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 September 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 November 19, 2004: 7,093,150
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet
(in thousands)
September 30,
2004
-----------
ASSETS
Current assets:
Cash and cash equivalents $23,321
Oil and gas operator bonds 250
Accounts receivable-
Oil and gas sales 1,064
Well operations 207
Note receivable-E&B Resources 3,538
------
Total current assets 28,380
------
Oil and gas properties, at cost (successful efforts):
Unproved properties 298
Proved properties 2,144
Less - accumulated depreciation,
depletion, amortization and impairment (1,732)
------
710
------
Investment in Catalytic Solutions 150
Other assets 67
------
$29,307
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 644
Oil and gas sales payable 624
Income taxes payable 1,300
Key employee bonus plan 285
Bonuses, and stock options payable 3,004
------
Total current liabilities 5,857
------
Minority interest 9,477
------
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
Additional paid-in capital 18,061
Accumulated deficit (4,159)
------
13,973
------
$29,307
======
See accompanying notes.
Consolidated Statement of Operations
(in thousands, except per share data)
Nine months ended Three months ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
Revenue:
Oil $ 172 $ 126 $ 65 $ 43
Gas 490 567 163 172
Interest and other 18 67 8 6
------ ----- ----- -----
680 760 236 221
------ ----- ----- -----
Costs and expenses:
Lease operating 138 165 56 29
Exploration costs 167 136 27 73
Depreciation, depletion and
amortization 33 175 9 55
General and administrative 621 606 175 181
------ ----- ----- -----
959 1,082 267 338
------ ----- ----- -----
Loss from continuing operations before
minority interest (279) (322) (31) (117)
Minority interest 84 97 9 35
------ ----- ----- -----
Loss from continuing operations (195) (225) (22) (82)
Income from discontinued operations
net of minority interest of
$607, $432, $236 and $145 1,414 1,007 552 340
Gain on sale of discontinued operations,
net of taxes of $1,300 and net of
minority interest of $3,907 9,117 9,117
Cumulative effect of change in
accounting principle net of
minority interest of $54 (127)
------ ----- ----- -----
Net income $10,336 $ 655 $9,647 $ 258
====== ===== ===== =====
Income (loss) per share-basic
Continuing operations $ (.03) $ (.03) $ $ (.01)
Discontinued operations .20 .14 .07 .05
Gain on sale of discontinued
operations 1.29 1.29
Change in accounting principle (.02)
------ ----- ----- -----
Net earnings per share $ 1.46 $ .09 $ 1.36 $ .04
====== ===== ===== =====
Weighted average shares outstanding
-basic 7,093 7,093 7,093 7,093
====== ===== ===== =====
See accompanying notes.
Consolidated Statement of Cash Flows
(in thousands)
Nine months ended
September 30,
2004 2003
------ ------
Net cash provided by operating activities $ 2,210 $ 2,893
------ ------
Cash flows from investing activities:
Proceeds from sale of property 18,111
Properties (245) (945)
Other (74) (91)
------ ------
Net cash provided by (used in) investing activities 17,792 (1,036)
------ ------
Cash flows from financing activites:
Debt retirement (251)
Cash calls from joint interest owners 967
------
Net cash from financing activities 716
------
Net increase in cash and cash equivalents 20,002 2,573
Cash and cash equivalents, beginning of period 3,319 1,647
------ ------
Cash and cash equivalents, end of period $23,321 $ 4,220
====== ======
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. All but $7,000 of this liability relates to the
South Cuyama field, which was sold on September 30, 2004 as described
below.
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. 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 (3.5%) note of $3.5 million due on September 30, 2005. Closing
occurred on September 30, 2004, with an effective date of June 1, 2004.
We recorded a pre-tax gain of approximately $14.3 million. The estimated
tax of $1.3 million due on the gain on sale is less than the statutory
rate due to the utilization of NOLs, statutory depletion carryforwards
and the 30% minority interest.
On October 8, 2004 we purchased back 749,723 outstanding employee stock
options at a price equal to $2.80 per share minus the exercise price of
each option for a total amount of $1,305,000. The options were cancelled
and are available for reissuance and no options remain outstanding. The
$1,305,000 was accrued for as of September 30, 2004.
In addition to the stock options which were purchased, bonuses of
approximately $1,544,000 were paid in early October and were accrued for
as of September 30, 2004. Additionally, the Key Employee Bonus Plan was
paid out.
