-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KpFWdpFqARqZ/cFghu98L2dZhwuMpNe/juOa8H9q1w3YVbZG592gGzbuoCOhRGci dChM3MlEdQmcQCI5LVX8Bg== 0000821483-99-000002.txt : 19990217 0000821483-99-000002.hdr.sgml : 19990217 ACCESSION NUMBER: 0000821483-99-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA PETROLEUM CORP/CO CENTRAL INDEX KEY: 0000821483 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 841060803 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16203 FILM NUMBER: 99541829 BUSINESS ADDRESS: STREET 1: 555 17TH ST STE 3310 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032939133 MAIL ADDRESS: STREET 1: 555 17TH STREET STREET 2: SUITE 3310 CITY: DENVER STATE: CO ZIP: 80202 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 [ ] 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 0-16203 Delta Petroleum Corporation (Exact name of registrant as specified in its charter) Colorado 84-1060803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 555 17th Street, Suite 3310 Denver, Colorado 80202 (Address of principal (Zip Code) executive offices) (303) 293-9133 (Registrant's telephone number, including area code) 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. Yes X No___ 5,775,858 shares of common stock $.01 par value were outstanding as of February 8, 1999. FORM 10-QSB 2nd QTR. FY 1999 INDEX PART I FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets - December 31, 1998 and June 30, 1998 (unaudited). . . . . . . . . . . . . . . . . .1 Consolidated Statements of Operations - Three and Six Months Ended December 31, 1998 and 1997 (unaudited) . . . . . . . . . . .3 Consolidated Statement of Stockholders' Equity Year Ended June 30, 1998 and Six Months Ended December 31, 1998 (unaudited) . . . . . . .5 Consolidated Statements of Cash Flows - Three and Six Months Ended December 31, 1998 and 1997 (unaudited) . . . . . . . . . . .6 Notes to Consolidated Financial Statements (unaudited). . . . 7 Item 2. Management's Discussion and Analysis Or Plan of Operations . . . . . . . . . . . . . . . . . . 11 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 17 Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 17 Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . 17 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . 17 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 17 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 17 DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31, June 30, 1998 1998 ASSETS Current Assets: Cash $523,474 17,135 Trade accounts receivable, net of allowance for doubtful accounts of $50,000 at December 31, 1998 and June 30, 1998 206,655 224,285 Accounts receivable - related parties 153,832 127,415 Other current assets 10,100 10,100 Total current assets 894,061 378,935 Property and Equipment: Oil and gas properties, at cost (using the successful efforts method of accounting): Undeveloped offshore California properties 6,959,830 6,959,830 Undeveloped onshore domestic properties 675,299 726,127 Undeveloped foreign properties 623,920 - Developed onshore domestic properties 2,237,363 3,369,881 Office furniture and equipment 81,069 80,446 10,577,481 11,136,284 Less accumulated depreciation and depletion (1,411,563) (2,234,525) Net property and equipment 9,165,918 8,901,759 Investment in Bion Environmental Technologies, Inc. (Bion) 437,658 1,069,149 $10,497,637 10,349,843 December 31, June 30, 1998 1998 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable trade $516,171 570,469 Other accrued liabilities 40,381 10,000 Royalties payable 164,907 264,320 Total current liabilities 721,459 844,789 Stockholders' Equity Preferred stock, $.10 par value; authorized 3,000,000 shares; none issued - - Common stock, $.01 par value; authorized 300,000,000 shares, issued 5,775,858 shares at December 31, 1998 and 5,513,858 shares at June 30, 1998 57,759 55,139 Additional paid-in capital 26,243,621 25,571,921 Accumulated comprehensive income (loss) (101,467) 457,594 Accumulated deficit (16,423,735) (16,579,600) Total stockholders' equity 9,776,178 9,505,054 Commitments $10,497,637 10,349,843 DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended December 31, December 31, 1998 1997 Revenue: Oil and gas sales $104,427 476,055 Gain on sale of oil and gas properties 957,147 197,542 Other revenue 60,580 73,766 Total revenue 1,122,154 747,363 Expenses: Lease operating expenses 47,115 94,632 Depreciation and depletion 24,810 63,446 Exploration expenses 14,578 176,423 Dry hole costs 122,489 - General and administrative 305,446 390,729 Stock option expense 21,830 5,478 Realized loss on sale of securities 9,053 - Total expenses 545,321 730,708 Net income $576,833 16,655 Net income per common share: Basic $0.10 * Diluted $0.09 * * less than $.01 per common share DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended December 31, December 31, 1998 1997 Revenue: Oil and gas sales $306,906 793,261 Gain on sale of oil and gas properties 957,147 434,144 Other revenue 121,740 141,878 Total revenue 1,385,793 1,369,283 Expenses: Lease operating expenses 125,094 189,236 Depreciation and depletion 93,526 152,671 Exploration expenses 56,292 226,442 Dry hole costs 219,707 - General and administrative 674,592 759,390 Stock option expense 28,675 11,809 Realized loss on sale of securities 22,042 - Interest expense 10,000 - Total expenses 1,229,928 1,339,548 Net income $155,865 29,735 Net income per common share: Basic $0.03 0.01 Diluted $0.02 0.01 DELTA PETROLEUM CORPORATION AND SUBSIDIARY Consolidated Statement of Stockholders' Equity Year ended June 30, 1998 and six months ended December 31, 1998 Additional Common Stock paid-in Shares Amount capital Balance, July 1, 1997 5,230,631 $52,306 24,950,128 Unrealized gain on equity securities - - - Stock options granted as compensation - - 46,402 Shares issued for cash upon exercise of options 114,100 1,141 202,395 Shares issued for cash 156,950 1,570 348,430 Shares issued for services 22,500 225 64,463 Shares reacquired and retired (10,323) (103) (39,897) Net loss - - - Balance, June 30, 1998 5,513,858 55,139 25,571,921 Unrealized loss on equity securities - - - Stock options granted as compensation - - 28,675 Shares issued for cash 2,000 20 5,955 Shares issued for services 10,000 100 15,650 Shares issued for properties 250,000 2,500 621,420 Net income - - - Balance, December 31, 1998 5,775,858 57,759 26,243,621
