December 31, 2005 Form 10-KSB/A amend. 1
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-KSB/A
(Amendment
No. 1)
[
x
]
|
ANNUAL
REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For
the
fiscal year ended: December
31, 2005
|
[
]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
Commission
file number: 0-14731
|
|
|
|
HALLADOR
PETROLEUM COMPANY
|
COLORADO
(State
of
incorporation)
|
|
84-1014610
(IRS
Employer Identification No.)
|
1660
Lincoln
Street, Suite 2700, Denver, Colorado
(Address
of principal executive offices)
|
|
80264-2701
(Zip
Code)
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|
|
|
Issuer's
telephone number:
303.839.5504
|
|
Fax:
303.832.3013
|
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par
value
Check
whether the
issuer is not required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act. [ ]
Check
whether the
issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such
filing requirements for the past 90 days. Yes [x] No [
]
Check
if there is
no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. [ ]
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act). Yes [ ] No [x]
Our
revenue from
continuing operations for the year ended December 31, 2005 was about $1.1
million.
At
April 4, 2006,
we had 12,168,135 shares outstanding and the aggregate market value of such
shares held by non-affiliates was about $4 million based on a closing price
of
$4.10.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
Explanatory
Note
We
are filing this amendment to comply with generally accepted
accounting principles (GAAP) and the Securities and Exchange
Commission's (SEC) rules and regulations.
1. We
had included
changes in stockholders' equity in Note 1 to our financial
statements. This amendment includes a statement of stockholders'
equity and we deleted the stockholders' equity table from Note 1.
2. We
have included the name of the individual who prepared our reserve report.
The person's name is Edwin James and such name appears in Note 7 to our
financial statements.
3. We
have changed our statement of cash flows as follows:
a. For
2005, we moved
$1,200,000 from financing activities to investing activities relating to the
purchase of limited partners interest.
|
b.
|
For
2005, we
moved $407,000 from financing activities to operating activities
relating
to repurchase of employee stock
options.
|
|
c.
|
For
2004, we
moved $1,305,000 from financing activities to operating activities
relating to repurchase of employee stock
options.
|
4. We
have provided additional disclosure regarding the accounting treatment of our
repurchase of employee stock options. Note 4 to our financial statements
reflects such addition disclosures.
5. In
December 2005 we
sold stock to Yorktown Energy Partners VI and concurrently acquired a 32%
interest in Savoy Energy. We received cash of $2.20 per share. We
have treated the cash element as non-substantive and valued the shares
based on the market price at the time which was $3.25 per share. Therefore,
we
have increased our investment in Savoy by about $2 million and also increased
stockholders' equity by the same.
6.
No
changes were made to our statement of operations.
ITEM
7. FINANCIAL STATEMENTS
INDEX
TO
CONSOLIDATED FINANCIAL STATEMENTS
Report
of
Independent Registered Public Accounting Firm
|
4
|
|
|
|
|
Consolidated
Balance Sheet, December 31, 2005
|
5
|
|
|
|
|
Consolidated
Statement of Operations, Years ended December 31, 2005 and
2004
|
6
|
|
|
|
|
Consolidated
Statement of Cash Flows, Years ended December 31, 2005 and
2004
|
7
|
|
|
|
|
Statement
of
Stockholders' Equity
|
8
|
|
|
|
|
Notes
to
Consolidated Financial Statements
|
9
|
|
REPORT
OF
INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To
the Board of Directors and Stockholders
Hallador
Petroleum
Company
Denver,
Colorado
We
have audited the consolidated balance sheet of Hallador Petroleum Company and
Subsidiaries as of December 31, 2005 and the consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years ended
December 31, 2005 and 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of Hallador Petroleum
Company and Subsidiaries, as of December 31, 2005 and the results of their
operations and their cash flows for the years ended December 31, 2005 and 2004,
in conformity with accounting principles generally accepted in the United States
of America.
As
discussed in Note 1 to the consolidated financial statements, the consolidated
financial statements as of December 31, 2005 and December 31, 2004 have been
restated.
