United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 small business issuer as specified in its charter)
COLORADO 84-1014610
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1660 Lincoln St., Suite 2700, Denver, Colorado 80264
(Address of principal executive offices) (Zip Code)
303-839-5504 FAX 303-832-3013
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of November 13, 1995 7,661,264 shares of the issuer's common stock
were outstanding.
This report contains 13 pages. There are no exhibits.
1
HALLADOR PETROLEUM COMPANY
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Consolidated Balance Sheet - September 30, 1995
and December 31, 1994............................ 3
Pro Forma Condensed Consolidated Balance Sheet -
September 30, 1995................................ 5
Consolidated Statement of Operations - three and
nine months ended September 30, 1995 and 1994.... 6
Consolidated Statement of Cash Flows - nine months
ended September 30, 1995 and 1994................ 7
Notes to Financial Statements...................... 8
Management's Discussion and Analysis or Plan of
Operation........................................ 9
PART II. Other Information:
Legal Proceedings.................................. 13
Exhibits and Reports on Form 8-K................... 13
Signature.......................................... 13
2
PART I. FINANCIAL INFORMATION:
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
ASSETS
September 30, December 31,
1995 1994 *
(unaudited)
------------- ------------
Current assets:
Cash and cash equivalents $ 1,020 $ 438
Accounts receivable-
Oil and gas sales 339 504
Well operations 332 251
-------- -------
Total current assets 1,691 1,193
-------- -------
Oil and gas properties (full cost
accounting), at cost:
Evaluated properties 39,470 39,352
Less - accumulated depreciation,
depletion, amortization (31,968) (31,154)
-------- --------
7,502 8,198
-------- --------
Other assets 156 156
-------- --------
$ 9,349 $ 9,547
======== ========
*Derived from the Form 10-KSB.
See accompanying notes.
3
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30, December 31,
1995 1994*
(unaudited)
------------- ------------
Current liabilities:
Accounts payable and
accrued liabilities $ 268 $ 262
Oil and gas sales payable 178 114
Convertible debt to related
parties including accrued
interest of $154 5,115
Debt with recourse only to
the South Cuyama Field 561 826
------- -------
Total current liabilities 1,007 6,317
------- -------
Convertible debt to related
parties including accrued
interest of $374 5,307
-------
Debt with recourse only to the
South Cuyama Field 6,362 6,497
------- -------
Key Employee Bonus Plan 122 102
------- -------
Other 65 65
------- -------
Stockholders' deficit:
Common stock, $.01 par value;
100,000,000 shares authorized;
7,661,264 shares issued 77 77
Preferred stock, $.10 par value;
10,000,000 shares authorized;
no shares issued
Additional paid-in capital 9,995 9,995
Accumulated deficit (13,586) (13,506)
------- -------
(3,514) (3,434)
------- -------
$ 9,349 $ 9,547
======= =======
*Derived from the Form 10-KSB.
See accompanying notes.
4
HALLADOR PETROLEUM COMPANY
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1995
(unaudited-in thousands, except share data)
Current assets:
Cash and cash equivalents $ 3,920
Receivables 671
--------
Total current assets 4,591
Oil and gas properties, net 7,502
Other assets 156
--------
$ 12,249
========
Current liabilities:
Payables $ 446
Debt with recourse only to the South Cuyama Field 561
--------
Total current liabilities 1,007
--------
Debt with recourse only to the S. C. Field 6,362
--------
Key Employee Bonus Plan and other 187
--------
Stockholders' equity:
Common stock, $.01 par value;
100,000,000 shares authorized;
72,078,000 shares issued 721
Additional paid-in capital 17,558
Accumulated deficit (13,586)
--------
4,693
--------
$ 12,249
========
BASIS OF PRESENTATION
The pro forma balance sheet has been prepared to give effect to the
proposed recapitalization discussed in the Management's Discussion
and Analysis on page 9, as if it occurred on September 30, 1995.
There can be no assurances that the proposed transactions will occur.
5
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Operations
(in thousands)
(unaudited)
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- -------
Revenue:
Oil $ 2,717 $ 2,483 $ 843 $ 908
Gas 368 746 88 187
NGLs 363 346 105 106
Interest and other 33 16 15 7
------- ------- ------- -------
3,481 3,591 1,051 1,208
------- ------- ------- -------
Costs and expenses:
Lease operating 2,105 2,011 599 683
Depreciation,
depletion and
amortization 460 504 139 172
General and
administrative 285 367 96 132
Interest 711 754 240 252
------- ------- ------- -------
3,561 3,636 1,074 1,239
------- ------- ------- -------
Net loss $ (80) $ (45) $ (23) $ (31)
======= ======= ======= =======
Per share amounts
are not meaningful
Weighted average
shares outstanding 7,661 6,733 7,661 6,733
======= ======= ======= =======
See accompanying notes.
