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 September 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 by Section13 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 November 14, 2001: 7,093,150
PART I. FINANCIAL INFORMATION
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
September 30, December 31,
2001 2000*
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,751 $ 2,489
Accounts receivable-
Oil and gas sales 624 716
Well operations 277 583
------ ------
Total current assets 3,652 3,788
------ ------
Oil and gas properties at cost (successful efforts):
Unproved properties 317 313
Prepaid drilling cost 477
Proved properties 24,008 21,597
Less - accumulated depreciation,
depletion, amortization and impairment (16,064) (14,934)
------ ------
8,261 7,453
------ ------
Oil and gas operator bonds 364 312
Investment in Catalytic Solutions 175 175
Other assets 49 51
------ ------
$12,501 $11,779
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 525 $ 626
Oil and gas sales payable 286 440
Bank debt 31
------ ------
Total current liabilities 842 1,066
------ ------
Bank debt 231
------
Key employee bonus plan 333 295
------ ------
Future site restoration-South Cuyama field 283 189
------ ------
Minority interest 5,755 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 (12,844) (13,575)
------ ------
5,288 4,557
------ ------
$12,501 $11,779
====== ======
- ------------------------------
*Derived from the Form 10-KSB.
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Operations
(in thousands, except per share amounts)
Nine months ended Three months ended
September 30, September 30,
2001 2000 2001 2000
------ ------ ------ ------
Revenue:
Oil $4,025 $4,818 $1,340 $1,660
Gas 2,085 669 324 230
NGLs 266 301 62 113
Interest and other 112 120 34 49
Gain on prospect sale 67 120
----- ----- ----- -----
6,555 6,028 1,760 2,052
----- ----- ----- -----
Costs and expenses:
Lease operating 3,024 2,613 933 920
Exploration costs
Geological and geophysical 276 256
Dry hole expense 103 283 71 44
Delay rentals 58 51 26 4
Contract termination fee 30
Impairment-Fulton Fuller gas well 436 436
Impairment-Paradox Basin Prospect 99 99
Depreciation, depletion and
amortization 702 735 250 216
General and administrative 660 581 205 168
California income taxes 63 56
Purchase of employee stock options 300
Interest 35 80 9 18
----- ----- ----- -----
5,510 4,619 2,085 1,626
----- ----- ----- -----
Income(loss)before minority interest 1,045 1,409 (325) 426
Minority interest (314) (423) 98 (128)
----- ----- ----- -----
Net income (loss) $ 731 $ 986 $ (227) $ 298
===== ===== ===== =====
Basic net income(loss) per share $ .10 $ .14 $ (.03) $ .04
===== ===== ===== =====
Diluted net income(loss)per share $ .10 $ .13 $ (.03) $ .04
===== ===== ===== =====
Basic weighted average shares
outstanding 7,093 7,093 7,093 7,093
===== ===== ===== =====
Diluted weighted average shares
outstanding 7,507 7,393 7,093 7,571
===== ===== ===== =====
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
Nine months ended
September 30,
2001 2000
--------- --------
Net cash provided by operating activities $2,026 $2,051
----- -----
Cash flows from investing activities:
Properties (1,568) (1,085)
Other assets (63) (199)
Prospect sale 67 120
----- -----
Net cash used in investing activities (1,564) (1,164)
----- -----
Cash flows from financing activities:
Repayment of bank debt (200) (1,000)
----- -----
Net increase (decrease) in cash and cash equivalents 262 (113)
Cash and cash equivalents, beginning of period 2,489 1,957
----- -----
Cash and cash equivalents, end of period $2,751 $1,844
===== =====
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; accordingly, certain information and
footnote disclosures normally included in GAAP financial statements have
been condensed or omitted.
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 161,820 $23.89 $3,866 175,806 $27.29 $4,798
Cox 41-5 5,337 23.46 125
Other 1,272 26.50 34 703 28.11 20
Gas - mcf
South Cuyama field 40,592 9.30 377 31,449 3.43 108
Cox 41-5 109,494 8.83 967
Northern California 46,567 8.73 407 90,660 3.07 278
South Texas 22,218 5.25 117 53,186 2.99 159
New Mexico 37,677 4.71 177 39,932 3.03 121
Other 12,836 3.15 40 1,289 2.77 3
NGLs - barrels
South Cuyama field 10,037 20.17 202 12,366 18.92 234
New Mexico 3,734 16.77 63 3,724 17.32 65
Other * * 1 * * 2
- ----------------
* Not meaningful
</table>
Current oil and gas prices for the South Cuyama field are about $17.00 per
barrel for oil and $2.87 per MCF for gas. Current gas prices in Northern
California are $3.00, South Texas prices are $3.00 and New Mexico
prices are $2.50.
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 $1,919 $1,859
Electricity 972 624
----- -----
2,891 2,483
Northern California 13 26
South Texas 19 23
New Mexico 75 60
Other 26 21
----- -----
Total $3,024 $2,613
===== =====
</table>
Oil and NGL 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.