/s/
Ehrhardt Keefe
Steiner & Hottman PC
March
31, 2006,
except for Note 1
as
to which the date is April 4, 2007
Denver,
Colorado
Consolidated
Balance Sheet
December
31,
2005
(in
thousands)
(as
restated, see Note 1)
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,261
|
|
Accounts receivable-
|
|
|
|
|
Oil and gas sales
|
|
|
950
|
|
Well operations
|
|
|
1,198
|
|
Total current assets
|
|
|
14,409
|
|
|
|
|
|
|
Oil
and gas
properties, at cost (successful efforts):
|
|
|
|
|
Unproved properties
|
|
|
2,909
|
|
Proved properties
|
|
|
2,388
|
|
Less - accumulated depreciation, depletion, amortization and
impairment
|
|
|
(1,776
|
)
|
|
|
|
3,521
|
|
Investment
in
CELLC
|
|
|
223
|
|
Investment
in
Savoy
|
|
|
6,193
|
|
Other
assets
|
|
|
246
|
|
|
|
$
|
24,592
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,346
|
|
Oil and gas sales payable
|
|
|
1,494
|
|
Income tax payable
|
|
|
208
|
|
Total current liabilities
|
|
|
3,048
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
Preferred stock, $.10 par value; 10,000,000 shares authorized;
none
issued
|
|
|
|
|
Common stock, $ .01 par value; 100,000,000 shares authorized, 8,986,319
issued
|
|
|
90
|
|
Additional paid-in capital
|
|
|
24,195
|
|
Accumulated deficit
|
|
|
(2,741
|
)
|
|
|
|
21,544
|
|
|
|
$
|
24,592
|
|
See
accompanying
notes.
Consolidated
Statement of Operations
(in
thousands)
|
|
Years
ended
December 31,
|
|
|
|
2005
|
|
2004
|
|
Revenue:
|
|
|
|
Gas
|
|
$
|
1,012
|
|
$
|
822
|
|
Oil
|
|
|
90
|
|
|
83
|
|
Interest
|
|
|
544
|
|
|
167
|
|
|
|
|
1,646
|
|
|
1,072
|
|
Costs
and
expenses:
|
|
|
|
|
|
|
|
Lease operating
|
|
|
227
|
|
|
149
|
|
Delay rentals
|
|
|
57
|
|
|
102
|
|
Impairment - unproved properties
|
|
|
183
|
|
|
144
|
|
Equity loss in CELLC
|
|
|
103
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
43
|
|
|
42
|
|
General and administrative
|
|
|
612
|
|
|
852
|
|
|
|
|
1,225
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
Income
(loss)
from continuing operations before minority interest
|
|
|
421
|
|
|
(217
|
)
|
Minority
interest
|
|
|
(84
|
)
|
|
65
|
|
Income
(loss)
from continuing operations before taxes
|
|
|
337
|
|
|
(152
|
)
|
Income
tax-current
|
|
|
(145
|
)
|
|
-
|
|
Income
(loss)
from continuing operations
|
|
|
192
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
Income
(loss)
from discontinued operations net of minority interest of $(18)
and
$592
|
|
|
(30
|
)
|
|
1,380
|
|
|
|
|
|
|
|
|
|
Gain
on sale
of discontinued operations, net of taxes of $1,085 and minority
interest
of $4,168
|
|
|
-
|
|
|
8,642
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
162
|
|
$
|
9,870
|
|
Net
Income
(loss) per share - basic
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
.027
|
|
$
|
(.02
|
)
|
Discontinued
operations
|
|
|
(.004
|
)
|
|
.19
|
|
Gain
on sale
of discontinued operations
|
|
|
-
|
|
|
1.22
|
|
Net
earnings
per share
|
|
$
|
.023
|
|
$
|
1.39
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding-basic
|
|
|
7,155
|
|
|
7,093
|
|
|
|
|
|
|
|
|
|
See
accompanying
notes.
