U.S. 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, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-14731
HALLADOR PETROLEUM COMPANY
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1014610
(State of incorporation) (IRS Employer Identification No.)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264
(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 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, 1998: 7,093,150
1
PART I. FINANCIAL INFORMATION
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
June 30, December 31,
1998 1997*
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,978 $ 6,047
Available-for-sale securities 631 1,800
Accounts receivable-
Oil and gas sales 397 331
Well operations 293 336
------- -------
Total current assets 6,299 8,514
------- -------
Oil and gas properties
(successful efforts), at cost:
Unproved properties 627 378
Proved properties 18,683 18,366
Less - accumulated depreciation
depletion, amortization and
impairment (13,281) (13,039)
------- -------
6,029 5,705
------- -------
Other assets 290 266
------- -------
$ 12,618 $ 14,485
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Brokerage account $ 115 $
Accounts payable and accrued liabilities 253 360
Oil and gas sales payable 199 211
Debt to TCW 3,382 2,492
------- -------
Total current liabilities 3,949 3,063
------- -------
Debt to TCW 2,831
-------
Deferred bonus plan 212 205
------- -------
Other 105 105
------- -------
Minority interest 4,961 4,926
------- -------
Stockholders' equity:
Net unrealized loss on available-for-
sale securities (45)
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 (14,696) (14,777)
------- -------
3,391 3,355
------- -------
$ 12,618 $ 14,485
======= =======
*Derived from the Form 10-KSB.
See accompanying notes.
2
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Operations
(in thousands, except per share amounts)
Six months ended Three months ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
(restated) (restated)
Revenue:
Oil $1,383 $2,029 $ 710 $ 950
Gas 321 167 222 74
NGLs 170 221 85 91
Interest and other 197 86 88 43
Gain on sale of prospects 343 7 23
----- ----- ----- -----
2,414 2,510 1,128 1,158
----- ----- ----- -----
Costs and expenses:
Lease operating 1,395 1,282 715 652
Depreciation, depletion
and amortization 242 211 142 109
General and
administrative 330 203 190 96
Impaired leasehold costs 14 14
Geological and geophysical 102 525 29 130
Dry hole 324 324
Interest 229 254 109 125
----- ----- ----- -----
2,298 2,813 1,185 1,450
----- ----- ----- -----
Income (loss) before
minority interest 116 (303) (57) (292)
Minority interest (35) 17
----- ----- ----- -----
Net income (loss) $ 81 $ (303) $ (40) $ (292)
===== ===== ===== =====
Net income (loss)
per share $ .01 $ (.04) $ * $ (.04)
===== ===== ===== =====
Weighted average shares
outstanding 7,093 7,093 7,093 7,093
===== ===== ===== =====
_____________________
* Less than one cent.
See accompanying notes.
3
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
Six months ended
June 30,
1998 1997
(restated)
Net cash provided by operating activities $ 524 $ 51
------ ------
Cash flows provided by (used in)
investing activities:
Short-term investments 1,135 400
Additions to properties (878) (976)
Other assets (24)
------ ------
Net cash used in (provided by)
investing activities 233 (576)
------ ------
Cash flows from financing activities:
Brokerage account 115
Repayments of debt (1,941) (472)
------ ------
Cash flows from financing activities:
Net cash used in financing activities (1,826) (472)
------ ------
Net decrease in cash and cash equivalents (1,069) (997)
Cash and cash equivalents, beginning of period 6,047 2,898
------ ------
Cash and cash equivalents, end of period $ 4,978 $ 1,901
====== ======
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Notes to Financial Statements
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 1997 Form 10-KSB. This quarterly report should be read
in conjunction with such annual report.
2. During the fourth quarter of 1997, the Company changed from the full
cost method to the successful efforts method of accounting for its oil
and operations.
3. Comprehensive income for the six-month period ended June 30, 1998 is
approximately $50,000 and the loss for the three-month period ended
June 30, 1998 is approximately $72,000. Per share amounts are not
meaningful.
4
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 period.
