Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Form
10-K
(Mark
One)
|
x
|
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended December 31, 2007
or
|
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 001-04668
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, Bermuda
|
HM
11
|
(Address
of Principle Executive Offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
(850)
653-2732
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
NONE
|
Name
of each exchange on which registered
NONE
|
Securities
registered pursuant to Section 12(g) of the Act:
Title
of Class
Common
stock, par value $.12 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
o
Yes
x
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o
Yes
x
No
Note
-
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
under
those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
o
Yes x
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o
(Do not
check if smaller reporting company) Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes
x
No
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
last sold, or the average bid and asked price of such common equity, as of
the
last business day of the registrant’s most recently completed second fiscal
quarter: $3,549,292 (U.S.) at June 30, 2007.
Note
- If a
determination as to whether a particular person or entity is an affiliate cannot
be made without involving unreasonable effort and expense, the aggregate market
value of the common stock held by non-affiliates may be calculated on the basis
of assumptions reasonable under the circumstances, provided that the assumptions
are set forth in this Form.
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date: Common stock, par value $.12 per
share, 46,211,604 shares outstanding as of March 26, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part
of
the Form 10K (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1.
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Business
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3
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General
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3
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Crude
Oil and Natural Gas Exploration and Development
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4
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Environmental
and Other Regulations
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5
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Competition
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6
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Employees
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6
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Oil
and Gas Properties
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7
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Acreage
and Wells
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9
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Drilling
Activity
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9
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Item
1B.
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Unresolved
Staff Comments
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10
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Item
2.
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Properties
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10
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Item
3.
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Legal
Proceedings
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11
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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11
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PART
II
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Item
5.
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Market
for the Company's Common Stock, Related
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Stockholder
Matters and Issuer Purchases of Equity Securities
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12
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Item
6.
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Selected
Consolidated Financial Data
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15
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Item
7.
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Management's
Discussion and Analysis of Financial Condition
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and
Results of Operation
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16
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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21
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Item
8.
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Financial
Statements and Supplementary Data
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22
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Item
9.
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Changes
in and Disagreements with Accountants on
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Accounting
and Financial Disclosure
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41
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Item
9A.
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Controls
and Procedures
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41
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PART
III
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Item
10.
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Directors
and Executive Officers of the Registrant
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45
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Item
11.
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Executive
Compensation
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48
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management
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56
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and
Related Stockholder Matters
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Item
13.
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Certain
Relationships and Related Transactions
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58
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Item
14.
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Principal
Accountant Fees and Services
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59
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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61
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All
monetary figures set forth are expressed in United States currency.
PART I
Company
Website
The
Company has a website located at http://www.coastalcarib.com.
The
website can be used to access recent news releases, Securities and Exchange
Commission filings, and other items of interest. The contents of the Company’s
website are not incorporated into this document. Securities and Exchange
Commission filings, including supplemental schedules and exhibits can also
be
accessed free of charge through the SEC website at http://www.sec.gov.
General
Coastal
Caribbean Oils & Minerals, Ltd. (“Company” or “Coastal Caribbean”), was
organized in Bermuda on February 14, 1962. The Company is the successor to
Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January
31,
1953 to be the holding company for Coastal Petroleum Company (“Coastal
Petroleum”). Coastal Caribbean, has been engaged, through its subsidiary,
Coastal Petroleum, in the exploration for oil and gas reserves. At December
31,
2007, Coastal Caribbean's principal asset was its 100% interest in its
subsidiary Coastal Petroleum. Coastal Petroleum's principal assets are its
nonproducing oil and gas leases in the States of Montana and North Dakota in
a
fertile oil producing region know as the Williston Basin. Coastal Petroleum
is
the lessee under leases relating to the exploration for and production of oil
and gas on approximately 124,882 net acres of land in Valley County, Montana
and
approximately 8,510 net acres of land in Billings, Slope and Stark Counties,
North Dakota.
Prior
to
acquiring leases in Montana and North Dakota, and beginning in the 1940’s the
Company held State of Florida oil, gas and mineral leases covering approximately
3,700,000 acres of submerged lands along the Gulf Coast and under certain inland
lakes and rivers. For more than 15 years, the State of Florida used laws,
policies and permit denials to prevent Coastal Petroleum from using its leases.
The Company vigorously litigated to be able to use its leases or to be
compensated for the State’s taking of them, but Florida courts ultimately ruled
against the Company. See
Item
3. “Legal Proceedings”.
After
the
United States Supreme Court refused to hear the case in 2004, the State of
Florida approached the Company regarding a possible buyback of the Company’s
leases on the condition that all parties with oil, gas or mineral interests
in
the lands covered by the leases were joined in one agreement. On June 1, 2005
the Company, Coastal Petroleum and other royalty holders (“Royalty Holders”)
entered an agreement to exchange mutual releases, dismiss pending actions and
to
surrender the leases and royalty rights back to the State of Florida in exchange
for a total compensation of
$12.5
million to be divided among the parties in interest.
By
agreement with the State, the compensation received under the Agreement was
deposited into an escrow account and payments were made to the Royalty Holders,
Lykes Mineral Corporation, the Settlement Consultant, and creditors of both
Coastal Caribbean and Coastal Petroleum. The Company and its subsidiary received
approximately $4,872,000 in net proceeds. The Company also regained 100%
ownership of its subsidiary, Coastal Petroleum.
The
Company has utilized the funds it received from the Agreement with the State
of
Florida to acquire the leases in Montana and North Dakota described above and
to
begin drilling there. No economical oil or gas discoveries have yet been made
on
these properties; therefore, the Company has no proved reserves of oil and
gas
and has had no production.
Crude
Oil and Natural Gas Exploration
Through
its wholly owned subsidiary, Coastal Petroleum, the Company has begun to explore
for oil and gas in Montana.
Under
an
agreement with Western Standard Energy
Corp. (Western Standard) a
well
was drilled on our Valley County, Montana Leases to test a shallow gas prospect
during October 2007. The well reached a total depth of 1,126 feet and casing
was
run into the hole. The well has confirmed that the structure to be tested is
high in relation to other wells in the area. Operations
to complete and test the well in
two
horizons in which there were gas shows
were
scheduled to begin at the end of November, but were delayed by equipment
repairs. The well is located on Federal land and the Bureau of Land Management
will not allow the completion and testing operations or any further drilling
to
begin between December 1st and July 1st, so operations have been suspended
until
July.
Within
30
days after the test well is completed, Western Standard 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 has received a permit to drill one of the step-out wells
and
is currently in the permitting process for two additional permits.
On
November 3, 2007, F-Cross Resources, LLC (“F- Cross”) spudded the first well
under an Agreement with the Company. The well was drilled to test a Lodgepole
reef oil prospect and drilling on the well has finished. The Company expects
that the well will be completed and tested as soon as weather and state
regulators permit. Upon completion of the well, F-Cross has the option to
acquire a 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.
In
January 2006, the Company drilled a well in north-central Montana. The Company
completed and tested multiple zones in the well that potentially could contain
oil or gas. While the targeted Lodgepole reef was reached and while gas was
encountered in uphole zones, the well did not contain economic quantities of
oil
or gas. This well was abandoned during 2007.
The
Company also drilled a well, along with several other participants, in Valley
County, Montana. The well was a twin to the Evaline 1-18 well, the only
Lodgepole producer in Montana. The drilling began on September 5, 2006, and
the
well reached the targeted Lodgepole reef and encountered oil, but there were
not
sufficient quantities of oil to be economical for the Company to develop. The
well was abandoned during 2007.
The
Company has three agreements with two different entities under which the Company
expects approximately four wells to be drilled in Montana and one in North
Dakota. Four of the Montana wells are expected to be drilled on the shallow
gas
prospect under the Company’s agreement with Western Standard. In North Dakota,
the Company expects that Western Standard will drill one Lodgepole oil test
well
out of the four prospects the Company sold them in December of 2007. The Company
is proceeding with the process of permitting wells in its main block of leases
in Valley County, Montana, in order to accommodate the drilling of the expected
wells.
Environmental Regulation
Coastal
Caribbean is committed to responsible management of the environment, health
and
safety, as these areas relate to the Company’s operations. The Company strives
to achieve the long-term goal of sustainable development within the framework
of
sound environmental, health and safety practices and standards.
All
facets of the Company's operations are affected by a myriad of federal, state,
regional and local laws, rules and regulations. The Company is further affected
by changes in such laws and by constantly changing administrative regulations.
Furthermore, government agencies may impose substantial penalties if the Company
fails to comply with such regulations or for any contamination resulting from
the Company's operations.
The
costs
incurred to ensure compliance with environmental, health and safety laws and
other regulations are inextricably connected to normal operating expenses such
that the Company is unable to separate the expenses related to these
matters.
Coastal
Caribbean maintains insurance coverage that it believes is customary in the
industry although it is not fully insured against all environmental or other
risks. The Company is not aware of any environmental claims existing as of
December 31, 2007 that would have a material impact upon the Company's financial
position, results of operations, or liquidity.
Regulation
of Oil and Gas
The
oil
and gas industry is extensively regulated by numerous federal, state and local
authorities. Legislation affecting the oil and gas industry is under constant
review for amendment or expansion, frequently increasing the regulatory burden.
Also, numerous departments and agencies, both federal and state are authorized
by statute to issue rules and regulations binding on the oil and gas industry
and its individual members, some of which carry substantial penalties for
failure to comply. Although the regulatory burden on the oil and gas industry
increases the Company's cost of doing business and, consequently, may affect
profitability, these burdens generally do not affect the Company any differently
or to any greater or lesser extent than they affect other companies in the
industry with similar types, quantities and locations of production.
The
Company's operations are subject to various types of regulation at federal,
state and local levels. These types of regulation include requiring permits
for
the drilling of wells, drilling bonds and reports concerning operations. Most
states, and some counties and municipalities in which the Company operates
may
also regulate one or more of the following: the location of wells; the method
of
drilling and casing wells; the rates of production or "allowables;" the surface
use and restoration of properties upon which wells are drilled; the plugging
and
abandoning of wells; and notice to surface owners and other third
parties.
State
laws regulate the size and shape of drilling and spacing units or proration
units governing the pooling of oil and natural gas properties. Some states
allow
forced pooling or integration of tracts to facilitate exploration while other
states rely on voluntary pooling of lands and leases. In some instances, forced
pooling or unitization may be implemented by third parties and may reduce the
Company's interest in the unitized properties. In addition, state conservation
laws establish maximum rates of production from oil and natural gas wells,
generally prohibit the venting or flaring of natural gas, and impose
requirements regarding the ratability of production. These laws and regulations
may limit the amount of oil and natural gas the Company can produce from its
wells or limit the number of wells or the locations at which it can
drill.
Moreover,
each state generally imposes a property, production or severance tax with
respect to the production and sale of oil, natural gas and natural gas liquids
within its jurisdiction.
Competition
The
oil
and gas industry is highly competitive. The Company must compete with other
companies that have substantially greater resources available to them. As an
independent, the Company does not own any refining or retail outlets and,
therefore, it would have little control over the price it may receive for any
crude oil it produces. In acquisition activities, significant competition exists
as integrated and independent companies and individual producers are active
bidders for desirable oil and gas properties. Although many of these competitors
have greater financial and other resources than the Company, Management believes
that Coastal Caribbean is in a position to compete effectively due to its low
cost structure, transaction flexibility, experience and
determination.
Employees
The
Company currently has one employee. The Company relies heavily on consultants
for legal, accounting, geological and administrative services. The Company
uses
consultants because it believes it is more cost effective than employing a
larger full time staff.
Oil
and Gas Properties
Williston
Basin
Blaine
County, Montana
The
Company had a 100% working interest in one property consisting of 160 acres
located in northern Blaine County under a farm-in agreement. The Company drilled
a well on the property and encountered natural gas, but not in economic
quantities. The well was abandoned and pursuant to the farm-in agreement the
Company retained no interest in the property.
Valley
County, Montana
The
Company’s assets in Valley County consist of leases covering approximately
124,882 net acres. The Company’s working interest in these properties is 100%
and would be reduced to 75% at payout, except as modified by the agreements
described below. Most of the leases were acquired during 2005, but approximately
27,780 gross acres (27,740 net acres) were acquired in February of 2006. Two
wells have been drilled on these leases but they have not yet been completed
and
tested so the Company has no proved reserves on the property as yet. The Company
has entered into two separate agreements with other entities on two different
areas of the Valley County Leases.
First,
in
August 2007, the Company entered into a farm-out agreement with Western Standard
Energy Corp. (f/k/a Lusora Healthcare Systems Inc.) (“Western Standard”). Under
the agreement Western Standard paid $40,000 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 Standard 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. Within
30
days after the test well is completed, Western Standard 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
first
well under the agreement with Western Standard was drilled during October 2007,
and reached a total depth of 1,126 feet, casing was run into the hole and the
well is awaiting completion and testing for gas in two horizons in which there
were gas shows. The
well
is located on Federal land and the Bureau of Land Management would not allow
the
completion and testing operations or any further drilling to begin between
December 1st and July 1st, so operations have been suspended until July. In
light of the delay an additional agreement was reached with Western
Standard
in which
the Company
received
an additional $29,000 from Western Standard to cover costs associated with
the
delay in well completion. Western Standard has committed to pay the estimated
well completion costs of $65,000 no later than April 30, 2008 so that completion
operations can be commenced as soon as they are allowed.
