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, 2005
OR
[ ] TRANSITION REPORT UNDER 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
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(State of incorporation) (I.R.S. Employer Identification No.)
1660 Lincoln Street, Suite 2700, Denver, Colorado 80264-2701
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(Address of principal executive offices)
303.839.5504 Fax: 303.832.3013
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(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 the filing requirements for the past 90 days: Yes [X] No[ ]
Shares outstanding as of May 16, 2005; 7,093,150
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet
(in thousands)
March 31, December 31,
2005 2004*
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ASSETS
Current assets:
Cash and cash equivalents $18,122 $19,927
Oil and gas operator bonds 253 252
Accounts receivable-
Oil and gas sales 602 573
Well operations 130 117
E&B account receivable 36 230
E& B - note receivable 3,600 3,569
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Total current assets 22,743 24,668
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Oil and gas properties, at cost (successful efforts):
Unproved properties 1,511 220
Proved properties 2,155 2,155
Less - accumulated depreciation,
depletion, amortization and impairment (1,748) (1,740)
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1,918 635
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Investment in Catalytic Solutions 150 150
Investment in CELLC 325
Other assets 68 67
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$25,204 $25,520
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 642 $ 642
Oil and gas sales payable 904 922
Income tax payable 300 300
Partnership options payable 407
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Total current liabilities 1,846 2,271
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Minority interest 9,784 9,742
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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 (4,558) (4,625)
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13,574 13,507
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$25,204 $25,520
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*Derived from the Form 10-KSB.
See accompanying notes.
Consolidated Statement of Operations
(in thousands)
Three months ended March 31,
2005 2004
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Revenue:
Gas $ 167 $ 158
Natural gas liquids 44 32
Oil 25 20
Interest 133 6
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369 216
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Costs and expenses:
Lease operating 48 43
Delay rentals 4 30
Depreciation, depletion and amortization 10 12
General and administrative 168 186
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230 271
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Loss (loss) from continuing operations
before minority interest 139 (55)
Minority interest (42) 16
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Income (loss) from continuing operations 97 (39)
Income tax-current (30)
Income from discontinued operations net of minority
interest of $213 498
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Net income $ 67 $ 459
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Income (loss) per share - basic
Continuing operations $ .01 $ (.01)
Discontinued operations .07
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Net earnings per share $ .01 $ .06
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Weighted average shares outstanding-basic 7,093 7,093
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See accompanying notes.
Consolidated Statement of Cash Flows
(in thousands)
Three months ended March 31,
2005 2004
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Net cash provided by operating activities: $ 222 $ 1,027
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Cash flows from investing activities:
Properties (1,292) (132)
Investment in COALition (325)
Other (3)
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(1,620) (132)
Cash flows from financing activities:
Repurchase of partnership options (407)
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Net (decrease) increase in cash and cash equivalents (1,805) 895
Cash and cash equivalents, beginning of period 19,927 3,319
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Cash and cash equivalents, end of period $18,122 $ 4,214
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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 2004 Form 10-KSB. This quarterly report should be
read in conjunction with that annual report.
3. 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 period.
On April 15, 2005, we issued 750,000 options at an exercise price of $2.25,
which were valued based on a March 2005 private transaction between one of
our shareholders and a third party. These options vest at 1/3 per year for
the next three years. There are no more options available for issuance.
4. 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, all located in
Santa Barbara County, California, for $23 million; consisting of $19.5
million in cash and an interest bearing (3.5%) note of $3.5 million due
on September 30, 2005. Closing occurred on September 30, 2004 and we
recorded a pre-tax gain of about $14 million. Results from the South
Cuyama field have been presented as discontinued operations in the
accompanying Consolidated Statement of Operations. Revenue and expenses
before the minority interest were about $2.1 million and $1.4 million,
respectively for the three months ended March 31, 2004.
Due to the sale, the joint board of directors of Hallador Petroleum
Company and the Executive Committee of the Partnership, voted to discontinue
new partnership operations effective October 1, 2004. Currently, the
Partnership's assets consist of cash, the $3.5 million note receivable, oil
and gas properties in New Mexico and Texas, and other miscellaneous assets.
On October 1, 2004, the joint board of directors of Hallador Petroleum
Company, and the Executive Committee of the Partnership, valued the oil and
gas properties in New Mexico and Texas and the other miscellaneous assets at
$4 million. On May 6, 2005 we made a cash distribution of about $5 million
to the limited partners. During the second quarter 2005, we will offer to
purchase the limited partners interest in the Partnership for about
$1.2 million. This does not include their interest in the $3.5 million
note receivable which is due September 30, 2005. Upon collection of the
note a final distribution will be made to the limited partners.
5. In late March 2005, we invested $325,000 for a 29% interest in a newly
formed entity called COALition Energy, LLC (CELLC). CELLC was formed to
pursue coal investments. To date CELLC has not commenced significant
operations. We account for this investment using the equity method
of accounting.
