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, 2004
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 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 16, 2004: 7,093,150
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet
(in thousands)
June 30, December 31,
2004 2003*
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,169 $ 3,319
Accounts receivable-
Oil and gas sales 1,142 1,019
Well operations 326 543
------ ------
Total current assets 5,637 4,881
------ ------
Oil and gas properties, at cost (successful efforts):
Unproved properties 392 450
Proved properties 26,185 25,910
Less - accumulated depreciation,
depletion, amortization and impairment (20,225) (19,749)
------ ------
6,352 6,611
------ ------
Oil and gas operator bonds 216 216
California plug and abandonment deposits 365 291
Investment in Catalytic Solutions 150 164
Other assets 50 49
------ ------
$12,770 $12,212
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 812 $ 1,383
Oil and gas sales payable 660 598
------ ------
Total current liabilities 1,472 1,981
------ ------
Key employee bonus plan 284 253
------ ------
Future site restoration 1,346 1,294
------ ------
Minority interest 5,342 5,047
------ ------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value;
10,000,000 shares authorized; none issued
Common stock, $ .01 par value; 100,000,00
shares authorized, 7,093,150 shares issued 71 71
Additional paid-in capital 18,061 18,061
Accumulated deficit (13,806) (14,495)
------ ------
4,326 3,637
------ ------
$12,770 $12,212
====== ======
*Derived from the Form 10-KSB.
See accompanying notes.
Consolidated Statement of Operations
(in thousands)
Six months ended Three months ended
June 30, June 30,
2004 2003 2004 2003
------ ------ ------ ------
Revenue:
Oil $3,852 $3,828 $2,055 $1,725
Gas 955 835 491 487
Other 126 109 23
----- ----- ----- -----
4,933 4,772 2,569 2,212
----- ----- ----- -----
Costs and expenses:
Lease operating 2,691 2,731 1,569 1,494
Exploration costs 140 145 110 125
Depreciation, depletion and
amortization 530 562 265 277
General and administrative 587 585 296 246
----- ----- ----- -----
3,948 4,023 2,240 2,142
----- ----- ----- -----
Income before cumulative effect of
change in accounting principle 985 749 329 70
Cumulative effect of change in
accounting principle (181)
----- ----- ----- -----
Income before minority interest 985 568 329 70
Minority interest (296) (170) (99) (21)
----- ----- ----- -----
Net income $ 689 $ 398 $ 230 $ 49
===== ===== ===== =====
Income per share
Before cumulative effect of
change in accounting principle $ .10 $ .07 $ .03 $ .01
Cumulative effect of change
in accounting principle (.02)
----- ----- ----- -----
Net income $ .10* $ .05 $ .03 $ .01
===== ===== ===== =====
Weighted average shares outstanding
-basic 7,093 7,093 7,093 7,093
===== ===== ===== =====
_____________________
*Diluted income per share was $.09 and diluted weighted average shares
outstanding were 7,500. Basic and diluted income per share were the same
for the other periods.
See accompanying notes.
Consolidated Statement of Cash Flows
(in thousands)
Six months ended June 30,
2004 2003
------ ------
Net cash provided by operating activities $1,169 $1,548
------ -----
Cash flows from investing activities:
Properties (245) (262)
Other (74) (90)
------ -----
Net cash used in investing activities (319) (352)
------ -----
Cash flows from financing activites:
Debt retirement (251)
Cash calls from joint interest owners 351
------
Net cash from financing activities 100
------
Net increase in cash and cash equivalents 850 1,296
Cash and cash equivalents, beginning of period 3,319 1,647
------ -----
Cash and cash equivalents, end of period $4,169 $2,943
====== =====
See accompanying notes.
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.
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 2003 Form 10-KSB. This quarterly
report should be read in conjunction with that annual report.
3. In July 2001, the FASB issued SFAS 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period
in which it is incurred and a corresponding increase in the carrying
amount of the related long-lived asset and is effective for fiscal
years beginning after June 15, 2002. We adopted SFAS 143 on January
1, 2003 and increased our liability for asset retirement obligations
by $264,000 (using an 8% discount rate) and recorded a cumulative
effect of change in accounting principle of $181,000. One October 1,
2003 we changed our estimate and increased our liability by an
additional $300,000. For the six months ended June 30, 2004 and 2003,
we recognized $52,000 and $37,000, respectively, of accretion on the
liability as a component of depletion expense.