Consolidated
Statement of Cash Flows
(in
thousands)
(as
restated, see Note 1)
|
|
Years
ended
December 31,
|
|
|
|
2005
|
|
2004
|
|
Cash
flows
from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
162
|
|
$
|
9,870
|
|
Equity
loss
in CELLC
|
|
|
103
|
|
|
|
|
Depreciation,
depletion, and amortization
|
|
|
43
|
|
|
721
|
|
Minority
interest
|
|
|
66
|
|
|
4,695
|
|
Impairment
of
undeveloped properties
|
|
|
183
|
|
|
144
|
|
Change
in
accounts receivable
|
|
|
(1,197
|
)
|
|
812
|
|
Gain
on sale
of discontinued operations exclusive of $1,705 of bonuses paid
in
connection with sale
|
|
|
|
|
|
(16,905
|
)
|
Discontinued
operations
|
|
|
(407
|
)
|
|
|
|
Change
in
payables and accrued liabilities
|
|
|
1,235
|
|
|
(623
|
)
|
Income
taxes
payable
|
|
|
(92
|
)
|
|
300
|
|
Key
employee
bonus plan
|
|
|
|
|
|
(253
|
)
|
Other
|
|
|
10
|
|
|
90
|
|
Net
cash
provided by (used in) operating activities
|
|
|
106
|
|
|
(1,149
|
)
|
|
|
|
|
|
|
|
|
Cash
flows
from investing activities:
|
|
|
|
|
|
|
|
Proceeds
from
property sale (Cuyama)*
|
|
|
3,538
|
|
|
18,110
|
|
Investment
in
COALition
|
|
|
(326
|
)
|
|
|
|
Investment
in
Savoy
|
|
|
(4,205
|
)
|
|
|
|
Acquisition
of Hallador Petroleum LLP minority interests
|
|
|
(1,200
|
)
|
|
|
|
Decrease
in
bonds
|
|
|
252
|
|
|
|
|
Properties
|
|
|
(4,696
|
)
|
|
(253
|
)
|
Prospect
sale
|
|
|
1,616
|
|
|
|
|
Other
assets
|
|
|
(35
|
)
|
|
(100
|
)
|
Net
cash
(used in) provided by investing activities
|
|
|
(5,056
|
)
|
|
17,757
|
|
|
|
|
|
|
|
|
|
Cash
flows
from financing activities:
|
|
|
|
|
|
|
|
Distributions
to limited partners
|
|
|
(6,881
|
)
|
|
|
|
Stock
sale to
Yorktown Energy VI, L.P.
|
|
|
4,165
|
|
|
|
|
Net
cash used
in financing activities
|
|
|
(2,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(7,666
|
)
|
|
16,608
|
|
Cash
and cash
equivalents, beginning of year
|
|
|
19,927
|
|
|
3,319
|
|
Cash
and cash
equivalents, end of year
|
|
$
|
12,261
|
|
$
|
19,927
|
|
|
|
|
|
|
|
|
|
Taxes
paid
|
|
$
|
225
|
|
$
|
785
|
|
------------------------
*
In 2004 we
received a $3,500,000 note receivable in connection with the sale of Cuyama,
which was a non-cash investing activity.
See
accompanying
notes.
Statement
of Stockholders' Equity
(in
thousands)
(as
restated, see Note 1)
|
|
Common
Stock
|
|
Additional
Paid
in
Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2003
|
|
$
|
71
|
|
$
|
18,061
|
|
$
|
(14,495
|
)
|
$
|
3,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
- |
|
|
9,870
|
|
|
9,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2004
|
|
|
71
|
|
|
18,061
|
|
|
(4,625
|
)
|
|
13,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from
stock sale (1,893,169
shares)
|
|
|
19
|
|
|
4,146
|
|
|
|
|
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional non-cash value assigned to stock sale
(Note 1)
|
|
|
|
|
|
1,988
|
|
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of
Hallador Petroleum LLP minority
interest
|
|
|
|
|
|
|
|
|
1,722
|
|
|
1,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
- |
|
|
162
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2005
|
|
$
|
90
|
|
$
|
24,195
|
|
$
|
(2,741
|
)
|
$
|
21,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying
notes.
Notes
to
Consolidated Financial Statements
(1) RESTATEMENT
OF
PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying
balance sheet and cash flow statements have been restated to comply with GAAP
and the SEC's rules and regulations. The following table sets forth
previously reported and restated cash flow statements and balance
sheets.
