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, 2005
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
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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 such filing requirements for the past
90 days: Yes [X] No [ ]
Shares outstanding as of November 14, 2005: 7,093,150
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet
(in thousands)
September 30, December 31,
2005 2004*
------ ------
ASSETS
Current assets:
Cash and cash equivalents $11,539 $19,927
Oil and gas operator bonds 252
Accounts receivable-
Oil and gas sales 921 573
Well operations 839 117
E&B account receivable 230
E&B - note receivable 3,569
------ ------
Total current assets 13,299 24,668
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Oil and gas properties, at cost
(successful efforts):
Unproved properties 3,555 220
Proved properties 2,301 2,155
Less-accumulated depreciation,
depletion, amortization and impairment (1,764) (1,740)
------ ------
4,092 635
------ ------
Investment in Catalytic Solutions 150 150
Investment in CELLC 271
Other assets 76 67
------ ------
$17,888 $25,520
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 995 $ 642
Oil and gas sales payable 1,205 922
Income taxes payable 494 300
Partnership options payable 407
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Total current liabilities 2,694 2,271
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Minority interest 9,742
------
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 (2,938) (4,625)
------ ------
15,194 13,507
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$17,888 $25,520
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*Derived from the Form 10-KSB.
See accompanying notes.
Consolidated Statement of Operations
(in thousands)
Nine months ended Three months ended
September 30, September 30,
2005 2004 2005 2004
----- ----- ----- -----
Revenue: $ 521 $ 490 $ 188 $ 163
Natural gas liquids 146 116 57 44
Oil 73 56 28 21
Interest 414 18 132 8
----- ----- ----- -----
1,154 680 405 236
----- ----- ----- -----
Costs and expenses:
Lease operating 157 138 58 56
Delay rentals 38 100 27
Impairment of unproved properties 183 67 169
Equity loss in CELLC 55 30
Depreciation, depletion and
amortization 30 33 11 9
General and administrative 411 621 116 175
----- ----- ----- -----
874 959 384 267
---- ----- ----- -----
Income (loss) from continuing operations
before minority interest 280 (279) 21 (31)
Minority interest (84) 84 (6) 9
----- ----- ----- -----
Income (loss) from continuing operations
before taxes 196 (195) 15 (22)
Income tax-current (90) (6)
----- ----- ----- -----
Income (loss) from continuing operations 106 (195) 9 (22)
Income (loss) from discontinued operations
net of minority interest of $(18), $607
$(18) and $236 (30) 1,414 (30) 552
Gain (loss) on sale of discontinued
operations, net of taxes of $1,300 and
net of minority interest of $3907 for
2004 and $116 and $140 in additional
taxes for 2005 (116) 9,117 (140) 9,117
----- ----- ----- -----
Net income (loss) $ (40) $10,336 $ (161) $9,647
===== ====== ===== =====
Net income (loss) per share - basic
Continuing operations $ .02 $ (.03) $ $
Discontinued operations .20 0.07
Gain (loss) on sale of discontinued
operations (.02) 1.29 (.02) 1.29
----- ------ ------ -----
$ 0 $ 1.46 $ (.02) $ 1.36
===== ====== ====== =====
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,
2005 2004
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Net cash provided by operating activities: $ 264 $ 2,210
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Cash flows from investing activities:
E&B note receivable 3,538
Proceeds from sale of property 18,111
Properties (3,614) (245)
Investment in COALition (326)
Decrease in bonds 252
Other (14) (74)
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Net cash (used in) provided by
investing activities (164) 17,792
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Cash flows from financing activities:
Repurchase of partnership options (407)
Distribution to limited partners (8,081)
------
Net cash used in financing activities (8,488)
------
Net (decrease) increase in cash and cash equivalents (8,388) 20,002
Cash and cash equivalents, beginning of period 19,927 3,319
------ ------
Cash and cash equivalents, end of period $11,539 $23,321
====== ======
See accompanying notes.
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. On April 15, 2005, we issued 750,000 ten-year options to employees at an
exercise price of $2.25. The exercise price was based on the sales
price of a March 2005 private stock transaction beween one of our
shareholders and a third party. These options vest at 1/3 per year
over the next three years. There are no more options available for
issuance.
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. Had compensation costs for the plan been determined consistent
with SFAS 123, we would have estimated the fair value of the option
grant using the Black-Scholes option-pricing model, using the following
assumptions for the 2005 grants: (i) risk free interest rate of 4.24%;
(ii) expected life of 10 years; (iii) expected volatility of 120%; and
(iv) no dividend yield. The average fair value of options granted
during 2005 was $2.15. Pro forma net loss for the three and nine month
periods ended September 30, 2005 would have been $241,000 and $200,000
or $(0.03) per share, respectively. Pro forma results for 2004 were
immaterial.
4. On August 10, 2004, Hallador Petroleum LLP (the "Partnership") 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 which has since been paid. 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 $7 million and
$5 million, respectively for the nine months ended September 30, 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.
