10-Q
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 June
30,
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
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
Clarendon
House, Church Street, Hamilton, Bermuda
|
|
HM
11
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(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
August 9, 2006 was 46,211,604.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
JUNE
30, 2006
|
|
Page
|
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3
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4
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5
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6
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10
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13
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14
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15
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16
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17
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COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
(Note)
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,220,543
|
|
$
|
2,250,236
|
|
Prepaid
expenses and other
|
|
|
11,649
|
|
|
199,754
|
|
Total
current assets
|
|
|
1,232,192
|
|
|
2,449,990
|
|
|
|
|
|
|
|
|
|
Certificate
of deposit
|
|
|
75,000
|
|
|
75,000
|
|
Well
drilling costs
|
|
|
730,020
|
|
|
—
|
|
Petroleum
leases
|
|
|
2,028,862
|
|
|
1,860,614
|
|
Equipment,
net
|
|
|
1,771
|
|
|
1,771
|
|
Total
assets
|
|
$
|
4,067,845
|
|
$
|
4,387,375
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
94,811
|
|
$
|
27,526
|
|
Income
taxes payable
|
|
|
|
|
|
35,000
|
|
Total
current liabilities
|
|
|
94,811
|
|
|
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
|
|
|
(33,710,169
|
)
|
|
(33,358,354
|
)
|
Total
shareholders’ equity
|
|
|
3,973,034
|
|
|
4,324,849
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
4,067,845
|
|
$
|
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
ITEM
1
- Financial
Statements
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the
|
|
|
|
|
|
|
|
|
|
|
|
period
from
|
|
|
|
|
|
|
|
|
|
|
|
Jan.
31, 1953
|
|
|
|
|
|
|
|
|
|
|
|
(inception)
|
|
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
$
|
11,220
|
|
$
|
|
|
$
|
26,463
|
|
$
|
|
|
$
|
3,954,757
|
|
Gain
on settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,124,016
|
|
|
|
|
11,220
|
|
|
|
|
|
26,463
|
|
|
|
|
|
12,078,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
fees and costs
|
|
|
65,576
|
|
|
5,024
|
|
|
111,659
|
|
|
14,057
|
|
|
17,166,726
|
|
Administrative
expenses
|
|
|
80,293
|
|
|
30,358
|
|
|
196,667
|
|
|
78,491
|
|
|
10,134,207
|
|
Salaries
|
|
|
33,850
|
|
|
24,759
|
|
|
65,100
|
|
|
49,519
|
|
|
3,932,931
|
|
Shareholder
communications
|
|
|
1,601
|
|
|
6,000
|
|
|
4,852
|
|
|
12,060
|
|
|
4,080,761
|
|
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
|
|
|
|
|
181,320
|
|
|
66,141
|
|
|
378,278
|
|
|
154,127
|
|
|
45,753,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(170,100
|
)
|
$
|
(66,141
|
)
|
$
|
(351,815
|
)
|
$
|
(154,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated during
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,710,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Shares
outstanding (basic & diluted)
|
|
|
46,221,604
|
|
|
46,221,604
|
|
|
46,221,604
|
|
|
46,221,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share (basic & diluted)
|
|
$
|
(.004
|
)
|
$
|
(.001
|
)
|
$
|
(.008
|
)
|
$
|
(.003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1
- Financial
Statements
(Expressed
in U.S. Dollars)
(A
Bermuda Corporation)
A
Development Stage Company
(Unaudited)
|
|
|
|
|
|
For
the period from
Jan.
31, 1953
|
|
|
|
Six
months ended
|
|
(inception)
|
|
|
|
June 30,
|
|
To
|
|
|
|
2006
|
|
2005
|
|
June
30, 2006
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(351,815
|
)
|
$
|
(154,127
|
)
|
$
|
(33,710,169
|
)
|
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
|
|
|
188,105
|
|
|
14,057
|
|
|
(11,649
|
)
|
Accrued
liabilities
|
|
|
67,285
|
|
|
108,481
|
|
|
94,811
|
|
Income
taxes payable
|
|
|
(35,000
|
)
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(131,425
|
)
|
|
(31,589
|
)
|
|
(35,515,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Additions
to oil, gas, and mineral properties
|
|
|
|
|
|
|
|
|
|
|
net
of assets acquired for common stock and reimbursements
|
|
|
(240,385
|
)
|
|
|
|
|
(5,841,181
|
)
|
Well
drilling costs
|
|
|
(657,883
|
)
|
|
|
|
|
(657,883
|
)
|
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
|
|
|
(898,268
|
)
|
|
|
|
|
931,322
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Loans
from officers
|
|
|
|
|
|
31,500
|
|
|
|
|
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
|
|
|
|
|
|
31,500
|
|
|
35,804,861
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(1,029,693
|
)
|
|
(89
|
)
|
|
1,220,543
|
|
Cash
and cash equivalents at beginning of period
|
|
|
2,250,236
|
|
|
179
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,220,543
|
|
$
|
90
|
|
$
|
1,220,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements
The
accompanying unaudited consolidated financial statements include Coastal
Caribbean Oils & Minerals, Ltd. (the Company’s), its wholly owned
subsidiary, Coastal Petroleum Company (Coastal Petroleum) and Coastal
Petroleum’s wholly owned subsidiary, Williston Basin, Inc., 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 and six month
periods ended June 30, 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
June 30, 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
|
|
|
802,000
|
|
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 $730,000 in drilling costs through June 30,
2006 and is currently in the process of completing and testing the well. The
well hit the target Lodgepole reef, but the reef had been flushed with fresh
water. The well drilled through several other formations that were prospective
for oil or gas and all but two of them have been tested. One is currently being
evaluated and the other remains to be tested. 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 137,163.26 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
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. That
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 109,423.26
net acres in eastern Montana for $1,568,000. These leases are subject to various
overriding royalty interests to others ranging up to 19.5%. 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 Mississippian Lodgepole Reef prospects to be
drilled on and near its Valley County Leases. Under a 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 received four permits 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.