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 53,870 $22.79 $1,228 55,664 $29.66 $1,651
Cox 41-5 4,582 23.14 106
Other 233 25.24 6 309 29.39 9
Gas - mcf
South Cuyama field 14,336 3.84 55 10,429 4.13 43
Cox 41-5 45,045 3.58 161
Northern California 13,232 2.99 40 19,949 4.44 89
South Texas 5,600 3.33 19 10,178 4.07 41
New Mexico 10,128 2.13 21 14,677 3.76 55
Other 10,999 2.55 28 535 3.36 2
NGLs - barrels
South Cuyama field 3,405 13.88 47 4,272 19.86 85
New Mexico 1,192 12.33 15 1,470 18.18 27
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 $ 578 $ 658
Electricity 313 224
---- ----
891 882
Northern California 5 5
South Texas 5 3
New Mexico 24 28
Other 8 2
---- ----
Total $ 933 $ 920
===== =====
</table>
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons, except that oil revenue declined due to
lower prices.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash on hand, 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 300 MCF per day from a depth of about 3,400
feet. In May 2001, the well began producing oil and is currently producing
about 140 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. With the
high gas prices we received during the second quarter, the revenue from the Cox
41-5 recovered our drilling and seismic costs ($650,000) in less than two
months.
Because of the California electricity crisis natural gas prices were abnormally
high 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 cancelled by either party with 30 days
notice. During the second quarter we were selling the gas for as high as $16
per MCF. Currently, the prices are around $3.
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 has produced over 200,000
MCF and the remaining reserves for this zone is 130,000 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 50,000
to 75,000 barrels to the 100%. Eventually, we will move up the hole and produce
from the upper zones. We would like to drill an offset well to accelerate
production from the upper zones, but these plans are on hold due to low gas
prices.
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.
We are continuing to develop the proper strategy to optimize the cash flow
from the SC Field considering these high electricity costs.
Potential Impairment Charge for the South Cuyama Field
------------------------------------------------------
Oil prices have declined 25%. If oil prices continue to decline and if we
conclude no improvement in the near future, we may take an impairment charge
at year end. The net book value of the South Cuyama field at September 30,
2001 was $6.3 million. Oil prices need to be above $17 in order for us to
assign proved reserves to the field.
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 $67,000.
No more drilling is planned for this prospect. Our net book value in this
prospect is less than $16,000.
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. We have a 14%
WI (11% NRI) in this field. Presently, we have one producing well remaining.
Our net book value in this prospect is less than $30,000.
We participated in an exploratory dry hole gas well during April 2001. Our
share of the dry hole cost was $36,000.
We participated in a successful exploratory gas well during late October
located near the Alleyton prospect. We have a 24% WI (17% NRI) before pay-out
and an 18% WI (12% NRI) after pay-out. Our share of the costs were $57,000. We
estimate the reserves to the 100% to be one BCF of gas.
No more drilling is planned for these two prospects.
South Texas - Bonus
-------------------
We are participating with Forest Oil Company of Denver in a four-well develop-
mental prospect in Wharton County, Texas located about 70 miles southwest of
Houston. Two of the wells reached total depth during the third quarter and are
currently producing about 17,000 MCF/day. Two more wells have reached total
depth and are ready for fracting. We have a 5% WI (4% NRI). These wells are
expensive, deep (about 14,000 feet) and the estimated costs to drill and
complete are $5 million per well.
Our share of this prospect, will be in the $1.2 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. Revenue recorded through September 30 was $10,000.
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 200 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. This well has been a major disappointment for us and during the
third quarter we recorded a $436,000 impairment charge.
A second exploratory gas well was originally planned to be drilled in late
August 2001 in Shelby County, Texas, about 20 miles east from the Fulton -
Fuller 1H. El Paso Energy, the operator, now plans to drill the well during
first quarter 2002. We will have a 7% WI (6% NRI) in this well. The cost to
drill and complete this well to the 100% is about $2 million; our share would
be about $150,000. We are reconsidering our participation in this well.
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 22 wells and are the operator. These wells have long-lived
reserves. Our WI in this field ranges from 5%-10% with NRIs between 4%-8%.
Our net book value in this prospect is about $120,000.
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. Questar, a Salt Lake City
company, will be the operator of these wells during the drilling phase.
Paradox Basin - Utah
---------------------
This prospect, which we have a basis of $200,000, was fully impaired in the
third quarter. $100,000 was taken during 1998 and the remaining taken this
quarter.
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 South Cuyama field (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 $93,000 and
$82,000, respectively, and QTD 2001 and 2000 were $32,000 and $26,000,
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. The site investigation
discovered no impacts to groundwater and the surface restoration costs were
completed at a cost of $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.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets", which supersedes SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". Statement No. 144 also supercedes the accounting and reporting provisions
of APB Opinion No. 30 "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." Statement No. 144 is intended
to establish one accounting model for long-lived assets to be disposed of by
sale and to address significant implementation issues. We will adopt Statement
No. 144 on January 1, 2002. We do not expect Statement No. 144 to have a
material effect on the consolidated financial statements.
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: November 14, 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.