Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 For the quarterly period ended March 31,
2006
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 For the transition period from ________________ to
_________________
|
Commission
file number 1-4668
COASTAL
CARIBBEAN OILS & MINERALS,
LTD.
|
(Exact
name of registrant as specified in its
charter)
|
|
|
|
BERMUDA
|
|
NONE
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
|
Clarendon
House, Church Street, Hamilton,
Bermuda
|
|
HM
11
|
(Address
of principal executive
offices)
|
|
(Zip
Code)
|
|
|
|
(850)
653-2732
|
(Registrant's
telephone number, including area code)
|
|
|
|
|
(Former
name, former address and former
fiscal year, if changed since last report)
|
|
|
|
Indicate
by check mark whether the registrant (l) has filed all reports required to
be
filed by Section 13 or 15 (d) of the Securities Exchange Act of l934 during
the
preceding 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. T
Yes
¨
No
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act). ¨
Yes
T
No
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). ). ¨
Yes
T
No
The
number of shares outstanding of the issuer's single class of common stock as
of
May 5, 2006 was 46,211,604.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
MARCH
31, 2006
Table
of Contents
PART
I - FINANCIAL INFORMATION
ITEM
1
|
|
Financial
Statements
|
|
Page
|
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Consolidated
balance sheets at March 31, 2006 and December 31,
2005
|
|
3
|
|
|
|
|
|
|
|
Consolidated
statements of operations for the three month periods ended March
31, 2006
and 2005 and for the period from January 31, 1953 (inception) to
March 31,
2006
|
|
4
|
|
|
|
|
|
|
|
Consolidated
statements of cash flows for the three month periods ended March
31, 2006
and 2005 and for the period from January 31, 1953 (inception) to
March 31,
2006
|
|
5
|
|
|
|
|
|
|
|
Notes
to consolidated financial statements
|
|
6
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|
|
|
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|
ITEM
2
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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|
10
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|
|
|
|
|
ITEM
3
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|
Quantitative
and Qualitative Disclosure About Market Risk
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13
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|
|
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|
|
ITEM
4
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|
Controls
and Procedures
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13
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|
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PART
II - OTHER INFORMATION
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ITEM
5
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Other
Information
|
|
14
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ITEM
6
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|
Exhibits
|
|
15
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|
|
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Signatures
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|
16
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|
ITEM
1
- Financial
Statements
CONSOLIDATED
BALANCE SHEETS
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Assets
|
|
(Unaudited)
|
|
(Note)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,676,615
|
|
$
|
2,250,236
|
|
Prepaid
expenses and other
|
|
|
23,297
|
|
|
199,754
|
|
Total
current assets
|
|
|
1,699,912
|
|
|
2,449,990
|
|
|
|
|
|
|
|
|
|
Certificate
of deposit
|
|
|
75,000
|
|
|
75,000
|
|
Inventory
- drilling
|
|
|
21,968
|
|
|
—
|
|
Well
drilling costs
|
|
|
592,206
|
|
|
—
|
|
Petroleum
leases
|
|
|
1,875,429
|
|
|
1,860,614
|
|
Equipment,
net
|
|
|
1,771
|
|
|
1,771
|
|
|
|
|
|
|
|
|
|
________
|
|
|
|
|
|
________
|
|
Total
assets
|
|
$
|
4,266,286
|
|
$
|
4,387,375
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
123,152
|
|
$
|
27,526
|
|
Income
taxes payable
|
|
|
—
|
|
|
35,000
|
|
Total
current liabilities
|
|
|
123,152
|
|
|
62,526
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
Common
stock, par value $.12 per share:
|
|
|
|
|
|
|
|
Authorized
- 250,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
- 46,211,604, respectively
|
|
|
5,545,392
|
|
|
5,545,392
|
|
Capital
in excess of par value
|
|
|
32,137,811
|
|
|
32,137,811
|
|
|
|
|
37,683,203
|
|
|
37,683,203
|
|
Deficit
accumulated during the development stage
|
|
|
(33,540,069
|
)
|
|
(33,358,354
|
)
|
Total
shareholders’ equity
|
|
|
4,143,134
|
|
|
4,324,849
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
4,266,286
|
|
$
|
4,387,375
|
|
Note:
The
balance sheet at December 31, 2005 has been derived from
the
audited consolidated financial statements at that date.
