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 September
30, 2007
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)
|
(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. x
Yes ¨
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨
Yes
x
No
The
number of shares outstanding of the issuer's single class of common stock as
of
November7, 2007 was 46,211,604.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
September 30,
2007
Table
of Contents
PART
I - FINANCIAL INFORMATION
|
|
|
|
Page
|
ITEM
1
|
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
Consolidated
balance sheets at September 30, 2007 and December 31,
2006
|
|
3
|
|
|
|
|
|
|
|
Consolidated
statements of operations for the three and nine month periods ended
September 30, 2007 and 2006 and for the period from January 31, 1953
(inception) to September 30, 2007
|
|
4
|
|
|
|
|
|
|
|
Consolidated
statements of cash flows for the nine month periods ended
September 30, 2007 and 2006 and for the period from January 31,
1953 (inception) to September 30, 2007
|
|
5
|
|
|
|
|
|
|
|
Notes
to consolidated financial statements
|
|
6
|
|
|
|
|
|
ITEM
2
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
9
|
|
|
|
|
|
ITEM
3
|
|
Quantitative
and Qualitative Disclosure About Market Risk
|
|
13
|
|
|
|
|
|
ITEM
4
|
|
Controls
and Procedures
|
|
14
|
|
|
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
|
|
|
ITEM
5
|
|
Other
Information
|
|
15
|
|
|
|
|
|
ITEM
6
|
|
Exhibits
|
|
16
|
|
|
|
|
|
|
|
Signatures
|
|
17
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1
- Financial
Statements
CONSOLIDATED
BALANCE SHEETS
(Expressed
in U.S. dollars)
(A
Bermuda Corporation)
A
Development Stage Company
|
|
September
30,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Note)
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
76,640
|
|
$
|
342,541
|
|
Prepaid
expenses and other
|
|
|
-
|
|
|
29,255
|
|
Total
current assets
|
|
|
76,640
|
|
|
371,796
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
129,909
|
|
|
126,313
|
|
Petroleum
leases
|
|
|
2,317,774
|
|
|
2,199,809
|
|
Equipment,
net
|
|
|
9,565
|
|
|
11,455
|
|
Total
assets
|
|
$
|
2,533,888
|
|
$
|
2,709,373
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
209,817
|
|
$
|
5,322
|
|
Note
payable
|
|
|
126,000
|
|
|
-
|
|
Total
current liabilities
|
|
|
335,817
|
|
|
5,322
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, par value $.12 per share:
|
|
|
|
|
|
|
|
Authorized
- 250,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
- 46,211,604 shares
|
|
|
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
|
|
|
(35,485,132
|
)
|
|
(34,979,152
|
)
|
Total
shareholders’ equity
|
|
|
2,198,071
|
|
|
2,704,051
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,533,888
|
|
$
|
2,709,373
|
|
Note:
The
balance sheet at December 31, 2006 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
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)
to
|
|
|
|
Three
months ended September 30,
|
|
Nine
months ended September 30,
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
$
|
8
|
|
$
|
8,913
|
|
$
|
4,815
|
|
$
|
35,376
|
|
$
|
3,974,459
|
|
Gain
on settlement
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,124,016
|
|
|
|
|
8
|
|
|
8,913
|
|
|
4,815
|
|
|
35,376
|
|
|
12,098,475
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
fees and costs
|
|
|
36,956
|
|
|
49,951
|
|
|
121,432
|
|
|
161,610
|
|
|
17,380,668
|
|
Administrative
expenses
|
|
|
63,862
|
|
|
75,739
|
|
|
223,490
|
|
|
272,406
|
|
|
10,474,773
|
|
Salaries
|
|
|
31,250
|
|
|
39,050
|
|
|
104,150
|
|
|
104,150
|
|
|
4,115,181
|
|
Shareholder
communications
|
|
|
469
|
|
|
11,924
|
|
|
10,697
|
|
|
16,776
|
|
|
4,104,207
|
|
Goodwill
impairment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
801,823
|
|
Write
off of unproved properties
|
|
|
(34,766
|
)
|
|
-
|
|
|
51,026
|
|
|
-
|
|
|
6,629,955
|
|
Exploration
costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
247,465
|
|
Lawsuit
judgments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,941,916
|
|
Minority
interests
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(632,974
|
)
|
Other
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
364,865
|
|
Contractual
services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,155,728
|
|
|
|
|
97,771
|
|
|
176,664
|
|
|
510,795
|
|
|
554,942
|
|
|
47,583,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
35,000
|
|
|
-
|
|
|
35,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(97,763
|
)
|
$
|
(132,751
|
)
|
$
|
(505,980
|
)
|
$
|
(484,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated during