Four of our directors, David Hardie, Steven Hardie, Cortlandt Dietler,
and Victor Stabio, who is also our CEO and CFO, acquired, at the same
proportionate cost, and on the same terms as us, membership interests of
3.09%, 3.09%, 4.64%, and 3.09%, respectively, based on personal invests
of $33,333, $33,333 , $50,000 and $33,334, respectively, in COALition.
There are 12 other members of COALition, with Cortlandt Dietler, Victor
Stabio, and three other individuals, constituting the initial directors
of COALition.
Kestrel Energy Partners, which is 82.64% owned by Yorktown Energy Partners,
VI, L.P., acquired, through a wholly-owned subsidiary, a 20% interest in
COALition for $224,490. Yorktown Energy Partners VI, L.P. and Yorktown
Energy Partners II, L.P., as well as their respective general partners and
Yorktown Partners LLC, the manager of both of these partnerships, are under
common control. Yorktown Energy Partners II., L.P. owns approximately 32%
of our common stock.
HALLADOR PETROLEUM COMPANY
Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
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Overview
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The following discussion updates the MD&A section of our 2004 Form 10-KSB which
was filed on April 15, 2005 and should be read in conjunction thereto. There
have been no significant changes or developments to report.
North Dakota
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As disclosed in the 2004 Form 10-KSB, in February 2005 we invested $1.3 million
in a 2,500 acre oil development prospect in McKenzie County, North Dakota,
located on the mid-western Montana border. On April 25, 2005 we purchased
additional acres for $111,000. We have a 37.5% WI (.328 NRI), Kodiak Oil
and Gas, the operator also has a 37.5% WI, the remaining 25% is owned by
others. Kodiak is headquartered in Denver and its stock trades on the TSX
Venture Exchange under the symbol KOG. We hope to drill the first oil well
in late 2005, at a cost of about $2.5 million to the 100%. This is a
horizontal play so a vertical well is drilled to 8,000 feet and then two
horizontal laterals are drilled at distance of 4,000 - 6,000 feet in opposite
directions. Headington Oil Company is a major operator in this area on the
Montana side and Burlington Resources is a major operator on the North Dakota
side. Depending on the success of the first well, our total commitment could
be an additional $2 million.
San Juan Basin
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As disclosed in the Form 10-KSB two more development gas wells are planned for
July 2005. The estimated costs to drill and complete these two wells are about
$1 million each to the 100%. We have a .056 WI (.047 NRI) in each of the wells.
Coal
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As disclosed in the 2004 Form 10-KSB, in late March 2005, we invested $325,000
for a 29% interest in a newly formed entity called COALition Energy, LLC
(CELLC). To date, CELLC has not commenced significant operations.
Four of our directors, David Hardie, Steven Hardie, Cortlandt Dietler, and
Victor Stabio, who is also our CEO and CFO, acquired, at the same proportionate
cost, and on the same terms as us, membership interests of 3.09%, 3.09%, 4.64%,
and 3.09%, respectively, based on personal invests of $33,333, $33,333, $50,000
and $33,334, respectively, in COALition. There are 12 other members of
COALition, with Cortlandt Dietler, Victor Stabio, and three other individuals,
constituting the initial directors of COALition.
Kestrel Energy Partners, which is 82.64% owned by Yorktown Energy Partners, VI,
L.P., acquired, through a wholly-owned subsidiary, a 20% interest in COALition
for $224,490. Yorktown Energy Partners VI, L.P. and Yorktown Energy Partners
II, L.P., as well as their respective general partners and Yorktown Partners
LLC, the manager of both of these partnerships, are under common control.
Yorktown Energy Partners II., L.P. owns approximately 32% of our common stock.
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.
Results Of Continuing Operations
--------------------------------
Year-To-Date Comparison
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The table below (in thousands) provides sales data and average prices for the
period.
2005 2004
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Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
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Gas - mcf
San Juan 17 $ 5.95 $101 16 $ 4.74 $76
Other 11 6.00 66 14.8 5.56 82
NGLs - barrels
San Juan 1.5 29.47 44 1.6 20.00 32
Oil - barrels
Other .533 45.97 25 .608 32.92 20
Revenue increased due to higher prices.
Interest income increased due to investing the proceeds from the sale that
occurred in September 2004 and interest income earned on the $3.5 million
note due September 30, 2005.
General and administrative expenses declined due to the termination of two
employees after the California property sale, and salary reductions in
the Denver office. Victor P. Stabio's salary was reduced 26% and
certain other employees' salaries were reduced 10%.
After the $5 million distribution to the limited partners on May 6, 2005,
interest income will decrease for the remainder of the year.
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 16, 2005 By: /s/VICTOR P. STABIO
CEO AND CFO
Signing on behalf of registrant and
as principal financial officer.