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
ITEM
1
- Financial
Statements
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
(Unaudited)
|
|
|
|
|
|
For
the
|
|
|
|
|
|
|
|
period
from
|
|
|
|
|
|
|
|
Jan.
31, 1953
|
|
|
|
|
|
|
|
(inception)
|
|
|
|
Three
months ended
|
|
to
March 31,
|
|
|
|
March
31,
|
|
2006
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
$
|
15,243
|
|
$
|
—
|
|
$
|
3,943,537
|
|
Gain
on settlement
|
|
|
—
|
|
|
—
|
|
|
8,124,016
|
|
|
|
|
15,243
|
|
|
—
|
|
|
12,067,553
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Legal
fees and costs
|
|
|
46,083
|
|
|
9,033
|
|
|
17,101,150
|
|
Administrative
expenses
|
|
|
116,374
|
|
|
48,133
|
|
|
10,053,914
|
|
Salaries
|
|
|
31,250
|
|
|
24,760
|
|
|
3,899,081
|
|
Shareholder
communications
|
|
|
3,251
|
|
|
6,060
|
|
|
4,079,160
|
|
Goodwill
impairment
|
|
|
—
|
|
|
—
|
|
|
801,823
|
|
Write
off of unproved properties
|
|
|
—
|
|
|
—
|
|
|
5,560,494
|
|
Exploration
costs
|
|
|
—
|
|
|
—
|
|
|
247,465
|
|
Lawsuit
judgments
|
|
|
—
|
|
|
—
|
|
|
1,941,916
|
|
Minority
interests
|
|
|
—
|
|
|
—
|
|
|
(632,974
|
)
|
Other
|
|
|
—
|
|
|
—
|
|
|
364,865
|
|
Contractual
services
|
|
|
—
|
|
|
—
|
|
|
2,155,728
|
|
|
|
|
196,958
|
|
|
87,986
|
|
|
45,572,622
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
—
|
|
|
—
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(181,715
|
)
|
$
|
(87,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated during
|
|
|
|
|
|
|
|
|
|
|
the
development stage
|
|
|
|
|
|
|
|
$
|
(33,540,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares
|
|
|
|
|
|
|
|
|
|
|
outstanding
(basic & diluted)
|
|
|
46,211,604
|
|
|
46,211,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share (basic & diluted)
|
|
$
|
(.004
|
)
|
$
|
(.002
|
)
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1
- Financial
Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in U.S. Dollars)
(A
Bermuda Corporation)
A
Development Stage Company
(Unaudited)
|
|
|
|
|
|
For
the period
|
|
|
|
|
|
|
|
from
Jan. 31, 1953
|
|
|
|
Three
months ended
|
|
(inception)
|
|
|
|
March
31,
|
|
To
|
|
|
|
2006
|
|
2005
|
|
March
31, 2006
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(181,715
|
)
|
$
|
(87,986
|
)
|
$
|
(33,540,069
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Gain
on settlement
|
|
|
—
|
|
|
—
|
|
|
(8,124,016
|
)
|
Goodwill
impairment
|
|
|
—
|
|
|
—
|
|
|
801,823
|
|
Minority
interest
|
|
|
—
|
|
|
—
|
|
|
(632,974
|
)
|
Depreciation
|
|
|
—
|
|
|
—
|
|
|
120
|
|
Write
off of unproved properties
|
|
|
—
|
|
|
—
|
|
|
5,619,741
|
|
Common
stock issued for services
|
|
|
—
|
|
|
—
|
|
|
119,500
|
|
Compensation
recognized for stock option grant
|
|
|
—
|
|
|
—
|
|
|
75,000
|
|
Recoveries
from previously written off properties
|
|
|
—
|
|
|
—
|
|
|
252,173
|
|
Net
change in:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other
|
|
|
176,457
|
|
|
9,033
|
|
|
(23,297
|
)
|
Inventory
- drilling
|
|
|
(21,968
|
)
|
|
—
|
|
|
(21,968
|
)
|
Accrued
liabilities
|
|
|
95,626
|
|
|
65,359
|
|
|
123,152
|
|
Income
taxes payable
|
|
|
(35,000
|
)
|
|
—
|
|
|
—
|
|
Net
cash provided by (used in) operating activities
|
|
|
33,400
|
|
|
(13,594
|
)
|
|
(35,350,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Additions
to oil, gas, and mineral properties
|
|
|
|
|
|
|
|
|
|
|
net
of assets acquired for common stock and reimbursements
|
|
|
(86,952
|
)
|
|
—
|
|
|
(5,687,748
|
)
|
Well
drilling costs
|
|
|
(520,069
|
)
|
|
—
|
|
|
(520,069
|
)
|
Net
proceeds from settlement
|
|
|
—
|
|
|
—
|
|
|
8,124,016
|
|
Proceeds
from relinquishment of surface rights
|
|
|
—
|
|
|
—
|
|
|
246,733
|
|
Purchase