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(35,485,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of Shares
outstanding (basic & diluted)
|
|
|
46,221,604
|
|
|
46,221,604
|
|
|
46,211,604
|
|
|
46,221,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share (basic & diluted)
|
|
$
|
(.002
|
)
|
$
|
(.003
|
)
|
$
|
(.011
|
)
|
$
|
(.01
|
)
|
|
|
|
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
|
|
|
|
Nine
months ended
|
|
(inception)
to
|
|
|
|
September
30,
|
|
September
30, |
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(505,980
|
)
|
$
|
(484,566
|
)
|
$
|
(35,485,132
|
)
|
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
|
|
|
1,890
|
|
|
2,100
|
|
|
3,408
|
|
Write
off of unproved properties
|
|
|
51,026
|
|
|
-
|
|
|
6,689,202
|
|
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
|
|
|
29,256
|
|
|
199,754
|
|
|
-
|
|
Income
taxes receivable
|
|
|
-
|
|
|
(35,000
|
)
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
204,494
|
|
|
28,882
|
|
|
209,818
|
|
Income
taxes payable
|
|
|
-
|
|
|
(35,000
|
)
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(219,314
|
)
|
|
(323,830
|
)
|
|
(36,091,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Additions
to oil, gas, and mineral properties net of assets acquired for
common stock and reimbursements
|
|
|
(207,140
|
)
|
|
(333,907
|
)
|
|
(6,147,131
|
)
|
Well
drilling costs
|
|
|
(51,026
|
)
|
|
(889,561
|
)
|
|
(1,069,461
|
)
|
Sale
of unproved nonoperating interests
|
|
|
89,175
|
|
|
-
|
|
|
89,175
|
|
Net
proceeds from settlement
|
|
|
-
|
|
|
-
|
|
|
8,124,016
|
|
Proceeds
from relinquishment of surface rights
|
|
|
-
|
|
|
-
|
|
|
246,733
|
|
Purchase
of certificate of deposit
|
|
|
(3,596
|
)
|
|
(50,830
|
)
|
|
(129,909
|
)
|
Purchase
of minority interest in CPC
|
|
|
-
|
|
|
-
|
|
|
(801,823
|
)
|
Purchase
of fixed assets
|
|
|
-
|
|
|
(10,563
|
)
|
|
(74,623
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(172,587
|
)
|
|
(1,284,861
|
)
|
|
236,977
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Loan
proceeds
|
|
|
126,000
|
|
|
-
|
|
|
126,000
|
|
Loans
from officers
|
|
|
-
|
|
|
-
|
|
|
111,790
|
|
Repayments
of loans from officers
|
|
|
-
|
|
|
-
|
|
|
(111,790
|
)
|
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
|
|
|
126,000
|
|
|
-
|
|
|
35,930,861
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(265,901
|
)
|
|
(1,608,691
|
)
|
|
76,640
|
|
Cash
and cash equivalents at beginning of period
|
|
|
342,541
|
|
|
2,250,236
|
|
|
-
|
|
Cash
and cash equivalents at end of period
|
|
$
|
76,640
|
|
$
|
641,545
|
|
$
|
76,640
|
|
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”), 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 nine month
periods ended September 30, 2007 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2007. 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, 2006.
Note
2. Going
Concern
As
of
September 30, 2007, the Company had no revenues, had recurring losses from
operations and has had an accumulated deficit during the development
stage. The Company's current cash position is not adequate to fund
existing operations or exploration and development of its oil and gas
properties. Management currently has in place two agreements with separate
parties covering different parts of the Company’s leases under which the parties
will each drill a test well and then have the option to purchase a 50% working
interest in the leases covered by their agreement. If both parties exercised
their options, the Company would receive approximately $2,500,000, although
there is no assurance the drilling will be successful or that the options will
be exercised. These situations raise substantial doubt about the Company's
ability to continue as a going concern. These consolidated financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities, which may result from the outcome of this uncertainty.
Note
3. Net
income (loss) per share
Net
income (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.
Note
4.
Oil
& Gas Development Activity
Drilling
Activity
Subsequent
to the end of the third quarter the Company began drilling a well on its Valley
County, Montana Leases to test a shallow natural gas prospect. The well reached
a total depth of 1,126 feet, casing was run into the hole and the well will
be
completed and tested for gas in two horizons in which there were gas shows.
This
well is the initial well to be drilled under an agreement with Western Standard
Energy Corp. Also, the
initial well under an agreement with F-Cross Resources, LLC was spudded on
November 3, 2007 and the Company expects that it will be completed during
November 2007.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
4.
