-----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, A4AUIlzfoe+U8fdqo4iBzez+2p5zca+HIzB17WHjMrVW/8S9LqwRyPpIpdxQU7Oi qj5IctwR9oAH9tpGm0FXQA== 0000821483-99-000040.txt : 19991117 0000821483-99-000040.hdr.sgml : 19991117 ACCESSION NUMBER: 0000821483-99-000040 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753415 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 September 30, 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 executive offices) (Zip Code) (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___ 6,678,902 shares of common stock $.01 par value were outstanding as of November 10, 1999. FORM 10-QSB 1st QTR. FY 2000 INDEX PART I FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements Consolidated Balance Sheets - September 30, 1999 and June 30, 1999 (unaudited) 1 Consolidated Statements of Operations - Three Months Ended September 30, 1999 and 1998 (unaudited) 3 Consolidated Statement of Stockholders' Equity Year Ended June 30, 1999 and Three Months Ended September 30, 1999 (unaudited) 4 Consolidated Statements of Cash Flows - Three Months Ended September 30, 1999 and 1998 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis Or Plan of Operations 9 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 The terms "Delta", "Company", "we", "our", and "us" refer to Delta Petroleum Corporation unless the context suggests otherwise. DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, June 30, 1999 1999 ASSETS Current Assets: Cash $ 39,560 99,545 Trade accounts receivable, net of allowance for doubtful accounts of $50,000 September 30, 1999 and June 30, 1999 161,484 113,841 Accounts receivable - related parties 95,687 116,855 Other current assets 10,900 10,100 Total current assets 307,631 340,341 Property and Equipment: Oil and gas properties, at cost (using the successful efforts method of accounting): Undeveloped offshore California properties 7,369,830 7,369,830 Undeveloped onshore domestic properties 476,795 506,363 Undeveloped foreign properties 623,920 623,920 Developed onshore domestic properties 2,307,804 2,231,187 Office furniture and equipment 83,363 82,489 10,861,712 10,813,789 Less accumulated depreciation and depletion (1,684,862) (1,650,228) Net property and equipment 9,176,850 9,163,561 Long term assets: Deferred financing costs 27,400 - Investment in Bion Environmental 229,938 257,180 Deposit on purchase of oil and gas properties 3,919,800 1,616,050 Total long term assets 4,177,138 1,873,230 $13,661,619 11,377,132 September 30, June 30, 1999 1999 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 410,584 393,542 Accrued interest 90,675 - Other accrued liabilities 10,000 10,000 Royalties payable 108,289 127,166 Current portion of long-term debt: Related party 144,000 105,268 Other 216,425 - Total current liabilities 979,973 635,976 Long-term debt: Related party 856,000 894,732 Other 1,823,575 - Total long-term debt 2,679,575 894,732 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 6,653,902 shares at September 30, 1999 and 6,390,302 at June 30, 1999 66,539 63,903 Additional paid-in capital 30,190,800 29,476,275 Accumulated other comprehensive loss (148,332) (115,395) Accumulated deficit (20,106,936) (19,578,359) Total stockholders' equity 10,002,071 9,846,424 Commitments $13,661,619 11,377,132 See accompanying notes to consolidated financial statements. DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, September 30, 1999 1998 Revenue: Oil and gas sales $ 116,540 202,479 Other revenue 30,288 61,160 Total revenue 146,828 263,639 Operating expenses: Lease operating expenses 39,147 77,979 Depreciation and depletion 34,634 68,716 Exploration expenses 415 41,714 Abandoned and impaired properties 1,114 - Dry hole costs - 97,218 General and administrative 380,083 379,146 Stock option expense 109,986 6,845 Total operating expenses 565,379 671,618 Loss from operations (418,551) (407,979) Other income and expenses: Interest expense (107,475) - Loss on sale of securities available for sale (2,551) (12,989) Total other income and expenses (110,026) (12,989) Loss $(528,577) (420,968) Basic and diluted loss per common share $ (0.08) (0.08) Weighted average number of common shares outstanding 6,574,445 5,515,684 See accompanying notes to consolidated financial statements. DELTA PETROLEUM CORPORATION AND SUBSIDIARY Consolidated Statement of Stockholders' Equity Year ended June 30, 1999 and three months ended September 30, 1999 (Unaudited) Additional Common Stock paid-in Shares Amount capital Balance, June 30, 1998 5,513,858 $ 55,139 25,571,921 Comprehensive loss: Net loss - - - Other comprehensive loss, net of tax Unrealized loss on equity securities - - - Less: Reclassification adjustment for losses included in net loss - - - Comprehensive loss - - - Stock options granted