-----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, LAFDhDzvJnTOgQQ+II/N1g0czmltaPEXHYEx4BsVfFCJQHXbAf/+84s/jiMw1cXU 8hsgKPZlhgcyXwS2OhT7pg== 0000821483-99-000016.txt : 19990513 0000821483-99-000016.hdr.sgml : 19990513 ACCESSION NUMBER: 0000821483-99-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: 99618077 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 March 31, 1999 [ ] 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___ 6,020,302 shares of common stock $.01 par value were outstanding as of May 4, 1999. FORM 10-QSB 3rd QTR. FY 1999 INDEX PART I FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 (unaudited). . . . . . . . . . . . . .1 Consolidated Statements of Operations - Three and Nine Months Ended March 31, 1999 and 1998 (unaudited). . . . . . . . .3 Consolidated Statement of Stockholders' Equity Year Ended June 30, 1998 and Nine Months Ended March 31, 1999 (unaudited) . . . .5 Consolidated Statements of Cash Flows - Three and Nine Months Ended March 31, 1999 and 1998 (unaudited). . . . . . . . .6 Notes to Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis Or Plan of Operations . . . . . . . . . . . . . . . . 10 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 16 Item 2. Changes in Securities. . . . . . . . . . . . . . . 16 Item 3. Defaults upon Senior Securities. . . . . . . . . . 16 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . 16 Item 5. Other Information. . . . . . . . . . . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 16 i DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, June 30, 1999 1998 ASSETS Current Assets: Cash $232,896 17,135 Trade accounts receivable, net of allowance for doubtful accounts of $50,000 at March 31, 1999 and June 30, 1998 108,070 224,285 Accounts receivable - related parties 74,365 127,415 Other current assets 100 10,100 Total current assets 415,431 378,935 Property and Equipment: Oil and gas properties, at cost (using the successful efforts method of accounting): Undeveloped offshore California properties 7,369,830 6,959,830 Undeveloped onshore domestic properties 675,938 726,127 Undeveloped foreign properties 623,920 - Developed onshore domestic properties 2,335,508 3,369,881 Office furniture and equipment 81,321 80,446 11,086,517 11,136,284 Less accumulated depreciation and depletion (1,446,117) (2,234,525) Net property and equipment 9,640,400 8,901,759 Investment in Bion Environmental Technologies, Inc. (Bion) 299,280 1,069,149 $10,355,111 10,349,843 March 31, June 30, 1999 1998 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable trade $365,704 570,469 Other accrued liabilities 10,000 10,000 Royalties payable 146,031 264,320 Total current liabilities 521,735 844,789 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 6,020,302 shares at March 31, 1999 and 5,513,858 shares at June 30, 1998 60,203 55,139 Additional paid-in capital 26,832,797 25,571,921 Accumulated comprehensive income (loss) (73,295) 457,594 Accumulated deficit (16,986,329) (16,579,600) Total stockholders' equity 9,833,376 9,505,054 Commitments $10,355,111 10,349,843 DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31, March 31, 1999 1998 Revenue: Oil and gas sales $157,072 210,808 Gain on sale of oil and gas properties - 216,273 Other revenue 34,001 94,541 Total revenue 191,073 521,622 Expenses: Lease operating expenses 44,250 79,560 Depreciation and depletion 34,885 48,591 Exploration expenses 8,024 192,386 Dry hole costs 6,482 - Minimum royalty - related party - 350,000 General and administrative 528,145 304,292 Stock option expense 57,370 4,922 Realized loss on sale of securities 74,511 - Total expenses 753,667 979,751 Net loss ($562,594) (458,129) Net loss per common share ($0.09) (0.08) Weighted average number of shares outstanding 6,012,524 5,436,758 DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended March 31, March 31, 1999 1998 Revenue: Oil and gas sales $463,978 1,004,069 Gain on sale of oil and gas properties 957,147 650,417 Other revenue 155,741 236,419 Total revenue 1,576,866 1,890,905 Expenses: Lease operating expenses 169,344 268,796 Depreciation and depletion 128,411 201,262 Exploration expenses 64,316 418,828 Dry hole costs 226,189 - Minimum royalty - related party - 350,000 General and administrative 1,202,737 1,063,682 Stock option expense 86,045 16,731 Realized loss on sales of securities 96,553 - Interest expense 10,000 - Total expenses 1,983,595 2,319,299 Net loss ($406,729) (428,394) Net loss per common share ($0.07) (0.08) Weighted average number of shares outstanding 5,764,920 5,316,348 DELTA PETROLEUM CORPORATION AND SUBSIDIARY Consolidated Statement of Stockholders' Equity Year ended June 30, 1998 and nine months ended March 31, 1999