of certificate of deposit
|
|
|
—
|
|
|
—
|
|
|
(75,000
|
)
|
Purchase
of minority interest in CPC
|
|
|
—
|
|
|
—
|
|
|
(801,823
|
)
|
Purchase
of fixed assets
|
|
|
—
|
|
|
—
|
|
|
(63,540
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(607,021
|
)
|
|
—
|
|
|
1,222,569
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Loans
from officers
|
|
|
—
|
|
|
13,500
|
|
|
—
|
|
Sale
of common stock net of expenses
|
|
|
—
|
|
|
—
|
|
|
30,380,612
|
|
Shares
issued upon exercise of options
|
|
|
—
|
|
|
—
|
|
|
884,249
|
|
Sale
of shares by subsidiary
|
|
|
—
|
|
|
—
|
|
|
820,000
|
|
Sale
of subsidiary shares
|
|
|
—
|
|
|
—
|
|
|
3,720,000
|
|
Net
cash provided by financing activities
|
|
|
—
|
|
|
13,500
|
|
|
35,804,861
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(573,621
|
)
|
|
(94
|
)
|
|
1,676,615
|
|
Cash
and cash equivalents at beginning of period
|
|
|
2,250,236
|
|
|
179
|
|
|
—
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,676,615
|
|
$
|
85
|
|
$
|
1,676,615
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements
Note
1. Basis
of Presentation
The
accompanying unaudited consolidated financial statements include Coastal
Caribbean Oils & Minerals, Ltd. (the Company’s) and its wholly owned
subsidiary, Coastal Petroleum Company (Coastal Petroleum) and have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments
are
of a normal recurring nature. Operating results for the three month period
ended
March 31, 2006 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the
Company’s Annual Report on Form 10-K for the year ended December 31,
2005.
Note
2. Going
Concern
As
of
March 31, 2006, the Company had no revenues, had recurring losses from
operations and has had an accumulated deficit during the development
stage. We, along with various other parties, settled several
lawsuits in 2005, which were filed by the Company, our subsidiary Coastal
Petroleum Company and others against the State of Florida (See Notes 3 and
5).
All of these lawsuits were related to the State’s actions limiting oil and
gas exploration and development activities on land covered by
our subsidiary's leases and by royalties held by the Company and
others. The cost of that litigation was substantial. Management
believes its current cash position will allow the Company to move forward to
explore and develop profitable oil and gas operations, although there is no
assurance these efforts will be successful.
Note
3. Litigation
Florida
Case
In
June
2005, the Company and others agreed to a final settlement of all claims and
rights with the State of Florida (the State) for $12.5 million (the Agreement).
The
State
paid out the settlement through an intermediary in July 2005. The total
settlement and the amount received by the Company was as follows:
Gross
settlement proceeds
|
|
$
|
12,500,000
|
|
Distribution
to other parties:
|
|
|
|
|
Lykes
Mineral Corporation
|
|
|
1,390,000
|
|
Outside
Royalty Holders
|
|
|
2,540,000
|
|
Settlement
Consultant
|
|
|
465,000
|
|
|
|
|
|
|
Gross
proceeds to Coastal
|
|
|
8,105,000
|
|
Purchase
of other CPC shares
|
|
|
802,200
|
|
Paid
to Coastal Creditors
|
|
|
2,431,000
|
|
|
|
|
|
|
Net
proceeds to Company
|
|
$
|
4,872,000
|
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
3. Litigation
(Continued)
As
part
of the settlement, the Company acquired the remaining minority interests in
its
subsidiary, Coastal Petroleum for $802,000. As Coastal Petroleum had no tangible
or intangible assets at the time the shares were acquired, the full purchase
price was assigned to goodwill. The Company reviewed its goodwill related to
Coastal Petroleum for impairment and determined the goodwill was fully impaired.