HALLADOR PETROLEUM COMPANY
Management's Discussion and Analysis or Plan of Operation
For background information for the readers of this Form 10-QSB, on July 21,
1997, Yorktown Energy Partners II and affiliates (Yorktown) invested
$5,025,000 in Hallador Petroleum, LLP (the "Partnership"), a newly formed
limited liability limited partnership. We are the general partner and
received a 70% interest in the partnership in return for contributing our
net assets, and Yorktown, representing the limited partners, received a
30% interest for its $5,025,000 cash contribution. As general partner,
we consolidate the activity of the partnership and present the 30% limited
partners' interest as a minority interest.
Due to the sale of the South Cuyama field and the adjacent exploration areas,
the joint board of directors of Hallador Petroleum Company and the Executive
Committee of the Partnership, voted to terminate the partnership 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. No later than the first
quarter 2005, we plan to distribute a substantial amount of cash to each of
the general and limited partners.
We now plan to concentrate our oil and gas activity in the Rocky Mountain
region.
The Board of Directors plan to meet in January 2005, to discuss liquidity
options for our shareholders. Ideas on the table include, stock buybacks
and/or one-time cash dividends.
RESULTS OF OPERATIONS
YEAR-TO-DATE COMPARISON
-----------------------
The table below provides sales data and average prices for the periods.
2004 2003
------------------------ -------------------------
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
Oil - barrels
San Juan-New Mexico* 5,048 $23.13 $117,000 4,587 $17.00 $78,000
Krueger-Texas 769 37.08 28,000 1,088 30.35 33,000
Other 752 35.93 27,000 542 28.14 15,000
Gas - mcf
San Juan-New Mexico 53,517 5.15 276,000 42,750 4.54 194,000
Krueger-Texas 34,385 5.87 202,000 47,299 5.82 275,000
Other 2,502 5.05 12,000 15,659 6.28 98,000
_________________
* NGLs
Oil revenue increased primarily due to higher prices. Gas revenue decreased
due to lower production offset by slightly higher prices. Two gas wells
included in the "Other" category in the table above for 2003 were subsequently
plugged and abandoned.
DD&A decreased due to higher reserve estimates for the Krueger wells during 2004
compared to 2003.
The table below shows lease operating expenses (LOE) for our two primary fields.
2004 2003
-------- --------
San Juan-New Mexico $ 93,000 $ 86,000
Krueger-Texas 27,000 26,000
Other 18,000 53,000
------- -------
$138,000 $165,000
======= =======
QUARTER-TO-DATE COMPARISON
--------------------------
The table below provides sales data and average prices for the periods.
2004 2003
------------------------ -------------------------
Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------ ------ ----- -------
Oil - barrels
San Juan-New Mexico* 1,610 $26.98 $ 43,000 1,714 $17.42 $30,000
Krueger-Texas 192 41.67 8,000 319 29.22 9,000
Other 352 38.95 14,000 174 25.86 4,000
Gas - mcf
San Juan-New Mexico 18,565 5.49 102,000 16,817 4.44 75,000
Krueger-Texas 9,089 6.18 56,000 13,860 5.28 73,000
Other 1,018 5.27 5,000 3,777 6.28 24,000
_________________
*NGLs
The explanations above for the year-to-date comparisons also apply to the
quarter-to-date comparisons.
DD&A decreased due to higher reserve estimates for the Krueger wells during
2004 compared to 2003.
The table below shows lease operating expenses (LOE) for our two primary fields.
2004 2003
-------- --------
San Juan-New Mexico $ 30,000 $ 8,000
Krueger-Texas 9,000 10,000
Other 17,000 11,000
------- -------
$ 56,000 $ 29,000
======= =======
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Due to the large amount of cash on hand, liquidity is not a concern at the
present time.
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
---------------------------------------------
San Juan - New Mexico
---------------------
We have made offers to buyout our joint interest partners. If all of
the offers were accepted, our obligation would be approximately $10 million.
Most of the partners have indicated that they are not interested, but we
are negotiating with a few partners, and could be purchasing an additional
$2 million of working interest.
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. Exhibit
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: November 19, 2004 By:/S/ VICTOR P. STABIO
CEO and CFO
Signing on behalf of registrant
and as principal financial officer.