6
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 30,
1995 1994
--------- ---------
Cash flows from
operating activities $ 746 $ 554
------- -------
Cash flows from investing activities:
Proceeds from property sales 354
Additions to oil and gas properties (118) (105)
------- -------
Net cash provided (used in) investing
activities 236 (105)
------- -------
Cash flows from financing activities:
Repayments of debt (400) (446)
------- -------
Net increase in cash and
cash equivalents 582 3
Cash and cash equivalents,
beginning of period 438 369
------- -------
Cash and cash equivalents,
end of period $ 1,020 $ 372
======= =======
See accompanying notes.
7
HALLADOR PETROLEUM COMPANY
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. The interim financial data is unaudited; however, in the opinion
of management, the interim data 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 by the
Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principals have
been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures
included herein are adequate to make the information presented
not misleading.
The organization and business of the Company, accounting
policies followed by the Company and other information are
contained in the notes to the Company's financial statements
filed as part of the Company's December 31, 1994 Form 10-KSB.
This quarterly report should be read in conjunction with such
annual report.
2. As previously reported in 1992, the Company was named a
defendant in an action styled Kenneth Eugene Hahn, et al. v.
Love Process Engineering, Inc., et al (Case Number SM074020)
filed in the Santa Barbara Superior Court, North County Santa
Maria Branch, Santa Maria, California. This matter has been
settled with no material monetary affect to the Company.
8
HALLADOR PETROLEUM COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
During second quarter 1995, the Company reached an agreement to
extend the debt with its majority shareholder, the Robert C. Hardie
family, and certain other investors in the original bridge loan from
December 16, 1994 to December 31, 1997. The notes, bearing 6%
interest per annum, are collateralized (second to TCW, see below) by
the Company's interest in its California property. The notes are
convertible into company common stock at a price of $.15 per share,
which approximated fair market value at the time of the agreement.
Interest is payable, at the option of the Company, either in cash or
common stock using a fixed price of $.15 per share. Warrants
previously issued in conjunction with the notes to purchase 5,000,000
shares of common stock were extended to September 30, 1998. The
exercise price of the warrants was lowered to $.20 from $.25.
Approximately 35,667,000 new common shares would be issued assuming
total conversion of the bridge loan plus interest through November
13, 1995. See proposed recapitalization.
PROPOSED RECAPITALIZATION
-------------------------
On November 2, 1995, the Company announced an agreement in
principal to sell approximately $2.9 million of its common stock at
ten cents per share to an investor group including Dillon, Read &
Co., Inc. As part of this transaction, scheduled to close during
early January 1996, current holders of the Company's convertible notes
and warrants have agreed to convert their notes and cancel their
warrants in the amount of approximately $5,350,000 for approximately
35,667,000 shares of common stock. At the conclusion of the
transaction, the Company will increase its cash position by
approximately $2.9 million and will have no notes, warrants or
recourse debt outstanding. Present holders of the Company's common
stock will own approximately 60% of the Company and the Dillon, Read
group will own approximately 40%. The Company's float will be
approximately 5%.
Members of the Robert C. Hardie family of Sacramento, California
will continue to own the majority of the common stock of the Company.
As a result of the recapitalization, the board will be expanded to
include Mr. Bryan Lawrence of Dillon, Read and Mr. Cortlandt Dietler,
a private investor in Denver.
9
With the additional funds from the proposed recapitalization,
the Company plans to engage in the trading and acquisition of non-
producing oil and gas mineral leases and fee-simple minerals in
addition to its oil and gas exploration and production activities.
Management plans to increase the Company's reserves and cash flows
through "drill bit" carried interests as opposed to acquisitions of
producing properties.
Management is planning to effect a one-for-ten reverse stock
split sometime during the first half of 1996.
TCW DEBT
--------
The South Cuyama Field (the "Field"), the Company's primary
asset which accounts for over 94% of the Company's revenue
and reserves, is pledged by non-recourse debt to Trust Company of the
West (TCW). The Company owns 92% of Santa Barbara Partners (SBP), an
Oklahoma general partnership, which in turn owns an 84% working
interest (69% net revenue interest) in the Field subject to an 18%
net profits interest. Eighty-five percent of SBP's cash flow from
the property is used to service the TCW debt. Interest at 9% on the
TCW debt is paid monthly. The other 15% of SBP's cash flow from the
Field is distributed monthly to SBP's partners.