|
|
Years
ended
December 31, *
|
|
|
|
2005
|
|
2004
|
|
|
|
Previously
Reported
|
|
Restated
|
|
Previously
Reported
|
|
Restated
|
|
Cash
flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
162
|
|
$
|
162
|
|
$
|
9,870
|
|
$
|
9,870
|
|
Equity
loss in CELLC
|
|
|
103
|
|
|
103
|
|
|
|
|
|
|
|
Depreciation,
depletion, and amortization
|
|
|
43
|
|
|
43
|
|
|
721
|
|
|
721
|
|
Minority
interest
|
|
|
66
|
|
|
66
|
|
|
4,695
|
|
|
4,695
|
|
Impairment
of undeveloped properties
|
|
|
183
|
|
|
183
|
|
|
144
|
|
|
144
|
|
Change
in accounts receivable
|
|
|
(1,197
|
)
|
|
(1,197
|
)
|
|
812
|
|
|
812
|
|
Gain
on
sale of discontinued operations exclusive of $1,705 of bonuses paid
in connection with sale
|
|
|
|
|
|
|
|
|
(15,600
|
)
|
|
(16,905
|
)
|
Discontinued
operations
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
Change
in payables and accrued liabilities
|
|
|
1,235
|
|
|
1,235
|
|
|
(623
|
)
|
|
(623
|
)
|
Income
taxes payable
|
|
|
(92
|
)
|
|
(92
|
)
|
|
300
|
|
|
300
|
|
Key
employee bonus plan
|
|
|
|
|
|
|
|
|
(253
|
)
|
|
(253
|
)
|
Other
|
|
|
10
|
|
|
10
|
|
|
90
|
|
|
90
|
|
Net
cash
provided by (used in) operating activities
|
|
|
513
|
|
|
106
|
|
|
156
|
|
|
(1,149
|
)
|
Cash
flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from property sale (Cuyama)*
|
|
|
3,538
|
|
|
3,538
|
|
|
18,110
|
|
|
18,110
|
|
Investment
in COALition
|
|
|
(326
|
)
|
|
(326
|
)
|
|
|
|
|
|
|
Investment
in Savoy
|
|
|
(4,205
|
)
|
|
(4,205
|
)
|
|
|
|
|
|
|
Acquisition
of Hallador Petroleum LLP minority interests
|
|
|
|
|
|
(1,200
|
)
|
|
|
|
|
|
|
Decrease
in bonds
|
|
|
252
|
|
|
252
|
|
|
|
|
|
|
|
Properties
|
|
|
(4,696
|
)
|
|
(4,696
|
)
|
|
(253
|
)
|
|
(253
|
)
|
Prospect
sale
|
|
|
1,616
|
|
|
1,616
|
|
|
|
|
|
|
|
Other
assets
|
|
|
(35
|
)
|
|
(35
|
)
|
|
(100
|
)
|
|
(100
|
)
|
Net
cash
(used in) provided by investing activities
|
|
|
(3,856
|
)
|
|
(5,056
|
)
|
|
17,757
|
|
|
17,757
|
|
Cash
flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of employee stock options
|
|
|
(407
|
)
|
|
|
|
|
(1,305
|
)
|
|
|
|
Distributions
to limited partners
|
|
|
(8,081
|
)
|
|
(6,881
|
)
|
|
|
|
|
|
|
Stock
sale to Yorktown Energy VI, L.P.
|
|
|
4,165
|
|
|
4,165
|
|
|
-
|
|
|
-
|
|
Net
cash used
in financing activities
|
|
|
(4,323
|
)
|
|
(2,716
|
)
|
|
(1,305
|
)
|
|
- |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(7,666
|
)
|
|
(7,666
|
)
|
|
16,608
|
|
|
16,608
|
|
Cash
and cash
equivalents, beginning of year
|
|
|
19,927
|
|
|
19,927
|
|
|
3,319
|
|
|
3,319
|
|
Cash
and cash
equivalents, end of year
|
|
$
|
12,261
|
|
$
|
12,261
|
|
$
|
19,927
|
|
$
|
19,927
|
|
*
For 2005, we
moved $1,200,000 from financing activities to investing activities relating
to
the purchase of limited partners interest; for 2005 we moved $407,000 from
financing activities to operating activities relating to repurchase of employee
stock options, and for 2004 we moved $1,305,000 from financing activities
to
operating activities relating to repurchase of employee stock
options.