Second,
in September 2007, the Company received $50,000 from F-Cross Resources, LLC
(“F-Cross”) when the two parties entered into a farm-out 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 with the Company
retaining a 20% working interest. The first well with F-Cross was spudded on
November 3, 2007 and has finished drilling but is awaiting completion and
testing. Unlike the shallow gas well on Federal land, this well is located
on
State land and provided that there is no State objection, we expect that F-Cross
will resume operations to complete and test the well once the weather and state
regulators permit it. Upon
completion of the well, F-Cross has the option to acquire a 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 22,000 acres under its Valley County Leases
that are not under agreement with any third party and the Company is not
currently looking for other entities to team with to explore that
acreage.
Billings,
Slope and Stark Counties, North Dakota
The
Company owns leases covering approximately 8,510 net acres in these three
counties. Generally, the Company’s working interest in these properties is 100%
and at payout is reduced to 75%. However, under
a
farm-out agreement with Western Standard Energy Corp. (“Western Standard”),
Coastal assigned leases over four of its high-graded Lodgepole Reef prospects
to
Western Standard in return for $80,000. Coastal retains a back-in working
interest of 20% in those leases after payout. The leases cover all rights below
the Tyler formation, including the Lodgepole formation, with an 80% net revenue
interest. These and other leases in the area were acquired in 2005 by Coastal
from Oil For America for $50,000 and Coastal has invested some additional funds
to geochemically test and high-grade these and other prospects on the leases.
Oil For America has agreed to waive the drilling obligation on the four
prospects assigned to Western Standard. After the assignment, Coastal still
retains additional Lodgepole reef prospects on its North Dakota leases under
the
general working interest described above. The
Company has not yet begun any drilling on the property and has no proved
reserves on the property.
The
Company originally acquired these and other leases in these countiescovering
approximately 30,345 gross acres in 2005, however, some of the leases have
since
expired.
Acreage
and Wells
The
following chart reflects the approximate acreage held under lease by Coastal
Caribbean through its wholly owned subsidiary Coastal Petroleum, at
December 31, 2007:
Acreage under lease at December
31, 2007
Lease
|
|
Gross
Acres*
|
|
Net
Acres**
|
|
Location
|
|
Undeveloped
|
|
Developed
|
|
Undeveloped
|
|
Developed
|
|
Montana
|
|
|
125,302.23
|
|
|
0
|
|
|
124,882.22
|
|
|
0
|
|
North
Dakota
|
|
|
8,748.94
|
|
|
0
|
|
|
8,510.31
|
|
|
0
|
|
Total:
|
|
|
134,051.17
|
|
|
0
|
|
|
133,392.53
|
|
|
0
|
|
* A
gross
acre is an acre in which a working interest is owned.
** A
net
acre is deemed to exist when the sum of fractional ownership working interests
in gross acres equals one. The number of net acres is the sum of the fractional
working interests owned in gross acres expressed as whole numbers and fractions
thereof.
Two
wells
were drilled in 2007 and two wells were drilled in 2006 on our
leases.
Drilling
Activity
During
2007, two wells were drilled on the Company’s Valley County, Montana Leases
under two separate agreements, with two different entities and covering
different areas within the Company’s Valley County Leases.
The
first
well was drilled by Western Standard Energy Corp. (“Western Standard”) to test a
shallow natural gas prospect near the middle of the Company’s Valley County
Leases. This well is the initial well drilled under an agreement with Western
Standard. 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. Operations
to complete and test the well were scheduled to begin at the end of November,
but were delayed by equipment repairs. The well is located on Federal land
and
the Bureau of Land Management would not allow the completion and testing
operations or any further drilling to begin between December 1st and July 1st,
so operations have been suspended until July.
The
second well drilled on the Company’s Valley County Leases in 2007 was drilled by
F-Cross Resources, LLC (“F-Cross”) under an agreement with F-Cross, covering the
northwestern part of Coastal’s Valley County, Montana Leases. The first
Lodgepole test well was spudded on November 3, 2007 and drilling has finished,
but the well is awaiting completion and testing of several zones which have
potential for both oil and gas. Unlike the shallow gas well on Federal land,
this well is located on State land and provided that there is no State
objection, the Company expects F-Cross will resume operations to complete and
test the well once the weather and state regulators permit it.
The
Company’s initial well in Blaine County, Montana drilled 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 economical for the Company
to develop. Likewise, an uphole test of the Mission Canyon Formation resulted
in
oil being encountered, but not in sufficient quantities to be economical for
the
Company to develop. 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.
Item 1B. Unresolved
Staff Comments
None
Item 2. Properties
Properties
Information
required by Item 2 “Properties” is included under Item 1
“Business.”
Disclosure
Concerning Oil and Gas Operations.
Since
the
properties in which the Company has interests are undeveloped and nonproducing,
items 2 through 4 of Securities Exchange Act Industry Guide 2 are not
applicable.
(5) Undeveloped
Acreage.
The
Company's undeveloped acreage as of December 31, 2007 was as
follows:
|
|
Gross Acres
|
|
Net Acres
|
|
Montana
|
|
|
125,302.23
|
|
|
124,882.22
|
|
North
Dakota
|
|
|
8,748.94
|
|
|
8,510.31
|
|
Total:
|
|
|
134,051.17
|
|
|
133,392.53
|
|
(6) Drilling Activity.
Two
wells
were drilled on the Company’s leases during 2007 through farm-out agreements
with two separate entities. See Drilling Activity section under Item 1 Business
at page 9.
(7) Present Activities.
See
Drilling
Activity section under Item 1 Business at page 9.
Agreement
with the State of Florida
For
years
the Company’s subsidiary, Coastal Petroleum litigated against the State in an
effort to secure drilling permits and drill for oil off the coast of Florida.
The State denied Coastal Petroleum permission to drill on its Leases, a decision
that was upheld by a Florida court. Florida courts also denied Coastal Petroleum
compensation for a taking of the Leases. Furthermore, the longstanding State
policy against any drilling for oil or gas offshore of Florida remains in place
as a reflection of the Florida Statutes which bans such activity, and there
is
no indication that it will change. Given the policy and court decisions, any
additional attempt by Coastal Petroleum to secure a permit to drill its Florida
Leases was considered by Management as futile.
After
the
United States Supreme Court refused to hear Coastal Petroleum’s taking case in
2004 and the Company’s legal options were limited, the State of Florida
approached Coastal Petroleum regarding a possible buyback of its leases. With
limited financial resources to continue a legal fight which was further
frustrated with recent court decisions, Coastal Petroleum continued discussions
with the State and ultimately, on June 1, 2005 was joined by Coastal Caribbean
and other royalty holders in
accepting an offer by the State of Florida to repurchase Coastal Petroleum’s
Florida Leases and other royalty rights.
The
proceeds from the State were divided by the parties to the Agreement and
the
Company and its subsidiary received approximately $4.871 million after payment
to all their creditors. The
Agreement resulted in the closing and dismissal of all of the Company’s
litigation concerning the leases including the following:
· |
Drilling
Permit Litigation - Lease Taking Case (Lease 224-A)
|
· |
Ancillary
Matters to Lease Taking Case (Lease
224-A)
|
· |
Coastal
Caribbean Royalty Litigation
|
· |
Lease
Taking Case (Lease 224-B)
|
The
Company is currently not a party to any litigation.
Contingency
Fees
All
contingency fees previously issued to firms or individuals relating to the
litigation against the State of Florida, were released or nullified by the
2005
Agreement with the State of Florida or in the mutual releases exchanged pursuant
to that Agreement. No contingency fees remain in effect.
Item 4. Submission
of Matters to a Vote of Security Holders
None.
PART II
Market Information.
The
principal market for the Company's common stock is in the over-the-counter
market on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. under the symbol COCBF.
The
quarterly high and low closing prices on the Electronic Bulletin Board and
the
Pink Sheets (Pink Sheets LLC) during the last two years were as
follows:
2006
|
|
1st quarter
|
|
2nd quarter
|
|
3rd quarter
|
|
4th quarter
|
|
High
|
|
|
0.72
|
|
|
0.73
|
|
|
0.39
|
|
|
0.23
|
|
Low
|
|
|
0.15
|
|
|
0.32
|
|
|
0.21
|
|
|
0.12
|
|
2007
|
|
1st quarter
|
|
2nd quarter
|
|
3rd quarter
|
|
4th quarter
|
|
High
|
|
|
0.33
|
|
|
0.16
|
|
|
0.15
|
|
|
0.23
|
|
Low
|
|
|
0.11
|
|
|
0.081
|
|
|
0.075
|
|
|
0.106
|
|
Holders.
The
approximate number of record holders of the Company's common stock at March
20,
2008 was 8,227.
Dividends.
The
Company has never declared or paid dividends on its common stock and it does
not
anticipate declaring or paying any dividends in the foreseeable future. The
Company plans to retain any future earnings to reduce the deficit accumulated
during the development stage of $35,669,640 at December 31, 2007 and to finance
its operations.
Foreign Exchange Control Regulations
The
Company is subject to the applicable laws of The Islands of Bermuda relating
to
exchange control, but has the permission of the Foreign Exchange Control of
Bermuda to carry on business in, to receive, disburse and hold United States
dollars and dollar securities under its designation as an External Account
Company. The Company has been advised that, although as a matter of law it
is
possible for such designation to be revoked, there is little precedent for
revocation under Bermuda law.
Income
and Withholding Taxes
Coastal
Caribbean is a Bermuda corporation. Bermuda currently imposes no taxes on
corporate income or capital gains realized outside of Bermuda. Any amounts
received by Coastal Caribbean from United States sources as dividends, interest,
or other fixed or determinable annual or periodic gains, profits and income,
will be subject to a 30% United States withholding tax. In addition, any
dividends from its domestic subsidiary, Coastal Petroleum, will not be eligible
for the 100% dividends received deduction, which is allowable in the case of
a
United States parent corporation. Shares of the Company held by persons who
are
citizens or residents of the United States are subject to federal estate and
gift and local inheritance taxation. Any dividends received by such persons
will
also be subject to federal, State and local income taxation. The foregoing
rules
are of general application only, and reflect law in force as of the date of
this
report.
A
convention between Bermuda and the United States relating to mutual assistance
on tax matters became operative in 1988.
Passive
Foreign Investment Company Rules
The
Internal Revenue Code of 1986, as amended, provides special rules for
distributions received by U.S. holders on stock of a passive foreign investment
company (PFIC), as well as amounts received from the sale or other disposition
of PFIC stock.
Under
the
PFIC rules, a non-U.S. corporation will be classified as a PFIC for U.S. federal
income tax purposes in any taxable year in which, after applying certain
look-through rules, either (1) at least 75 percent of its gross income is
passive income or (2) at least 50 percent of the gross value of its assets
is
attributable to assets that produce passive income or are held for the
production of passive income.
Passive
income for this purpose generally includes dividends, interest, royalties,
rents, and gains from commodities and securities transactions. Special rules
apply in cases where a foreign corporation owns directly or indirectly at least
a 25 percent interest in a subsidiary, measured by value. In this case, the
foreign corporation is treated as holding its proportionate share of the assets
of the subsidiary and receiving directly its proportionate share of the income
of the subsidiary when determining whether it is a PFIC. Thus, Coastal Caribbean
would be deemed to receive its pro rata share of the income and to hold its
pro
rata share of the assets, of Coastal Petroleum.
Based
on
certain estimates of its gross income and gross assets and the nature of its
business, Coastal Caribbean would be classified as a PFIC for the years 1987
through 2006. Once an entity is considered a PFIC for a taxable year, it will
be
treated as such for all subsequent years with respect to owners holding the
stock in a year that it was classified as a PFIC under the income or asset
test
described above. Whether the Company will be a PFIC under either of these tests
in future years will be difficult to determine because the tests are applied
annually. Based upon the estimated gross income of the Company during 2007,
the
major source of the income being from the farm-out agreements through which
the
Company sold an interest in parts of its leases to other companies, and the
relatively small amount of interest the Company received, the Company believes
that Coastal Caribbean would not be classified as a PFIC for the year 2007.
If
Coastal Caribbean is classified as a PFIC with respect to a U.S. holder any
gain
from the sale of, and certain distributions with respect to, shares of our
common stock, would cause a U.S. holder to become liable for U.S. federal income
tax under Code section 1291 (the interest charge regime). The Company recommends
that any such U.S. holder should consult his or her own tax advisor on this
issue. 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. The interest charge would generally be calculated
as if
the distribution or gain had been recognized ratably over the U.S. holder's
holding period (for PFIC purposes) for the shares. To the extent an amount
is
allocated to the year of the disposition or distribution, or to a year before
the first year in which the corporation qualified as a PFIC, the amount so
allocated is included as additional gross income for the year of the disposition
or distribution. A U.S. holder also would be required to make an annual return
on IRS Form 8621 that describes any distributions received with respect to
our
shares and any gain realized on the sale or other disposition of our
shares.
As
an
alternative to taxation under the interest charge regime, a U.S. holder
generally can elect, subject to certain limitations, to annually take into
gross
income the appreciation or depreciation in our common shares' value during
the
tax year (mark-to-market election). If a U.S. holder makes the mark-to-market
election, the U.S. holder will not be subject to the above-described rule.
Instead, if a U.S. holder makes the mark-to-market election, the U.S. holder
recognizes each year an amount equal to the difference as of the close of the
taxable year between the U.S. holder's fair market value of the common shares
and the adjusted basis in the common shares. Losses would be allowed only to
the
extent of net gain previously included by the U.S. holder under the
mark-to-market election for prior taxable years. Amounts included in or deducted
from income under the mark-to-market election and actual gains and losses
realized upon the sale or disposition of the common shares, subject to certain
limitations, will be treated as ordinary gains or losses. If the mark-to-market
election is made for a year other than the first year in the U.S. holder’s
holding period in which the corporation was a PFIC, the first year’s
mark-to-market inclusion, if any, is taxed as if it were a distribution subject
to the interest charge regime discussed above.
