict environmental laws, regulations, and enforcement
policies or claims for damages could result in significant costs and liability
in the future.
In January 1999, the California legislature passed a bill, which will increase
our operator's bond from $100,000 to $250,000 to be phased in over a five-year
period. In addition, an idle-well bill was passed to insure that funds would be
available to properly plug and abandon (P&A) California wells upon their
depletion. Over the next seven years, we are required to place in an interest-
bearing escrow account $500 per year for each idle-well in the SC Field until
such well is plugged and abandoned or until $5,000 has been deposited.
Installments of $60,000, $68,000 and $58,000 were paid in June 1999, 2000 and
2001, respectively. We estimate that after ten annual installments we will
have met our current funding obligation of $700,000 considering the interest to
be earned. As the SC Field depletes, and more wells move from the producing
category to the idle-well category we will have to make additional annual
payments. Presently, there are 280 wells in the SC Field, 140 of which are
classified as "idle."
During 1999, we began amortizing; using the units-of-production method, our
share of the estimated future costs ($1,207,000) to P&A the SC Field's 280
wells. Included in the DD&A expense for YTD 2001 and 2000 was $61,000 and
$56,000, respectively, and QTD 2001 and 2000 were $31,000 and $28,000,
respectively, associated with these estimated future costs.
Washington County, Colorado Gas Plant
- -------------------------------------
In late February 2001, we were notified by the Colorado Oil and Gas Conservation
Commission that we must conduct a site investigation of a gas plant that our
predecessor operated 40 years ago. During May 2001, our consulting
environmental engineer made a site visit and performed a water test. The
results were satisfactory; accordingly, we estimate the site restoration costs
to be less than $10,000.
New Accounting Pronouncements
- -----------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets." These statements prohibit
pooling-of-interests accounting for transactions initiated after June 30, 2001,
require the use of the purchase method of accounting for all combinations after
June 30, 2001, and establish new standards for accounting for goodwill and
other intangibles acquired in business combinations. Currently, these
pronouncements have no affect on us.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard is effective for fiscal years beginning after
June 15, 2002, and provides accounting requirements for asset retirement
obligations associated with tangible long-lived assets. We have not yet
determined the effects of this standard on our financial statements but expect
it to be material.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HALLADOR PETROLEUM COMPANY
Date: August 13, 2001 By: /s/VICTOR P. STABIO
Victor P. Stabio
Chief Executive Officer and
Chief Financial Officer
Signing on behalf of registrant
and as principal financial officer.