as compensation - - 2,081,423 Shares issued for cash upon exercise of options 120,000 1,200 158,800 Shares issued for cash 196,444 1,964 354,011 Shares issued for services 10,000 100 15,650 Shares issued for oil and gas properties 250,000 2,500 621,420 Shares issued for deposit on oil and gas properties 300,000 3,000 613,050 Fair value of warrant extended and repriced - - 60,000 Balance, June 30, 1999 6,390,302 63,903 29,476,275 Comprehensive loss: Net loss - - - Other comprehensive loss, net of tax Unrealized loss on equity securities - - - Less: Reclassification adjustment for losses included in net loss - - - Comprehensive loss - - - Stock options granted as compensation - - 109,986 Shares issued for cash upon exercise of options 163,600 1,636 301,789 Shares issued for deposit on oil and gas properties 100,000 1,000 302,750 Balance, September 30, 1999 6,653,902 $ 66,539 30,190,800
Accumulated other comprehensive income Comprehensive Accumulated (loss) Income deficit Total Balance, July 1, 1998 457,594 (16,579,600) 9,505,054 Comprehensive loss: Net loss (2,998,759) (2,998,759) (2,998,759) Other comprehensive loss, net of tax Unrealized loss on equity securities (669,542) - Less: Reclassification adjustment for losses included in net loss 96,553 (572,989) (572,989) Comprehensive loss (3,571,748) Stock options granted as compensation - - 2,081,423 Shares issued for cash upon exercise of options - - 160,000 Shares issued for cash - - 355,975 Shares issued for services - - 15,750 Shares issued for oil and gas properties - - 623,920 Shares issued for deposit on oil and gas properties - - 616,050 Fair value of warrant extended and repriced - - 60,000 Balance, June 30, 1998 (115,395) (19,578,359) 9,846,424 Comprehensive loss: Net loss (528,577) (528,577) (528,577) Other comprehensive loss, net of tax Unrealized loss on equity securities (35,488) - Less: Reclassification adjustment for losses included in net loss 2,551 (32,937) (32,937) Comprehensive loss (561,514) Stock options granted as compensation - - 109,986 Shares issued for cash upon exercise of options - - 303,425 Shares issued for deposit on oil and gas properties - - 303,750 Balance, September 30, 1999 (148,332) (20,106,936) 10,002,071 See accompanying notes to consolidated financial statements.
DELTA PETROLEUM CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended September 30, September 30, 1999 1998 Net cash used in operating activities $ (345,369) (239,564) Cash flows from investing activities: Additions to property and equipment (47,923) (134,928) Deposit on purchase of oil and gas properties (2,000,000) - Proceeds from sale of securities available for sale 2,551 49,597 Net cash used in investing activities (2,045,372) (85,331) Cash flows from financing activities: Stock issued for cash upon exercise of options 303,425 - Issuance of common stock for cash - 5,975 Proceeds from borrowing 2,000,000 400,000 Decrease (increase) in accounts receivable from related parties 27,331 (88,798) Net cash provided by financing activities 2,330,756 317,177 Net decrease in cash (59,985) (7,718) Cash at beginning of period 99,545 17,135 Cash at end of period $ 39,560 9,417 Supplemental cash flow information - Cash paid for interest $ 15,000 - Non-cash financing activities- Common stock issued for deposit on purchase of oil and gas properties $ 303,750 - See accompanying notes to consolidated financial statements. DELTA PETROLEUM CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements Three Months Ended September 30, 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 for the year ended June 30, 1999, previously filed with the Securities and Exchange Commission. (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 three months ended September 30, 1999, the Company received an additional 4,354 shares of Bion's common stock for rent provided by the Company. Also during the three months ended September 30, 1999, the Company realized a loss on the sale of securities available for sale of $2,551. The cost and estimated market value of the Company's investment in Bion at September 30, 1999 and June 30, 1998 are as follows: Estimated Unrealized Market Cost Loss Value September 30, 1999 $378,270 (148,332) 229,938 June 30, 1999 $372,575 (115,395) 257,180 (3) Deposit on Purchase of Oil and Gas Properties During the year ended June 30, 1999, the Company entered into an agreement to acquire a 6.07% working interest in the Point Arguello Unit, its three platforms (Hidalgo, Harvest and Hermosa), along with a 100% interest in two and an 11.11% interest in one of the three leases within the adjacent undeveloped Rocky Point Unit from an unrelated entity. The unrelated entity will retain its proportionate share of future abandonment liability associated with both the onshore and