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 September 30, 1999
[ ] 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 November 12, 1999: 7,093,150
PART I. FINANCIAL INFORMATION
HALLADOR PETROLEUM COMPANY
Consolidated Balance Sheet
(in thousands)
September 30, December 31,
1999 1998*
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,490 $ 3,073
Marketable securities (cost-$1,060 and $2,029) 742 1,224
Accounts receivable-
Oil and gas sales 421 226
Well operations 176 234
Right-of-way rental 166
Prospect sale 167
------- -------
Total current assets 2,829 5,090
------- -------
Oil and gas properties (successful efforts),
at cost:
Unproved properties 275 264
Proved properties 19,958 18,878
Less - accumulated depreciation
depletion, amortization and impairment (13,892) (13,508)
------- -------
6,341 5,634
------- -------
Oil and gas operator bonds 228 155
Investment in Catalytic Solutions 70 70
Other assets 122 113
------- -------
$ 9,590 $ 11,062
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Brokerage account-marketable securities $ 208 $ 284
Accounts payable and accrued liabilities 244 224
Oil and gas sales payable 73 70
------- -------
Total current liabilities 525 578
------- -------
Bank debt 1,385 3,231
------- -------
Key employee bonus plan 228 218
------- -------
Other 101 101
------- -------
Minority interest 4,610 4,614
------- -------
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
Net unrealized gain (loss) on marketable
securities 127 (305)
Accumulated deficit (15,518) (15,507)
------- -------
2,741 2,320
------- -------
$ 9,590 $ 11,062
======= =======
- ------------------------------
*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,
1999 1998 1999 1998
------- ------- ------- -------
Revenue:
Oil $ 2,024 $ 2,052 $ 922 $ 669
Gas 296 520 112 199
NGLs 149 227 58 57
Gain on sale of prospects 343
Interest and other 66 246 21 60
Non-recurring water disposal fee, net 208
Gain on stock sales 358 48 142 37
----- ----- ----- -----
3,101 3,436 1,255 1,022
----- ----- ----- -----
Costs and expenses:
Lease operating 1,835 2,148 660 753
General and administrative 516 479 187 149
Exploration costs 268 378 2 276
Interest 113 326 29 97
Depreciation, depletion and
amortization 384 366 145 124
----- ----- ----- -----
3,116 3,697 1,023 1,399
----- ----- ----- -----
Income (loss) before minority interest (15) (261) 232 (377)
Minority interest 4 78 (70) 113
----- ----- ----- -----
Net income (loss) $ (11) $ (183) $ 162 $ (264)
===== ===== ===== =====
Net income (loss) per share (1) $ (.03) $ .02 $ (.04)
===== ===== =====
Weighted average shares outstanding 7,093 7,093 7,093 7,093
===== ===== ===== =====
- ----------------------
(1) Per share amount less than $.01.
See accompanying notes.
HALLADOR PETROLEUM COMPANY
Consolidated Statement of Cash Flows
(in thousands)
Nine months ended
September 30,
1999 1998
------- ------
Net cash provided by operating activities $ 71 $ 48
------ ------
Cash flows from investing activities:
Marketable securities 1,260 235
Properties (1,095) (722)
Other assets (82) (22)
Prospect sale 175
------ ------
Net cash provided by investing activities 258 (509)
------ ------
Cash flows from financing activities:
Repayments of debt (1,846) (2,146)
Brokerage account (66)
------ ------
Net cash used in financing activities (1,912) (2,146)
------ ------
Net decrease in cash and cash equivalents (1,583) (2,607)
Cash and cash equivalents, beginning of period 3,073 6,047
------ ------
Cash and cash equivalents, end of period $ 1,490 $ 3,440
====== ======
See accompanying notes.
Notes to Financial Statements
1. The interim financial data is unaudited; however, in our opinion, 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 data has been prepared pursuant to the SEC's rules and
regulations; accordingly, certain information and footnote disclosures
normally included in annual financial statements have been omitted.
We strongly encourage readers of this quarterly report to read our 1998 Form
10-KSB which includes information about our organization and accounting
policies.