Accumulated comprehensive income Accumulated (loss) deficit Total Balance, July 1, 1997 (213,969) (15,617,597) 9,170,868 Unrealized gain on equity securities 671,563 - 671,563 Stock options granted as compensation - - 46,402 Shares issued for cash upon exercise of options - - 203,536 Shares issued for cash - - 350,000 Shares issued for services - - 64,688 Shares reacquired and retired - - (40,000) Net loss - (962,003) (962,003) Balance, June 30, 1998 457,594 (16,579,600) 9,505,054 Unrealized loss on equity securities (559,061) - (559,061) Stock options granted as compensation - - 28,675 Shares issued for cash - - 5,975 Shares issued for services - - 15,750 Shares issued for properties - - 623,920 Net income - 155,865 155,865 Balance, December 31, 1998 (101,467) (16,423,735) 9,776,178
DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended December 31, December 31, 1998 1997 Net cash used in operating activities ($768,483) (548,556) Cash flows from investing activities: Additions to property and equipment (160,573) (509,751) Proceeds from sale of oil and gas properties 1,384,000 663,000 Proceeds from sale of securities available 71,837 46,532 Increase in accounts receivable from related parties (26,417) (24,175) Net cash provided by investing activities 1,268,847 175,606 Cash flows from financing activities: Issuance of common stock for cash 5,975 350,000 Stock issued for cash upon exercise of options - 13,750 Net cash provided by financing activities 5,975 363,750 Net increase (decrease) in cash 506,339 (9,200) Cash at beginning of period 17,135 393,048 Cash at end of period $523,474 383,848 Supplemental cashflow information: Cash paid during the period for interest $10,000 3,633 Non-cash financing activity: Common stock issued for undeveloped foreign $623,920 - See accompanying notes to consolidated financial statements. DELTA PETROLEUM CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements Six Months Ended December 31, 1998 and 1997 (Unaudited) (1) Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and, in accordance with those rules, do not include all the information and notes required by generally accepted accounting principles for complete financial statements. As a result, these unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto filed with the Company's most recent annual report on Form 10-KSB. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the financial position of the Company and the results of its operations have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the complete fiscal year. For a more complete understanding of the Company's operations and financial position, reference is made to the consolidated financial statements of the Company, and related notes thereto, filed with the Company's annual report on Form 10-KSB/A for the year ended June 30, 1998, previously filed with the Securities and Exchange Commission. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (Statement No. 130), effective for years beginning after December 15, 1997. Statement No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general- purpose financial statements. The Company adopted Statement No. 130 effective July 1, 1998 and, accordingly, has reported accumulated other comprehensive income (loss) as a separate line item in the stockholders' equity section of its consolidated balance sheets at December 31, 1998 and June 30, 1998. The components of total comprehensive income (loss) for the periods consist of net earnings and unrealized gain (loss) on equity securities and are as follows: Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 Net income (loss) $576,833 16,655 (155,865) 29,735 Other comprehensive income (loss) (110,903) 590,232 559,061 758,008 Total comprehensive income income (loss) $465,930 606,887 403,196 787,743 (2) Investments The Company's investment in Bion Environmental Technologies, Inc. (Bion) is classified as an available for sale security and reported at its fair market value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. During the six months ended December 31, 1998, the Company received an additional 5,609 shares of Bion's common stock for rent provided by the Company. Also during the six months ended December 31, 1998, the Company realized a loss on the sale of securities available for sale of $22,042. The cost and estimated market value of the Company's investment in Bion at December 31, 1998 and June 30, 1998 are as follows: Estimated Unrealized Market Cost Gain (loss) Value December 31, 1998 $539,125 (101,467) 437,658 June 30, 1998 $611,555 457,594 1,069,149 (3) Oil and Gas Properties On October 12, 1998, the Company entered into an agreement with an unrelated entity to acquire two exploration licenses covering approximately 1.9 million acres in the Pavlodar region of Eastern Kazakhstan in exchange for 250,000 shares of the Company's common stock and 500,000 warrants to purchase common stock at prices ranging from $3.50 to $5.00 per share. On November 16, 1998, the Company completed the sale of 23 oil and gas wells located in the Anadarko Basin of Oklahoma for $1,384,000 to an unrelated entity. (4) Loan Payable On August 20, 1998, the Company entered into a loan agreement with an unrelated entity for $400,000 which was due and paid by November 20, 1998 and was collateralized by all producing oil and gas properties owned by the Company. Interest on the loan was payable at an annual rate of 10%. In addition to the principal and interest payment required, the Company also paid this entity a $50,000 fee. (5) Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 Numerator: Numerator for basic and diluted earnings per share - income available to common stockholders $576,833 16,655 155,865 29,735 Denominator: Denominator for basis earnings per share - weighted average shares 5,763,071 5,283,566 5,643,148 5,257,452 Effect of dilutive securities Stock options 789,451 546,198 871,993 584,304 Denominator for diluted earnings per common share - adjusted weighted average shares assuming conversion 6,552,522 5,829,764 6,515,141 5,841,756 Basic earnings per common share $.10 * .03 .01 Diluted earnings per common share $.09 * .02 .01 *less than $.01 per common share (6) Subsequent Event On January 1, 1999, the Company completed a sale of 194,444 shares of the Company's common stock to Evergreen Resources, Inc. for net proceeds to the Company of $350,000. Item 2. Management's Discussion and Analysis or Plan of Operations Liquidity and Capital Resources. At December 31, 1998, the Company had working capital of $172,601 compared to a working capital deficit of $465,854 at June 30, 1998. On January 1, 1999, the Company completed a sale of 194,444 shares of the Company's common stock to Evergreen Resources, Inc. for net proceeds to the Company of $350,000. The Company's current assets include accounts receivable from related parties (including affiliated companies) of $153,832 at December 31, 1998 which is