Therefore, an impairment charge of $802,000 was made during the quarter ending
September 30, 2005. The Company now owns 100% of Coastal Petroleum Company.
For
the
quarter ending September 30, 2005, the Company recorded a gain on its share
of
the settlement of $8,124,000 after deducting all direct settlement costs and
costs to cancel various royalty rights related to the Florida
leases.
Lease
Taking Case (Lease 224-A)
This
proceeding has been dismissed as part of the Agreement with the
State.
Royalty
Taking Case
This
proceeding has been dismissed as part of the Agreement with the
State.
Lease
Taking Case (Lease 224-B)
This
proceeding has been dismissed as part of the Agreement with the
State.
Note
4. Loss
per share
Loss
per
share is based upon the weighted average number of common and common equivalent
shares outstanding during the period. The Company’s basic and diluted
calculations of EPS are the same because the exercise of options is not assumed
in calculating diluted EPS, as the result would be anti-dilutive (the Company
has continuing losses).
Note
5. Oil
& Gas Development Activity
Drilling
Activity
The
Company began drilling its initial well in north central Montana in January
2006
under a farm-in agreement with the mineral owner on acreage in Blaine County.
The Company has capitalized $592,000 in drilling costs through March 31, 2006
and is currently in the process of completing and testing the well. The drilling
results will remain confidential until that process is complete.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
5.
Oil
& Gas Development Activity
(Continued)
Montana
Leases
The
Company’s primary presence in Montana is in Valley County, where it holds leases
covering 131,297 net acres which the Company acquired in three separate
acquisitions between July 2005 and February 2006. The leases acquired in those
acquisitions are contiguous to each other and are referred to collectively
as
“the Valley County Leases.” The leases are subject to various landowner and
overriding royalty interests ranging up to 19.5%.
The
first
acquisition of the Valley County Leases was in July 2005, when the Company
acquired the rights to drill two 6,500 foot wells to test Mississippian
Lodgepole Reefs in Valley County, in northeast Montana for a one time fee of
$50,000 from an entity controlled by one of the Company’s Directors. The
acquisition included a small amount of acreage and the option to drill fifty
additional prospects in the Valley County area.
The
second acquisition of the Valley County Leases was in November 2005, when the
Company acquired a group of oil and gas lease rights to approximately 103,557
net acres in eastern Montana for $1,568,000. These leases expire in years from
2007 to 2014.
The
final
acquisition of acreage within the Valley County Leases was in February 2006,
when the Company acquired additional oil and gas leases in eastern Montana
covering 27,740 net acres contiguous to its existing Montana leases. These
leases were acquired from the Bureau of Land Management and United States
Department of the Interior.
The
Company has an agreement with a consultant entity, controlled by one of the
Company’s Directors, to identify Mississipian Lodgepole Reef prospects to be
drilled on and near its Valley County Leases. The agreement provides for up
to a
25% working interest, 20% net revenue interest in each well after payout, on
a
well by well basis, to the consulting entity. Under the prior agreement, the
Company was required to drill a test well on an identified Lodgepole Reef
prospect by March 31, 2006, in order to maintain the contract and have the
option to have fifty additional Lodgepole Reef prospects identified. Under
the
current amended agreement, the Company must drill a test well on an identified
Lodgepole Reef prospect by September 30, 2006, in order to maintain the contract
and have the option under that contract to have all of the Lodgepole Reef
prospects identified over the extent of the Valley County Leases and in
surrounding areas.
The
Company has recently received two permits, and a third is pending, to drill
on
its Valley County Leases. The Company estimates the cost to drill a test well
on
the Valley County Leases to be approximately $500,000 and the Company is
actively seeking partners to participate for the bulk of
expenditures.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
5.