Consolidated
Balance
Sheet
December
31,
2005
(in
thousands)
|
|
Previously
Restated
|
|
Restated
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,261
|
|
$
|
12,261
|
|
Accounts receivable-
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
|
950
|
|
|
950
|
|
Well operations
|
|
|
1,198
|
|
|
1198
|
|
Total current assets
|
|
|
14,409
|
|
|
14,409
|
|
|
|
|
|
|
|
|
|
Oil
and gas
properties, at cost (successful efforts):
|
|
|
|
|
|
|
|
Unproved properties
|
|
|
2,909
|
|
|
2,909
|
|
Proved properties
|
|
|
2,388
|
|
|
2,388
|
|
Less - accumulated depreciation, depletion, amortization and
impairment
|
|
|
(1,776
|
)
|
|
(1,776
|
)
|
|
|
|
3,521
|
|
|
3,521
|
|
Investment
in
CELLC
|
|
|
223
|
|
|
223
|
|
Investment
in
Savoy*
|
|
|
4,205
|
|
|
6,193
|
|
Other
assets
|
|
|
246
|
|
|
246
|
|
|
|
$
|
22,604
|
|
$
|
24,592
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,346
|
|
$
|
1,346
|
|
Oil and gas sales payable
|
|
|
1,494
|
|
|
1,494
|
|
Income tax payable
|
|
|
208
|
|
|
208
|
|
Total current liabilities
|
|
|
3,048
|
|
|
3,048
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred stock, $.10 par value; 10,000,000 shares authorized;
none
issued
|
|
|
|
|
|
|
|
Common stock, $ .01 par value; 100,000,000 shares authorized, 8,986,319
shares issued
|
|
|
90
|
|
|
90
|
|
Additional paid-in capital
|
|
|
22,207
|
|
|
24,195
|
|
Accumulated deficit
|
|
|
(2,741
|
)
|
|
(2,741
|
)
|
|
|
|
19,556
|
|
|
21,544
|
|
|
|
$
|
22,604
|
|
$
|
24,592
|
|
*In
December 2005
we sold stock to Yorktown Energy Partners VI and concurrently acquired a
32%
interest in Savoy Energy. We received cash of $2.20 per share. We
have treated the cash element as non-substantive and valued the shares
based on the market price at the time which was $3.25 per share. Therefore,
we
have increased our investment in Savoy by about $2 million and also increased
stockholders' equity by the same.
(2)
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of
Presentation and Consolidation
The
accompanying
consolidated financial statements include the accounts of Hallador Petroleum
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. We are engaged in the exploration,
development, and production of oil and natural gas in the Rocky Mountain
region. We also have a 32% equity interest in an oil and gas company which
has operations in Michigan.
As
discussed in Item 6. (MD&A), we have entered into significant related party
transactions with the Yorktown group of companies. Yorktown and its
affiliates currently own about 54% of our common stock and represents one of
the
five seats on our board.
In
early January 2006, we signed a Letter of Intent with Sunrise Coal, LLC
(Sunrise) in order to effect a reorganization/merger between Hallador and
Sunrise, a private company not affiliated with the Yorktown group of
companies. We are working on a formal agreement which we hope to execute
sometime in the second quarter 2006. In late February 2006, we
sold 3,181,816 shares for $2.20 per share (about $7 million) to our
existing shareholders. The proceeds will provide working capital for the
Sunrise transaction.
During
the first
quarter of 2006, we loaned Sunrise $7 million in order for Sunrise to begin
development of their second coal mine (the "Carlisle mine"). Their
Howesville mine began producing coal in November 2005. Both mines are
located in Indiana. During the second quarter of 2006, Sunrise
expects to enter into a $30 million line-of- credit with two Indiana banks,
at
which time our $7 million will be repaid. We have agreed to guarantee this
$30 million line-of-credit.
We
have concluded to deemphasize our oil and gas operations and concentrate our
future efforts in the coal business.
About
nine years
ago, Yorktown Energy Partners II and affiliates (Yorktown) invested $5,025,000
in Hallador Petroleum, LLP, a newly formed limited liability limited
partnership, (the "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. During the third quarter of 2005, we
purchased the limited partners interest in the Partnership, and for accounting
purposes the Partnership no longer exists and, as a result, there is no longer
a
minority interest caption on our balance sheet. Prior to this transaction
we, as general partner, consolidated the activity of the Partnership and
presented the 30% limited partners’ interest as a minority
interest.
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, which
was 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 2004.
Due
to the sale,
our board of directors and the Executive Committee of the Partnership, voted
to
discontinue new partnership operations effective October 1, 2004. At that
time, the Partnership's assets consisted 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, our board of directors 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 $5.2 million to the limited
partners. During the third quarter 2005, we 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 these
transactions, about $1.7 million remained in the minority interest account
and
was recorded as a reduction in our accumulated deficit account.
In
late March 2005, we invested $325,000 for a 29% interest in a newly formed
entity called COALition Energy, LLC (CELLC) to pursue coal opportunities in
the
United States. Some of our officers and directors also invested in CELLC.