primarily for drilling costs, and lease operating expense on wells owned by the related parties and operated by the Company. The amounts are due on open account and are non-interest bearing. The Company's current liabilities include royalties payable of $164,907 at December 31, 1998 which represent the Company's estimate of royalties payable on production attributable to the Company's 91.68% owned subsidiary, Amber Resources Company ("Amber"), interest in certain wells in Oklahoma, including production prior to the acquisition of Amber. The Company believes that the operators of the affected wells have paid some of the royalties on behalf of the Company and have withheld such amounts from revenues attributable to the Company's interest in the wells. The Company has contacted the operators of the wells in an attempt to determine what amounts the operators have paid on behalf of the Company over the past five years, which amounts would reduce the amounts owed by the Company. The Company has been informed by its legal counsel that the applicable statue of limitations period for actions on written contracts arising in the state of Oklahoma is five years. The statute of limitation has expired for royalty owners to make a claim for a portion of the estimated royalties that had previously been accrued. Accordingly, these amounts have been written off and recorded as other income. The Company believes that it is unlikely that all claims that might be made for payment of royalties payable in suspense or for recoupment royalties payable would be made at one time. Further, Amber, rather than Delta, would be directly liable for payment of any such claims. The Company believes, although there can be no assurance, that it may ultimately be able to settle with potential claimants for less than the amounts recorded for royalties payable. On August 20, 1998, the Company entered into a loan agreement with an unrelated entity for $400,000 which was due and paid by November 20, 1998 and was collateralized by all producing oil and gas properties owned by the Company and personally guaranteed by the Company's officers. Interest on the loan was payable at an annual rate of 10%. In addition to the principal and interest payment required, the Company also paid this entity a $50,000 fee. The Company expects to raise additional capital by selling its common stock in order to fund its capital requirements for its portion of the costs of the drilling and completion of development wells on its proved undeveloped properties during the next twelve months. There is no assurance that it will be able to do so or that it will be able to do so upon terms that are acceptable. The Company does not currently have a credit facility with any bank and it has not determined the amount, if any, that it could borrow against its existing properties. The Company will continue to explore additional sources of both short-term and long-term liquidity to fund its operations and its capital requirements for development of its properties including establishing a credit facility, sale of equity or debt securities and sale of properties. Many of the factors which may affect the Company's future operating performance and liquidity are beyond the Company's control, including oil and natural gas prices and the availability of financing. After evaluation of the considerations described above, the Company believes that its cash flow from its existing producing properties, proceeds from the sale of producing properties, and other sources of funds will be adequate to fund its operating expenses, pay off the loan payable, and satisfy its other current liabilities over the next year or longer. Results of Operations Net Earnings (Loss). The Company reported net earnings for the three and six months ended December 31, 1998 of $576,833 and $155,865 compared to net earnings of $16,655 and $29,735 for the three and six months ended December 31, 1997, respectively. Revenue. Total revenue for the three and six months ended December 31, 1998 were $1,122,154 and $1,385,793 compared to $747,363 and $1,369,283 for the three and six months ended December 31, 1997, respectively. Oil and gas sales for the three and six months ended December 31, 1998 were $104,427 and $306,906 compared to $476,055 and $793,261 for the three and six months ended December 31, 1997, respectively. The Company's oil and gas sales decreased as a result of the sale of certain oil and gas properties. Production volumes and average prices received for the three month period ended December 31, 1998 and 1997 are as follows: Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 Production: Oil (barrels) 358 6,567 2,206 8,544 Gas (Mcfs) 50,431 123,937 144,570 262,462 Average Price: Oil (per barrel) $11.47 $17.94 $11.17 $17.94 Gas (per Mcf) $ 1.99 $2.89 $1.95 $2.42 Lease Operating Expenses. Lease operating expenses were $47,115 and $125,094 for the three and six months ended December 31, 1998 and $94,632 and $189,236 for the three and six months ended December 31, 1997, respectively. On a Mcf equivalent basis, lease operating expenses were $.90 and $.79, respectively, per Mcf equivalent during the three and six months ended December 31, 1998 compared to $.60 and $.60, respectively, per Mcf equivalent for the same periods in 1997. The decrease in lease operating expense can be attributed to the sale of certain oil and gas properties. Depreciation and Depletion Expense. Depreciation and depletion expense for the three and six months ended December 31, 1998 were $24,810 and $93,526 compared to $63,446 and $152,671 for the same period in 1997. On a Mcf equivalent basis, depreciation and depletion expense were $.47 and $.59, respectively, per Mcf equivalent during the three and six months ended December 31, 1998 compared to $.39 and $.48, respectively, per Mcf equivalent for the same periods in 1997. The decrease in depreciation and depletion expense can be attributable to the sale of certain oil and gas properties during the second quarter of fiscal 1999. Exploration Expenses. The Company recorded exploration expenses of $14,578 and $56,292 for the three and six months ended December 31, 1998 compared to $176,423 and $226,442 for the same period in 1997. Exploration costs during fiscal 1997 were attributed to the Company's participation in the shooting of 3-D seismic on prospects in the Sacramento Basin in Northern California. Dry Hole Costs. The company recorded dry hole costs of $122,489 and $219,707 relating to six dry holes during the six months ended December 31, 1998. General and Administrative Expenses. General and administrative expenses for the three and six months ended