4. As allowed in SFAS 123, Accounting for Stock-Based Compensation, we
continue to apply APB 25, Accounting for Stock Issued to Employees,
and related interpretations in recording compensation related to our
plan. The pro forma effect on our net income was not material for any
of the periods presented. No grants were issued during the 2004 and
2003 periods.
5. As discussed in previous filings, the SC Field was purchased from ARCO
(Atlantic Richfield which is now part of BP p.l.c.) in May 1990. As
part of the Purchase and Sale Agreement, ARCO agreed to indemnify us
for certain environmental liabilities connected with their 40-year
ownership of the field and gas plant ("ARCO Indemnity"). Part of the
gas plant has not been operational during the past twenty-five years.
There is evidence of asbestos in the non-operational part of the gas
plant. It is our position, and the opinion of our legal counsel, that
the ARCO Indemnity covers future abandonment and clean-up costs
associated with this gas plant. We have had several discussions with
BP regarding this matter and have retained a Los Angeles law firm to
assert our rights under the ARCO Indemnity. BP continues to deny any
responsibility.
The costs to abandon and clean up the gas plant area and other oil and
gas areas at the field will be significant. There is a chance,
depending on the negotiations and legal proceedings with BP, that some
or all of the costs could be borne by us. At this time we are unable
to estimate what these costs could ultimately be but we expect that
such costs could have a material adverse effect on our financial
condition, results of operations and cash flows.
6. On August 10, 2004, we entered into an agreement with E&B Natural
Resources Management Corporation (a private company) to sell all of
our interest in the South Cuyama field and adjacent exploration areas
for $23 million; consisting of $19.5 million in cash and an interest
bearing note of $3.5 million due on September 30, 2005. Due to the
minority interest these amounts will be reduced by 30%. Closing is
scheduled for September 30, 2004, with an effective date of June 1, 2004.
Due to the effective date being June 1, 2004, downward closing adjustments
are expected to be about $1.5 million. In addition, and subject to final
board approval, we plan to make employee bonuses and retention payments
and to cash out our outstanding stock options all totaling about
$2.7 million. Currently there are about 750,000 options outstanding and
after the stock option cash out these options will be canceled.
Following the sale, we will have no California operations, but will
continue our operations in New Mexico and Texas. These properties have
remaining gas reserves of about 2 BCF natural gas equivalents or 1.5 BCF
considering the 30% minority interest.
After closing, our board will meet to consider how best to utilize the
cash from the sale. Among the options the board will consider is a
special dividend. We have about 7.1 million shares outstanding.
As a result of the sale agreement discussed above all exploration
activities have been put on hold pending closing of the sale.
HALLADOR PETROLEUM COMPANY
Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
YEAR-TO-DATE COMPARISON
-----------------------
The table below (in thousands) provides sales data and average prices for
the periods.
2004 2003
------------------------ ----------------------
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
Oil - barrels
South Cuyama field 107 $35.00 $3,745 130 $28.82 $3,746
Other 4 26.75 107 5 16.40 82
Gas - mcf
South Cuyama field 111 5.66 628 79 5.56 439
San Juan-New Mexico 35 4.97 174 26 4.57 119
Other 27 5.67 153 45 6.15 277
Oil revenue stayed about the same; however, the production declines were
more than offset by price increases as set forth in the table above.
Field production to the 100% for the 2004 and 2003 periods averaged 800
and 958 bopd, respectively. Oil production is down due to mechanical
failures on three of our better wells and the decision not to start new
projects pending the sale of the field. Current field production to the
100% is about 835 bopd. Gas revenue increased primarily due to higher
production in the field. Last year the gas was shut in for about 50 days
due to gas quality issues with SOCAL as previously disclosed in our 2003
Form 10-KSB.
Current prices are about $44 for oil and $6 for gas.
The table below (in thousands) shows lease operating expenses (LOE) for
our two primary fields.
2004 2003
------ ------
South Cuyama field:
LOE excluding electricity $2,002 $1,900
Electricity 606 694
------ -----
2,608 2,594
San Juan - New Mexico 63 78
Other 20 59
----- -----
$2,691 $2,731
===== =====
Electricity decreased due to a 17% rate reduction from PG&E.