Oil
and
Gas Properties
We
account for our oil and gas activities using the successful efforts method
of
accounting. Under the successful efforts method, the costs of successful
wells, development dry holes and productive leases are capitalized and amortized
on a units-of-production basis over the remaining life of the related
reserves. Exploratory dry hole costs and other exploratory costs,
including geological and geophysical costs, and delay rentals are expensed
as
incurred. Cost centers for amortization purposes are determined on a
field-by-field basis. Unproved properties with significant acquisition
costs are periodically assessed for impairment in value, with any impairment
charged to expense.
Prior
to 2003, the
estimated costs of plugging and abandoning wells were accrued using the
units-of-production method and were considered in determining DD&A
expense. However, in 2003 we adopted SFAS 143, Accounting for Asset
Retirement Obligations. Under this standard, we record the fair value of
the future abandonment as capitalized abandonment costs in Oil and Gas
properties with an offsetting abandonment liability. The adoption of this
method was not significant to our continuing operations. The capitalized
abandonment costs are amortized with other property costs using the
units-of-production method.
The
carrying value
of each field is assessed for impairment on a quarterly basis. If
estimated future undiscounted net revenues are less than the recorded amounts,
an impairment charge is recorded based on the estimated fair value of the
field.
Statement
of Cash Flows
Cash
equivalents
include investments, which includes mutual funds, with maturities when purchased
of three months or less.
Income
Taxes
Income
taxes are
provided based on the liability method of accounting pursuant to SFAS 109,
Accounting for Income Taxes. The provision for income taxes is based on
pretax financial taxable income. Deferred tax assets and liabilities are
recognized for the future expected tax consequences of temporary differences
between income tax and financial reporting and principally relate to differences
in the tax basis of assets and liabilities and their reported amounts, using
enacted tax rates in effect for the year in which differences are expected
to
reverse. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is
recognized.
Earnings
per Share
We
follow the provisions of SFAS 128, Earnings Per Share. Basic earnings per
share are computed based on the weighted average number of common shares
outstanding. Diluted earnings per share are computed based on the weighted
average number of common shares outstanding adjusted for the incremental shares
attributed to outstanding stock options.
Use
of
Estimates in the Preparation of Financial Statements
The
preparation of
financial statements in conformity with generally accepted accounting principles
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual amounts could differ from
those estimates.
Revenue
Recognition
We
recognize oil and natural gas revenue from our interest in producing wells
as
natural gas and oil is produced and sold from those wells using the entitlement
method.
Concentration
of Credit Risk
Our
revenues are
derived principally from uncollateralized sales to two customers in the oil
and
gas industry. The concentration of credit risk in a single industry
affects our overall exposure to credit risk because customers may be similarly
affected by changes in economic and other conditions.
Stock
Based Compensation
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 between 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%; (iv)
expected default rate of 5%, and (v) no dividend yield. The average fair
value of options granted during 2005 was $2.15. Pro forma loss for the
year ended December 31, 2005 would have been $183,000 or $(0.03) per
share. Pro forma results for 2004 were immaterial.
No
grants were issued during 2004.
New
Accounting Pronouncements
In
December 2004, the FASB issued SFAS 123(R) that requires that the compensation
cost relating to share-based payment transactions be recognized in the financial
statements. That cost will be measured based on the fair value of the
equity or liability instrument issued. SFAS 123(R) covers a wide range of
share-based awards, stock appreciation rights, and employee stock purchase
plans. SFAS 123(R) replaces SFAS 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion 25, "Accounting for Stock Issued to Employees."
We will be required to apply SFAS 123(R) in the first quarter 2006, and will
use
the modified prospective method of adoption. We had $1,035,000 of unvested
compensation related to outstanding stock options and estimate having to expense
$115,000 during the first quarter of 2006.
None
of the other
FASB pronouncements issued during the last two years had, or will have, any
effect on us.
(3)
INCOME
TAXES (in thousands)
The
provision for
income taxes is comprised of the following:
|
|
|
|
2005
|
|
2004
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
$
|
415
|
|
$
|
265
|
|
State
|
|
|
|
|
|
189
|
|
|
361
|
|
|
|
|
|
|
|
604
|
|
|
626
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
(297
|
)
|
|
297
|
|
State
|
|
|
|
|
|
(162
|
)
|
|
162
|
|
|
|
|
|
|
|
(459
|
)
|
|
459
|
|
|
|
|
|
|
$
|
145
|
|
$
|
1,085
|
|
The
net deferred
tax asset at December 31, 2005 was not material.