December 31, 1998 were $305,446 and $674,592 compared to $390,729 and $759,390 for the same periods in 1997. General and administrative expenses for the six months ended December 31, 1998 decreased from the prior year as a result of a decrease in salaries and public relation expenses. Future Operations The Company's Offshore California proved undeveloped reserves are attributable to its interests in four federal units (plus one additional lease) located offshore California near Santa Barbara. While these interests represent ownership of substantial oil and gas reserves classified as proved undeveloped, the cost to develop the reserves will be substantial. The estimated cost, which will be incurred over the life of the properties (assumed to be 38 years), for the complete development of all of the properties in which Delta owns an interest, including delineation wells, environmental mitigation, development wells, fixed platforms, fixed platform facilities, pipelines and power cables, onshore facilities and platform removal is currently estimated to be slightly in excess of approximately $3 billion. The Company's share of such costs is estimated to be $216,000,000. Operating expenses for the same properties over the same period of time, including platform operating costs, well maintenance and repair costs, oil, gas and water treating costs, lifting costs and pipeline transportation costs are expected to be approximately $3,325,000,000 with the Company's share estimated to be $285,000,000. Each working interest owner will be required to pay its proportionate share of these costs based upon the amount of the interest that it owns. The size of Delta's working interest in the units varies from 2.492% to 15.60%. The Company may be required to farm out all or a portion of its interests in these properties to a third party if it cannot fund its share of the development costs. There can be no assurance that the Company can farm out its interests on acceptable terms. If the Company were to farm out its interests in these properties, its share of the proved reserves attributable to the properties would be decreased substantially. The Company may also incur substantial dilution of its interests in the properties if it elects to use other methods of financing the development costs. Net revenues over the same time period, to be shared by all of the working interest owners in proportion to the size of their respective working interests, are estimated to be approximately $2,924,000,000 after the payment of all of the above expenses and amounts due to owners of royalty interests with Delta's share estimated to be $228,000,000. These units have been formally approved and are regulated by the MMS. While the Federal Government has recently attempted to expedite the process of obtaining permits and authorizations necessary to develop the properties, there can be no assurance that it will be successful in doing so. The Company does not have a controlling interest in and does not act as the operator of any of the offshore California properties and consequently will generally not control the timing of either the development of the properties or the expenditures for development unless Delta chooses to unilaterally propose the drilling of wells under the relevant operating agreements. Management and its independent engineering consultant have considered these factors relating to timing of the development of the reserves in the preparation of the reserve information relating to these properties. It is anticipated that, based upon discussions with appropriate governmental agencies, development of the subject leases will require from three to five years for permitting. Because of the substantial reserves contained in the projects, it is generally accepted that they will be developed; however, the time required to complete development may be from five to ten years. As additional information becomes available in the future, the Company's estimates of the proved undeveloped reserves attributable to these properties could materially change. The MMS initiated the California Offshore Oil and Gas Energy Resources (COOGER) study at the request of the local regulatory agencies of the three counties (Ventura, Santa Barbara and San Luis Obispo) affected by offshore oil and gas development. A private consulting firm is currently conducting the study under a contract with the MMS. The COOGER study seeks to present a long-term regional perspective of potential onshore constraints that should be considered when developing existing undeveloped offshore leases. COOGER will project the economically recoverable oil and gas production from offshore leases which have not yet been developed. These projections will be utilized to assist in identifying a potential range of scenarios for developing these leases. These scenarios will then be compared to the projected infrastructural, environmental and socioeconomic baselines between 1995 and 2015. No specific decisions regarding levels of offshore oil and gas development or individual projects will occur in connection with the COOGER study. Information presented in the study is intended to be utilized as a reference document to provide the public, decision makers and industry with a broad overview of cumulative industry activities and key issues associated with a range of development scenarios. The exact effects upon offshore development of the adoption of any one of the scenarios are not yet capable of analysis because the study has not yet been completed and reviewed. However, the Company has evaluated its position with regard to the scenarios currently being studied with respect to properties and the results of such evaluation are set forth in its Form 10-KSB/A for the year ended June 30, 1998. Current Status. On November 5, 1996, the MMS directed a Suspension of Operations for the POCS Non-Producing Leases and Units, pursuant to CFR 250.10(b)(4), extending the existing Suspension of Operations ("SOO") from January 1, 1997 until December 31, 1998. This action permitted unit owners to cease paying lease payments to the Federal government and suspended the requirements relating to development of the leases during this period. The directive cited the fact that the MMS had requested in 1992 that the lease owners participate in what became known as the COOGER (California Offshore Oil and Gas Energy Resources) Study and during the term of the Study that the leases would be held under a SOO. The MMS issued a second letter on December 24, 1996 with the intent to notify all lease owners of the course of action to be followed by the lease and unit operators prior to the expiration