Another
alternative election which would allow a U.S. holder to elect to take its pro
rata share of Coastal Caribbean's undistributed income into gross income as
it
is earned by Coastal Caribbean (QEF election) would only be available to a
U.S.
holder if Coastal Caribbean provided certain information to the shareholders
of
Coastal Caribbean. Coastal Caribbean has had no undistributed income for the
years 1987 through 2007. If the QEF election is made in a year other than the
first year of the U.S. holder’s holding period in which the foreign corporation
is a PFIC, both the QEF regime and interest charge regime can apply, unless
a
special election is made. Under this special election, the taxpayer is treated
as if it disposed of its PFIC stock in a transaction subject to the interest
charge rules to the extent gain is deemed to be recognized. Once this election
is made, the holder will be subject only to the QEF regime.
Recent
Sales of Unregistered Securities
None
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
None
The
following selected consolidated financial information (in thousands except
for
per share amounts) for the Company insofar as it relates to each of the three
years in the period ended December 31, 2007 has been extracted from the
Company's consolidated financial statements.
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(690
|
)
|
$
|
(1,621
|
)
|
$
|
6,766
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share (basic and diluted)
|
|
|
(.02
|
)
|
|
(.04
|
)
|
|
.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents and marketable securities
|
|
|
30
|
|
|
343
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved
oil, gas and, mineral properties (full cost method)
|
|
|
2,168
|
|
|
2,200
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
2,373
|
|
|
2,709
|
|
|
4,387
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
(deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
5,545
|
|
|
5,545
|
|
|
5,545
|
|
Capital
in excess of par value
|
|
|
32,138
|
|
|
32,138
|
|
|
32,138
|
|
Deficit
accumulated during the development stage
|
|
|
(35,670
|
)
|
|
(34,979
|
)
|
|
(33,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ (deficit) equity
|
|
$
|
2,013
|
|
$
|
2,704
|
|
$
|
4,325
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock shares outstanding (weighted average)
|
|
|
44,212
|
|
|
44,212
|
|
|
44,212
|
|
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. For a discussion of certain risk factors affecting the Company,
please see “Risk Factors” above.
General
We
are an
active independent oil and gas exploration company and through our subsidiary,
Coastal Petroleum, we hold mineral rights in Montana and North Dakota in the
oil
producing region known as the Williston Basin. Our objective formations on
those
leases include the Lodgepole and the Eagle among others. The Company's future
growth will be driven primarily by exploration and development activities.
Our
business strategy is to increase shareholder value by acquiring and drilling
reasonably priced prospects that have good potential, whether in the Williston
Basin or in other parts of the United States, with the goal of shaping the
Company into a producing independent oil and gas firm. We will continue to
seek
high quality exploration projects with potential for providing long-term
drilling inventories that generate high returns.
In
Montana, we have obtained the rights to explore for oil and gas in one area
which will be our primary area of focus. This primary area is a large assembly
of leases covering approximately 124,882 net acres in Valley County, located
in
northeastern Montana close to known production from a Lodgepole reef. This
area
of Montana has a number of other producing formations in addition to the
Lodgepole, including the Eagle sands. Currently we have two agreements with
two
different entities covering separate areas of the leases and exploration has
begun under those agreements. During 2006, we drilled two wells on lands outside
these leases and they did not find economic quantities of oil or gas and were
abandoned. We also hold leases in southwestern North Dakota and have an
agreement covering four Lodgepole prospects on those leases.
The
first
of the two agreements we entered into was a farm-out agreement with Western
Standard Energy Corp. (f/k/a Lusora Healthcare Systems Inc.) (“Western
Standard”) in August 2007. Under the agreement, Western Standard paid us $40,000
at execution and then paid an additional $384,000. From the $384,000, $255,000
was paid to cover the costs of drilling the first well to test a shallow natural
gas prospect in Valley County, Montana and $129,000 was paid to cover associated
lease rentals. Western Standard will have a 100% working interest in the well
until payout when it will be reduced to 80% and we will receive the other 20%
working interest. Upon receiving the funds to cover lease rentals, we repaid
in
full our loan of $126,000. Under the loan agreement, the individual that loaned
us the money continues to hold a 5% overriding royalty on the same approximately
42,000 acres that are covered in the Western Standard farm-out agreement.
The
first
well under this agreement was drilled during October 2007, to test a shallow
natural gas prospect near the middle of our Valley County Leases. The well
reached a total depth of 1,126 feet, and confirmed the structural high that
we
believed to be there. The well also had gas shows in two zones. Casing was
run
into the hole and operations
to complete and test the well were scheduled to begin at the end of November,
but were delayed by equipment repairs. The well is located on Federal land
and
the Bureau of Land Management would not allow the completion and testing
operations or any further drilling to begin between December 1st and July 1st,
so operations have been suspended until July. In December, we entered a
Memorandum of Understanding with Western Standard which led to a farm-out
agreement on our North Dakota Leases discussed below, but also allowed us to
use
$29,000 of the funds from Western Standard originally sent to cover completion
to now cover lease rental and other costs associated with the delay in well
completion. Western Standard has committed to send additional funds to pay
the
estimated well completion costs of $65,000 no later than April 30,
2008.
Once
operations resume, and within
30
days after the test well is completed, Western Standard 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”). The cost to exercise the
option would be $1,000,000, payable in $200,000 installments based on certain
milestones related to drilling step-out wells. We have received one permit
to
drill a step-out well and are currently in the permitting process for two more.
Under
the
second agreement, which we entered in September 2007, we received $50,000 from
F-Cross Resources, LLC (“F-Cross”) when the two parties executed a farm-out
agreement covering approximately 64,000 acres on the northwest part of our
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. F-Cross exercised its option and the first Lodgepole test well was
spudded on November 3, 2007. Drilling has finished, but the well is awaiting
completion and testing of several zones which have potential for both oil and
gas. Unlike the shallow gas well on Federal land, this well is located on State
land and provided that there is no State objection, we expect that F-Cross
will
resume operations to complete and test the well once the weather and state
regulators permit it. Upon
completion of the well, F-Cross has the option to acquire a 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.
We
still
hold approximately 22,000 acres under our Valley County Leases that are not
under agreement with any third party and we are not currently looking for other
entities to team with to explore that acreage.
The
two
wells we were involved with drilling during 2006 and that were abandoned during
2007 were drilled in areas outside of our Valley County Leases. The first of
those wells we drilled ourselves on a small tract in Blaine County in north
central Montana, more than 130 miles west of our Valley County acreage. We
drilled to a depth of 4,600 feet and reached the targeted Lodgepole reef, but
the reef had been flushed with water and there was no oil present. The well
passed through multiple other zones that potentially contained oil or gas and
each of the other zones was tested, but no gas or oil was present in economic
quantities. We will not pursue any further drilling in this area.
The
second well drilled under a farm-in agreement on a location in Valley County,
south of our primary acreage. We participated in and acted as operator for
the
drilling of that well which was known as the Evaline twin well. It was drilled
to total depth into the Lodgepole reef that was targeted and encountered oil,
but not in sufficient quantities for us to earn an interest. We then moved
uphole and perforated the Mission Canyon Formation which had a significant
show
of oil while we were drilling to the Lodgepole. We tested the Mission Canyon
and
it too contained oil, but again not in sufficient quantities for us to earn
an
interest in the well. Under the Agreement with farmor Helis, there was a
production threshold that had to be met to earn the interest and that threshold
could not be met. We have abandoned this well and will now focus on our primary
area.
In
North
Dakota, we control the working interest on approximately 8,510 net acres in
Slope, Billings, and Stark Counties, on which a number of drillable prospects
have been mapped to date. The depth of wells in North Dakota is greater than
in
Montana (approximately 9,500 feet versus approximately 5,000 feet), and thus
the
cost of drilling is higher. A typical North Dakota wildcat well costs about
$1.5
million to drill. We intend to bring in others to share the risk and investment
in wells it drills in North Dakota until the Company is in a stronger financial
position
Through
our efforts to bring in others to explore our North Dakota leases, in December
of 2007 we entered a new farm-out agreement with Western Standard. Under the
agreement, we assigned leases over four of our high-graded Lodgepole Reef
prospects to Western Standard in return for $80,000. We received $40,000 in
November 2007, $25,000 in February 2008 and expect to receive the other $15,000
in the first quarter of 2008. We will also retain a back-in working interest
of
20% in the leases after payout. The leases cover all rights below the Tyler
formation, including the Lodgepole formation, with an 80% net revenue interest.
We acquired these and other leases in the area in 2005 from Oil For America
for
$50,000 and we have invested some additional funds to geochemically test and
high-grade these and other prospects on the leases. Oil For America has agreed
to waive the drilling obligation on these four prospects. We will still retain
additional Lodgepole reef prospects on our North Dakota leases that are not
covered by this farm-out agreement.
As
briefly described above, in the Memorandum of Understanding which gave rise
to
the new farm-out agreement, Western Standard also agreed that we could use
the
more than $29,000 originally forwarded to be used for completion of the first
shallow gas well to cover the costs associated with the delay in operations,
including annual rentals. This amount combined with the $80,000 paid for the
four reef prospects will help cover our operations during the first half of
2008.
We
expect
that the relationships we have begun with Western Standard and F-Cross will
allow the Company to explore both the oil and gas potentials of its leases
in
Montana and North Dakota. The agreement with Western Standard in Montana should
not only allow for further exploration on the Valley County Leases through
several more wells, but we expect the agreement to be completed and to receive
$1,000,000 during the drilling of those wells. Likewise, if F-Cross exercises
its option for a 50% interest in the acreage under its agreement the Company
would receive more than $1,000,000 under that agreement.
We
plan
to drill or participate in approximately four exploratory wells in 2008.
However, the number of wells that we drill in 2008 and their cost will be
subject to various factors, including Western Standard and F-Cross continuing
exploration under their agreements, the availability of drilling rigs that
we
can hire and whether we drill alone or with other participants. In addition,
we
could reduce the number of wells that we drill if oil and natural gas prices
were to decline significantly. We expect the cost of drilling the four wells
to
depend upon many factors, including those above, which may affect the cost
of
operations and whether and to what extent others participate with the
Company.
Liquidity
and Capital Resources
As
more
fully described in Note 1 to the consolidated financial statements, we have
no
recurring revenues, have experienced recurring losses and have a deficit
accumulated during the development stage. We, along with various other related
parties, settled several lawsuits in 2005, which were filed by the Company,
our
subsidiary Coastal Petroleum Company and other related parties against the
State
of Florida. 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 and the agreements with Western Standard and F-Cross 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.
These situations raise substantial doubt about our ability to continue as a
going concern. Our 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 these uncertainties.
At
December 31, 2007, we have $30,000 in cash compared to $343,000 at December
31,
2006. Our current liabilities exceed our current assets by $300,000 at
December 31, 2007. We have suspended payments to our directors, general
legal counsel, and employee since the second quarter of 2007 and have accrued
$311,000 in expenses as of December 31, 2007. We expect to continue to
suspend payments to these parties for at least the first three quarters of
2008
or until the success of our two wells drilled in 2007 can be
determined.
During
2007, we received approximately $309,000 under farm-out agreements for lease
and
drilling rights on our leases and options to acquire additional rights. We
also
received $255,000 that was used to drill one of the wells on our leases. In
the
first quarter of 2008, we received $25,000 and expect to receive an additional
$15,000 under these agreements. We have paid lease rentals of $53,020 for
payments due in the first quarter of 2008 and $100,214 in lease payments are
due
in the second quarter of 2008. We may need to sell additional lease rights
to
obtain the cash to make these payments, although there is no guarantee we will
be able to sell additional lease rights. Western has committed to pay the
estimated gas well completion costs of $65,000 no later than April 30,
2008.
During
2007, we abandoned the two wells we drilled and participated in 2006 and we
spent $263,000 for well drilling costs and maintenance of our oil and gas lease
rights including the payment of rentals on the approximately 124,882 net acres
of leases
we have
in Valley County, Montana, totaling $244,000, of which $126,000 was received
from Western Standard. These leases are subject to various overriding royalty
interests held by others of up to 19.5%. The leases expire in years from 2007
to
2014.
We
expect
to continue to participate with others to drill additional wells both in Montana
and North Dakota.
Results
of Operations and Critical Accounting Policies and
Estimates
Development
Stage Enterprise Presentation
The
Company is a development stage enterprise. It has never had substantial revenues
and has operated at a loss each year (except 2005) since its inception in 1953.
Oil
and Gas Accounting
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.
During
2005, we acquired new oil and gas leases in North Dakota and Montana. We have
capitalized these and other related costs and have begun a site selection and
well drilling program.
During
2006, the Company drilled one well and participated in the drilling of a second
well that did not prove to contain economic quantities of oil or gas, and
expensed the $1,018,000 of drilling costs.
During
2007, we drilled two wells on Company leases under two farm-out agreements.
We
expect to determine the success of these wells in July 2008. We expensed an
additional $53,000 related to abandoning the 2006 wells.