Our
income tax is
different than the expected amount computed using the applicable federal
statutory income tax rate of 35% and a California state tax rate of 8.84%.
The
reasons for and effects of such differences are as follows:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Expected
amount
|
|
$
|
115
|
|
$
|
4,864
|
|
Utilization
of tax net operating losses
|
|
|
--
|
|
|
(2,174
|
)
|
Utilization
of statutory depletion carry forwards
|
|
|
--
|
|
|
(974
|
)
|
State
income
taxes, net of federal benefit
|
|
|
16
|
|
|
(340
|
)
|
Change
in
valuation allowance and other
|
|
|
14
|
|
|
(291
|
)
|
|
|
$
|
145
|
|
$
|
1,085
|
|
At
December 31, 2005, we had no federal or state net operating loss, alternative
minimum tax or statutory depletion carry forwards as all amounts were utilized
during the current fiscal year.
(4)
STOCK
OPTIONS AND BONUS PLANS
Stock
Option Plan
We
account for stock options in accordance with APB 25. Accordingly, no
compensation expense has been recorded for options granted as those grants
have
been issued with exercise prices at or above market. When we sold the Cuyama
oil
and gas field in August 2004 we concluded to reward our employees by giving
them
cash bonuses and also through purchases of their respective stock options.
Because our stock is (i) traded on the OTC Bulletin Board, (ii) thinly traded
and (iii) over 85% of the outstanding shares are controlled by our board members
and their affiliates, our board concluded our employees would not receive a
fair
price if they exercised their options and then sold the stock.
On
October 8, 2004, we purchased from our employees 749,723 outstanding stock
options at a price equal to $2.80 per share less the exercise price of each
option for a total amount of $1,305,000. The options were cancelled and
are available for re-issuance. All options were granted at fair value.
Such amount was expensed in 2004 and is reflected in the Gain on sale of
discontinued operations in the accompanying statement of operations. The $2.80
was determined by our non-employee board members and they concluded such amount
represented a fair price. At December 31, 2004 there were no options
outstanding.
Options
to purchase
up to 3% of the partnership interest in Hallador Petroleum, LLP were issued
in
1997 and 1998. As of December 31, 2004, 2.692% were outstanding and
exercisable. The exercise price for these options was based on the fair
market value on the date of grant. On January 8, 2005 we purchased back
all of these outstanding options for a total of $407,000, which was accrued
for
as of December 31, 2004.
(5)
MAJOR
CUSTOMERS
During
2005 and
2004, the San Juan Basin’s gas and NGL production was purchased by Coral Energy
Resources, LP and Williams Energy Services.
(6)
EQUITY
INVESTMENT IN SAVOY
In
August 2005, we began negotiations to purchase from Yorktown Energy Partners
II,
LP its 32% interest in Savoy Energy LLP, a private company engaged in the oil
and gas business primarily in the State of Michigan. A purchase price of
$4.1 million was agreed upon and closing occurred on December 31, 2005. On
December 20, 2005 we sold about 1,893,000 shares of our common stock to Yorktown
Energy Partners VI, L.P. at $2.20 per share (about $4.1 million). We
will account for our interest in Savoy using the equity method of accounting.
We
determined that our investment in Savoy under EITF 99-12, Determination of
the Measurement Date for the Market Price of Acquirer Securities Issued in
a
Purchase Business Combination, needed to be adjusted by approximately $2
million to properly reflect our stock price of $3.25 at the time of closing
of
this transaction.
Below
(in
thousands) are: (i) a condensed balance sheet at December 31, 2005,
and (ii) a condensed statement of operations for the year ended December 31,
2005.
Condensed Balance Sheet
|
|
|
|
|
|
Current
assets
|
$
|
12,393
|
|
|
PP&E,
net
|
|
8,306
|
|
|
|
$
|
20,699
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
5,450
|
|
|
Partners
capital
|
|
15,249
|
|
|
|
$
|
20,699
|
|
Condensed Statement Of Operations
|
Revenue
|
$
|
6,038
|
|
|
Gain
on
sale
|
|
3,133
|
|
|
|
|
9,171
|
|
|
|
|
|
|
|
Expenses
|
|
(4,364)
|
|
|
Net
income
|
$
|
4,807
|
|
No
equity income was recorded as closing on occurred on December 31,
2005.
Any
difference
between the purchase price and our pro rata share of the equity of Savoy will
be
amortized based on Savoy's units of production rate.