of the SOO. In another letter, on December 3, 1998, (which superceded a September 17, 1998 MMS letter) the MMS informed all owners and operators that due to delays in the COOGER Study, the SOO's on the units would be extended through the second quarter of 1999 and revised the dates for actions required by the previous letters. During the first half of 1999 each operator is to meet with the MMS to discuss conceptual plans that will lead to eventual development. By May 15, 1999, each operator has been directed to submit what the MMS has termed "Schedule of Events" for a specific lease or unit that it operates and also a request for a Suspension of Production time period to execute the Schedule of Events. The lease Suspension of Operations and unit Schedule of Events, when approved by the MMS, will go into effect on July 1, 1999. In order to carry out the requirements of the December 24, 1996 and December 3, 1998 MMS letters, all operators of the units in which the Company owns non-operating interests (described below) are currently engaged in studies to develop a conceptual framework and general timetable for continued delineation and development of the leases. For delineation, the operators will outline the mobile drilling unit well activities, including number and location. For development, the operators' reports will cover the total number of facilities involved, including platforms, pipelines, onshore processing facilities, transportation systems and marketing plans. The Company is participating with the operators in meeting the MMS schedules through meetings, and consultations and is sharing in the costs as invoiced by the operators. Year 2000 The Company has completed a review of its computer system and applications (which began in fiscal 1997) to identify the systems that could be affected by the "Year 2000" issue. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. On the basis of its review, the Company currently believes that the Year 2000 issue will not pose material operational problems for the Company. To the Company's knowledge after investigation, no "embedded technology" (such as microchips in an electronic control system) of the Company poses a material Year 2000 concern. Because the Company believes that it has no material internal Year 2000 problems, the Company has not and does not expect to expend a significant amount of funds to address Year 2000 issues. It is Company policy to continue to review its suppliers' Year 2000 compliance and require assurance of Year 2000 compliance from new suppliers; however, such monitoring does not involve a significant cost to the Company. In addition to the foregoing, the Company has contacted its major vendors and has received either oral or written assurances from its major vendors or has reviewed assurances contained on vendors' web sites that they have no material Year 2000 problems. The Company believes that its vendors are largely fungible; therefore, in the event a vendor's representations regarding its Year 2000 compliance were untrue for any reason, the Company believes that it could find adequate Year 2000-compliant vendors as substitutes. The Company has also received either oral or written assurances from its customers or has reviewed assurances contained on its customers' web sites that they have no Year 2000 problems which would materially adversely affect the business or operations of the Company. The information contained in this Year 2000 discussion is forward-looking and involves risks and uncertainties that may cause actual results to vary materially from those projected. Some factors that could significantly impact Delta's expected Year 2000 compliance and the estimated cost thereof include internal computer hardware or software problems which have not as yet been identified by Delta, and currently undisclosed and unanticipated problems which may be encountered by third parties with whom Delta has business relationships. PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Company is not engaged in any material pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders.None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27. Financial Data Schedule. 99.1 Agreement between Evergreen and Delta Petroleum Corporation effective January 1, 1999. 99.2 Agreement between Burdette A. Ogle and Delta Petroleum Corporation effective December 17, 1998. (b) Reports on Form 8-K: November 23, 1998; Items 2., 5. and 7. SIGNATURE 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. DELTA PETROLEUM CORPORATION (Registrant) s/Aleron H. Larson, Jr. Aleron H. Larson, Jr. Chairman of the Board, Treasurer and Chief Financial Officer s/Kevin K. Nanke Kevin K. Nanke, Controller and Principal Accounting Officer Date: February 10, 1999 INDEX (2) Plan of Acquisitions, Reorganization, Arrangement, Liquidation, or Succession. Not applicable. (3) Articles of Incorporation and By-laws. The Articles of Incorporation and Articles of Amendment to Articles of Incorporation and By-laws of the Registrant were filed as Exhibits 3.1, 3.2, and 3.3, respectively, to the Registrant's Form 10 Registration Statement under the Securities and Exchange Act of 1934, filed September 9, 1987, with the Securities and Exchange Commission and are incorporated herein by reference. Statement of Designation and Determination of Preferences of Series A Convertible Preferred Stock of Delta Petroleum Corporation is incorporated by Reference to Exhibit 28.3 of the Current Report on Form 8-K dated June 15, 1988. Statement of Designation and Determination of Preferences of Series B Convertible Preferred Stock of Delta Petroleum Corporation is incorporated by reference to Exhibit 28.1 of the Current Report on Form 8-K dated August 9, 1989. (4) Instruments Defining the Rights of Security Holders. Not applicable. (9) Voting Trust Agreement. Not applicable. (10) Material Contracts. Not applicable. (11) Statement Regarding Computation of Per Share Earnings. Not applicable. (12) Statement Regarding Computation of Ratios. Not applicable. (13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders. Not applicable. (16) Letter re: Change in Certifying Accountants. Not applicable. (17) Letter re: Director Resignation. Not applicable. (18) Letter Regarding Change in Accounting Principals. Not applicable. (19) Previously Unfiled Documents. Not applicable. (21) Subsidiaries of the Registrant. Not applicable. (22) Published Report Regarding Matters Submitted to Vote of Security Holders. Not applicable. (23) Consent of Experts and Counsel. Not applicable. (24) Power of Attorney. Not applicable. (27) Financial Data Schedule. Filed herewith electronically. (99) Additional Exhibits. 