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 - - 86,545 Shares issued for cash 196,444 1,964 354,011 Shares issued for services 10,000 100 15,650 Shares issued for properties 300,000 3,000 744,670 Fair value of warrant extended and repriced - - 60,000 Net income - - - Balance, March 31, 1999 6,020,302 60,203 26,832,797
Accumulated comprehensive income Accumulated (loss) deficit Total Balance, July 1, 1996 (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 (530,889) - (530,889) Stock options granted as compensation - - 86,545 Shares issued for cash - - 355,975 Shares issued for services - - 15,750 Shares issued for properties - - 747,670 Fair value of warrant extended and repriced - - 60,000 Net income - (406,729) (406,729) Balance, March 31, 1999 (73,295) (16,986,329) 9,833,376
DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended March 31, March 31, 1999 1998 Net cash used in operating activities ($1,266,131) (1,092,666) Cash flows from investing activities: Additions to property and equipment (486,235) (544,496) Proceeds from sale of oil and gas properties 1,384,000 1,023,432 Proceeds from sale of securities available 174,602 46,532 Net cash provided by investing activities 1,072,367 525,468 Cash flows from financing activities: Issuance of common stock and options for 356,475 350,000 Stock issued for cash upon exercise of options - 53,750 Decrease in accounts receivable from officer and affiliates 53,050 11,031 Net cash provided by financing activities 409,525 414,781 Net increase (decrease) in cash 215,761 (152,417) Cash at beginning of period 17,135 393,048 Cash at end of period $232,896 240,631 Supplemental cashflow information: Cash paid during the period for interest $10,000 3,633 Non-cash financing activity: Common stock issued for undeveloped properties $683,920 - Common stock issued for producing properties $123,750 - See accompanying notes to consolidated financial statements. DELTA PETROLEUM CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements Nine Months Ended March 31, 1999 and 1998 (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 March 31, 1999 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 Nine Months Ended March 31, March 31, 1999 1998 1999 1998 Net loss $(562,594) (458,129) (406,729) (428,394) Other comprehensive income (loss) 28,172 77,091 (530,889) 835,099 Total comprehensive income (loss) $(534,422) (381,038) (937,618) 406,705 (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 nine months ended March 31, 1999, the Company received an additional 10,321 shares of Bion's common stock for rent provided by the Company. Also during the nine months ended March 31, 1999, the Company realized a loss on the sale of securities available for sale of $96,553. The cost and estimated market value of the Company's investment in Bion at March 31, 1999 and June 30, 1998 are as follows: Estimated Unrealized Market Cost Gain (loss) Value March 31, 1999 $372,575 ( 73,295) 299,280 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. On December 17, 1998, the Company amended its Purchase and Sale Agreement with Burdette A. Ogle ("Ogle") dated January 3, 1995. As a result of this amended agreement, at the time of each minimum annual payment the Company will be assigned an interest in three undeveloped offshore Santa Barbara, California, federal oil and gas units proportionate to the total $8,000,000 production payment. Accordingly, the annual $350,000 minimum payment has been recorded as an addition to undeveloped offshore California properties. In addition, pursuant to this agreement, the Company extended and repriced a previously issued warrant to purchase 100,000 shares of the Company's common stock. The $60,000 fair value placed on the extension and repricing of this warrant was recorded as an addition to undeveloped offshore California properties. (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. 