On May 6, 2005 we made a cash distribution of about $5.2 million to
the limited partners. During the third quarter 2005, Hallador
Petroleum Company purchased the limited partners interest in the
Partnership for about $1.2 million and made a final cash distribution
to the limited partners of $1.6 million. After the cash payments to
the limited partners, about $1.7 million remained in the minority
interest account and was recorded as a reduction in our accumulated
deficit account. For accounting purposes the Partnership no longer
exists, and as a result, there is no longer a minority interest caption
on our balance sheet.
Upon filing the Federal and State returns in September for December 31,
2004, we determined that we under estimated the taxes due on the sale
by about $116,000 and accrued for such in the third quarter of 2005.
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
investments of $33,333, $33,333, $50,000 and $33,334, respectively,
in CELLC. Some of our directors are also directors of CELLC. An
affiliate of Yorktown Energy Partners II, acquired a 20% interest in
CELLC for about $225,000. Yorktown Energy Partners II., L.P. owns
about 32% of our common stock.
6. In late August 2005, we were sued for about $2.1 million by an employee
of one of our vendors. The employee was injured in an accident in 2003
and did not file a lawsuit against us until 2005. We have discussed the
matter with our insurance company and our maximum exposure is about
$100,000.
HALLADOR PETROLEUM COMPANY
Management's Discussion and Analysis of Plan of Operation
RESULTS OF OPERATIONS
---------------------
Overview
--------
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.
Potential Acquisition
---------------------
We are in negotiations whereby we would issue 1,893,000 shares of our
common stock valued at $2.20 per share to Yorktown Energy Partners VI.,
L.P. The proceeds of this stock sale will be used to purchase a 32%
interest in a private Michigan oil and gas exploration company from
Yorktown Energy Partners II, L.P. Yorktown Energy Partners II, L.P.
owns about 32% of our common stock.
Albany Shale Gas Lease Play
---------------------------
Since June 30, 2005 we have invested about $2.7 million in this wildcat gas
play located in Western Kentucky, of which $586,000 was after September 30,
2005 . To date we have leased about 61,000 acres. Over 80% of the acreage
is held under five-year leases with the right to extend for another five years
by paying $2 per acre per year. We hope to sell the unproved acreage and
retain some sort of interest.
Montana
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We are evaluating two lease plays in central Montana. To date no funds
have been committed.
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. On October 12, 2005, we purchased
additional acreage for $195,000. 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
the first half of 2006, 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 to the 100%.
San Juan Basin
--------------
Two more development gas wells were drilled in September 2005 and are
awaiting completion. Due to the shortage of manpower and equipment these
wells will not be placed on production until mid November 2005. The costs
were about $1 million each to the 100% and we have a .056 WI (.047 NRI) in
each of these wells.
Coal
----
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. Some of
our directors and officers also invested in CELLC. See Note 5 to the
Financial Statements for further information.
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.
Litigation
----------
In late August 2005, we were sued for about $2.1 million by an employee of
one of our vendors. The employee was injured in an accident in 2003 and
did not file a lawsuit against us until 2005. We have discussed the matter
with our insurance company and our maximum exposure is about $100,000.
Results Of Continuing Operations
--------------------------------
The tables below (in thousands) provides sales data and average prices for
the period.
Year-to-date Comparison
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2005 2004
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Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------- ------ ----- -------
Gas-mcf
San Juan 47 $ 6.53 $307 54 $ 5.11 $276
Other 31 6.90 214 37 5.78 214
NGLs-barrels
San Juan 4.6 31.74 146 5.1 22.75 116
Oil-barrels
Other 1.4 52.14 73 1.5 37.33 56
Quarter-to-date Comparison
--------------------------------------------------------
2005 2004
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Sales Average Sales Average
Volume Price Revenue Volume Price Revenue
------- ------- ------- ------ ----- -------
Gas-mcf
San Juan 15 $ 7.40 $111 18 $ 5.61 $101
Other 10 7.70 77 10 6.20 62
NGLs-barrels
San Juan 1.5 38.00 57 1.7 25.88 44
Oil-barrels
Other .47 59.57 28 .51 41.17 21
Revenue increased due to higher prices. The higher prices more than offset
the decline in production as indicated above. San Juan natural gas is sold
at an index price that is set at the first of every month and remains in
effect for the entire month. Our San Juan November 2005 gas price is about
$11.52 per MCF. During the first ten days of November, daily posted San Juan
gas prices have fallen to $7.52 per MCF. If prices stay at this level, our
December price could be about $4 per MCF less than our November price.
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 which was paid.
During the third quarter, we decided to impair our investments in certain
Wyoming lease plays.
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%.
Upon filing the Federal and State returns in September for December 31, 2004,
we determined that we under estimated the taxes due on the sale by
about $116,000 and accrued for such in the third quarter of 2005.
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 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: November 14, 2005 By:/S/VICTOR P. STABIO
CEO and CFO
Signing on behalf of registrant
and as principal financial officer.