99.1 Agreement between Evergreen and Delta Petroleum Corporation effective January 1, 1999. 99.2 Agreement between Burdette A. Ogle and Delta Petroleum Corporation effective December 17, 1998. EX-99.1 2 INVESTMENT REPRESENTATION AGREEMENT Delta Petroleum Corporation C/O 555 17th Street, Suite 3310 Denver, Colorado 80202 Gentlemen: 1. Subscription. The Undersigned, EVERGREEN RESOURCES, INC. ("Evergreen" or "Undersigned") and its designees, hereby agrees to acquire from Delta Petroleum Corporation ("Delta" or the "Company") 194,444 shares of the restricted and legended common stock of Delta (collectively the "Securities") for an aggregate of $350,000 in a private negotiated transaction pursuant to Section 3(b) and/or 4(2) of the Act (and the regulations promulgated thereunder) and/or other applicable statute, rule and\or regulation. Closing, including delivery of the Securities and payment therefore, shall take place as of January 1, 1999. 2. Representations and Warranties. The Undersigned warrants and represents to the Company that: a. The Securities are being acquired by the Undersigned for investment for its own account, and not with a view to the offer or sale in connection therewith, or the distribution thereof, and that the Undersigned is not now, and will not in the future, participate, directly or indirectly, in an underwriting of any such undertaking except in compliance with applicable registration provisions of the Act. b. The Undersigned will not take, or cause to be taken, any action that would cause it to be deemed an underwriter of the Securities, as defined in Section 2(11) of the Securities Act of 1933, as amended (the "Act"). c. The Undersigned has been afforded an opportunity to examine such documents and obtain such information concerning the Company as it may have requested, including without limitation all publicly available information, and has had the opportunity to request such other information (and all information so requested has been provided) for the purpose of verifying the information furnished to it and for the purpose of answering any question it may have had concerning the business affairs of the Company and it has reviewed to the extent desired by it the Articles, Bylaws and Minutes of the Company, documentation concerning the Company's financial condition, assets, liabilities, share ownership and capital structure, operations, sales, management, public market, public filings, litigation and other material contracts and matters. d. The Undersigned (and its officers, directors and/or agents, as applicable) have had an opportunity to personally ask questions of, and receive answers from, one or more of the officers and directors of the Company and/or the attorneys for the Company to ascertain and verify the accuracy and completeness of all material information regarding the Company, its business and its officers, directors, and promoters. The Undersigned has had an opportunity to ask questions of and receive answers from duly designated representatives of the Company concerning the terms and conditions pursuant to which the Securities are being acquired by it. e. The Undersigned understands that its acquisition of the Securities from the Company is a negotiated private transaction. f. By reason of the knowledge and experience of the Undersigned (and that of its officers and directors and their respective advisors and investment bankers) in financial and business matters in general, and investments in particular, it is capable of evaluating the merits and risks of an investment in the Securities. g. The Undersigned is capable of bearing the economic risks of an investment in the Securities. h. The Undersigned's present financial condition is such that it is under no present or contemplated future need to dispose of any portion of the Securities to satisfy any existing or contemplated undertaking, need or indebtedness. i. If required to do so, it has retained to advise it, as to the merits and risks of a prospective investment in the Securities, a purchaser representative, legal counsel, financial and accounting advisors, investment bankers, etc. j. The Undersigned hereby represents and warrants to the Company that all of the representations, warranties and acknowledgements contained in this agreement, and the agreements, if any, to which this document is attached as an exhibit are true, accurate and complete as of the date herein and acknowledges that the Company, its officers, directors, agents, and affiliates have relied on its representations and warranties herein in consenting to the restricted issuance and/or transfer of the Securities and the Undersigned hereby agrees to indemnify and hold the Company (together with its officers, directors, agents and affiliates) harmless with respect to any and all expenses, claims or litigation (including without limitation reasonable attorney's fees related thereto) arising from or related to breach of this agreement including without limitation breach of any warranty or representation herein. 3. Restrictions. The Undersigned acknowledges and understands that the Securities are unregistered and must be held indefinitely by the Undersigned and/or its assignees unless they are subsequently registered under the Act or an exemption from such registration is available. The Undersigned further acknowledges that it is fully aware of the applicable limitations on the resale of the Securities. For instance, Rule 144 (the "Rule") permits sales of "Restricted Securities" held for not less than two years and upon compliance with the requirements of such Rule. Further, the Securities must be sold in an active market and appropriate information relating to the Company must be generally available in order to effectuate a transaction pursuant to the Rule by an affiliate of the Company. Any and all certificates representing the Securities and any and all securities issued in replacement or conversion thereof or in exchange thereof shall bear the following legend, or one substantially similar thereto, which the Undersigned has read and understands: The Securities represented by this Certificate have not been registered under the Securities Act of 1933 (the "Act") and are "restricted securities" as that term is defined in Rule 144 under the Act. The Securities may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act or pursuant to an exemption from registration under the Act, the availability of which is to be established to the satisfaction of the Company. 