2. Commencing January 1, 1999, we began amortizing, using the units-of-
production method, our share of the estimated future costs ($1,068,000) to
P&A the Field's 278 wells.
3. Comprehensive income for the nine-month period ended September 30, 1999 was
$78,000 and the loss for the nine-month period ended September 30, 1998 was
$594,000.
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.
1999 1998
Sales Volume Average Price Sales Volume Average Price
------------ ------------- ------------ -------------
Oil - barrels
South Cuyama field 138,080 $14.55 172,650 $11.79
Other 1,090 13.35 1,160 13.78
Gas - mcf
South Cuyama field 24,700 2.28 51,170 2.15
Other 129,540 1.85 192,220 2.13
NGLs- barrels
South Cuyama field 11,470 10.80 18,670 9.86
Other 3,160 8.21 2,850 14.98
Higher oil prices offset lower oil production from the South Cuyama field
(the "Field").
Gas production continues to decline in the Field. New production from the
Merlin prospect has offset this to some degree; however, production from
these wells declined compared to last year. During the fourth quarter we
expect the new South Texas gas wells and the reworked Merlin wells to
alleviate part of our declining gas production.
The Field's oil price on November 12, 1999 was $21.82/bbl. Gas prices in the
Merlin prospect are currently $3.10/mcf.
During January 1999, we earned over $242,000 in non-recurring fees for
allowing a third party to dispose water in the Field's disposal system from a
blowout gas well 80 miles away. Related expenses were about $34,000.
We recently decided to begin amortizing, using the units-of-production method,
our share of the estimated future costs ($1,068,000) to P&A the Field's 278
wells. Included in DD&A expense for the nine months ended September 30, 1999
was $56,000 associated with such costs.
QUARTER-TO-DATE COMPARISON
- --------------------------
The table below provides sales data and average prices for the period.
1999 1998
Sales Volume Average Price Sales Volume Average Price
------------- ------------- ------------ -------------
Oil - barrels
South Cuyama field 48,600 $18.87 56,700 $11.72
Other 260 17.67 360 12.04
Gas - mcf
South Cuyama field 10,380 2.65 17,640 2.07
Other 41,070 2.06 71,910 2.27
NGLs- barrels
South Cuyama field 3,900 11.74 6,080 7.77
Other 1,180 10.69 930 10.38
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
We expect that our cash, marketable securities, and cash to be provided from
operations will enable us to meet our obligations as they come due and fund
planned activities.
The Field, our principal asset, is pledged to U. S. Bank under a $3,231,000
revolving line of credit executed on March 10, 1999. The proceeds from this
revolver were used to payoff Trust Company of the West. The principal is due
on March 31, 2002. On March 15, 1999, at our discretion, we paid down
$1,846,000 on the revolver.
THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 1998 FORM
10-KSB AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
- ---------------------------------------------
South Cuyama Field
------------------
In late September 1999, we decided to terminate the 3-D seismic project. Exit
costs were about $20,000. The money originally budgeted for the 3-D seismic
project will now be used for four exploitation projects in the Field at a cost
of about $750,000 to the 100%. We have a 79% WI (66% NRI) in the Field.
The two wells completed in August proved successful and together are producing
about 100 bopd. The results of the four projects mentioned above should be
known by mid-December; the first of the wells was spud November 7, 1999.
Presently the Field is producing an average of 860 bopd, compared to an
average of 885 for the same period last year.
Merlin Prospect of the Sac Basin - Northern California
------------------------------------------------------
The two wildcats drilled in March and April resulted in one dry hole and one
successful well. Another exploratory well is planned for late November.
Combined production from this field is about 2.8 mmcfpd. We have a 30% WI
(24% NRI) in this prospect. Equity Oil Company of Salt Lake City, Utah is the
operator.
Big Horn Basin - Wyoming
------------------------
We have sold all but a minor portion of our interest in this prospect and have
no development plans for the future.