Oil
& Gas Development Activity
(Continued)
North
Dakota Leases
In
July
2005, the Company acquired leases to the deeper rights in approximately 21,688
net acres in and near Slope County, North Dakota for a one time fee of $50,000
from a consultant entity controlled by one of the Company’s Directors. The
Company’s agreement with the consultant entity to identify Mississipian
Lodgepole Reef prospects to be drilled on and near its Slope County Leases,
provides for up to a 25% working interest, 20% net revenue interest in each
well
after payout, on a well by well basis, to the consulting entity. The leases
are
also subject to various landowner and overriding royalty interests ranging
up to
19.5%.
The
Company is obligated to drill a test well before July 31, 2006, and has the
option to drill the remaining Lodgepole Reef prospects on these leases. The
Company intends to partner with other entities to share the cost of the initial
9,700 foot test well the total estimated drilling cost of which is estimated
to
be $1,200,000.
Florida
Leases
The
Florida Leases were surrendered to Florida as a part of the 2005 Agreement
with
Florida and are no longer held by the Company.
Prior
to
2005, Coastal Petroleum held three unproved and nonproducing oil, gas and
mineral leases granted by the Trustees of the Internal Improvement Fund of
the
State of Florida (Trustees). These leases covered submerged and unsubmerged
lands, principally along the Florida Gulf Coast, and certain inland lakes and
rivers throughout the State. The two leases bordering the Gulf Coast were
divided into three areas, each running the entire length of the coastline from
Apalachicola Bay to the Naples area. Coastal Petroleum held certain royalty
interests in the inner area, no interest in the middle area and a 100% working
interest in the outside area. Coastal Petroleum also held a 100% working
interest in Lake Okeechobee, and a royalty interest in other areas. Coastal
Petroleum had agreed not to conduct exploration, drilling, or mining operations
on said lake, except with prior approval of the Trustees.
Note
6.
Income
Taxes
For
the
three months ended March 31, 2006 and 2005, the Company reported a loss for
both
financial statement reporting and income tax purposes. The Company has provided
a 100% valuation allowance on its additional deferred tax asset as a result
of
its net operating loss carryforward. The Company has approximately $8,800,000
in
net operating loss carryforwards at December 31, 2005.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
2 Management's
Discussion and Analysis of Financial Condition and
Results
of Operations
Forward
Looking Statements
Statements
included in Management’s Discussion and Analysis of Financial Condition and
Results of Operations, which are not historical in nature are intended to be
forward looking statements. The Company cautions readers that forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward looking
statements. Among the risks and uncertainties are: the uncertainty of securing
additional financing through the sale of shares of Coastal Petroleum and/or
Coastal Caribbean; changes in the income tax laws relating to tax loss carry
forwards; the failure of the Company’s test wells to locate oil or gas reserves
or the failure to locate oil or gas reserves which are economically feasible
to
recover; reductions in world wide oil or gas prices; adverse weather conditions;
or mechanical failures of equipment used to explore the Company’s
leases.
Critical
Accounting Policies
The
Company follows the full cost method of accounting for its oil and gas
properties. All costs associated with property acquisition, exploration and
development activities whether successful or unsuccessful are
capitalized.
The
capitalized costs are subject to a ceiling test which basically limits such
costs to the aggregate of the estimated present value discounted at a 10% rate
of future net revenues from proved reserves, based on current economic and
operating conditions, plus the lower of cost or fair market value of unproved
properties.
The Company assesses whether its unproved properties are impaired on a periodic
basis. This assessment is based upon work completed on the properties to date,
the expiration date of its leases and technical data from the properties and
adjacent areas.
Oil
& Gas Development Activity
Drilling
Activity
The
Company began drilling its initial well in north central Montana in January
2006
under a farm-in agreement with the mineral owner on acreage in Blaine County.
The Company has capitalized $592,000 in drilling costs through March 31, 2006
and is currently in the process of completing and testing the well. The drilling
results will remain confidential until that process is complete.