Oil
& Gas Development Activity
(Continued)
The
Company’s initial well in Blaine County, Montana in January 2006 hit the target
Lodgepole reef, but the reef had been flushed with fresh water. Several other
formations were tested and while gas was encountered, the well did not contain
economic quantities of oil or gas. The Company expensed $800,000 in drilling
costs related to this well in the fourth quarter of 2006. This well was
abandoned by the Company.
The
Company also participated in and acted as operator in a twin well to the only
known well to produce from the Lodgepole in Montana. The targeted Lodgepole
reef
contained oil, but not in sufficient quantities to be commercial for the
Company. Likewise, an uphole test of the Mission Canyon Formation resulted
in
oil being encountered, but not in sufficient quantities to be commercial for
the
Company. The Company’s participation costs in the twin well were approximately
$245,000, which was expensed in the fourth quarter of 2006. The total cost
of
the well was approximately $1,360,000. There are approximately $115,000 in
unpaid expenses related to this well that are collectively the responsibility
of
the various partners. This amount is not reflected as a liability in the
accompanying financial statements. This well was abandoned.
Montana
Leases
The
Company’s primary presence in Montana is in Valley County, where it holds leases
covering 137,163.26 net acres. The Company acquired approximately 109,423.26
net
acres in eastern Montana for $1,568,000 from EOG Resources, Inc. and Great
Northern Gas Company in July 2005 and another 27,740 net acres contiguous to
those leases the Company acquired from the Bureau of Land Management and United
States Department of the Interior in February of 2006. The leases acquired
in
those acquisitions are contiguous to each other and are referred to collectively
as “the Valley County Leases.” The Valley County 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
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. Previously under the agreement,
the Company was required to drill a test well on an identified Lodgepole Reef
prospect by a certain deadline, however, there is no longer a drilling
obligation under the agreement.
In
August
2007, the Company entered into a farmout agreement with Western Standard Energy
Corp. (f/k/a Lusora Healthcare Systems Inc.) (“Western”) Under the agreement
Western paid $40,000 up front to Coastal and then paid an additional $384,000
to
cover the costs of drilling the first well to test a shallow natural gas
prospect in Valley County, Montana and to cover associated lease rentals.
Western will have a 100% working interest in the well until payout when it
will
be reduced to 80% with Coastal receiving the other 20% working interest.
The
first
well under this agreement was drilled during October 2007, and reached a total
depth of 1,126 feet, casing was run into the hole and the well will be completed
and tested for gas in two horizons in which there were gas shows. Within
30
days after the test well is completed, Western has the option to purchase a
50%
interest in approximately 42,000 acres near the well location
(referred to as “Valley County Shallow Gas Assembly”) for $1,000,000, payable in
$200,000 installments based on certain milestones related to drilling step-out
wells. The Company is currently in the permitting process for permits to drill
those step-out wells.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
4.
Oil
& Gas Development Activity
(Continued)
In
September 2007, the Company received $50,000 from F-Cross Resources, LLC (“F-
Cross”) when the two parties entered into a farmout agreement covering
approximately 64,000 acres on the northwest part of the Company’s Valley County
Leases. Under the agreement, F-Cross has the option to drill a Lodgepole test
well within six months and after drilling that well has the further option
to
acquire an interest in surrounding acreage. F-Cross is to pay for the cost
of
drilling the initial well and will receive a 100% working interest in the well
until payout and an 80% working interest subsequent to payout. The first well
with F-Cross was spudded on November 3, 2007 and the Company expects that it
will be completed during November 2007. Upon completion of the well, F-Cross
has
the option to acquire 50% working interest in the approximately 64,000 acres
covered by the agreement for $25 per acre. F-Cross also may extend its option
to
acquire the 50% working interest by drilling a second Lodgepole test well.
The
Company still holds approximately 30,000 acres of lease in its Valley County
Leases that are not under agreement with a third party and the Company is not
currently looking for other entities to team with to explore that
acreage.
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
9,388.94 gross and 9,150.31 net acres in Slope County. The Company is obligated
to drill a test well on the original leases totaling 7,671.08 acres before
December 1, 2007, and has the option to drill the remaining Lodgepole Reef
prospects on these leases. The Company had intended to team 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 $1,500,000, however, it is unlikely
that the Company will be able to identify and contract with a team prospect
prior to the expiration date. The leases making up the remaining acreage were
leased by the Company and have no obligation associated with them. The Company
still intends to team with other entities to explore these leases.
Note
5.