PROPERTIES SOLD IN JULY
In July the Company sold its interest in certain non-operated
Texas properties for $354,000. Lease operating expenses (LOE) for
each of the nine-month periods ended September 30, 1995 and 1994 were
approximately $60,000 and $77,000, respectively. LOE for the three-
month period ended September 30, 1994 was approximately $26,000.
Sales data are set forth in the following tables:
Nine Months Sales for Sold Properties
1995 1994
Volume Value Volume Value
---------- --------- ---------- ---------
Oil - barrels 2,895 $50,000 4,819 $ 74,000
Gas - MCF 34,698 57,000 55,035 121,000
Third Quarter Sales for Sold Properties
1995 1994
Volume Value Volume Value
---------- --------- ---------- ---------
Oil - barrels -- -- 1,367 $23,000
Gas - MCF -- -- 17,102 32,000
10
RESULTS OF OPERATIONS
YEAR-TO-DATE COMPARISON
-----------------------
Revenue decreased slightly due primarily to declining gas
production and prices offset by higher prices for oil and NGLs. As
reported in the Company's 1994 Form 10-KSB, gas reserves were reduced
by approximately 40%. Since current gas production is less than
expected, during the second quarter of 1995 management decided to
further reduce the gas reserves by 20%. This second reduction
equates to 716 MMCF net to the Company. Average product prices and
volumes are set forth in the following table:
1995 1994
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
Oil - barrels 169,220 $16.06 177,383 $14.00
Gas - MCF 262,155 1.40 413,469 1.80
NGLs- barrels 33,177 10.95 38,026 9.10
LOE increased due to fractionation costs of approximately
$168,000 for five wells during the first half of 1995; there were no
such costs in 1994. As a result of a brush fire in the third quarter
of 1994, the Company incurred costs of $76,000. The Company accounts
for fractionation costs similar to well workover expense as opposed
to capitalizing such costs.
General and administrative expenses decreased due to a reduction
in compensation costs as a result of the resignation of the Company's
Chief Operating Officer in 1994 and such position has since been
eliminated.
QUARTER-TO-DATE COMPARISON
--------------------------
Revenue decreased slightly because of the July 1995 property
sale and for the reasons discussed above (except oil prices remained
about the same). The table below provides sales data and average
prices for the two periods.
1995 1994
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
Oil - barrels 54,230 $15.54 58,309 $15.58
Gas - MCF 68,945 1.28 122,200 1.53
NGLs- barrels 10,897 9.65 12,768 8.27
LOE decreased because of non-recurring costs associated with the
late July 1994 brush fire.
11
OUTLOOK FOR REMAINDER OF 1995
FRACTIONATION PROJECT
---------------------
The Company initiated a study to fractionate(frac) certain wells
in the Field as reported in the 1994 Form 10-KSB. Through September
30, 1995 five wells have been fractionated. Although the results
from the first frac job were encouraging; the results from the
additional four frac jobs were unsuccessful. The Company continues
to evaluate frac opportunities in the Field and on November 8, 1995,
an additional well was fracted; the results from this latest
endeavor will not be known until early December 1995.
HEDGING
-------
The Company continues to evaluate hedging strategies for its oil
production. There are several strategies available that may be
implemented when the price of oil, as reflected in the futures
market, is higher. As of November 10, 1995, the Company is receiving
$15.25 per barrel for its California production as compared to an
average price of $15.54 during the third quarter of 1995.
Currently, the Company is receiving approximately $1.40/MCF for
its California gas production which is more than the average price
received of $1.32 during the third quarter 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash from operations is expected to enable the Company to meet
its obligations as they become due through the next 12 months.
FUTURE RESULTS OF OPERATIONS
----------------------------
Assuming stable production and prices, a small loss is expected
for the fourth quarter.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
------------------------------------------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." The Company will have to implement
SFAS No. 121 by the quarterly period ending March 31, 1996. The
provisions will require the Company to review long-lived assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If it is
determined that an impairment loss has occurred based on expected
future cash flows, then the loss should be recognized in the income
statement and certain disclosures regarding the impairment should be
made in the financial statements. Because the Company uses the full
cost method of accounting, the provisions of SFAS No. 121 are not
expected to apply.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in 1992, the Company was named a
defendant in an action styled KENNETH EUGENE HAHN, ET AL. V. LOVE
PROCESS ENGINEERING, INC., ET AL (CASE NUMBER SM074020) filed in the
Santa Barbara Superior Court, North County Santa Maria Branch, Santa
Maria, California. This matter has been settled with no material
monetary affect to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1995.
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 13, 1995 By: /s/ VICTOR P. STABIO
Victor P. Stabio
Chief Executive Officer and
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial and accounting officer.