The
Company has also agreed to participate and act as operator in a twin well to
the
only known well to produce from the Lodgepole in Montana. The Company estimates
its participation costs in the twin well to be $100,000. The well is located
in
Valley County and the Company will be the operator until the well is returned
to
production.
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 an entity controlled by one of the Company’s Directors. Since that time,
some of the leases have expired and the Company currently holds leases on
8,884.15 gross and 8,198.35 net acres in Slope County. The Company is obligated
to drill a test well before September 30, 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 and six months ended June 30, 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.
Note
7. Related
Party Transactions
Pursuant
to a written agreement with respect to the Valley County Leases, the Company
uses an entity controlled by an individual who is a shareholder, officer and
director of the company to perform geotechnical analysis of potential drilling
sites at a cost of $1,000 per site. The Company capitalized $40,000 paid to
this
entity for the six months ended June 30, 2006. No amounts were incurred for
the
six months ended June 30, 2005.
The
Company pays a monthly retainer to the law firm of Angerer & Angerer. The
principals of the law firm include two individuals who are collectively
shareholders, officers and
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
7. Related
Party Transactions
(Continued)
a
director of the Company. The Company expensed $72,000 and $0 in legal fees
for
the six months ended June 30, 2006 and 2005, respectively.
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.
Liquidity and Capital Resources
Liquidity
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 $1.220M
in
cash at June 30, 2006 compared to $90 at June 30, 2005. The Company has paid
all
its past due accounts and is current with all its vendors and has no loans
outstanding.
As
of
June
30,
2006,
the
Company had no revenues, had recurring losses prior to 2005 and had 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
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
Liquidity and Capital Resources
(Continued)
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.
The
Company acquired oil and gas leasing rights for 25,000 acres in Slope County
North Dakota and for two well sites in Valley County, Montana for $100,000
from
an entity controlled by one of the Company’s directors. Since that time, some of
the leases have expired and the Company currently holds leases on 8,884.15
gross
and 8,198.35 net acres in Slope County. The leases include an option to drill
for additional prospects in the Valley County area. The leases provide for
a 25%
working interest, 20% net revenue interest in each well, on a well by well
basis, to an entity controlled by one of the Company’s directors. The leases are
also subject to the overriding royalty interest of the landowner. The Company
expects its share of the cost to drill the three initial wells to be
approximately $1.5 million over the next twelve months.
In
February 2006, the Company acquired new oil and gas leases in eastern Montana
covering 27,496 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 now holds leases in Valley County covering a total
of
137,163.26 net acres. The Company has also received four permits to drill on
its
Valley County Leases. The Company is actively seeking partners to share the
cost
of wells it intends to drill over the next year.
In
January 2006, the Company drilled its first well in
north
central Montana under a farm-in agreement with the mineral owner on acreage
in
Blaine County. The Company has capitalized $730,000 in drilling costs through
June
30,
2006
and is currently in the process of completing and testing the well. The well
hit
the target Lodgepole reef, but the reef had been flushed with fresh water.
The
well drilled through several other formations that were prospective for oil
or
gas and all but two of those have been tested. One is currently being evaluated
and the other remains to be tested. The drilling results will remain
confidential until that process is complete.
The
Company has also agreed to participate and act as operator in a twin well to
the
only known well to produce from the Lodgepole in Montana. The Company estimates
its participation costs in the twin well to be $100,000. The well is located
in
Valley County and the Company will be the operator until the well is returned
to
production. The operation is expected to commence before the end of August
2006.
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
Six
months ended June 30, 2006 vs. June 30, 2005
In
June
2005, we settled all our legal actions with the State of Florida and realized
a
gain of $8,124,000 in July 2005. 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 had 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 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.
During
2005, we attempted to minimize all other operating expenses. For 2005, we had
one employee, and maintained legal counsel on a monthly retainer and maintained
our minimum periodic reporting obligations. 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. We also added Company directors, increased director
compensation, added director liability insurance and hired an additional
administrative employee. Our legal expenses increased in 2006 due to our
entering various lease and other contracts and for drafting documents to solicit
drilling partners.
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)
Three
months ended June 30, 2006 vs. June 30, 2005
In
June
2005, we settled all our legal actions with the State of Florida and realized
a
gain of $8,124,000 in July 2005. 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 had 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 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.
During
2005, we attempted to minimize all other operating expenses. For 2005, we had
one employee, and maintained legal counsel on a monthly retainer and maintained
our minimum periodic reporting obligations. 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. We also added Company directors, increased director
compensation, added director liability insurance and hired an additional
administrative employee. Our legal expenses increased in 2006 due to our
entering various lease and other contracts and for drafting documents to solicit
drilling partners.
The
Company does not have any significant exposure to market risk as there were
no
investments in marketable securities at June 30, 2006.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
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
June
30, 2006
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 - OTHER INFORMATION
June
30, 2006
|
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
June
30, 2006
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:
August 11, 2006
Phillip
W. Ware
Chief
Executive Officer, President
and Treasurer