Income
Taxes
For
the
three and nine month periods ending September 30, 2007 and 2006, the
Company reported a loss for both financial statement reporting and income tax
purposes. The Company has provided a 100% valuation allowance on its deferred
tax asset as a result of its net operating loss carryforwards. The Company
has
approximately $10,000,000 in net operating loss carryforwards at December 31,
2006.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
ITEM
1 Financial
Statements (Continued)
Note
6. 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 paid and capitalized $2,000
and
$60,000 to this entity for the nine months ended September 30, 2007, and
2006, respectively.
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 a director of the Company. The Company expensed
$108,000 and $108,000 in legal fees for the nine months ended September 30,
2007 and 2006, respectively. The Company owes $60,000 in accrued legal fees
to
Angerer & Angerer as of September 30, 2007.
The
Company has retained the law firm of Igler & Dougherty, P.A. as securities
counsel. One of the Company’s directors is a shareholder in the law firm. The
Company has expensed $10,716 and $43,640 in legal fees and costs for the nine
months ended September 30, 2007 and 2006, respectively.
Note
7. Note
Payable
The
Company borrowed $126,000 in May 2007 to pay its lease obligations that were
due
in June 2007. The note required the loan to be repaid prior to the Company
spudding the first well on any of the approximately 42,000 acres its leases
covered by the loan agreement. Coastal assigned a 5% overriding royalty interest
(before all expenses) in 8/8ths of the oil or natural gas produced from those
Valley County Montana leases to the lender. The loan was repaid on October
15,
2007, prior to the spudding of the first well on the acreage, out of the money
advanced by Western Standard Energy Corp. to drill the first well under their
agreement with the Company.
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.
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)
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 $77,000 in available cash, excluding certificate of deposits pledged
for drilling permits, at September 30, 2007, compared to $343,000 at
December 31, 2006. Our current liabilities exceed our current assets by
$259,000 at September 30, 2007. We have suspended payments to our
directors, general legal counsel, and employee since the second quarter of
2007
and have accrued $209,817 in expenses as of September 30,
2007.
In
May
2007, The Company borrowed $126,000 to pay its lease obligations that were
due
in September 2007. The loan is to be repaid prior to the Company spudding the
first well on any of the approximately 42,000 acres its leases covered by the
loan agreement. Coastal assigned a 5% overriding royalty interest (before all
expenses) in 8/8ths of the oil or natural gas produced from those Valley County
Montana leases to the lender. This loan was repaid on October 15, 2007,
prior to the spudding of the first well on the acreage, out of the funds
advanced by Western Standard Energy Corp. under their agreement with the
Company.
In
August
2007, the Company received $40,000 under an agreement with Western Standard
Energy Corp. (f/k/a Lusora Healthcare Systems Inc.) (“Western”) to drill a
shallow natural gas prospect in Valley County Montana. Western is to pay for
the
cost of the well and associated lease rentals estimated at $384,000.
This
well
was drilled during October 2007, to a total depth of 1,126 feet, casing was
run
into the hole and the well will be completed and tested for gas in two horizons
in which there were gas shows.
Within
30 days after the test well is completed, Western has the option to purchase
a
50% interest in the approximately 42,000 acres covered by the agreement, which
are located around the test well location, for $1,000,000, payable in $200,000
installments based on certain milestones.
In
September 2007, the Company received $50,000 from F-Cross Resources, LLC
(“F-Cross”) for the option to drill a Lodgepole test well within six months and
with an option to acquire an interest in surrounding acreage. F-Cross has 100%
working interest in the well until payout and an 80% working interest subsequent
to payout. The first well with F-Cross was spudded on November 3, 2007 and
the
Company expects that it will be completed during November 2007. Upon completion
of the well, F-Cross has the option to acquire 50% working interest in
approximately 64,000 acres of the Company's westernmost leases for $25 per
acre.
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)
As
of
September 30,
2007,
the
Company had no revenues, had recurring losses prior to 2005
and
had an accumulated deficit during the development stage. The Company's current
cash position is not adequate to fund existing operations or exploration and
development of its oil and gas properties. Management
currently has in place two agreements with two parties covering different parts
of the Company’s leases under which the parties will each drill a test well and
have the option to purchase a 50% working interest in the leases covered by
their agreement. If both parties exercised their options, the Company would
receive approximately $2,500,000, although there is no assurance drilling will
be successful or the options will be exercised. These
situations raise substantial doubt about the Company's ability to continue
as a
going concern.
Capital
Resources
The
Company currently holds leases in Valley County, Montana covering a total of
137,163.26 net acres and has agreements in place with two parties, covering
two
separate areas within the leases. The agreement with Western covers
approximately 42,000 acres in the central part of the Valley County leases.
Western has paid for the drilling of the first gas test well on these leases
and
has the option to drill four step-out wells with the Company and to acquire
a
50% interest in the leases for $1,000,000.