4. Registration Rights. Subject to the approval of an underwriter, if any, involved in a registration relating to a public offering of the Company's securities, in the event that the Company shall file a registration statement (or similar document) with the U.S. Securities & Exchange Commission on a form which would legally allow inclusion of the shares issued pursuant hereto, the Company shall include such shares in such registration statement, at the Company's sole cost. 5. Successors and Assigns. This agreement shall be binding upon and shall inure to the benefit of the parties hereto and to the successors and assigns of the Company and to the personal and legal representatives, heirs, guardians, successors and permitted assignees of the Undersigned. 6. Applicable Law. This agreement shall be governed by and construed in accordance with the laws of the State of Colorado and, to the extent it involves any United States statute, in accordance with the laws of the United States, and jurisdiction and venue for any dispute related hereto shall be in the District Court for the City and County of Denver, Colorado. Evergreen Resources, Inc. By: s/Mark Sexton Typed or Printed Name Signature, President & CEO 84-0834147 1401 17th Street, Suite 1200 Social Security or Tax Address Identification Number Denver, Colorado 80202 City, State and Zip Code ACCEPTED: DELTA PETROLEUM CORPORATION By: s/Aleron H. Larson, Jr. Dated: December 30, 1998 OPTION and FIRST RIGHT OF REFUSAL 1. Option: Effective January 1, 1999 for good and valuable consideration the receipt of which is hereby acknowledged, Evergreen Resources, Inc. ("Evergreen") is hereby granted an option ("Option"), until September 30, 1999 to acquire 50% of those property interests owned by Delta Petroleum Corporation ("Delta") which are listed on the attached Exhibit A (the "Properties") by transferring to Delta the 194,444 shares purchased by Evergreen under an Investment Representation Agreement of even date herewith. Delta will warrant and defend title against all persons claiming title thereto through Delta. In the event that Evergreen exercises its option to acquire the Properties, Delta will assign 50% of its interest in the Properties to Evergreen subject to its proportionate share of the reserved production payment in favor of Burdette A. Ogle ("Ogle") described in the copies of the documents attached hereto and listed below (the "Documents"). The Documents provide for the reservation of an undivided three percent (3%) of substances produced from the Properties ("Production Payment") until an aggregate amount of $8,000,000 (or a reduced amount as provided in the Documents under certain circumstances) has been paid to Ogle or his successors either from any production attributable to the reserved 3% or the minimum annual advanced payment ("Minimum Payment") discussed below. The Documents further provide that, irrespective of whether the Properties are producing or non-producing at any time, that Ogle shall be paid a Minimum Payment in the amount of $350,000 per year. This Minimum Payment may be composed of the proceeds from the production of the reserved 3%, a direct cash payment or a combination thereof. Upon exercise of its option, Evergreen will assume and agree to pay the direct cash portion of the Minimum Payment under the terms set forth in the Documents until the production proceeds from the reserved 3% from 100% of the Properties are adequate to cover the Minimum Payment. It is provided, however, that Evergreen shall be responsible only for payment of the cash portion of the Minimum Payment with respect to the Properties and that the reserved Production Payment derived from the reservation of an undivided three percent (3%) of substances produced from the Properties shall burden and be paid from 100% of the substances produced from the Properties equally and proportionately regardless of ownership. Delta represents that it has paid $1,200,000 to date in Minimum Payments, thereby correspondingly reducing the maximum aggregate amount due under the Production Payment from $8,000,000 to $6,800,000. Each successive payment shall further reduce the remaining amount due under the Production Payment. The following Document copies are attached hereto: * Lease interests Purchase Option Agreement between Delta and Ogle; * Purchase and Sale Agreement between Delta and Ogle; * Assignments from Ogle to Delta for interests in OCS-P409, OCS-P0415, OCS-P-0416, OCS-P0421, OCS-P0422, OCS-P0460, OCS-P0462, and OCS-P464; In the event Evergreen exercises its Option, the parties will enter into agreements and assignments in the format of those included in the attached Documents. Until September 30, 1999, or the exercise of the Option, whichever occurs first, Delta agrees: 1) that it will pay all costs associated with or derived from the ownership of the Properties, including payments to Ogle as provided in the attached Documents; 2) that it will not otherwise encumber the Properties or allow the Properties to be encumbered in any fashion through operation of law or otherwise except as is already provided in the attached documents in favor of Ogle and his successors. In the event of any failure by Delta to pay costs associated with or derived from the ownership of the Properties or in the event of the placement of any encumbrance upon the Properties, Delta will notify Evergreen in writing within three business days of such event. Upon such notification, Evergreen shall have the option, but not the obligation, to pay such unpaid cost(s) or to pay the funds necessary to prevent or remove any such encumbrance. If Evergreen advances funds to Delta or directly to others for such purposes, Delta will execute a twelve month promissory note in an amount equal to the funds advanced with interest at ten percent (10%) per annum in favor of Evergreen and the Properties shall secure the repayment thereof under documentation customary in such transactions. 