offshore facilities of the Point Arguello Unit. The agreement called for an initial issuance of 300,000 shares of restricted common stock and a $1,000,000 deposit which the Company completed in fiscal 1999. In addition, the agreement called for $2,000,000 to be paid by August 2, 1999 and the final payment of $3,000,000, to be paid on or before December 1, 1999. On August 2, 1999, as required by the agreement, the Company paid an additional $2,000,000. The final payment is to be adjusted for operating expenses and permitted capital expenditures of the working interest from April 1,1999 to December 1, 1999. Under the agreement, if Delta does not make the final payment of approximately $3,000,000 Delta would, upon closing, acquire an approximate 3.035% net operating interest in the Point Arguello Unit and one half of the sellers working interest in the undeveloped Rocky Point Unit. In addition, the agreement provides that if development and operating expenses are not covered by production revenues then, at Delta's election, until December 31, 2000, the seller will invest up to $2,000,000 in Delta through the purchase of Delta Preferred Stock to cover such costs. (4) Long Term Debt - Related Party On May 24, 1999, the Company borrowed $1,000,000 at 18% per annum from the Company's officers maturing on June 1, 2001. The Company agreed to make monthly payments of interest only for the first six months and thereafter monthly principal and interest payments of $29,375 through June 1, 2001 with the remaining principal amount payable at the maturity date. (5) Long Term Debt - Other On July 30, 1999, the Company borrowed $2,000,000 at 18% per annum from an unrelated entity maturing on August 1, 2001 which was personally guaranteed by the officers of the Company. The Company agreed to pay a 2% origination fee and to make monthly payments of interest only for the first six months and thereafter monthly principal and interest payments of $58,750 through August 1, 2001 with the remaining principal amount payable at the maturity date. As consideration for the guarantee of the Company indebtedness, the Company entered into an agreement with its officers, under which a 1% overriding royalty interest in the properties acquired with the proceeds of the loan (proportionately reduced to the interest in each property) will be assigned to each of the officers. (6) Subsequent Events On November 1, 1999, the Company acquired interests in 11 oil and gas producing properties located in New Mexico and Texas for a cost of $2,879,850. Also on November 1, 1999, the Company borrowed the funds for the above mentioned acquisition at 18% per annum from an unrelated entity maturing on January 31, 2000, which was personally guaranteed by the officers of the Company. As consideration for the guarantee of the Company indebtedness, the Company agreed to assign a 1% overriding royalty interest to each officer in the properties acquired with the proceeds of the loan (proportionately reduced to the interest acquired in each property). The Company also agreed to pay a 1% origination fee. Item 2. Management's Discussion and Analysis or Plan of Operations Forward Looking Statement The statements contained in this report which are not historical fact are "forward looking statements" that involve various important risks, uncertainties and other factors which could cause the Company's actual results to differ materially from those expressed in such forward looking statements. These factors include, without limitation, the risks and factors set forth below as well as other risks previously discussed in the Company's annual report on Form 10-KSB. Liquidity and Capital Resources. Our current assets include accounts receivable from related parties (including affiliated companies) of $95,687 at September 30, 1999 which is primarily for drilling costs, and lease operating expense on wells owned by the related parties and operated by us. The amounts are due on open account and are non-interest bearing. Our current liabilities include royalties payable of $108,289 at September 30, 1999 which represent our estimate of royalties payable on production attributable to our 91.68% owned subsidiary's, Amber Resources Company ("Amber"), interest in certain wells in Oklahoma, including production prior to the acquisition of Amber. We believe that the operators of the affected wells have paid some of the royalties on our behalf and have withheld such amounts from revenues attributable to our interest in the wells. We have been in contact with the operators of the wells in an attempt to determine what amounts the operators have paid on our behalf over the past five years, which amounts would reduce the amounts we owe. We have been informed by our 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 