2007
vs. 2006
During
2007, two wells were drilled on our leases under two farm-out agreements. We
also continued to seek additional leases and prospects as well as capital
partners with whom to drill. However, we did not recognize any revenue in 2007,
and have not determined the success of the two wells. Our net loss for 2007
was
$(690,000). During 2006, we drilled two wells. However, we did not recognize
any
revenue in 2006 and wrote off the costs of our two wells, realizing a net loss
of $(1,621,000) for the year.
For
2007
and 2006, we focused on seeking other entities to drill wells on our leases
and
in drilling wells. Our expenses did not change significantly in 2007 from 2006,
except we wrote off our well drilling costs of $53,000 and $1,018,000 in 2007
and 2006, respectively. Our expenses consist of administrative corporate and
regulatory costs, and the administrative, travel, and lodging costs to conduct
drilling operations in Montana.
Not
applicable.
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
Coastal
Caribbean Oils & Minerals, Ltd.
Apalachicola,
Florida
We
have
audited the consolidated balance sheet of Coastal Caribbean Oils & Minerals,
Ltd. and subsidiary as of December 31, 2007 and 2006, and the related
consolidated statements of operations, common stock and capital in excess of
par
value and cash flows, for the years then ended, and for the period from January
31, 1953 (inception) to December 31, 2007. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provided a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coastal
Caribbean Oils & Minerals, Ltd. and subsidiary as of December 31, 2007 and
2006, and the results of their operations and cash flows for the years then
ended, and for the period from January 31, 1953 (inception) to December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company suffered recurring losses from
operations and has not yet realized any revenues from development activities.
This raises substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
We
were
not engaged to examine management’s assertion about the effectiveness of Coastal
Caribbean Oils & Minerals, Ltd’s internal control over financial reporting
as of December 31, 2007 included in the accompanying Management’s
annual report on internal control over financial reporting
and,
accordingly, we do not express an opinion thereon.
/s/
Baumann, Raymondo & Company PA
Tampa,
Florida
March
21,
2008
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
BALANCE SHEETS
(Expressed
in U.S. dollars)
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
30,264
|
|
$
|
342,541
|
|
Prepaid
expenses and other
|
|
|
30,040
|
|
|
29,255
|
|
Total
current assets
|
|
|
60,304
|
|
|
371,796
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
135,364
|
|
|
126,313
|
|
Petroleum
leases
|
|
|
2,168,293
|
|
|
2,199,809
|
|
Equipment,
net
|
|
|
8,935
|
|
|
11,455
|
|
Total
assets
|
|
$
|
2,372,896
|
|
$
|
2,709,373
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
11,125
|
|
$
|
5,322
|
|
Amounts
due to related parties
|
|
|
348,208
|
|
|
0
|
|
Total
current liabilities
|
|
|
359,333
|
|
|
5,322
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Common
stock, par value $.12 per share:
|
|
|
|
|
|
|
|
Authorized
- 250,000,000 shares
|
|
|
|
|
|
|
|
Outstanding
- 46,211,604 shares,
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
|
|
|
(35,669,640
|
)
|
|
(34,979,152
|
)
|
Total
shareholders’ equity
|
|
|
2,013,563
|
|
|
2,704,051
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,372,896
|
|
$
|
2,709,373
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Expressed
in U.S. Dollars)
|
|
Years
Ended December 31,
|
|
For
the period from Jan. 31, 1953 (inception) to
|
|
|
|
2007
|
|
2006
|
|
Dec.
31, 2007
|
|
|
|
|
|
|
|
|
|
Gain
on settlement
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,124,016
|
|
Interest
and other income
|
|
|
10,270
|
|
|
41,350
|
|
|
3,979,914
|
|
|
|
|
10,270
|
|
|
41,350
|
|
|
12,103,930
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Legal
fees and costs
|
|
|
159,659
|
|
|
204,169
|
|
|
17,418,895
|
|
Administrative
expenses
|
|
|
330,938
|
|
|
313,743
|
|
|
10,582,221
|
|
Salaries
|
|
|
135,400
|
|
|
143,200
|
|
|
4,146,431
|
|
Shareholder
communications
|
|
|
22,185
|
|
|
17,601
|
|
|
4,115,695
|
|
Goodwill
impairment
|
|
|
-
|
|
|
-
|
|
|
801,823
|
|
Write
off of unproved properties
|
|
|
52,576
|
|
|
1,018,435
|
|
|
6,631,505
|
|
Exploration
costs
|
|
|
-
|
|
|
-
|
|
|
247,465
|
|
Lawsuit
judgments
|
|
|
-
|
|
|
-
|
|
|
1,941,916
|
|
Minority
interests
|
|
|
-
|
|
|
-
|
|
|
(632,974
|
)
|
Other
|
|
|
-
|
|
|
-
|
|
|
364,865
|
|
Contractual
services
|
|
|
-
|
|
|
-
|
|
|
2,155,728
|
|
|
|
|
700,758
|
|
|
1,697,148
|
|
|
47,773,570
|
|
Net
loss before income
|
|
|
(690,488
|
)
|
|
(1,655,798
|
)
|
|
(35,669,640
|
)
|
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
35,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(690,488
|
)
|
$
|
(1,620,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated during the
|
|
|
|
|
|
|
|
|
|
|
development
stage
|
|
|
|
|
|
|
|
$
|
(35,669,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share based on weighted average number of shares outstanding
during the period:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted EPS
|
|
$
|
(.015
|
)
|
$
|
(.035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding (basic and diluted)
|
|
|
46,211,604
|
|
|
46,211,604
|
|
|
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in U.S. Dollars)
|
|
Years
Ended December 31,
|
|
For
the period from Jan. 31, 1953 (inception) to
|
|
|
|
2007
|
|
2006
|
|
Dec.
31, 2007
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(690,488
|
)
|
$
|
(1,620,798
|
)
|
$
|
(35,669,640
|
)
|
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
|
|
|
2,520
|
|
|
1,398
|
|
|
4,038
|
|
Write
off of unproved properties
|
|
|
52,576
|
|
|
1,018,435
|
|
|
6,690,752
|
|
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
|
|
|
(785
|
)
|
|
170,499
|
|
|
(30,041
|
)
|
Accounts
payable and accrued liabilities
|
|
|
354,011
|
|
|
(22,204
|
)
|
|
359,335
|
|
Income
taxes payable
|
|
|
-
|
|
|
(35,000
|
)
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(282,166
|
)
|
|
(487,670
|
)
|
|
(36,154,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Additions
to oil, gas, and mineral properties
|
|
|
|
|
|
|
|
|
|
|
net
of assets acquired for common stock and reimbursements
|
|
|
(263,098
|
)
|
|
(339,195
|
)
|
|
(6,203,089
|
)
|
Well
drilling costs
|
|
|
(52,576
|
)
|
|
(1,018,435
|
)
|
|
(1,071,011
|
)
|
Sale
of unproved nonoperating interests
|
|
|
294,614
|
|
|
-
|
|
|
294,614
|
|
Net
proceeds from settlement
|
|
|
-
|
|
|
-
|
|
|
8,124,016
|
|
Proceeds
from relinquishment of surface rights
|
|
|
-
|
|
|
-
|
|
|
246,733
|
|
Purchase
of certificates of deposit
|
|
|
(9,051
|
)
|
|
(51,313
|
)
|
|
(135,364
|
)
|
Purchase
of Minority interest in subsidiary
|
|
|
-
|
|
|
-
|
|
|
(801,823
|
)
|
Purchase
of equipment
|
|
|
-
|
|
|
(11,082
|
)
|
|
(74,623
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(30,111
|
)
|
|
(1,420,025
|
)
|
|
379,453
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Loans
from Officers
|
|
|
-
|
|
|
-
|
|
|
111,709
|
|
Repayment
of loans to officers
|
|
|
-
|
|
|
-
|
|
|
(111,709
|
)
|
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
|
|
|
-
|
|
|
-
|
|
|
35,804,861
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(312,277
|
)
|
|
(1,907,695
|
)
|
|
30,264
|
|
Cash
and cash equivalents at beginning of period
|
|
|
342,541
|
|
|
2,250,236
|
|
|
-
|
|
Cash
and cash equivalents at end of period
|
|
$
|
30,264
|
|
$
|
342,541
|
|
$
|
30,264
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
(A
Bermuda Corporation)
A
Development Stage Company
CONSOLIDATED
STATEMENT OF COMMON STOCK
AND
CAPITAL IN EXCESS OF PAR VALUE
(Expressed
in U.S. dollars)
For
the
period from January 31, 1953 (inception) to December 31, 2007
|
|
|
|
|
|
Capital
in
|
|
|
|
Number
of
|
|
Common
|
|
Excess
|
|
|
|
Shares
|
|
Stock
|
|
of
Par Value
|
|
Shares
issued for net assets and unrecovered costs
|
|
|
|
|
|
|
|
at
inception
|
|
|
5,790,210
|
|
$
|
579,021
|
|
$
|
1,542,868
|
|
Sales
of common stock
|
|
|
26,829,486
|
|
|
3,224,014
|
|
|
16,818,844
|
|
Shares
issued upon exercise of stock options
|
|
|
510,000
|
|
|
59,739
|
|
|
799,760
|
|
Market
value ($2.375 per share) of shares issued in
|
|
|
|
|
|
|
|
|
|
|
1953
to acquire an investment
|
|
|
54,538
|
|
|
5,454
|
|
|
124,074
|
|
Shares
issued in 1953 in exchange for 1/3rd
of
a 1/60th
|
|
|
|
|
|
|
|
|
|
|
overriding
royalty (sold in prior year) in nonproducing
|
|
|
|
|
|
|
|
|
|
|
leases
of Coastal Petroleum
|
|
|
84,210
|
|
|
8,421
|
|
|
-
|
|
Market
value of shares issued for services rendered
|
|
|
|
|
|
|
|
|
|
|
during
the period 1954-1966
|
|
|
95,188
|
|
|
9,673
|
|
|
109,827
|
|
Net
transfers to restate the par value of common stock
|
|
|
|
|
|
|
|
|
|
|
outstanding
in 1962 and 1970 to $0.12 per share
|
|
|
-
|
|
|
117,314
|
|
|
(117,314
|
)
|
Increase
in Company's investment (equity) due to
|
|
|
|
|
|
|
|
|
|
|
capital
transactions of Coastal Petroleum in 1976
|
|
|
-
|
|
|
-
|
|
|
117,025
|
|
Balance
at December 31, 1990
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
19,395,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
300,000
|
|
Balance
at December 31, 1991
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
19,695,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
390,000
|
|
Balance
at December 31, 1992
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
20,085,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
1,080,000
|
|
Balance
at December 31, 1993
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
21,165,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
630,000
|
|
Balance
at December 31, 1994
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
21,795,084
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
600,000
|
|
Balance
at December 31, 1995
|
|
|
33,363,632
|
|
|
4,003,636
|
|
|
22,395,084
|
|
Sale
of common stock
|
|
|
6,672,726
|
|
|
800,727
|
|
|
5,555,599
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
480,000
|
|
Exercise
of stock options
|
|
|
10,000
|
|
|
1,200
|
|
|
12,300
|
|
Balance
at December 31, 1996
|
|
|
40,046,358
|
|
|
4,805,563
|
|
|
28,442,983
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
240,000
|
|
Exercise
of stock options
|
|
|
10,000
|
|
|
1,200
|
|
|
10,050
|
|
Balance
at December 31, 1997,1998 and 1999
|
|
|
40,056,358
|
|
|
4,806,763
|
|
|
28,693,033
|
|
Sale
of common stock
|
|
|
3,411,971
|
|
|
409,436
|
|
|
2,729,329
|
|
Compensation
recognized for stock option grant
|
|
|
-
|
|
|
-
|
|
|
75,000
|
|
Balance
at December 31, 2000 and 2001
|
|
|
43,468,329
|
|
|
5,216,199
|
|
|
31,497,362
|
|
Sale
of common stock
|
|
|
2,743,275
|
|
|
329,193
|
|
|
570,449
|
|
Balance
as of December 31, 2002
|
|
|
46,211,604
|
|
|
5,545,392
|
|
|
32,067,811
|
|
Sale
of subsidiary shares
|
|
|
-
|
|
|
-
|
|
|
70,000
|
|
Balance
as of December 31, 2003, 2004, 2005 2006 and 2007
|
|
|
46,211,604
|
|
|
$5,545,392
|
|
|
$32,137,811
|
|
See
accompanying notes.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
1.
Summary of significant accounting policies
Consolidation
The
accompanying consolidated financial statements include the accounts of Coastal
Caribbean Oils & Minerals, Ltd., a Bermuda corporation (Coastal Caribbean)
and its wholly owned subsidiary, Coastal Petroleum Company (“Coastal
Petroleum”), referred to collectively as the Company. The Company, which has
been engaged in a single industry and segment, is considered to be a development
stage company since its exploration for oil, gas and minerals has not yielded
any significant revenue or reserves. All intercompany transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current year presentation.
Cash
and Cash Equivalents
The
Company considers all highly liquid short-term investments with maturities
of
three months or less at the date of acquisition to be cash equivalents.
Equipment
Equipment
is recorded at cost. Depreciation is provided using straight-line over five
years, the estimated useful lives of the assets.
Use
of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The ability to develop the Company’s oil and
gas properties will have a significant effect on the Company’s financial
position and results of operations. Actual results could differ from those
estimates.
Unproved
Oil, Gas and Mineral Properties
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.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
1.
Summary of significant accounting policies
(Cont'd)
Sales
of
unproved nonoperating interests in oil and gas leases are accounted for as
a
reduction in the capitalized amount of the leases.
