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 March 31, 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 May 14, 2004: 7,093,150
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet
(in thousands)
March 31, December 31,
2004 2003*
-------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,214 $ 3,319
Accounts receivable-
Oil and gas sales 995 1,019
Well operations 207 543
------ ------
Total current assets 5,416 4,881
------ ------
Oil and gas properties, at cost (successful efforts):
Unproved properties 472 450
Proved properties 26,021 25,910
Less - accumulated depreciation,
depletion, amortization and impairment (19,989) (19,749)
------ ------
6,504 6,611
------ ------
Oil and gas operator bonds 216 216
California plug and abandonment deposits 291 291
Investment in Catalytic Solutions 150 164
Other assets 49 49
------ ------
$12,626 $12,212
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,142 $ 1,383
Oil and gas sales payable 558 598
------ ------
Total current liabilities 1,700 1,981
------ ------
Key employee bonus plan 266 253
------ ------
Future site restoration 1,320 1,294
------ ------
Minority interest 5,244 5,047
------ ------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value;
10,000,000 shares authorized; none issued
Common stock, $ .01 par value; 100,000,000
shares authorized, 7,093,150 shares issued 71 71
Additional paid-in capital 18,061 18,061
Accumulated deficit (14,036) (14,495)
------ ------
4,096 3,637
------ ------
$12,626 $12,212
====== ======
*Derived from the Form 10-KSB.
See accompanying notes.
Consolidated Statement of Operations
(in thousands)
Three months ended March 31,
2004 2003
-------- --------
Revenue:
Oil $1,797 $2,103
Gas 464 348
Other 103 112
----- -----
2,364 2,563
----- -----
Costs and expenses:
Lease operating 1,122 1,237
Exploration costs 30 20
Depreciation, depletion and amortization 265 285
General and administrative 291 342
----- -----
1,708 1,884
----- -----
Income before cumulative effect of change in
accounting principle 656 679
Cumulative effect of change in change in accounting
principle (181)
----- -----
Income before minority interest 656 498
Minority interest (197) (149)
----- -----
Net income $ 459 $ 349
===== =====
Income per share - basic and diluted:
Before cumulative effect of change in
accounting principle $ .06 $ .07
Cumulative effect of change in
accounting principle (.02)
----- -----
Net income $ .06 $ .05
===== =====
Weighted average shares outstanding - basic 7,093 7,093
===== =====
Weighted average shares outstanding - diluted 7,295 7,093
===== =====
See accompanying notes.
Consolidated Statement of Cash Flows
(in thousands)
Three months ended March 31,
2004 2003
-------- --------
Net cash provided by operating activities $1,027 $1,245
----- -----
Cash flows from investing activities:
Properties (132) (87)
----- -----
Net increase in cash and cash equivalents 895 1,158
Cash and cash equivalents, beginning of period 3,319 1,647
----- -----
Cash and cash equivalents, end of period $4,214 $2,805
===== =====
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. For the three months ended March 31, 2004 and 2003, we
recognized $26,000 and $18,000, 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.
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
period.
2004 2003
------------------------ ----------------------
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
Oil - barrels
South Cuyama field 52 $33.56 $1,745 65 $31.71 $2,061
Other 2 26.00 52 2 21.00 42
Gas - mcf
South Cuyama field 56 5.46 306 21 5.81 122
San Juan-New Mexico 16 4.75 76 13 4.77 62
Other 15 5.47 82 27 6.07 164
Oil revenue decreased due to lower production although prices were slightly
higher. Field production to the 100% for the 2004 and 2003 periods averaged
780 and 942 bopd, respectively. Current field production to the 100% is about
840 bopd. Gas revenue increased primarily due to higher production in the
Field. Last year the gas was shut in for about half of the quarter due to
gas quality issues with SOCAL as previously disclosed.
Current prices are about $39 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 $ 767 $ 858
Electricity 312 320
----- -----
1,079 1,178
San Juan - New Mexico 28 26
Other 15 33
----- -----
$1,122 $1,237
===== =====
CRUDE OIL PUT OPTIONS
---------------------
Through mid February 2003, we had never entered into any commodity
derivative agreements since acquiring the Field. During mid February 2003
oil prices in the Field reached a level of about $36 per barrel. For the
first time we purchased puts on 23,000 barrels of oil for the month of
June 2003 (strike price of $29.00 per barrel) and 16,500 barrels of oil for
the month of July 2003 (average strike price of $30.48 per barrel). Our
total investment was $83,000. Our net gain from these transactions was
approximately $40,000.
On May 14, 2004, we purchased puts on 20,000 barrels of oil at $3.50 per
barrel (a total of $70,000 with a strike price of $39 per barrel). These
puts expire November 15, 2004. Depending on the price of oil, we may buy
additional puts.
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 during the
two years of 2003 and 2004.
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
------------------
As disclosed in the 2003 Form 10-KSB, Santa Barbara County has asked us to
perform an endangered species survey before we commence drilling one of the
six wildcats sites located outside the Field's boundaries (about 4 miles from
the Field). We were planning to drill one of the wells this summer and the
remaining five over the next two to three years. Due to delays in the survey,
drilling of the first well has been postponed until sometime this fall.
SOCAL
-----
The pipeline we use to sell our gas is owned by BP, but leased by SOCAL. There
have been rumors that SOCAL will not renew the lease which comes up for renewal
in May 2004. We have yet to be notified whether the lease was renewed. If
SOCAL does not renew the lease, the line could switch from a carrier line to a
proprietary line. If it becomes a proprietary line there is no guarantee that
we will have an outlet to market our gas. This situation has no effect on our
oil sales. Monthly gas sales, net to us, are about $100,000.
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
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: May 14, 2004 By: /S/VICTOR P. STABIO
CEO and CFO
Signing on behalf of registrant
and as principal financial officer.