limitations 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. We believe 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. We believe, although there can be no assurance, that we may ultimately be able to settle with potential claimants for less than the amounts recorded for royalties payable. Our working interest share of the future estimated development costs relating to our undeveloped offshore California properties approximates $217 million. No significant amounts are expected to be incurred during fiscal 2000 and $1.0 million and $4.2 million are expected to be incurred during fiscal 2001 and 2002, respectively. The amounts required for development of these undeveloped properties are so substantial relative to our present financial resources, we may ultimately determine to farmout all or a portion of our interest. If we were to farmout our interests, our interest in the properties would be decreased substantially. Alternatively, we may pursue other methods of financing, including selling equity or debt securities. There can be no assurance that we can obtain any such financing. If we were to sell additional equity securities to finance the development of the properties, the existing common shareholders' interest would be diluted significantly. On May 24, 1999, we borrowed $1,000,000 at 18% per annum from our officers under a promissory note maturing on June 1, 2001. We agreed to make monthly payments of interest only for the first six months and thereafter monthly principal and interest payments of $29,375 through June 1, 2001 with the remaining principal amount payable at the maturity date. On July 1, 1999, we borrowed $2,000,000 at 18% per annum from an unrelated entity maturing on August 1, 2001 which was personally guaranteed by our officers. We agreed to pay a 2% origination fee and to make monthly payments of interest only for the first six months and thereafter monthly principal and interest payments of $58,750 through August 1, 2001 with the remaining principal amount payable at the maturity date. As consideration for the guarantee of our indebtedness, we entered into an agreement with our officers, under which a 1% overriding royalty interest in the properties acquired with the proceeds form the loans (proportionately reduced to the interest in each property acquired) will be assigned to each of the officers. On November 1, 1999, we acquired interests in 11 oil and gas producing properties located in New Mexico and Texas for a cost of $2,879,850. Also on November 1, 1999, we borrowed the funds for the above mentioned acquisition at 18% per annum from an unrelated entity maturing on January 31, 2000, which was personally guaranteed by the officers of the Company. As consideration for the guarantee of our indebtedness we agreed to assign a 1% overriding royalty interest to each officer in the properties acquired with the proceeds of the loan (proportionately reduced to the interest acquired in each property). We also agreed to pay a 1% origination fee. We expect to raise additional capital by selling our common stock in order to fund our capital requirements for our portion of the costs of the drilling and completion of development wells on our proved undeveloped properties during the next twelve months. There is no assurance that we will be able to do so or that we will be able to do so upon terms that are acceptable. We do not currently have a credit facility with any bank and we have not determined the amount, if any, that we could borrow against our existing properties. We will continue to explore additional sources of both short-term and long-term liquidity to fund our operations and our capital requirements for development of our properties including establishing a credit facility, sale of equity or debt securities and sale of properties. Many of the factors which may affect our future operating performance and liquidity are beyond our control, including oil and natural gas prices and the availability of financing. After evaluation of the considerations described above, we believe that our cash flow from our existing producing properties, proceeds from the sale of producing properties, and other sources of funds will be adequate to fund our operating expenses and satisfy our other current liabilities over the next year or longer. Results of Operations Loss. We reported a loss for the three months ended September 30, 1999 of $528,577 compared to $420,968 for the three months ended September 30, 1998. The losses for the three months ended September 30, 1999 and 1998 were effected by numerous items, described in detail below. Revenue. Total revenues for the three months ended September 30, 1999 were $146,828 compared to $236,639 for the three months ended September 30, 1998. Oil and