Prior
to
2005, the
Company’s undeveloped and nonproducing Florida properties were subject to
extensive
litigation with the State of Florida and all
costs
associated with oil and gas properties were deemed impaired and had been
expensed.
During
2006, the Company drilled one well and participated in the drilling of a second
well, neither of which proved economic quantities of oil or gas, and expensed
the $53,000 and $1,018,000 of drilling costs in 2007 and 2006,
respectively.
In
August
2007, the Company entered into a farm-out agreement with Western Standard Energy
Corp. (f/k/a Lusora Healthcare Systems Inc.) (“Western Standard”) Under the
agreement Western Standard paid $40,000 up front to Coastal and then paid an
additional $255,000 to cover the costs of drilling the first well to test a
shallow natural gas prospect in Valley County, Montana and $129,000 to cover
associated lease rentals. Western Standard will have a 100% working interest
in
the well until payout when it will be reduced to 80% with Coastal receiving
the
remaining 20% working interest.
The
first
well under this agreement was drilled during October 2007, to test a shallow
natural gas prospect near the middle of the Company’s Valley County Leases. The
well reached a total depth of 1,126 feet, and confirmed the structural high
that
was targeted. The well also had gas shows in two zones. Casing was run into
the
hole and operations
to complete and test the well were scheduled to begin at the end of November,
but were delayed by equipment repairs. The well is located on Federal land
and
the Bureau of Land Management will not allow the completion and testing
operations or any further drilling to begin until July, so operations have
been
suspended until that time. The
Company also received an additional $29,000 from Western Standard to cover
additional drilling and other costs associated with the delay in well
completion, which has been recorded as a reduction in capitalized petroleum
lease costs. Western Standard has committed to pay the estimated well completion
costs of $65,000 no later than April 30, 2008.
Once
operations resume and within 30 days after the test well is completed, Western
Standard 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”).
The cost to exercise the option would be $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.
In
September 2007, the Company received $50,000 from F-Cross Resources, LLC (“F-
Cross”) when the two parties entered into a farm-out 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
Lodgepole test well was spudded on November 3, 2007 and drilling has finished,
but the well is awaiting completion and testing of several zones which have
potential for both oil and gas. Unlike the shallow gas well on Federal land,
this well is located on State land and provided that there is no State
objection, the Company expects F-Cross will resume operations to complete and
test the well once the weather permits it. Upon
completion of the well, F-Cross has the option to acquire a 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.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
1.
Summary of significant accounting policies
(Cont'd)
Sale
of Subsidiary Shares
All
amounts realized from the sale of Coastal Petroleum shares have been credited
to
capital in excess of par value.
Net
Income (Loss) Per Share
Net
income (loss) per common 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.
Financial
instruments
The
carrying value for cash and cash equivalents, certificates of deposit, and
accounts payable approximates fair value based on anticipated cash flows and
current market conditions.
Stock
Based Compensation
The
Company uses the fair value based method of accounting for its stock option
plans. Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based
Payments,
which
requires companies to expense stock options and other share-based payments.
SFAS
No.
123R supersedes SFAS No. 123, which permitted either expensing stock options
or
providing pro forma disclosure. The Company adopted the modified prospective
application transition method as proscribed by SFAS No. 123R, which applies
to
all new awards and to awards granted, modified, canceled, or repurchased after
January 1, 2006, as well as the unvested portion of the prior awards. The
adoption of SFAS No. 123R resulted in no changes to the 2006 or prior financial
statement amounts or disclosures.
New
Accounting Pronouncements
The
Financial Accounting Standards Board (“FASB”) has issued several new standards
which have implementation dates subsequent to the Company’s year end. Management
does
not
believe that any of these new standards will have a material impact on the
Company’s financial position, results of operations or cash
flows.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
1.
Summary of significant accounting policies
(Cont'd)
Going
Concern
The
Company has no recurring revenues, had recurring losses in 2007, 2006 and prior
to 2005, and has a deficit accumulated 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. The 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.
2.
Unproved
Oil, Gas and Mineral Properties
Farm-out
Agreements and Drilling Activity
In
August
2007, the Company entered into a farm-out agreement with Western Standard Energy
Corp. (f/k/a Lusora Healthcare Systems Inc.) (“Western Standard”) Under the
agreement Western Standard paid $40,000 up front to Coastal and then paid an
additional $255,000 to cover the costs of drilling the first well to test a
shallow natural gas prospect in Valley County, Montana and $129,000 to cover
associated lease rentals. The Company did not record the receipt of the $255,000
or the cost of the associated well and recorded the $174,000 as a reduction
in
capitalized petroleum lease costs. Western Standard 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, to test a shallow
natural gas prospect near the middle of the Company’s Valley County Leases. The
well reached a total depth of 1,126 feet, and confirmed the structural high
that
we believed to be there. The well also had gas shows in two zones. Casing was
run into the hole and operations
to complete and test the well were scheduled to begin at the end of November,
but were delayed by equipment repairs. The well is located on Federal land
and
the Bureau of Land Management would not allow the completion and testing
operations or any further drilling to begin until July, so operations have
been
suspended until that time. We also received an additional $29,000 from Western
Standard to cover additional drilling and other costs associated with the delay
in well completion, which has been recorded as a reduction in capitalized
petroleum lease costs.
Western Standard has committed to pay the estimated well completion costs of
$65,000 no later than April 30, 2008.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
2.
Unproved
Oil, Gas and Mineral Properties
(Cont'd)
Within
30
days after the test well is completed, Western Standard 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”). The cost to exercise the
option would be $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.
In
September 2007, the Company received $50,000 from F-Cross Resources, LLC (“F-
Cross”) when the two parties entered into a farm-out 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 with the Company
retaining the other 20%. The
first
Lodgepole test well was spudded on November 3, 2007 and drilling has finished,
but the well is awaiting completion and testing of several zones which have
potential for both oil and gas. Unlike the shallow gas well on Federal land,
this well is located on State land and provided that there is no State
objection, the Company expects that F-Cross will resume operations to complete
and test the well once the weather and state regulators permit it. Upon
completion of the well, F-Cross has the option to acquire a 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 22,000 acres of lease in its Valley County
Leases that are not under agreement with any third party and the Company is
not
currently looking for other entities to team with to explore that
acreage.
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 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 economical for the Company
to develop. Likewise, an uphole test of the Mission Canyon Formation returned
oil, but not in sufficient quantities to be economical for the Company to
develop. 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.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
2. Unproved
Oil, Gas and Mineral Properties
(Cont'd)
Montana
Leases
The
Company’s primary presence in Montana is in Valley County, where it holds leases
covering approximately 124,882 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
net acres in eastern Montana for $1,568,000 from EOG Resources, Inc. and Great
Northern Gas Company. 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. Previously under the agreement,
the Company was required to drill a test well on an identified Lodgepole reef
prospect by a certain time, however, there is no longer a drilling obligation
under the agreement.
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
to cover lease rentals under their agreement with the Company.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
2. Unproved
Oil, Gas and Mineral Properties
(Cont'd)
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 and the Company has
invested some additional funds to geochemically test and high-grade these and
other prospects on the leases. Since that time, some of the leases have expired
and the Company currently holds leases on approximately 8,748 gross and 8,510
net acres in North Dakota. The
Company is obligated to drill a test well on the original leases totaling
7,031.08 acres before June 1, 2008, 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.
In
an
effort to explore the North Dakota leases, in December of 2007 the Company
entered a new farm-out agreement with Western Standard. Under the agreement,
the
Company assigned leases over four of its high-graded Lodgepole Reef prospects
to
Western Standard in return for $80,000. The Company received $40,000 in November
2007, $25,000 in February 2008 and expects to receive the other $15,000 in
the
first quarter of 2008, which was recorded as a reduction in
capitalized petroleum lease costs.
The
Company will also retain a back-in working interest of 20% in the leases after
payout. Oil For America has agreed to waive the drilling obligation on these
four prospects. The Company still retains additional Lodgepole reef prospects
on
its North Dakota leases that are not covered by this farm-out
agreement.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
3. Common Stock
The
Company's Bye-Law No. 21 provides that any matter to be voted upon must be
approved not only by a majority of the shares voted at such meeting, but also
by
a majority in number of the shareholders present in person or by proxy and
entitled to vote thereon.
No
common
stock has been issued since 2002.
The
following represents shares issued upon sales of common stock:
|
|
Number
|
|
Common
|
|
Capital
in Excess
|
|
Year
|
|
of
Shares
|
|
Stock
|
|
of
Par Value
|
|
1953
|
|
|
300,000
|
|
$
|
30,000
|
|
$
|
654,000
|
|
1954
|
|
|
53,000
|
|
|
5,300
|
|
|
114,265
|
|
1955
|
|
|
67,000
|
|
|
6,700
|
|
|
137,937
|
|
1956
|
|
|
77,100
|
|
|
7,710
|
|
|
139,548
|
|
1957
|
|
|
95,400
|
|
|
9,540
|
|
|
152,492
|
|
1958
|
|
|
180,884
|
|
|
18,088
|
|
|
207,135
|
|
1959
|
|
|
123,011
|
|
|
12,301
|
|
|
160,751
|
|
1960
|
|
|
134,300
|
|
|
13,430
|
|
|
131,431
|
|
1961
|
|
|
127,500
|
|
|
12,750
|
|
|
94,077
|
|
1962
|
|
|
9,900
|
|
|
990
|
|
|
8,036
|
|
1963
|
|
|
168,200
|
|
|
23,548
|
|
|
12,041
|
|
1964
|
|
|
331,800
|
|
|
46,452
|
|
|
45,044
|
|
1965
|
|
|
435,200
|
|
|
60,928
|
|
|
442,391
|
|
1966
|
|
|
187,000
|
|
|
26,180
|
|
|
194,187
|
|
1967
|
|
|
193,954
|
|
|
27,153
|
|
|
249,608
|
|
1968
|
|
|
67,500
|
|
|
9,450
|
|
|
127,468
|
|
1969
|
|
|
8,200
|
|
|
1,148
|
|
|
13,532
|
|
1970
|
|
|
274,600
|
|
|
32,952
|
|
|
117,154
|
|
1971
|
|
|
299,000
|
|
|
35,880
|
|
|
99,202
|
|
1972
|
|
|
462,600
|
|
|
55,512
|
|
|
126,185
|
|
1973
|
|
|
619,800
|
|
|
74,376
|
|
|
251,202
|
|
1974
|
|
|
398,300
|
|
|
47,796
|
|
|
60,007
|
|
1975
|
|
|
-
|
|
|
-
|
|
|
(52,618
|
)
|
1976
|
|
|
-
|
|
|
-
|
|
|
(8,200
|
)
|
1977
|
|
|
850,000
|
|
|
102,000
|
|
|
1,682,706
|
|
1978
|
|
|
90,797
|
|
|
10,896
|
|
|
158,343
|
|
1979
|
|
|
1,065,943
|
|
|
127,914
|
|
|
4,124,063
|
|
1980
|
|
|
179,831
|
|
|
21,580
|
|
|
826,763
|
|
1981
|
|
|
30,600
|
|
|
3,672
|
|
|
159,360
|
|
1983
|
|
|
5,318,862
|
|
|
638,263
|
|
|
1,814,642
|
|
1985
|
|
|
-
|
|
|
-
|
|
|
(36,220
|
)
|
1986
|
|
|
6,228,143
|
|
|
747,378
|
|
|
2,178,471
|
|
1987
|
|
|
4,152,095
|
|
|
498,251
|
|
|
2,407,522
|
|
1990
|
|
|
4,298,966
|
|
|
515,876
|
|
|
26,319
|
|
1996
|
|
|
6,672,726
|
|
|
800,727
|
|
|
5,555,599
|
|
2000
|
|
|
3,411,971
|
|
|
409,436
|
|
|
2,729,329
|
|
2002
|
|
|
2,743,275
|
|
|
329,193
|
|
|
570,449
|
|
|
|
|
39,657,458
|
|
$
|
4,763,370
|
|
$
|
25,674,221
|
|
The
following represents shares issued upon exercise of stock options:
|
|
Number
|
|
Common
|
|
Capital
in Excess
|
|
Year
|
|
of
Shares
|
|
Stock
|
|
of
Par Value
|
|
1955
|
|
|
73,000
|
|
$
|
7,300
|
|
$
|
175,200
|
|
1978
|
|
|
7,000
|
|
|
840
|
|
|
6,160
|
|
1979
|
|
|
213,570
|
|
|
25,628
|
|
|
265,619
|
|
1980
|
|
|
76,830
|
|
|
9,219
|
|
|
125,233
|
|
1981
|
|
|
139,600
|
|
|
16,752
|
|
|
227,548
|
|
1996
|
|
|
10,000
|
|
|
1,200
|
|
|
12,300
|
|
1997
|
|
|
10,000
|
|
|
1,200
|
|
|
10,050
|
|
|
|
|
530,000
|
|
$
|
62,139
|
|
$
|
822,110
|
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
4.
Stock
Option Plans
At
December 31, 2007, the Company maintains two stock-based employee compensation
plans.
During
1995, the Company adopted a Stock Option Plan covering 1,000,000 shares of
the
Company’s common stock. In July 2005, the Company issued an option to its
president to acquire 50,000 shares of the Company’s common stock at a price of
$.15 per share under the Company’s stock option plan. The option expires in ten
years and was fully vested when issued. The Company determined the fair value
of
the stock did not exceed the exercise price on the date of issue and no expense
was recorded in 2005.
Unexercised
options that existed prior to the 2005 Agreement with the State of Florida
were
terminated by the Agreement or the releases exchanged during the process of
closing that Agreement.