QUARTER-TO-DATE COMPARISON
--------------------------
The table below (in thousands) provides sales data and average prices for
the periods.
2004 2003
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
Oil - barrels
South Cuyama field 55 $36.36 $2,000 64 $26.33 $1,685
Other 2 27.50 55 4 10.00 40
Gas - mcf
South Cuyama field 56 5.77 323 58 5.47 317
San Juan-New Mexico 19 5.16 98 13 4.38 57
Other 12 5.83 70 19 5.95 113
The table below (in thousands) shows lease operating expenses (LOE) for
our two primary fields.
2004 2003
------ ------
South Cuyama field:
LOE excluding electricity $1,235 $1,042
Electricity 294 374
------ -----
1,529 1,416
San Juan - New Mexico 35 52
Other 5 26
----- -----
$1,569 $1,494
===== =====
Field production to the 100% for the periods ended June 30, 2004 and 2003
averaged 820 and 962 bopd, respectively.
The increase in G&A was due primarily to a $50,000 contribution to a
Denver charity.
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash to be provided from operations are expected to enable us to
meet our obligations as they become due during the next several years.
We have no bank debt, no special purpose entities and no off-balance sheet
arrangements nor did we enter into any related party transactions.
THE FOLLOWING DISCUSSION UPDATES THE MD&A CONTAINED IN ITEM 6 OF THE 2003
FORM 10-KSB AND THE TWO DISCUSSIONS SHOULD BE READ TOGETHER.
PROSPECT DEVELOPMENT AND EXPLORATION ACTIVITY
---------------------------------------------
SOUTH CUYAMA FIELD
-------------------
On August 10, 2004, we entered into an agreement with E&B Natural Resources
Management Corporation (a private company) to sell all of our interest in
the South Cuyama field and adjacent exploration areas for $23 million;
consisting of $19.5 million in cash and an interest bearing note of
$3.5 million due on September 30, 2005. Due to the minority interest
these amounts will be reduced by 30%. Closing is scheduled for September 30,
2004, with an effective date of June 1, 2004.
Due to the effective date being June 1, 2004, downward closing adjustments
are expected to be about $1.5 million. In addition, and subject to final
board approval, we plan to make employee bonuses and retention payments
and to cash out our outstanding stock options all totaling about
$2.7 million. Currently there are about 750,000 options outstanding and
after the stock option cash out these options will be canceled.
Following the sale, we will have no California operations, but will continue
our operations in New Mexico and Texas. These properties have remaining gas
reserves of about 2 BCF natural gas equivalents or 1.5 BCF considering the 30%
minority interest.
After closing, our board will meet to consider how best to utilize the cash
from the sale. Among the options the board will consider is a special
dividend. We have about 7.1 million shares outstanding.
As a result of the sale agreement discussed above all exploration activities
have been put on hold pending closing of the sale.
SOCAL
-----
The pipeline matter discussed in the 2003 Form 10-KSB has been favorably
resolved.
There are no other significant changes or developments to report from what
we disclosed in the 2003 Form 10-KSB.
ITEM 3. CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be
disclosed in our SEC reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms,
and that such information is accumulated and communicated to our CEO as
appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO of
the effectiveness of the design and operation of our disclosure controls
and procedures. Based upon that evaluation, our CEO, who is also our CFO,
concluded that our disclosure controls and procedures are effective for
the purposes discussed above. There have been no significant changes in
our internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31 -- SOX 302 Certification
32 -- SOX 906 Certification
99 -- Purchase and Sale Agreement Among Hallador Petroleum Company
Hallador Production Company, Hallador Petroleum, LLP,
Santa Barbara Partners, Trio Petroleum Inc., Cuyama Drilling
and Production Company and South Cuyama Limited Partnership
("Sellers") and E&B Natural Resources Management Corporation
and WRBD II, LP ("Buyers") dated August 10, 2004
Signature
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HALLADOR PETROLEUM COMPANY
Dated: August 16, 2004 By:/S/ VICTOR P. STABIO
CEO and CFO
Signing on behalf of registrant
and as principal financial officer.