gas sales for the three months ended September 30, 1999 were $116,540 compared to $202,479 for the three months ended September 30, 1998. Our oil and gas sales decreased as a result of the sale of certain oil and gas properties effective October 1, 1998. Production volumes and average prices received for the three month periods ended September 30, 1999 and 1998 are as follows: Three Months Ended September30, 1999 1998 Production: Oil (barrels) 1,076 1,848 Gas (Mcfs) 53,419 94,139 Average Price: Oil (per barrel) $ 20.64 $11.11 Gas (per Mcf) $ 1.77 $1.93 Lease Operating Expenses. Lease operating expenses were $39,147 and $77,979 for the three months ended September 30, 1999 and 1998, respectively. On a Mcf equivalent basis, lease operating expenses were $.57, per Mcf equivalent during the three months ended September 30, 1999 compared to $.74, 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 in an area that is more costly to operate than existing production. Depreciation and Depletion Expense. Depreciation and depletion expense for the three months ended September 30, 1999 were $34,634 compared to $68,716 for the same period in 1998. On a Mcf equivalent basis, depreciation and depletion expense was $.58 per Mcf equivalent during the three months ended September 30, 1999 compared to $.65 per Mcf equivalent for the same period in 1998. The decrease in depreciation and depletion expense can be attributable to the sale of certain oil and gas properties effective October 1, 1998. Exploration Expenses. We recorded exploration expenses of $417 for the three months ended September 30, 1999 compared to $41,714 for the same period in 1998. Exploration costs decreased from 1999 to 1998 as the Company did not renew certain non-strategic leases in the Sacramento Basin in Northern California. Dry Hole Costs. We recorded dry hole costs for three dry holes during the three month period ended September 30, 1998. General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 1999 were $380,083 compared to $379,146 for the same periods in 1998. Future Operations We, directly and through our subsidiary, Amber Resources Company, own interests in four undeveloped federal units (plus one additional lease) located in federal waters offshore California near Santa Barbara. Our 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 October 15, 1992 the MMS directed a Suspension of Operations ("SOO") effective January 1, 1993, for the POCS non-producing leases and units, pursuant to CFR 250.110, to enable the lease owners to participate in what became known as the COOGER Study. This allowed the leases to be held under an SOO during the term of the study thereby permitting the owners to cease paying lease payments to the Federal government and suspending the requirements relating to development of these leases during this period. The MMS has extended the SOO from time to time to allow completion of the COOGER Study. Most recently the MMS directed an additional SOO through November 15, 1999 when unit operators are required to have submitted descriptions of their exploration plans for the leases to support their requests for Suspension of Production ("SOP") status for the leases. Each operator has or will submit what the MMS has termed a Schedule of Events for a specific lease or unit that it operates and also a request for an SOP time period to execute the Schedule of Events. In order to carry out the requirements of the MMS, all operators of the units in which we own 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. We are participating with the operators in meeting the MMS schedules through meetings, and consultations and in 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. Our share of such costs over the life of the properties is estimated to be $216,000,000. To the extent that we do not have sufficient cash available to pay our share of expenses when they become payable under the respective operating agreements, it will be necessary for us to seek funding from outside sources. Likely potential sources for such funding are currently anticipated to include (a) public and private sales of our 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 our interests in the properties whereby the recipient of the farm-out would pay the full amount of our share of expenses and we would retain a carried ownership interest (which would result in a substantial diminution of our 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 our interests in the properties. It is unlikely that any one potential source of funding would be utilized exclusively. Rather, it is more likely that we 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 our small size in relation to the magnitude of the capital requirements that will be associated with the development