South Texas
-----------
The first two wells were drilled and completed in June and a third well was
drilled and completed in August. Currently, the field is producing about
1.4 mmcfpd. We have a 19% WI (16.25% NRI). Indexgeo & Associates of
Houston, Texas is the operator. A fourth well was spud on November 5, 1999
and pipe was run on November 11. Potential pay zones will be evaluated based
on electric logs and results will be known by the end of November. Drilling
and completion costs to the 100% for this well are estimated to be $170,000.
Paradox Basin - Utah
--------------------
Now that oil prices have rebounded we plan to devote more time in turning this
prospect.
San Juan Basin
--------------
During the first quarter next year, we plan to drill three development wells
in this prospect at a cost of $500,000 per well. We are the operator, but
have a small working interest of about 6% (4% NRI).
Catalytic Solutions Investment
- ------------------------------
We declined our option to purchase more shares that were offered to existing
shareholders in November 1999. We still have an option to increase our
ownership that expires November 1, 2000. Our current ownership in CSI is
about one-half of one percent.
Available-For-Sale Securities
- -----------------------------
During the second quarter of 1998, we made several investments in certain
publicly traded drilling and service companies. During the fourth quarter of
1998 we recognized an impairment of $400,000 for the R&B Falcon investment
and an impairment of $100,000 for the Rowan investment. During the nine months
ended September 30, 1999 $56,500 of the $400,000 impairment was recognized as
profit due to the sale of certain Falcon shares. The table below shows the
positions at September 30, 1999 and November 12, 1999. Trading profits of
$358,000 were recognized during the first nine months and from October 1,
through November 12, they were $14,000. Cumulative trading profits from the
second quarter of 1998 through November 12, 1999 have been $462,000.
September 30, 1999
Shares Cost Market Value
------- ----------- ------------
R&B Falcon Corporation (FLC-NYSE) 26,000 $ 575,000 $ 341,000
Rowan Companies Inc. (RDC-NYSE) 18,000 369,000 293,000
Ensco International Inc. (ESV-NYSE) 6,000 116,000 108,000
--------- --------
Subtotal 1,060,000 742,000
Impairment (444,500)
--------- --------
$ 615,500 $ 742,000
======== ========
November 12, 1999
Shares Cost Market Value
------- --------- ------------
R&B Falcon Corporation (FLC-NYSE) 29,000 $ 614,000 $ 369,750
Rowan Companies Inc. (RDC-NYSE) 18,000 369,100 302,600
-------- --------
Subtotal 983,100 672,350
Impairment (444,500)
-------- --------
$ 538,600 $ 672,350
======== ========
/TABLE>
Y2K
- -------
During June 1999, we upgraded our accounting software to be Y2K compliant.
The Company has no contingency plans because if necessary, all critical
functions can be performed without the aid of computers. The Company has no
reason to believe that there will be Y2K type problems with its customers or
suppliers.
New Accounting Pronouncements
- -----------------------------
None of the new accounting pronouncements that have been released will affect
our 1999 financial reporting.
1999 Outlook
- ------------
If the recent increase in oil prices is sustained, we expect positive cash flow
from operations, before exploration costs, for the remainder of the year.
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 liabilities
in the future.
The California legislature passed a bill, which increased 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 will be available
to properly plug and abandon (P&A) California wells upon their depletion.
Over the next ten years, we as the Field's operator, are required to place in an
interest-bearing escrow account $500 per year for each idle well in the Field
until such well is plugged and abandoned or until $5,000 has been deposited.
The first $60,000 installment was paid in June 1999. We estimate that after
eight annual installments ($480,000) we will have met the current funding
obligation of $600,000 considering the interest to be earned. As the 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 278 wells in the Field, 119 of which are classified as "idle."
We recently decided to begin amortizing, using the units-of-production method,
the estimated future costs ($1,068,000) to P&A the Field's 278 wells.
Included in DD&A expense for the first nine months ended September 30, 1999
was $56,000 associated with these estimated future costs.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule; EDGAR filing only
10.3 - Crude Oil Purchase Contract dated September 2, 1999 by and
between EOTT Energy Operating Limited Partnership and Hallador
Production Company
(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 12, 1999 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.