(7)
RESERVE
DATA (UNAUDITED)
Our
reserve
estimates for the years ended December 31, 2005 and 2004 were prepared by Edwin
James, a sole-proprietor consulting petroleum engineer based on data we
supplied. Savoy's reserve estimates were prepared by Netherland, Sewell
& Associates. Be cautious that there are many uncertainties inherent
in estimating proved reserve quantities and in projecting future production
rates.
Proved
reserves are
the estimated quantities of oil and natural gas which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed reserves are those reserves expected to be recovered through
existing wells with existing equipment and operating methods.
Analysis
of Changes in Proved Developed Reserves *
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Oil
|
|
Gas
|
|
|
|
(BBLs)
|
|
(MCF)
|
|
Balance
at
December 31, 2003
|
|
|
1,557
|
|
|
2,384
|
|
Revisions of previous estimates
|
|
|
--
|
|
|
(266
|
)
|
Discoveries
|
|
|
--
|
|
|
141
|
|
Production
|
|
|
(162
|
)
|
|
(280
|
)
|
Cuyama sale
|
|
|
(1,392
|
)
|
|
(546
|
)
|
Balance
at
December 31, 2004
|
|
|
3
|
|
|
1,433
|
|
Revisions of previous estimates
|
|
|
(1
|
)
|
|
(41
|
)
|
Discoveries
|
|
|
|
|
|
112
|
|
Production
|
|
|
(2
|
)
|
|
(104
|
)
|
Balance
at
December 31, 2005
(1)
|
|
|
0
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
*We
have no
significant proved undeveloped reserves.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
interest (32%) in Savoy's Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
developed
|
|
|
22
|
|
|
634
|
|
|
|
|
|
|
|
|
|
Proved
undeveloped
|
|
|
43
|
|
|
712
|
|
|
|
|
|
|
|
|
|
---------------------------
(1)
Our oil reserves
are not material.
The
following table
(in thousands) sets forth a standardized measure of the discounted future net
cash flows attributable to our proved developed reserves (hereinafter referred
to as "SMOG"). Future cash inflows were computed using December 31, 2005 and
2004 gas prices of $8.69 and $6.06, respectively. Future production costs
represent the estimated future expenditures to be incurred in producing the
reserves, assuming continuation of economic conditions existing at
year-end. Discounting the annual net cash inflows at 10% illustrates the
impact of timing on these future cash inflows.
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Future
gas
revenue
|
|
$
|
12,350
|
|
$
|
8,200
|
|
Future cash outflows - production andabandonment
costs
|
|
|
(3,600
|
)
|
|
(2,800
|
)
|
Future
income
taxes
|
|
|
(3,500
|
)
|
|
(2,100
|
)
|
Future
net
cash flows
|
|
|
5,250
|
|
|
3,300
|
|
10%
discount
factor
|
|
|
(2,450
|
)
|
|
(1,500
|
)
|
SMOG
|
|
$
|
2,800
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
Equity
interest (32%) in Savoy (about
50%
relates to proved undeveloped reserves)
|
|
$
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table
(in thousands) summarizes the principal factors comprising the changes in
SMOG:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
SMOG,
beginning of year
|
|
$
|
1,800
|
|
$
|
11,500
|
|
Sales of oil and gas, net of production costs
|
|
|
(875
|
)
|
|
(3,600
|
)
|
Net changes in prices and production costs
|
|
|
2,160
|
|
|
(350
|
)
|
Revisions
|
|
|
(165
|
)
|
|
(300
|
)
|
Discoveries
|
|
|
450
|
|
|
100
|
|
Change in income taxes
|
|
|
(750
|
)
|
|
(1,200
|
)
|
Accretion of discount
|
|
|
180
|
|
|
1,150
|
|
Cuyama sale
|
|
|
-
|
|
|
(5,500
|
)
|
SMOG,
end of
year
|
|
$
|
2,800
|
|
$
|
1,800
|
|
|
|
|
|
|
|
|
|
ITEM
13. EXHIBITS
(a)
Exhibits
31
|
SOX
302
Certification
|
32
|
SOX
906
Certification
|
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on our behalf by the undersigned, thereunto duly
authorized.
|
|
HALLADOR
PETROLEUM COMPANY
|
|
|
|
|
|
|
|
|
|
Dated:
April 9, 2007
|
|
BY:/S/
VICTOR
P. STABIO
VICTOR P. STABIO, CEO
|
|
|
|