1998 1997
Sales Volume Average Price Sales Volume Average Price
------------- ------------- ------------ -------------
Oil - barrels 116,753 $11.85 106,396 $19.07
Gas - mcf 153,848 2.09 65,800 2.54
NGLs- barrels 14,512 11.71 15,196 14.54
Significantly lower oil prices caused the reduction in oil revenues. Gas
production more than doubled due to the two new gas wells in the Merlin
prospect, see below. The increase in oil production is attributable
primarily to TCW relinquishing its 18% net profits interest in the South
Cuyama field pursuant to the debt restructuring, see below.
South Cuyama field oil and gas prices at August 12, 1998, were $11/bbl and
$1.90/mcf. Gas prices in the Merlin prospect are currently $2.10/mcf.
QUARTER-TO-DATE COMPARISON
- --------------------------
The table below provides sales data and average prices for the second
quarters.
1998 1997
Sales Volume Average Price Sales Volume Average Price
------------- ------------- ------------ -------------
Oil - barrels 63,244 $11.22 54,761 $17.35
Gas - mcf 109,898 2.02 35,487 2.08
NGLs- barrels 7,994 10.58 7,807 11.65
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash, short-term investments, and cash to be provided from operations are
expected to enable the Company to meet its obligations as they come due
and fund current planned activities.
5
THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 1997
FORM 10-KSB AND SHOULD BE READ IN CONJUNCTION THEREWITH.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
THE MERLIN PROSPECT OF THE SAC BASIN - NORTHERN CALIFORNIA
----------------------------------------------------------
On May 10, 1998 the Otto Loshe #1-22 was spud. The well was completed
at 5,500' and on June 5 was placed on production. The well is currently
producing 1.8 mmcfpd. This was the fifth and final well of this
particular area of the prospect. A test of a shallower sand yielded gas
at a rate of 6.5 mmcfpd and will be produced at a later date.
The initial Merlin prospect gas find, the #1-15 Henning, continues to
produce at a rate of 2.3 mmcfpd. The Company anticipates combined gross
sales of 5 mmcfpd from both wells. The Company has a 30% WI (24% NRI) in
this prospect.
An exploratory well is scheduled for a new area of the prospect in
mid-September. Furthermore, a second exploratory well is scheduled for
late 1998 or early 1999. If either of these two exploratory wells prove
successful, more development wells could be drilled in 1999.
BIG HORN BASIN - WYOMING
------------------------
In January 1998, the Company sold a half interest in four of the nine
prospects it is developing for $597,000 to MCNIC Oil and Gas Corporation,
a large public utility headquartered in Detroit, Michigan resulting in a
gain of $320,000. Seismic operations are underway at four prospect areas
where the Company has working interests ranging from 50% to 100%. The
Company intends to spend $50,000 in seismic cost ($25,000 net to the
Company), and depending on the results, plans to drill a horizontal well
when oil prices improve. The Company will be the operator and the well is
estimated to cost $500,000 ($250,000 net to the Company).
In late April, the joint venture with Blackstone Energy was terminated;
the Company continues to remain active in the area.
SOUTH TEXAS
-----------
On May 4, 1998, the Company entered into a joint venture with Indexgeo &
Associates of Houston, Texas to acquire seismic options in Colorado County,
Texas (75 miles west of Houston). The budget for the seismic options to
Hallador's 90% JV interest is $100,000. It is the intent of the JV to turn
the options to a third party to shoot 3-D seismic. 3-D seismic has been
successful in this area in identifying economic drilling locations in the
Yegua and Wilcox formations. To date, the Company has entered into options
to lease approximately 4,000 acres.
On June 13, 1998 the Indexgeo New Henderson Gas Unit #1 was spud. This
well is located in Lavaca County, which adjoins Colorado County, Texas.
The well was completed at 3,800' and on August 5 was placed on production.
6
The well is currently producing 400 mcfpd. The Company has a 15% WI
(11.25% NRI) in this well. The Company's cost was approximately $70,000.
No further drilling is planned for this area.
PARADOX BASIN
-------------
During June, approximately 6,000 acres were leased in the Paradox Basin,
Utah (within 25 miles of the Four Corners) within the Rapids Prospect
area. Geologic and geophysical studies are underway in support of a
future 3-D seismic survey. The Company plans to invest $200,000 in this
area.
SOUTH CUYAMA FIELD
LOW OIL PRICES
--------------
Due to low oil prices the Company implemented many cost reduction measures.