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 officers personally guaranteed this loan at the time it was created. (5) Shareholders' Equity 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. On January 12, 1999, the Company issued 50,000 shares of its common stock to an unrelated entity for an option to acquire certain oil and gas properties. Item 2. Management's Discussion and Analysis or Plan of Operations Liquidity and Capital Resources. At March 31, 1999, the Company had a working capital deficit of $106,304 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 $74,365 at March 31, 1999 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 $146,031 at March 31, 1999 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, and satisfy its other current liabilities over the next year or longer. Results of Operations Net Earnings (Loss). The Company reported a net loss for the three and nine months ended March 31, 1999 of $562,594 and $406,729 compared to $458,129 and $428,394 for the three and nine months ended March 31, 1998, respectively. Revenue. Total revenues for the three and nine months ended March 31, 1999 were $191,073 and $1,576,866 compared to $521,622 and $1,890,905 for the three and nine months ended March 31, 1998, respectively. Oil and gas sales for the three and nine months ended March 31, 1999 were $157,072 and $463,978 compared to $210,808 and $1,004,069 for the three and nine ended March 31, 1998, 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 and nine month periods ended March 31, 1999 and 1998 are as follows: Three Months Ended Nine Months Ended March 31, March 31, 1999 1998 1999 1998 Production: Oil (barrels) 1,447 1,501 3,653 10,045 Gas (Mcfs) 61,588 95,490 206,158 357,952 Average Price: Oil (per barrel) $ 9.19 $13.15 $10.38 $17.22 Gas (per Mcf) $ 2.33 $2.00 $2.07 $2.32 Lease Operating Expenses. Lease operating expenses were $44,250 and $169,344 for the three and nine months ended March 31, 1999 and $79,560 and $268,796 for the three and nine months ended March 31, 1998, respectively. On a Mcf equivalent basis, lease operating expenses were $.63 and $.74, respectively, per Mcf equivalent during the three and nine months ended March 31, 1999 compared to $.35 and $.64, respectively, per Mcf equivalent for the same periods in 1998. 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 nine months ended March 31, 1999 were $34,885 and $128,411 compared to $48,591 and $201,262 for the same periods in 1998. On a Mcf equivalent basis, depreciation and depletion expense was $.50 and $.56, respectively, per Mcf equivalent during the three and nine months ended March 31, 1999 compared to $.47 and $.48, respectively, per Mcf equivalent for the same periods in 1998. 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 $8,024 and $64,316 for the three and nine months ended March 31, 1999 compared to $192,386 and $418,828 for the same period in 1998. Exploration costs during fiscal 1998 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 $6,482 and $226,189 relating to six dry holes during the three and nine month periods ended March 31, 1999. General and Administrative Expenses. General and administrative expenses for the three and nine months ended March 31, 1999 were $528,145 and $1,202,737 compared to $304,292 and $1,063,682 for the same periods in 1998. General and administrative expenses for the nine months ended March 31, 1999 increased from the prior year as a result of bonuses paid to management of approximately $265,000. Future Operations Delta Petroleum Corporation, directly and through its subsidiary, Amber Resources Company, owns interests in four undeveloped federal units (plus one additional lease) located in federal waters offshore California near Santa Barbara. The Company's development plan currently provides for 22 wells from one platform set in a water depth of approximately 328 feet for the Gato Canyon Unit; 63 wells from one platform set in a water depth of approximately 1,300 feet for the Sword Unit; 60 wells from one platform set in a water depth of approximately 336 feet for the Point Sal Unit; and 183 wells from two platforms for the Lion Rock Unit. On the Lion Rock Unit, platform A would be set in a water depth of approximately 507 feet, and Platform B would be set in a water depth of approximately 484 feet. The reach of the deviated wells from each platform required to drain each unit falls within the reach limits now considered to be "state-of-the-art." Current Status. On November 5, 1996, the MMS issued a Directed 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 an 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 superseded 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 the timely development of the leases. By May 15, 1999, each operator has been directed to submit what the MMS has termed a "Schedule of Events" for a specific lease or unit that it operates and also 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 31, 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. Cost to Develop Offshore California Properties. The cost to develop all of the offshore California 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 over the life of the properties (assumed to be 38 years), is estimated to be slightly in excess of $3 billion. The Company's share of such costs over the