In
December 2005, the Company issued options to its directors to acquire 200,000
shares of the Company’s common stock at a price of $.15 per share. The option
expires in December 2015 and was fully vested when issued. The
Company determined the fair value of the stock did not exceed the exercise
price
on the date of issue.
During
2005, the Company adopted a Stock Option Plan covering 2,300,000 shares of
the
Company’s common stock. In September 2005, the Company issued an option to its
president to acquire 250,000 shares of the Company’s common stock at a price of
$.20 per share under the Company’s stock option plan, subject to the approval of
the Plan by shareholders. The Plan was approved at the shareholders meeting
on
December 9, 2005. The option expires in ten years and was fully vested when
issued. The Company determined the fair value of the stock did not exceed the
exercise price on the date of issue.
Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based
Payments,
which
requires companies to expense stock options and other share-based payments.
The
Company did not issue any stock options or share-based payments in 2006 or
in
2007.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
4.
Stock
Option Plans (Cont'd)
The
following table summarizes employee stock option activity:
Employee
Options outstanding
|
|
Number
of
Shares
|
|
Range
of Per Share Option Price ($)
|
|
Weighted
Average Exercise Price ($)
|
|
Aggregate
Option Price ($)
|
|
Outstanding
and exercisable at December 31, 2005
|
|
|
500,000
|
|
|
.15
- .20
|
|
|
.15
- .20
|
|
|
87,500
|
|
Issued
or cancelled during 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable at December 31, 2006
|
|
|
500,000
|
|
|
.15
- .20
|
|
|
.15
- .20
|
|
|
87,500
|
|
Issued
or cancelled during 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable at December 31, 2007
|
|
|
500,000
|
|
|
.15
- .20
|
|
|
.18
|
|
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for grant at December 31, 2007
|
|
|
2,775,000
|
|
|
|
|
|
|
|
|
|
|
Summary
of Employee Options Outstanding at December 31,
2007
|
Year
Granted
|
|
Number
of Shares
|
|
Expiration
Date
|
|
Exercise
Prices ($)
|
|
Granted
2005
|
|
|
50,000
|
|
July
25, 2015
|
|
|
.15
|
|
Granted
2005
|
|
|
250,000
|
|
September
27, 2015
|
|
|
.20
|
|
Granted
2005
|
|
|
200,000
|
|
December
20, 2015
|
|
|
.15
|
|
The
weighted-average remaining contractual life of the outstanding stock options
at
December 31, 2007, and 2006 was 8 years and 9 years, respectively.
Nonqualified
Stock Options
In
July
2005, the Company issued an option to its legal counsel to acquire 25,000 shares
of the Company’s common stock at a price of $.15 per share. The option expires
in July 2015 and was fully vested when issued. The market value of the stock
equaled the exercise price on the date of issue.
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
4.
Stock
Option Plans (Cont'd)
A
summary
of non-employee option activity follows:
Non-Employee
Options outstanding
|
|
Number
of Shares
|
|
Range
of Per Share Option Price ($)
|
|
Weighted
Average Exercise Price ($)
|
|
Aggregate
Option Price ($)
|
|
Outstanding
and exercisable at December 31, 2005
|
|
|
25,000
|
|
|
.15
|
|
|
.15
|
|
|
3,750
|
|
Issued
or cancelled during 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable at December 31, 2006
|
|
|
25,000
|
|
|
.15
|
|
|
.15
|
|
|
3,750
|
|
Issued
or cancelled during 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable at December 31, 2007
|
|
|
25,000
|
|
|
.15
|
|
|
.15
|
|
|
3,750
|
|
Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based
Payments,
which
requires companies to expense stock options and other share-based payments.
The
Company did not issue any stock options or share-based payments to non-employees
in 2006 or in 2007.
The
following table summarizes information about non-employee stock
options:
Summary
of Non Employee Options Outstanding at December 31,
2007
|
Year
Granted
|
|
Number
of Shares
|
|
Expiration
Date
|
|
Exercise
Prices ($)
|
|
Granted
2005
|
|
|
25,000
|
|
July
25, 2015
|
|
|
.15
|
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
5. Income taxes
The
Company is organized under the laws of Bermuda. Bermuda currently imposes no
taxes on corporate income or capital gains outside of Bermuda. The Company’s
subsidiary is a U.S. corporation and is subject to U.S. income tax and files
income tax returns in the U.S. and the State of Florida. For 2007 and 2006,
the
subsidiary has net taxable loss. The subsidiary will have approximately
$10,000,000 in net operating losses to carry forward to 2008.The remaining
net
operating loss carry forwards expire in periods from 2009 through 2026 as
follows: $62,000 in 2009, $571,000 in 2010, $955,000 in 2011, $1,281,000 in
2012, $757,000 in 2018, $622,000 in 2019, $749,000 in 2020, $1,884,000 in 2021,
$1,693,000 in 2022, $132,000 in 2023, $57,000 in 2024, $1,434,000 in 2026 and
$195,000 in 2027. For financial reporting purposes, a valuation allowance has
been recognized to offset the deferred tax assets relating to those carry
forwards.
For
2005,
the Company provided an estimated U.S. income tax provision of $35,000 resulting
from the settlement with the State of Florida. The Company ultimately did not
realize a tax liability for 2005 and this provision was reversed in 2006 as
an
income tax benefit.
Significant
components of the Company’s deferred tax assets were as follows:
|
|
2007
|
|
2006
|
|
Net
operating losses
|
|
$
|
3,400,000
|
|
$
|
3,800,000
|
|
Accruals
to related parties
|
|
|
75,000
|
|
|
-
|
|
Total
deferred tax assets
|
|
|
3,475,000
|
|
|
3,800,000
|
|
Valuation
allowance
|
|
|
(3,475,000
|
)
|
|
(3,800,000
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
Components
of the income tax provision are as follows:
|
|
2007
|
|
2006
|
|
Provision
for income taxes
|
|
|
|
|
|
Current
provision (benefit) for income taxes
|
|
$
|
(65,000
|
)
|
$
|
(35,000
|
)
|
Benefit
of net operating loss
|
|
|
-
|
|
|
(600,000
|
)
|
Deferred
asset valuation allowance (reversal)
|
|
|
65,000
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
Net
income tax provision (benefit)
|
|
$
|
-
|
|
$
|
(35,000
|
)
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
6. Related
party transactions
Oil
and Gas Exploration Activities
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 $2,000 and $72,800
paid to this entity for the year ended December 31, 2007 and 2006,
respectively.
Services
The
Company expensed $144,000 and $144,000 in fees by Angerer & Angerer in 2007
and 2006, respectively. The Company owes $96,000 to Angerer & Angerer at
December 31, 2007. Robert Angerer, Sr. was elected a director of Coastal
Caribbean and of Coastal Petroleum on January 30, 2003 and re-elected a Vice
President of Coastal Caribbean and Coastal Petroleum in December 2005.
The
Company expensed $16,062 and $50,453 for legal fees by the law firm of Igler
& Dougherty, PA, during 2007 and 2006, respectively. Mr. Herbert D.
Haughton, a shareholder of the firm, was elected a director of Coastal Caribbean
and of Coastal Petroleum in December 2005.
7. Selected
quarterly financial data (unaudited)
The
following is a summary (in thousands, except for per share amounts) of the
quarterly results of operations for the years ended December 31, 2007 and
2006:
2007
|
|
QTR
1
|
|
QTR
2
|
|
QTR
3
|
|
QTR
4
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
(168
|
)
|
|
(245
|
)
|
|
(98
|
)
|
|
(190
|
)
|
Gains
and other income
|
|
|
1
|
|
|
4
|
|
|
-
|
|
|
5
|
|
Income
Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Impairment
of goodwill
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income (loss)
|
|
|
(167
|
)
|
|
(241
|
)
|
|
(98
|
)
|
|
(185
|
)
|
Per
share (basic & diluted)
|
|
|
(.004
|
)
|
|
(.005
|
)
|
|
(.002
|
)
|
|
(.004
|
)
|
Weighted
average number of shares outstanding
|
|
|
46,212
|
|
|
46,212
|
|
|
46,212
|
|
|
42,212
|
|
COASTAL
CARIBBEAN OILS & MINERALS, LTD.
Notes
to Consolidated Financial Statements
For
The Years Ended December 31, 2007 and 2006
7. Selected
quarterly financial data (unaudited)
(Cont'd)
2006
|
|
QTR
1
|
|
QTR
2
|
|
QTR
3
|
|
QTR
4
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
(197
|
)
|
|
(181
|
)
|
|
(177
|
)
|
|
(1,130
|
)
|
Gains
and other income
|
|
|
15
|
|
|
11
|
|
|
9
|
|
|
6
|
|
Income
Taxes
|
|
|
-
|
|
|
-
|
|
|
35
|
|
|
-
|
|
Impairment
of goodwill
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
income (loss)
|
|
|
(182
|
)
|
|
(170
|
)
|
|
(133
|
)
|
|
(1,136
|
)
|
Per
share (basic & diluted)
|
|
|
(.004
|
)
|
|
(.004
|
)
|
|
(.003
|
)
|
|
(.024
|
)
|
Weighted
average number of shares outstanding
|
|
|
46,212
|
|
|
46,212
|
|
|
46,212
|
|
|
46
212
|
|
8. Concentrations
of credit risk
All
demand and certificate of deposits are held by commercial banks. The Company
has
no policy requiring collateral or other security to support its deposits,
although all demand and certificate of deposits with banks are federally insured
up to $100,000 under FDIC protection. Demand deposit bank balances totaled
$44,096 and $126,313 at December 31, 2007 and 2006, respectively.
Certificate of deposit balances were $135,364 and $126,313 at December 31,
2007 and 2006, respectively.
None
Item
9A. Controls
and Procedures
|
a. |
Management’s
annual report on internal control over financial
reporting.
|
1. Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over
financial reporting is a process designed to provide reasonable assurance that
assets are safeguarded against loss from unauthorized use or disposition,
transactions are executed in accordance with appropriate management
authorization and accounting records are reliable for the preparation of
financial statements in accordance with generally accepted accounting
principles.
2. Internal
control over financial reporting is a process tailored to the Company’s unique
circumstances, designed under the supervision of
the
Company's Chief Executive and Chief Financial Officer, and effected by the
Company's Board of Directors, its consultants and other personnel, taking into
account the small size of the Company, small number of employees and others
involved in the Company’s finances. The process uses a system of checks and
balances to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in
accordance with generally accepted accounting principles and includes those
policies and procedures that:
· pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the Company's assets and the review
of those transactions and dispositions by the Company’s compliance
officer;
· provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that the Company's receipts and expenditures are
being made only in accordance with authorizations of management or the Company's
Board of Directors; and
· provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material adverse effect on the Company's financial statements.
The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal
Control - Integrated Framework.
3. As
required by Rule 13a-15(b) under the Exchange Act, management carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Based
on
that assessment, management believes that, as of December 31, 2007, the
Company’s internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f), is effective based on the COSO
criteria.
4. This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
|
b. |
Changes
in internal controls.
The Company made no changes in its internal control over financial
reporting that occurred during the Company’s fourth fiscal quarter that
has materially affected, or which is reasonably likely to materially
affect the Company’s internal control over financial
reporting.
|
PART III
Item
10. Directors
and Executive Officers of the Company
Directors
As
of
December 31, 2007, the board of directors included five members, two of whom,
Mr. Ware and Mr. Angerer, also serve as executive officers. The board is divided
into three classes, with each class serving a term of office of three years
or
until such time as their successors are elected, qualified, and assume office.
The Company has not held an annual meeting since the annual meeting held in
December 2005 due to the high cost of holding such a meeting. Therefore, the
directors whose terms expired at the annual meetings to be held in 2006 and
2007
continue to serve until their successors are elected and assume office.
Name
|
|
Director
Since
|
|
Other
Offices Held
With
the Company
|
|
Age
and Business Experience
For
the Past Five Years
|
Directors
With Three Year Terms Expiring at the 2008 Annual
Meeting:
|
|
|
|
|
|
|
|
Phillip
W. Ware
|
|
1985
|
|
President,
Chief Executive Officer and Principal Accounting Officer
|
|
Mr.
Ware, age 58, has been employed by Coastal Petroleum Company since
1976.
He has served as President of Coastal Petroleum since April 1985.
Mr. Ware
is a 1975 graduate of the University of Florida and is a professional
geologist registered with the State of Florida.
|
|
|
|
|
|
|
|
Robert J.
Angerer,
Sr. |
|
2003 |
|
Vice
President and Chairman of the Board
|
|
Mr.
Angerer, age 61, is a partner in Oil For America, an oil exploration
business formed in 2002, with operations primarily in North Dakota
and
Montana. He is a lawyer and an engineer and has been a member of
the
Florida Bar since 1974. He has been a partner in the Tallahassee
law firm
of Angerer & Angerer since 1994. He is a graduate of the University of
Michigan and of Florida State University College of Law. He has served
as
a director of Coastal Petroleum since 2003.
|
Directors
With Two Year Terms Expiring at the 2007 Annual
Meeting
|
|
|
|
|
|
|
|
Herbert
D. Haughton
|
|
N/A
|
|
None
|
|
Mr.
Haughton, age 66, is a banking, corporate and securities lawyer.
He is a
shareholder in the Tallahassee, Florida law firm of Igler & Dougherty,
PA, where he has practiced law since 1994, following his admission
to the
Florida Bar. Prior to entering the practice of law, Mr. Haughton
spent
over 30 years in the banking industry serving as president and chief
executive officer of three different community banks in Florida from
1977
to 1991. He is a graduate of Cleary University and Florida State
University College of Law.
|
|
|
|
|
|
|
|
Anthony
F. Randazzo, Ph.D.
|
|
N/A
|
|
None
|
|
Dr.