These included the shut-in of marginal wells and the reduction in the
utilization of service rigs. These factors helped the Company achieve very
low operating costs, but also resulted in lower production for the second
quarter. Approximately 150 bopd in marginal production have been shut-in.
Based on current South Cuyama field oil prices of $11.00, the field is at a
cash breakeven point.
CATALYTIC CONVERTER INVESTMENT
------------------------------
On April 21, 1998, Hallador paid $20,000 for a six-month option to acquire
a 5% ownership position in Catalytic Solutions, Inc. (Catalytic) located
in Oxnard, California (a Los Angeles suburb). The Company must decide on
or before October 19, 1998, whether to invest $300,000 for its 5%
ownership.
Catalytic is a private company founded in January 1996 to exploit the
capabilities of a unique family of metal-oxide materials developed by the
company's co-founder, Dr. Steve Golden. The company is developing a new
generation of catalytic materials that are not based on precious metals such
as platinum, palladium, and rhodium. The worldwide market for catalytic
materials is $6 billion annually, and Catalytic believes their product cost
will be a fraction of the cost of competing technologies.
These catalytic converters are currently being tested in the South Cuyama
field. Initial results are encouraging.
TCW DEBT
- --------
The South Cuyama field, the Company's principal asset, is pledged to TCW.
On April 9, 1998, the debt was restructured. In return for (i) a cash
payment of $1.8 million on May 1, 1998, (ii) monthly payments of $92,000
beginning June 1, 1998, (iii) a balloon payment approximating $3 million
due on June 1, 1999, and (iv) an increase in the interest rate from 9% to
12% TCW agreed to relinquish its 18% net profits interest in the field
effective April 1, 1998.
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AVAILABLE-FOR-SALE SECURITIES
- -----------------------------
During the second quarter, the Company decided to make several investments
in certain publicly traded drilling companies. Management is of the opinion
that these particular stocks are trading at a value significantly less than
their fair value. As of June 30, 1998 the Company held 15,000 shares of
R&B Falcon Drilling (FLC-NYSE) and 15,000 of Rowan Companies (RDC-NYSE) at
a cost of $676,000. At June 30, these stocks have a value of $631,000.
Management continued this strategy, and as of August 13, the Company owns
26,000 shares of R&B Falcon Corporation, 26,000 shares of Rowan Companies,
16,000 of ENSCO International, Inc. (ESV-NYSE), and 10,000 shares of Pool
Energy Services (PESC-NASDAQ), all at a cost of $1,408,000. Based on
August 13 closing prices, these stocks have a value of $984,000.
Management intends to hold these stocks through the fall of 1999.
THE YEAR 2000-Y2K
- -----------------
During 1997, the Company installed a new accounting system that is year
2000 compliant. The Company is investigating the computer system used
in the operations of the Field to determine what revisions are required in
order for the software to be year 2000 compliant. Such costs are not
expected to be material. The Company does not anticipate any Y2K problems
with any of its significant customers or suppliers.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
None of the new accounting pronouncements that have been issued will affect
the Company's future financial reporting.
1998 OUTLOOK
- ------------
If the low oil price environment continues, the Company anticipates a loss
for the year. Pursuant to FAS 121, Impairment of Long-lived Assets,
management periodically assesses the recoverability of the Company's
investment in oil and gas properties. Management believes that the low oil
price environment will not continue in the near term and that the Company
will ultimately recover its investment in the South Cuyama field.
Accordingly, no write-down is expected during 1998.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Reconveyance of Overriding Royalty Interests
10.2 Secured Promissory Note - $1,055,854 - April 23, 1998
10.3 Secured Promissory Note - $1,330,376 - April 23, 1998
10.4 Secured Promissory Note - $122,500 - April 23, 1998
10.5 Secured Promissory Note - $767,894 - April 23, 1998
10.6 Secured Promissory Note - $612,395 - April 23, 1998
10.7 Second Amendment to Amended Deed of Trust, Mortgage,
Security Agreement, Financing Statement, Personal
Property including hydrocarbons, Assignment of
Production and Fixture Filing
27 Financial Data Schedule; EDGAR filing only
(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 14, 1998 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
officer.
9