ITEM
2 Management's
Discussion and Analysis of Financial Condition and
Results
of Operations
(Continued)
Oil
& Gas Development Activity
(Continued)
Montana
Leases
The
Company’s primary presence in Montana is in Valley County, where it holds leases
covering 131,297 net acres which the Company acquired in three separate
acquisitions between July 2005 and February 2006. The leases acquired in those
acquisitions are contiguous to each other and are referred to collectively
as
“the Valley County Leases.” The leases are subject to various landowner and
overriding royalty interests ranging up to 19.5%.
The
first
acquisition of the Valley County Leases was in July 2005, when the Company
acquired the rights to drill two 6,500 foot wells to test Mississippian
Lodgepole Reefs in Valley County, in northeast Montana for a one time fee of
$50,000 from an entity controlled by one of the Company’s Directors. The
acquisition included a small amount of acreage and the option to drill fifty
additional prospects in the Valley County area.
The
second acquisition of the Valley County Leases was in November 2005, when the
Company acquired a group of oil and gas lease rights to approximately 103,557
net acres in eastern Montana for $1,568,000. These leases expire in years from
2007 to 2014.
The
final
acquisition of acreage within the Valley County Leases was in February 2006,
when the Company acquired additional oil and gas leases in eastern Montana
covering 27,740 net acres contiguous to its existing Montana leases. These
leases were acquired from the Bureau of Land Management and United States
Department of the Interior.
The
Company has an agreement with a consultant entity, controlled by one of the
Company’s Directors, to identify Mississipian Lodgepole Reef prospects to be
drilled on and near its Valley County Leases. The agreement provides for up
to a
25% working interest, 20% net revenue interest in each well after payout, on
a
well by well basis, to the consulting entity. Under the prior agreement, the
Company was required to drill a test well on an identified Lodgepole Reef
prospect by March 31, 2006, in order to maintain the contract and have the
option to have fifty additional Lodgepole Reef prospects identified. Under
the
current amended agreement, the Company must drill a test well on an identified
Lodgepole Reef prospect by September 30, 2006, in order to maintain the contract
and have the option under that contract to have all of the Lodgepole Reef
prospects identified over the extent of the Valley County Leases and in
surrounding areas.
The
Company has recently received two permits, and a third is pending, to drill
on
its Valley County Leases. The Company estimates the cost to drill a test well
on
the Valley County Leases to be approximately $500,000 and the Company is
actively seeking partners to participate for the bulk of
expenditures.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
2 Management's
Discussion and Analysis of Financial Condition and
Results
of Operations
(Continued)
Oil
& Gas Development Activity
(Continued)
North
Dakota Leases
In
July
2005, the Company acquired leases to the deeper rights in approximately 21,688
net acres in and near Slope County, North Dakota for a one time fee of $50,000
from a consultant entity controlled by one of the Company’s Directors. The
Company’s agreement with the consultant entity to identify Mississipian
Lodgepole Reef prospects to be drilled on and near its Slope County Leases,
provides for up to a 25% working interest, 20% net revenue interest in each
well
after payout, on a well by well basis, to the consulting entity. The leases
are
also subject to various landowner and overriding royalty interests ranging
up to
19.5%.
The
Company is obligated to drill a test well before July 31, 2006, and has the
option to drill the remaining Lodgepole Reef prospects on these leases. The
Company intends to partner with other entities to share the cost of the initial
9,700 foot test well the total estimated drilling cost of which is estimated
to
be $1,200,000.
Liquidity and Capital Resources
The
Company has significantly improved its cash and working capital positions as
the
result of its settlement with the State of Florida. The Company has $1.677M
in
cash at March 31, 2006 compared to $179 at March 31, 2005. The Company has
paid
all its past due accounts and is current with all its vendors and has no loans
outstanding.
As
of March
31,
2006,
the
Company had no revenues, had recurring losses prior to 2005 and has an
accumulated deficit during the development stage. We, along with
others, settled several lawsuits in June 2005, which were filed by the Company,
our subsidiary Coastal Petroleum Company and others against the State of Florida
(See Notes 3 and 5). All of these lawsuits were related to the State’s
actions limiting our ability to commence development activities through our
subsidiary. The cost of that litigation was substantial. Management
believes its current cash position will allow the Company to move forward to
explore and develop profitable oil and gas operations, although there is no
assurance these efforts will be successful.