of the subject properties, we 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 our assets (including its offshore California properties), reduce our 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 we are not able to pay our share of expenses as a working interest owner as required by the respective operating agreements, it is possible that we might lose some portion of our ownership interest in the properties under some circumstances, or that we might be subject to penalties which would result in the forfeiture of substantial revenues from the properties. While the costs to develop the offshore California properties in which we own an interest are anticipated to be substantial in relation to our small size, management believes that the opportunities for us to increase our asset base and ultimately improve our cash flow are also substantial in relation to our size. Although there are several factors to be considered in connection with our plans to obtain funding from outside sources as necessary to pay our proportionate share of the costs associated with developing our offshore properties (not the least of which is the possibility that prices for petroleum products could decline in the future to a point at which development of the properties is no longer economically feasible), we believe 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 were to decline below their recent 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. If petroleum prices increase, however, we believe that development efforts will intensify. Our ability to successfully negotiate financing to pay our 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 We have completed a review of our 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 our 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 our review, we currently believe that the Year 2000 issue will not pose material operational problems for the Company. To our knowledge, after investigation, no "embedded technology" (such as microchips in an electronic control system) of the Company poses a material Year 2000 concern. Because we believe that we have no material internal Year 2000 problems, we have not and do not expect to expend a significant amount of funds to address Year 2000 issues. It is our policy to continue to review our suppliers' Year 2000 compliance and require assurance of Year 2000 compliance from new suppliers; however, such monitoring does not involve a significant cost to us. In addition to the foregoing, we have contacted our major vendors and have received either oral or written assurances from our major vendors or have reviewed assurances contained on vendors' web sites that they have no material Year 2000 problems. We believe that our vendors are largely fungible; therefore, in the event a vendor's representations regarding its Year 2000 compliance were untrue for any reason, we believe that we could find adequate Year 2000-compliant vendors as substitutes. We have also received either oral or written assurances from our customers or have reviewed assurances contained on our 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 our expected Year 2000 compliance and the estimated cost thereof include internal computer hardware or software problems which have not as yet been identified by us, 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. We are not directly engaged in any material pending legal proceedings to which we or our subsidiaries are a party or to which any of our property is subject. The operators of the offshore Federal units in which we own interests have each filed Notices of Appeal on behalf of themselves and the co-owners of the various units, including Delta, with the United States Department of Interior of a June 25, 1999 order issued by the Regional Director, Pacific OCS Region, terminating existing Suspensions of Production in effect prior to the present Suspension of Operations. We do not expect that the outcome of any later appeal that might be filed pursuant to the Notice of Appeal will have any material affect upon our property interests because the operators are in the process of requesting new Suspension of Production status for each of the units which, if granted, will replace the existing Suspension of Operations. 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: August 25, 1999; Items 5 & 7. November 1, 1999; Items 2 & 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: November 11, 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 3-MOS JUN-30-2000 SEP-30-1999 39,560 0 257,171 50,000 0 307,631 10,861,712 1,684,862 13,661,619 979,973 0 0 0 66,539 9,935,532 13,661,619 116,540 146,828 0 565,379 0 2,551 107,475 (528,577) 0 (528,577) 0 0 0 (528,577) (.08) (.08)
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