During
October 2007, the Company drilled the initial well under the agreement with
Western to test the Company’s 34,000 acre shallow natural gas prospect.
The
well
confirmed that the structure it was drilled to test is high as expected at
the
well’s location.
The
well is high in the direction of all of the nearest wells: 36 feet high to
the
nearest well to the southwest (3.5 miles); 78 feet high to the nearest well
to
the west northwest (5 miles); 81 feet high to the nearest well to the southeast
(6 miles); 94 feet high to the nearest well to the east northeast (5 miles);
159
feet high to the nearest well to the south (5 miles); and 245 feet high to
the
nearest well to the north east (6 miles). The height of the structure compared
to surrounding areas allows it to trap migrating gas.
The
well
reached a total depth of 1,126 feet, casing was run into the hole and the well
will be completed and tested for gas in two horizons in which there were gas
shows. The gas shows were in the Judith River sand and the Eagle sand.
The
Company is also in the permitting process to obtain the permits to drill four
step-out wells with Western to further test the shallow gas
prospect.
The
Company’s agreement with F-Cross covers approximately 64,000 acres in the
westernmost part of the Valley County leases. The Company has received two
permits to drill the first two Lodgepole wells with F-Cross under the agreement
between the parties. The initial well under this agreement was spudded by
F-Cross on November 3, 2007 and the Company expects that it will be completed
during November 2007.
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 9,150.31
net
acres in Billings, Slope and Stark Counties. 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
does not expect to drill on these leases on its own within the next twelve
months, but will look to team with another entity to share the costs of such
drilling.
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)
The
Company’s initial well in Blaine County, Montana in January 2006 hit the target
Lodgepole reef, but the reef had been flushed with fresh water. Several other
formations were tested and while gas was encountered, the well did not contain
economic quantities of oil or gas. The Company expensed $800,000 in drilling
costs related to this well in the fourth quarter of 2006. This well was
abandoned by the Company.
The
Company also participated in and acted as operator in a twin well to the only
known well to produce from the Lodgepole in Montana. The targeted Lodgepole
reef
contained oil, but not in sufficient quantities to be commercial for the
Company. Likewise, an uphole test of the Mission Canyon Formation resulted
in
oil being encountered, but not in sufficient quantities to be commercial for
the
Company. The Company’s participation costs in the twin well were approximately
$225,000, which was expensed in the fourth quarter of 2006. The total cost
of
the well was approximately $1,260,000. The well was abandoned.
Results of Operations
Nine
months ended September 30, 2007 vs. September 30, 2006
In
2005
we acquired oil and gas leases in North Dakota and Montana and we began drilling
our first well in January 2006.
Our
activities for 2006 consisted primarily of identifying drilling prospects and
drilling two wells. We ceased substantial drilling activities in January 2007,
and for the remainder of 2007 we have sought other entities to team with to
drill on our leases. Therefore, our travel, lodging and other drilling related
expenses decreased from 2006 levels. We incurred $51,000 to prepare our wells
for abandonment. We also terminated one of our two employees in early 2007
to
reduce expenses. In 2006, we incurred legal fees related to seeking and
negotiating with drilling team members, which activities decreased in
2007.
Our
interest income decreased in 2007 from 2006 due to lower cash
balances.
Three
months ended September 30, 2007 vs. September 30,
2006
In
2005
we acquired oil and gas leases in North Dakota and Montana and we began drilling
our first well in January 2006.
Our
activities for 2006 consisted primarily of identifying drilling prospects and
drilling two wells. We ceased substantial drilling activities in January 2007,
and for the remainder of 2007 we have sought other entities to team with to
drill on our leases. Therefore, our travel, lodging and other drilling related
expenses decreased from 2006 levels. We sold certain piping and other well
supplies for $17,000, which reduced the cost of preparing our wells for
abandonment. We also terminated one of our two employees in early 2007 to reduce
expenses. In 2006, we incurred legal fees related to seeking and negotiating
with drilling team members, which activities decreased in 2007.
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)
Our
interest income decreased in 2007 from 2006 due to lower cash
balances.
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 September 30, 2007.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
I - FINANCIAL INFORMATION
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 - OTHER INFORMATION
September
30, 2007
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, 2006.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
FORM
10-Q
PART
II - OTHER INFORMATION
September
30, 2007
ITEM
6 Exhibits
|
|
|
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
September
30, 2007
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.
|
|
|
|
Date:
November 7, 2007 |
By |
/s/
Phillip W. Ware |
|
Phillip
W. Ware |
|
Chief
Executive Officer, |
|
President and Treasurer |