Results of Operations
Three
months ended March 31, 2006 vs. March 31, 2005
In June 2005, we settled all our legal actions with the State of Florida and
realized a gain of $8,124,000. Prior to June 2005, we expensed all our oil
and
gas property lease costs as impaired as well as substantial legal costs.
Prior to June 2005, we have been working toward resolution of our legal actions
against the State of Florida, and we continued to suffer declining financial
condition and a lack of resources to continue pursuing expensive and lengthy
litigation. We minimized
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
2 Management's
Discussion and Analysis of Financial Condition and
Results
of Operations (Continued)
Results of Operations
(Continued)
expenses,
deferred payments and borrowed funds from our officers to maintain our legal
efforts against the State of Florida.
Since
June
2005, we have actively acquired oil and gas leases in North Dakota and Montana
and we began drilling our first well in January 2006.
Our
interest
income increased in 2006 due to the short-term investment of cash received
from
the settlement. We had no such investments in 2005.
For
2006 and
2005, we had one employee, and maintained legal counsel on a monthly retainer
and maintained our periodic reporting obligations. During 2005, we also
attempted to minimize all other operating expenses. During 2006, almost all
our
operating costs increased due to our lease acquisitions and well drilling
activity in North Dakota and Montana resulting in significant increases in
travel and lodging costs. In 2006, we also added Company directors, increased
director compensation and added director liability insurance.
ITEM
3 Quantitative
and Qualitative Disclosure About Market Risk
The
Company
does not have any significant exposure to market risk as there were no
investments in marketable securities at March 31, 2006.
ITEM
4 Controls
and Procedures
I,
Phillip W.
Ware, the principal executive officer and the principal financial officer,
have
evaluated the Company’s
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
adopted under the Securities Act of 1934) as of the end of the period covered
by
this report and have concluded:
1. That
the
Company’s disclosure controls and procedures are effective and adequately
designed to ensure that material information relating to the Company, including
its consolidated subsidiary, is timely made known to such officers by others
within the Company and its subsidiary, particularly during the period in which
this quarterly report is being prepared; and
2. That
there were no significant changes in the Company’s internal controls or in other
factors that could materially affect or are reasonably likely to materially
affect these controls subsequent to the date of their evaluation, including
any
corrective actions with regard to significant deficiencies and material
weaknesses.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
II - FINANCIAL INFORMATION
ITEM
5 Other
Information
Coastal
Caribbean is currently a passive foreign investment company, or PFIC, for United
States federal income tax purposes, which could result in negative tax
consequences to a shareholder. If, for any taxable year, the Company’s passive
income or assets that produce passive income exceed levels provided by U.S.
law,
the Company would be a "passive foreign investment company," or PFIC, for U.S.
federal income tax purposes. For the years 1987 through 2001, Coastal
Caribbean's passive income and assets that produce passive income exceeded
those
levels and for those years Coastal Caribbean constituted a PFIC. If Coastal
Caribbean is a PFIC for any taxable year, then the Company’s U.S. shareholders
potentially would be subject to adverse U.S. tax consequences of holding and
disposing of shares of our common stock for that year and for future tax years.
Any gain from the sale of, and certain distributions with respect to, shares
of
the Company’s common stock, would cause a U.S. holder to become liable for U.S.
federal income tax under section 1291 of the Internal Revenue Code (the interest
charge regime). The tax is computed by allocating the amount of the gain on
the
sale or the amount of the distribution, as the case may be, to each day in
the
U.S. shareholder’s holding period. To the extent that the amount is allocated to
a year, other than the year of the disposition or distribution, in which the
corporation was treated as a PFIC with respect to the U.S. holder, the income
will be taxed as ordinary income at the highest rate in effect for that year,
plus an interest charge.
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2005.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
II - FINANCIAL INFORMATION
ITEM
6 Exhibits
31.1 |
Certification
pursuant to Rule 13a-14 by Phillip W.
Ware
|
32.1 |
Certification pursuant to Section 906 by Phillip
W.
Ware |
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
March
31, 2006
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Registrant
|
|
|
|
Date: April
27, 2006 |
By: |
/s/ Phillip
W. Ware |
|
Phillip W. Ware
Chief Executive Officer,
President and Treasurer
|