Randazzo, age 66, is Professor Emeritus of Geological Sciences at
the
University of Florida where he has worked since 1967. He served as
Chairman of the Department of Geology at the University of Florida
from
1988 to 1995. He is also currently a co-principal and President of
the
geotechnical consulting firm Geohazards, Inc. which he was instrumental
in
forming in1985. He earned his B.S. degree at The City College of
New York
in 1963, his M.S. from the University of North Carolina at Chapel
Hill
1965, and his Ph.D. from the University of North Carolina at Chapel
Hill
in 1968. He is a Registered Professional Geologist in the State of
Florida
and the State of Georgia.
|
Director
With One Year Term Expiring at the 2006 Annual
Meeting
|
|
|
|
|
|
|
|
Matthew
D. Cannon
|
|
N//A
|
|
None
|
|
Mr.
Cannon, age 63, is currently a partner in the Cannon Trading Partnership,
which he formed in 1993. From 1991 to 1992 he served as a partner
in
Seisma Drilling Corporation. From 1988 to 1991 he served as vice
president
and director of Hilb, Rogal and Hamilton Company, an insurance agency
located in Gainesville, Florida which specialized in underwriting,
rating,
sales, collections and claims associated with commercial lines insurance
policies. Prior to that he served as vice president and director
of the
Cannon-Treweek insurance agency from 1968
to1988.
|
Executive
Officers
Phillip
W. Ware has been President of Coastal Petroleum and Vice President of Coastal
Caribbean for many years and became President of Coastal Caribbean effective
March 1, 2003, and Robert J. Angerer, Sr., became a director of Coastal
Caribbean on January 30, 2003 and Vice President of Coastal Caribbean on
February 27, 2003. Effective August 18, 2005, Mr.
Ware
was appointed Principle Accounting Officer.
Officers
of Coastal Caribbean are elected annually by the board and report directly
to
it.
Only
Mr.
Ware received direct compensation for his services as an officer of Coastal
Caribbean or Coastal Petroleum. During 2007, $89,700 of Mr. Ware’s compensation
for his services was accrued. Mr.
Ware
devotes 100% of his professional time to the business and affairs of Coastal
Caribbean and Coastal Petroleum. The
other
executive officer devotes a small percentage of his professional time as an
officer on behalf of the Companies.
The
business experience described for each director or executive officer above
covers the past five years.
We
are
not aware of any arrangements or understandings between any of the individuals
named above and any other person by which any of the individuals named above
was
selected as a director and/or executive officer. We are not aware of any family
relationship among the officers and directors of Coastal Caribbean or its
subsidiary except for the father and son relationship between Mr. Angerer,
Sr.
and Robert J. Angerer, Jr., who serves as the Company’s Secretary.
Compliance
with Section 16(a) of the Securities Exchange Act of
1934
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's executive
officers, directors and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of beneficial ownership and
reports of changes in beneficial ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by the SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by such
persons. Based solely on its copies of forms received by it, or written
representations from certain reporting persons that no Form 5's were required
for those persons, the Company believes that during the just completed fiscal
year, its executive officers, directors, and greater than 10% beneficial owners
compiled with all applicable filing requirements.
Code
of Ethics
The
Company has adopted a Code of Ethics applicable to principle executive and
financial officers. The Code of Ethics is posted on the Company’s website at
www.coastalcarib.com
and may
be reviewed by following the link entitled “Corporate Governance Materials.” A
copy of the Code of Ethics is also filed herein as Exhibit (j).
Item
11. Executive
Compensation
Compensation
Discussion and Analysis
Compensation
Philosophy
The
Company’s executive compensation program reflects the Company’s philosophy that
executive’s compensation should be structured so as to closely align executives’
interests with the interests of our shareholders. The primary objectives of
the
Company in determining compensation are to emphasize operating performance
criteria that enhance shareholder value and to establish and maintain a
competitive executive compensation program that enables the Company to retain
and motivate a highly qualified executive who will contribute to the long-term
success of the Company. When used in this Compensation Discussion and Analysis
section, the term “named executive officer” means the person listed in the
Summary Compensation Table.
Consistent
with this philosophy, we seek to provide compensation for the named executive
officer that is similar to comparable companies in the oil and gas industry.
In
making these determinations, we annually review each compensation component
and
compare it to market reference points. The application of our compensation
philosophy to our named executive officer is described below in this
Compensation Discussion and Analysis section.
Executive
Compensation Program Design
The
objective of the Company and the compensation committee is to attract, retain
and motivate the most highly qualified executive officer who will contribute
to
the Company’s goals by consistently delivering exceptional performance while
working within the annual budget of a development stage Company. In order to
accomplish the Company’s goals, we believe compensation paid to the executive
officer should be designed around a combination of a competitive based salary
combined with performance-based pay including equity-based or other incentives
which thereby align the interest of our executive officer with those of the
Company’s shareholders.
Base
salary constituted nearly all of the compensation package of the indicated
named
executive officer during the year ended December 31, 2007.
At
the
request of the compensation committee, our compensation program is reviewed
on
an annual basis to ensure it meets the objectives of our compensation program
and is benchmarked with the market. Prior compensation from the Company, such
as
gains from previously awarded stock options, is not generally taken into account
in setting other elements of compensation, such as base pay and long-term
incentive awards. We believe that our executive officer should be fairly
compensated each year relative to market pay levels of our peer groups and
internal equity within the Company.
Compensation
Program Benchmarking
The
compensation committee endeavors to conduct its review on an annual basis for
the named executive officer to ensure that our compensation program works as
designed and intended. This review by the compensation committee also
facilitates discussion among the members of the compensation committee regarding
our compensation program.
Compensation
Program Overview
Following
is an overview of the principal components of our compensation program:
How
Amounts for Compensation Components are Determined
In
addition to the information provided above, following are other details on
specific compensation components for 2007:
2007
Base Salary. Base
salary level of the named executive officer is determined based on a combination
of factors, including our compensation philosophy, market compensation data,
competition for key executive talent, the named executive officer’s experience,
leadership, achievement of specified business objectives and contribution to
the
Company’s success, the Company’s overall annual budget for merit increases and
the named executive officer’s individual performance. In the compensation
committee’s first meeting of each year, the compensation committee conducts an
annual review of the base salary of our named executive officer by taking into
account these factors.
The
base
salary of the named executive officer did not increase during 2007 based upon
the factors set out above. The compensation committee focused on the Company’s
annual budget and the beginning of new operations in an effort to establish
production and revenue for the Company.
2007
Long-Term Incentives. The
Company has in the past provided long-term incentives. Primarily this has been
done through the issuance of stock options, however there is no set program
or
requirements for issuance of the stock options. Instead, stock options may
be
issued at the discretion of the compensation committee in conjunction with
the
Board of Directors.
In
addition to our philosophy, internal equity,
current
share price, and individual performance during the prior year are considered.
We
do not target long-term incentive opportunities to be a particular percentage
of
total compensation. The compensation committee did not grant any stock options
in 2007 to any individuals (including our Chief Executive Officer).
Another
long-term incentive used in the oil and gas industry is the granting of
overriding interest in wells to be drilled. On June 22, 2005, the Company
approved of its subsidiary granting such an incentive to Mr. Ware and that
incentive was granted as a 1% overriding interest in any well that he recommends
that is drilled by the Company or its subsidiary Coastal Petroleum. No payments
under this incentive plan were earned or paid during 2007.
Retirement
and Other Benefits
We
currently do not offer retirement programs within the Company that are intended
to supplement the employee’s personal savings and social security. However, the
Company contributes to the SEP-IRA of the named executive employee. The Company
believes that this contribution assists the Company in maintaining a competitive
position in terms of retaining our named executive employee.
Other
Benefits
The
Company does not provide the named executive officer with perquisites or other
personal benefits. The Company does provide healthcare insurance for its named
executive officer, which the Company believes assists in maintaining a
competitive position in terms of retaining him.
Board
Process and Independent Review of Compensation Program
The
compensation committee is responsible for determining the compensation of our
directors and our Chief Executive Officer. In addition, the compensation
committee is authorized to exercise all the powers granted to it in its charter.
The compensation committee charter provides that the compensation committee
will
have access to the necessary corporate resources to carry out its charter
authority.
For
our
Chief Executive Officer, the compensation committee evaluates and assesses
our
Chief Executive Officer’s performance related to leadership, financial and
operating results, board relations, and other material considerations. These
considerations as well as market information concerning compensation for similar
positions are then incorporated into the compensation committee’s compensation
adjustment decisions. Market information is obtained through various sources
including reference to materials published by the American Association of
Petroleum Geologists (AAPG) annually in their AAPG
Explorer.
These
materials review compensation being paid to geologists holding various degrees
and of varying years of experience in oil and gas companies across the
country.
The
following table sets forth the compensation of the President of the Company,
Mr.
Ware, who served as our Chief Executive Officer and Principal Financial Officer
for the three years ending with 2007. We have determined that Mr. Ware is
our
only named executive officer pursuant to the applicable rules of the SEC
(the
“named executive officer”). No other company employee received $100,000 or more
in total compensation. Mr. Ware’s current base salary is $125,000.
SUMMARY
COMPENSATION
TABLE
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus(1)
($)
|
|
Stock
Awards
($)
|
|
Option
Awards(3)
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation(2)(5)
($)
|
|
Total
($)
|
|
Phillip
W. Ware, Chief Executive
|
|
|
2007
|
|
|
125,000
|
(4)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,750
|
|
|
143,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer,
President ,
|
|
|
2006
|
|
|
125,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,750
|
|
|
138,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer, Director
|
|
|
2005
|
|
|
112,020
|
|
|
-
|
|
|
-
|
|
|
47,000
|
|
|
-
|
|
|
-
|
|
|
13,800
|
|
|
172,820
|
|
(1) Annual
Cash Bonus Award - Annual incentive awards, which were paid during the year
or
immediately following the year indicated.
(2) Other
Annual Compensation - All additional forms of cash and non-cash compensation
paid, awarded or earned, including automobile allowances, 401(k) Plan matching
contributions, and club membership costs.
(3) Stock
Options - Grant of stock options to acquire 50,000 shares was made under the
Company’s 1995 Stock Option Plan. Grant of stock options to acquire 250,000
shares was made under the Company’s 2005 Incentive Stock Option Plan
(4) Payment
of $89,700 was accrued and not paid in 2007.
(5) Payment
to SEP-IRA pension plan (2006 and 2007 amounts have been deferred).
The
Company does not have a contract with its named executive officer nor does
it
have a change of control employment agreement which would be effective upon
change of control of the Company or in the event of termination of
employment.
Stock
Options
The
Company granted Mr. Ware an option to acquire 50,000 shares of our common stock,
exercisable at $.15 per share and 250,000 shares of our common stock,
exercisable at $.20 per share, for ten years during the year ended
December 31, 2005. The Company has not adjusted or amended the exercise
price of any stock options during the year end December 31, 2007.
All
the
outstanding options that existed prior to the 2005 Agreement with the State
of
Florida were terminated as part of the Agreement with the State of Florida
and
through the mutual releases exchanged as a part of the closing under that
Agreement.
The
following table sets forth certain information with respect to outstanding
equity awards at December 31, 2007 held by the named executive officer.
OUTSTANDING
EQUITY
AWARDS
AT FISCAL
YEAR-END
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
|
|
Equity
Incentive
Plan Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
|
|
Option
Expiration
|
|
Number of
Shares
or
Units
of
Stock That
Have
Not
Vested
|
|
Market
Value of
Shares or
Units
of
Stock That
Have
Not
Vested
|
|
Equity Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|
Equity
Incentive
Plan Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
|
Name |
|
Exercisable
|
|
Unexercisable
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
|
Phillip
W. Ware
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
0.15
|
|
|
July
25, 2015
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
250,000
|
|
|
-
|
|
|
-
|
|
|
0.20
|
|
|
September
27, 2015
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
There
were no options exercised in 2007.
Compensation
of Directors
The
compensation committee of our Board sets the compensation of our directors.
In
determining the appropriate level of compensation for our directors, the
compensation committee considers the commitment required from our directors
in
performing their duties on behalf of the Company, as well as comparative
information the committee obtains from various sources. Set forth below is
a
description of the compensation of our directors.
Annual
Retainers and Other Fees and Expenses.
We
pay
our directors an annual retainer of $25,000. There is currently no provision
for
paying directors additional fees based upon attending meetings, service on
a
committee, or serving as chair of a committee. We do not regularly compensate
directors for their service through stock options, although in the past the
Company has issued stock options to Directors. We do reimburse directors for
travel, lodging and related expenses they may incur in attending shareholder,
Board and committee meetings.
We
did
not pay our directors in 2007 and accrued $125,000 owed to them at December
31,
2007. Directors were paid $125,000 in 2006. The following table shows the
compensation of the Company’s directors for the year ended December 31,
2006.
Name
|
|
Fees Earned or
Paid in Cash
($)
|
|
Stock Awards
($)
|
|
Option Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
Phillip
W. Ware
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Angerer, Sr.