2. Right of First Refusal: In the event of a proposed sale or farmout by Delta of any of its property interests in the offshore Santa Barbara area, Delta agrees to afford Evergreen the right, within 30 days of written notice by Delta to Evergreen, to purchase or farm into such properties upon the same terms as those proposed; provided that Evergreen must have exercised or must then exercise the above described option. Dated: December 30, 1998 DELTA PETROLEUM CORPORATION s/Aleron H. Larson, Jr. Authorized Officer, Aleron H. Larson, Jr., Chairman, CEO EVERGREEN RESOURCES, INC. s/Mark S. Sexton Authorized Officer, Mark S. Sexton, President, CEO AGGREGATE LIST OF OIL & GAS LEASES SUBJECT TO RESERVED PRODUCTION PAYMENTS 1. San Miguel Field OCS-P 0409: Oil and Gas Lease from the United States of America, as Lessor, to Oxy Petroleum, Inc., et al, as Lessee, effective July 1, 1981, designated Serial No. OCS-P 0409 and covering all of Block 22, OCS Official Protraction Diagram NI 10-6, Santa Maria (Tract 53-182). Leasehold Interest: 12.67169% 2. Point Sal Unit OCS-P 0415: Oil and Gas Lease from the United States of America, as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective July 1, 1981 designated Serial No. OCS-P 0415, and covering all of Block 66, OCS Official Protraction Diagram, NI 10-6, Santa Maria. Leasehold Interest: 1.88682% OCS-P 0416: Oil and Gas Lease from the United States of America, as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective July 1, 1981 designated Serial No. OCS-P 0416, and covering all of Block 67, OCS Official Protraction Diagram, NI 10-6, Santa Maria. Leasehold Interest: 3.03049% OCS-P 0421: Oil and Gas Lease from the United States of America, as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective July 1, 1981 designated Serial No. OCS-P 0421, and covering all of Block 110, OCS Official Protraction Diagram, NI 10-6, Santa Maria. Leasehold Interest: 1.88682% OCS-P 0422: Oil and Gas Lease from the United States of America, as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective July 1, 1981 designated Serial No. OCS-P 0422, and covering all of Block 111, OCS Official Protraction Diagram, NI 10-6, Santa Maria. Leasehold Interest: 4.50000% 5. Gato Canyon Unit OCS-P 0460: Oil and Gas Lease from the United States of America, as Lessor, to Atlantic Richfield Company, as Lessee, effective August 1, 1982, designated Serial No. OCS-P 046O, and covering all of Block 53N 72W, that portion seaward of the Three Geographical Mile Line, Channel Islands Area, OCS Leasing Map No. 6A. Leasehold Interest: 1.52930% OCS-P 0462: Oil and Gas Lease from the United States of America, as Lessor, to Ogle Petroleum Inc., et al., as Lessee, effective August 1, 1982, designated Serial No. OCS-P 0462, and covering all of Block 52N 72W, Channel Islands Area, OCS Leasing Map No. 6A. Leasehold Interest: 1.52930% OCS-P 0464: Oil and Gas Lease from the United States of America, as Lessor, to Atlantic Richfield Company, as Lessee, effective August 1, 1982, designated Serial No. OCS-P 0464, and covering all of Block 53N 71W, that portion seaward of the Three Geographical Mile Line, Channel Islands Area, OCS Leasing Map No. 6B. Leasehold Interest: 1.52930% EX-99.2 3 AGREEMENT Effective as of December 17, 1998, Delta Petroleum Corporation ("Delta") and Burdette A. Ogle ("Ogle") agree as follows: 1) These parties are also parties to an agreement entitled "Purchase and Sale Agreement" dated January 3, 1995 and to certain agreements of conveyance related thereto each of which is entitled "Assignment, Conveyance and Bill of Sale of Federal Oil and Gas Leases Reserving a Production Payment", which are referenced herein as the "Assignments". 2) The parties hereto agree that each of the Assignments shall be amended so that Section II-10 thereof shall read as follows: 10. Assignee may avoid the obligation of Section II-9 of this Agreement to make minimum annual payments by reassigning such Leases to Assignor or relinquishing such Leases, all as provided in this Section II-10. A. If Assignee shall desire to surrender one or more of the Leases, it shall give Assignor written notice of its intention to do so at least ninety days (90) prior to the date on which Assignee proposes to surrender such Leases, specifying the Leases, their locations, status, the amount of monthly production, if any, operations proposed or being actively consider for or with respect to such Leases, the amount of any anticipated expenditures during the following two years, if known to Assignee, and such other information as would be considered relevant by a reasonable and prudent operator. For a period which ends five calendar days prior to the date of proposed surrender specified in such notice, Assignor shall have the right and option to require Assignee to assign such Leases to Assignor, without consideration, by giving written notice thereof to Assignee. If Assignor shall elect to reacquire such Leases, Assignee shall promptly thereafter reconvey such Leases to Assignor by an instrument substantially the same as this Conveyance (omitting therefrom this Section 10 and all references to the Production Payment) and securing the approval of the Minerals Management Service (or other agency then authorized in the premises) to such reconveyance. Upon the written notice of intention of such reassignment, the obligation to make Minimum Payments shall terminate with respect to the Leases so reconveyed, but shall not terminate with respect to any other Leases. B. If Assignor elects to reacquire any or all of the leases to be surrendered, as provided in Section II-10A above, then Assignee may elect to retain the ownership of a portion of the subject lease or leases to be reassigned, free and clear of the Production Payment and related Minimum Payments, which portion retained by Assignee shall be calculated as follows: beginning with Minimum Payment paid on January 4, 1999 and for each future Minimum Payment that is paid under Section II-9 hereof, Assignee may elect to reduce the portion of the interest in the lease or leases so reassigned by 4.375% out of 100% of the interest that would otherwise have been reassigned. C. If Assignor shall notify Assignee in writing that Assignor does not elect or if Assignor shall fail to elect to require Assignee to reassign to Assignor the Leases specified in such notice, Assignee may relinquish such Leases. D. When Assignee has relinquished or reassigned to Assignor all of the Leases subject to the Production Payment, Assignee's obligation to make Minimum Payments shall terminate. E. If Assignee shall fail to relinquish the Leases specified in a notice given under Section II-10 at the time specified therein, the provisions of this section shall again be applicable to such Lease. 3) In consideration of this agreement, Delta agrees to reissue that certain warrant owned by Ogle for 100,000 shares of Delta common stock with the exercise price reduced from $8.00 per share to $3.00 per share, with the repurchase option reduced to $6.00 and with the termination date extended from August 31, 1999 to August 31, 2004. Delta Petroleum Corporation By: s/Aleron H. Larson, Jr. Authorized Officer s/Burdette A. Ogle Burdette A. Ogle EX-27 4
5 6-MOS JUN-30-1999 DEC-31-1998 523,474 0 153,832 50,000 0 894,061 10,577,481 1,411,563 10,497,637 721,459 0 0 0 57,759 9,718,419 10,497,637 306,906 1,385,793 0 1,229,928 0 0 10,000 155,865 0 155,865 0 0 0 155,865 .03 .02
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