life of the properties is estimated to be $216,000,000. To the extent that Delta does not have sufficient cash available to pay its share of expenses when they become payable under the respective operating agreements, it will be necessary for Delta to seek funding from outside sources. Likely potential sources for such funding are currently anticipated to include (a) public and private sales of Delta Common Stock (which may result in substantial ownership dilution to existing shareholders), (b) bank debt from one or more commercial oil and gas lenders, (c) the sale of debt instruments to investors, (d) entering into farm-out arrangements with respect to one or more of Delta's interests in the properties whereby the recipient of the farm-out would pay the full amount of Delta's share of expenses and Delta would retain a carried ownership interest (which would result in a substantial diminution of Delta's ownership interest in the farmed-out properties), (e) entering into one or more joint venture relationships with industry partners, (f) entering into financing relationships with one or more industry partners, and (g) the sale of some or all of Delta's interests in the properties. It is unlikely that any one potential source of funding would be utilized exclusively. Rather, it is more likely that Delta will pursue a combination of different funding sources when the need arises. Regardless of the type of financing techniques that are ultimately utilized, however, it currently appears likely that because of Delta's small size in relation to the magnitude of the capital requirements that will be associated with the development of the subject properties, Delta will be forced in the future to issue significant amounts of additional shares, pay significant amounts of interest on debt that presumably would be collateralized by all of Delta's assets (including its offshore California properties), reduce its ownership interest in the properties through sales of interests in the property or as the result of farm-outs, industry financing arrangements or other partnership or joint venture relationships, or to enter into various transactions which will result in some combination of the foregoing. In the event that Delta is not able to pay its share of expenses as a working interest owner as required by the respective operating agreements, it is possible that Delta might lose some portion of its ownership interest in the properties under some circumstances, or that Delta might be subject to penalties which would result in the forfeiture of substantial revenues from the properties. While the cost to develop the offshore California properties in which Delta owns an interest are anticipated to be substantial in relation to Delta's small size, management believes that the opportunities for Delta to increase its asset base and ultimately improve its cash flow are also substantial in relation to its size. Although there are several factors to be considered in connection with Delta's plans to obtain funding from outside sources as necessary to pay its proportionate share of the costs associated with developing its offshore properties (not the least of which is the possibility that prices for petroleum products could continue to decline in the future to a point at which development of the properties is no longer economically feasible), management believes that the timing and rate of development in the future will in large part be motivated by the prices paid for petroleum products. To the extent that prices for petroleum products decline further from their current near historic lows, it is likely that development efforts will proceed at a slower pace to the end that costs will be incurred over a more extended period of time. In the event that petroleum prices increase, however, management believes that development efforts will intensify. Delta's ability to successfully negotiate financing to pay its share of development costs on favorable terms will be inextricably linked to the prices that are paid for petroleum products during the time period in which development is actually occurring on each of the subject properties. 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. (b) Reports on Form 8-K: None 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: May 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. EX-27 2
5 9-MOS JUN-30-1999 MAR-31-1999 232,896 0 182,435 50,000 0 415,431 11,086,517 1,446,117 10,355,111 521,735 0 0 0 60,203 9,773,173 10,355,111 463,978 1,576,866 0 1,983,595 0 0 10,000 (406,729) 0 (406,729) 0 0 0 (406,729) (.07) (.07)
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