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herbert
D. Haughton
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew
D. Cannon
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
F. Randazzo
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee serves with regard to compensation and personnel
policies, programs and plans, including management development and succession,
and to approve employee compensation and benefit programs. The Compensation
Committee’s charter was adopted on December 20, 2005. A copy of the
Compensation Committee Charter may be obtained by a written request addressed
to
Mr. Robert J. Angerer, Jr., Secretary, P.O. Box 10468, Tallahassee, Florida
32302. Members of the Compensation Committee are: Herbert D. Haughton and
Matthew D. Cannon.
Compensation
Committee Report
To
the
Shareholders of
Coastal
Caribbean Oils & Minerals, Ltd.:
The
Compensation Committee has reviewed and discussed with management of the Company
the Compensation Discussion and Analysis included in this annual report on
Form
10-K. Based on such review and discussion, the Compensation Committee
recommended to the Board that the Compensation Discussion and Analysis be
included in this annual report on Form 10-K.
|
|
|
March 19,
2008
|
|
COMPENSATION
COMMITTEE
|
|
|
|
|
|
Matthew
D. Cannon, Chair
|
|
|
Herbert
D. Haughton
|
Item
12. Security
Ownership of Certain Beneficial Owners and Management
Security
Ownership of Certain Beneficial Owners
As
of
December 31, 2007, Mr. Robert J. Angerer, Sr. owned 1,933,757 shares, or
4.18% of our common stock and his son, Mr. Robert J. Angerer, Jr., owned
2,191,914 shares, or 4.74% of our common stock. Mr. Angerer, Sr. disclaims
beneficial ownership of any shares owned by his son.
As
of
March 25, 2008, no persons or apparent groups of persons are known by management
to own beneficially five percent or more of the Company’s outstanding
shares.
Security
Ownership of Management
The
following table sets forth information as to the number of shares of the
Company's common stock owned beneficially at December 31, 2007, by each director
of the Company and by all directors and executive officers as a group:
|
|
Amount
and Nature of Beneficial Ownership
|
|
Name
of Individual or Group
|
|
Shares
Held Directly or
Indirectly
|
|
Options
|
|
Percent
of
Class
|
|
Phillip
W. Ware
|
|
|
204,121
|
|
|
300,000
|
|
|
1.09
|
%
|
Robert
J. Angerer, Sr.
|
|
|
1,933,757
|
|
|
50,000
|
|
|
4.25
|
%
|
Herbert
D. Haughton
|
|
|
50,000
|
|
|
50,000
|
|
|
0.21
|
%
|
Anthony
F. Randazzo
|
|
|
100,000
|
|
|
50,000
|
|
|
0.32
|
%
|
Matthew
D. Canon
|
|
|
105,300
|
|
|
50,000
|
|
|
0.33
|
%
|
Directors
and executive officers as
a group (a total of 5 persons)
|
|
|
2,393,178
|
|
|
500,000
|
|
|
6.19
|
%
|
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information about the Company’s common stock that may
be issued upon the exercise of options and rights under the Company’s 1995 Stock
Option Plan and the Company’s 2005 Employee’s Incentive Stock Option Plan as of
December 31, 2007
Plan
Category
|
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
(#)
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
(b)
($)
|
|
Number
of securities remaining available for issuance under equity compensation
plans (excluding securities reflected in column (a))
(c)
(#)
|
|
Equity
compensation plans not approved by security holders (1)
|
|
|
250,000
|
|
$
|
0.15
|
|
|
750,000
|
|
Equity
compensation plans approved by security holders (2)
|
|
|
250,000
|
|
$
|
0.20
|
|
|
2,050,000
|
|
Total:
|
|
|
500,000
|
|
$
|
0.15
- 0.20
|
|
|
2,800,000
|
|
(1) 1995
Stock Option Plan
(2) 2005
Employee’s Incentive Stock Option Plan
The
Company’s 1995 Stock
Option Plan was adopted by the Board of Directors of the Company in March 1995.
1,000,000 shares of the Company's common stock were authorized for issuance
under the terms of the plan. Options under the plan may be granted only to
directors, officers, key employees of, and consultants and consulting firms
to,
(i) the Company, (ii) subsidiary corporations of the Company from time to time
and any business entity in which the Company from time to time has a substantial
interest, who, in the sole opinion of the Committee of the Board administering
the Plan, are responsible for the management and/or growth of all or part of
the
business of the Company. The exercise price of each option to be granted under
the plan shall not be less than the fair market value of the stock subject
to
the option on the date of grant of the option.
The
Company’s 2005
Employees’ Stock Option and Limited Rights Plan (“Employees’ Plan”) was adopted
by the Board on September 27, 2005, for the benefit of officers and other key
employees of Coastal and Coastal Caribbean. The Plan was approved by the
shareholders at the Annual General Meeting held on December 9, 2005. The
Employees’ Plan provides for 2,300,000 shares of Coastal common stock to be
reserved for future issuance pursuant to the exercise of stock options. This
represents 5% of the total number of shares of the Company’s outstanding common
stock. Employees of Coastal or Coastal Petroleum may be granted options to
purchase shares of common stock, as determined by the Board in its sole
discretion.
Options
granted under the Program will be “incentive stock options” within the meaning
of section 422A of the Internal Revenue Code of 1986, as amended, which are
designed to result in beneficial tax treatment to the employee but no tax
deduction to Coastal. The per share exercise price at which the shares of common
stock may be purchased upon exercise of a granted option will be equal to or
greater than the Fair Market Value of a share of common stock as of the date
of
grant. Fair Market Value of a share of common stock is defined in the Employees’
Plan. At no time will Coastal have total cumulative stock options outstanding
to
acquire more than 15% of the outstanding common stock of Coastal under all
of
its plans.
Item
13. Certain
Relationships and Related Transactions
Angerer
& Angerer
The
law
firm of Angerer & Angerer, Tallahassee, Florida, has been litigation counsel
to the Company for more than twenty-five years and continues to serve the
Company in that capacity as well as others including general counsel services,
management services, public relations, shareholder relations and representing
the Company before state and federal agencies for permitting. Mr. Robert J.
Angerer, Sr., a partner of the firm, was elected a director of Coastal Caribbean
and of Coastal Petroleum on January 30, 2003, and a Vice President of Coastal
Caribbean and Coastal Petroleum on February 28, 2003. During 2007 and 2006,
Angerer & Angerer billed Coastal Petroleum $144,000 and $144,000
respectively for legal fees.
Robert
J. Angerer, Sr.
On
July
15, 2005 Coastal Petroleum acquired a lease and the rights to drill two 5,100
foot wells to test a Mississippian Lodgepole reef in Valley County, in northeast
Montana. Coastal Petroleum acquired these rights for $50,000 from Oil For
America, a partnership in which Robert J. Angerer, Sr. is a partner. Included
in
the agreement is the right to drill additional prospects in the Valley County
area.
Coastal
Petroleum also acquired leases from Oil For America to the deeper rights in
approximately 21,688 net acres in and near Slope County, North Dakota for an
additional $50,000. The Company has the option to drill the remaining Lodgepole
reef prospects on these leases.
The
leases were acquired on terms and under circumstances that are substantially
the
same or at least as favorable as those prevailing at the time for comparable
transactions with or involving other non-affiliated companies.
Igler
& Dougherty, PA
The
law
firm of Igler & Dougherty, PA, Tallahassee, Florida, has been SEC counsel to
the Company for almost five years. Mr. Herbert D. Haughton, a shareholder of
the
firm, was elected a director of Coastal Caribbean and of Coastal Petroleum
in
December 2005. During 2007 and 2006, Igler & Dougherty billed Coastal
Petroleum $16,062 and $50,453, respectively for legal fees.
Item
14. Principal
Accountant Fees and Services
Baumann,
Raymondo and Company, P.A. audited the Company’s financial statements for 2006
and 2005 and performed the reviews for 2006 and the quarter ended September
30,
2005. James Moore & Co., P.L. audited the Company’s financial statements for
2004 and performed the review for the quarters ended March 31, 2005 and June
30,
2005.
Fees
related to services performed by Baumann, Raymondo and Company, P.A. in 2007
and
2006 were as follows:
|
|
2007
|
|
2006
|
|
Audit
Fees (1)
|
|
$
|
31,081
|
|
$
|
30,500
|
|
Audit-Related
Fees
|
|
|
-0-
|
|
|
-0-
|
|
Tax
Fees (2)
|
|
|
-0-
|
|
|
-0-
|
|
Total
|
|
$
|
31,081
|
|
$
|
30,500
|
|
|
(1)
|
Audit
fees represent fees for professional services provided in connection
with
the audit of our financial statements and review of our quarterly
financial statements. The Audit Committee must pre-approve audit
related
and non-audit services not prohibited by law to be performed by the
Companies independent auditors. Since their appointment on December
9,
2005, newly elected directors Matthew D. Cannon and Anthony F. Randazzo
have served as the members of the Audit Committee. The Audit Committee
pre-approved all audit related and non-audit services in 2007 and
2006.
|
|
The
Audit Committee has reviewed Coastal Caribbean’s audited financial
statements as of, and for, the fiscal year ended December 31, 2007,
and
met with both management and Coastal Caribbean’s independent auditors to
discuss those financial statements. Management has represented to
the
Audit Committee that the financial statements were prepared in accordance
with accounting principles generally accepted in the United States
of
America.
|
|
|
The
Audit Committee has received from, and discussed with Baumann, Raymondo
& Company, PA, the written disclosure and the letter required by
Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees).
These items relate to that firm’s independence from Coastal Caribbean. The
Audit Committee has also discussed with Baumann, Raymondo & Company
any matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication
with Audit Committees).
|
|
|
Based
on the reviews and discussions referred to above, the Audit Committee
recommended to the Board that Coastal Caribbean’s audited financial
statements be included in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2007, and filed with the Securities
and
Exchange Commission.
|
|
(2) |
Tax
fees principally included tax advice, tax planning and tax return
preparation.
|
PART IV
Financial Statements
The
financial statements listed below and included under Item 8 above are filed
as
part of this report.
|
|
Page
|
|
Reports
of Independent Registered Public Accounting Firms
|
|
|
22
|
|
|
|
|
|
|
Consolidated
balance sheets at December 31, 2007 and 2006
|
|
|
23
|
|
|
|
|
|
|
Consolidated
statements of operations for each of the three years in the period
ended
December 31, 2007 and for the period from January 31, 1953 (inception)
to
December 31, 2007.
|
|
|
24
|
|
|
|
|
|
|
Consolidated
statements of cash flows for each of the three years in the period
ended
December 31, 2007 and for the period from January 31, 1953 (inception)
to
December 31, 2007.
|
|
|
25
|
|
|
|
|
|
|
Consolidated
statement of common stock and capital in excess of par value for
the
period from January 31, 1953 (inception) to December 31,
2007
|
|
|
26
|
|
|
|
|
|
|
Notes
to consolidated financial statements.
|
|
|
27-40
|
|
Financial Statement Schedules
All
schedules have been omitted since the required information is not present or
not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the consolidated financial statements
and the notes thereto.
Exhibits
The
following exhibits are filed as part of this report:
|
(g) |
Stock
Option Plan adopted March 7, 1995 filed as Exhibit 4A to form S-8
dated
July 28, 1995 (File
Number 001-04668) is incorporated herein by
reference.
|
|
(h)
|
Memorandum
of Settlement dated June 1, 2005 between Coastal Petroleum Company,
et al.
and the State of Florida filed as Exhibit 10(h) to form 10K-A dated
July
27, 2005 (File Number 001-04668) is incorporated herein by
reference.
|
|
(i)
|
Incentive
Stock Option Plan adopted September 30, 2005 and approved by the
shareholders on December 9, 2005 filed as Appendix A to form DEF
14A dated
November 3, 2005 (File Number 001-04668) is incorporated herein by
reference.
|
|
(j)
|
Code
of Ethics applicable to principle executive and financial officers
adopted
December 20, 2005 filed as Exhibit 10(j) to form 10K dated March
8, 2006
(File Number 001-04668) is incorporated herein by
reference.
|
|
21. |
Subsidiaries of the registrant.
|
|
|
The
Company has one subsidiary, Coastal Petroleum Company, a Florida
corporation which is 100 % owned.
|
|
23. |
Consent
of experts and counsel.
|
|
23.1 |
Consent
of Baumann, Raymondo & Company
PA
|
|
31.1 |
Certification
of Chief Executive Officer and Principal Financial Officer Required
by
Rule 13a-14(a)-15d-14(a) under the Exchange
Act
|
|
32.1 |
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 executed by Phillip W.
Ware.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
|
|
|
Dated:
March 26, 2008 |
By |
/s/
Phillip W. Ware |
|
Phillip
W. Ware,
Chief Executive Officer
President
and Principal Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
By
/s/
Phillip W. Ware
Phillip
W. Ware
Director,
Chief Executive Officer,
President
and Principal Financial Officer
Dated:
March 26, 2008
|
By
/s/
Robert J. Angerer
Robert
J. Angerer
Director
and Vice President
Dated:
March 26, 2008
|
|
|
|
|
By
/s/
Herbert D. Haughton
Herbert
D. Haughton
Director
Dated:
March 26, 2008
|
By
/s/
Anthony F. Randazzo
Anthony
F. Randazzo
Director
Dated:
March 26, 2008
|
|
|
|
|
By
/s/
Matthew D. Cannon
Matthew
D. Cannon
Director
Dated:
March 26, 2008
|
|
INDEX
TO EXHIBITS
Exhibit
No.
|
23.1 |
Consent
of Baumann, Raymondo & Company,
PA
|
|
31.1 |
Certification
pursuant to Rule 13a-14 by Phillip W.
Ware
|
|
32.1 |
Certification
pursuant to Section 906 by Phillip W.
Ware
|