U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
Commission File No. 0-20879
PYR ENERGY CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Maryland 95-4580642
-------- ----------
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1675 Broadway, Suite 2450, Denver, CO 80202
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 825-3748
Check whether the issuer (1) 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 ___ No___
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuer's classes of common
equity as of April 12, 2002 is as follows:
$.001 Par Value Common Stock 23,691,357
PYR ENERGY CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 3
Balance Sheets - February 28, 2002 (Unaudited) and August
31, 2001..................................................... 3
Statements of Operations - Three Months and Six Months
Ended February 28, 2002 and February 28, 2001 and
Cumulative Amounts From Inception Through February 28,
2002 (Unaudited)............................................. 4
Statements of Cash Flows - Six Months Ended February 28,
2002 and February 28, 2001 and Cumulative Amounts From
Inception Through February 28, 2002 (Unaudited).............. 5
Notes to Financial Statements................................ 6
Summary of Significant Accounting Policies................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 12
Item 2. Changes in Securities and Use of Proceeds.................... 12
Item 3. Defaults Upon Senior Securities.............................. 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 12
Item 6. Exhibits and Reports on Form 8-K............................. 13
Signatures............................................................ 13
2
PART I
ITEM 1. FINANCIAL STATEMENTS
PYR ENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
2/28/02 8/31/01
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash $ 6,699,222 $ 9,800,842
Oil and gas receivables 1,210,647 1,173,751
Deposits and prepaid expenses 82,813 74,636
------------ ------------
Total Current Assets 7,992,682 11,049,229
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Furniture and equipment, net 42,153 40,638
Oil and gas properties, net 15,069,068 10,977,317
------------ ------------
15,111,221 11,017,955
------------ ------------
$ 23,103,903 $ 22,067,184
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,937,625 $ 2,263,368
------------ ------------
Total Current Liabilities 3,937,625 2,263,368
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
Authorized 75,000,000 shares
Issued and outstanding - 23,691,357 shares
at 2/28/02 and 8/31/01 23,691 23,691
Capital in excess of par value 35,214,002 35,214,002
Deficit accumulated during the development stage (16,071,415) (15,433,877)
------------ ------------
19,166,278 19,803,816
------------ ------------
$ 23,103,903 $ 22,067,184
============ ============
3
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Three Six Six Cumulative from
Months Months Months Months Inception
Ended Ended Ended Ended Through
2/28/02 2/28/01 2/28/02 2/28/01 2/28/02
------------ ------------ ------------ ------------ ------------
REVENUES
Oil and gas revenues $ 26,056 $ 252,360 $ 72,312 $ 252,360 $ 1,274,291
Interest 32,508 57,206 95,166 168,334 841,148
Other -- -- -- -- 127,528
------------ ------------ ------------ ------------ ------------
58,564 309,566 167,478 420,694 2,242,967
OPERATING EXPENSES
Lease operating expenses 6,794 3,052 31,961 3,052 133,979
Impairment, dry hole, and abandonments -- -- 113,544 -- 13,974,824
General and administrative 328,142 320,781 652,285 585,047 4,450,380
Depreciation and amortization 3,730 20,878 7,226 24,976 91,222
Interest -- -- -- -- 184,306
------------ ------------ ------------ ------------ ------------
338,666 344,711 805,016 613,075 18,834,711
OTHER INCOME
Gain on sale of oil and gas prospects -- -- -- -- 556,197
------------ ------------ ------------ ------------ ------------
(280,102) (35,145) (637,538) (192,381) (16,035,547)
INCOME APPLICABLE TO
PREDECESSOR LLC (Note 1) -- -- -- -- (35,868)
------------ ------------ ------------ ------------ ------------
NET (LOSS) INCOME (280,102) (35,145) (637,538) (192,381) (16,071,415)
Less dividends on preferred stock -- (62,899) -- (62,899) (292,411)
------------ ------------ ------------ ------------ ------------
NET (LOSS) TO COMMON STOCKHOLDERS $ (280,102) $ (98,044) $ (637,538) $ (255,280) $(16,363,826)
============ ============ ============ ============ ============
NET (LOSS) PER COMMON
SHARE -BASIC AND DILUTED $ (0.01) $ (0.00) $ (0.03) $ (0.01) $ (1.25)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 23,691,357 22,067,791 23,691,357 20,799,909 13,086,580
============ ============ ============ ============ ============
4
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative Amounts
from Inception
2/28/02 2/28/01 Through 2/28/02
------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (637,538) $ (192,381) $(16,035,547)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Depreciation and amortization 7,226 24,981 91,223
Contributed services -- -- 36,000
Gain on sale of oil and gas prospects -- -- (556,197)
Impairment, dry hole and abandonments 113,544 -- 13,974,824
Common stock issued for interest on debt -- -- 116,822
Common stock issued for services -- -- 20,000
Amortization of financing costs -- -- 26,939
Amortization of marketable securities -- -- (20,263)
Changes in assets and liabilities
(Increase) decrease in accounts receivable (36,896) (356,806) (1,211,213)
(Increase) decrease in prepaids (8,178) (135,296) (87,365)
(Decrease) increase in accounts payable (44,455) 359,725 37,451
Other 2,551 1,888 10,746
------------ ------------ ------------
Net cash (used) by operating activities (603,746) (297,889) (3,596,580)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for furniture and equipment (11,293) (15,382) (132,205)
Cash paid for oil and gas properties (2,486,581) (6,863,475) (24,973,076)
Proceeds from sale of oil and gas properties -- -- 1,050,078
Cash paid for marketable securities -- -- (5,090,799)
Proceeds from sale of marketable securities -- -- 5,111,062
Cash received (paid) for reimbursable property costs -- -- (28,395)
------------ ------------ ------------
Net cash (used) in investing activities (2,497,874) (6,878,857) (24,063,335)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Members capital contributions -- -- 28,000
Distributions to members -- -- (66,000)
Cash from short-term borrowings -- -- 285,000
Repayment of short-term borrowings -- -- (285,000)
Cash received upon recapitalization and merger -- -- 336
Proceeds from sale of common stock -- -- 30,788,750
Proceeds from sale of convertible debt -- -- 2,500,001
Proceeds from exercise of warrants -- 1,557,165 2,011,073
Proceeds from exercise of options -- 117,706 189,530
Cash paid for offering costs -- (17,191) (1,036,448)
Payments on capital lease -- (920) (5,195)
Preferred dividends paid -- -- (50,910)
------------ ------------ ------------
Net cash provided by financing activities -- 1,656,760 34,359,137
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (3,101,620) (5,519,986) 6,699,222
CASH, BEGINNING OF PERIODS 9,800,842 8,598,016 --
------------ ------------ ------------
CASH, END OF PERIODS $ 6,699,222 $ 3,078,030 $ 6,699,222
============ ============ ============
5
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
February 28, 2002
The accompanying interim financial statements of PYR Energy Corporation are
unaudited. In the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim period. The results of
operations for the periods ended February 28, 2002 are not necessarily
indicative of the operating results for the entire year.
We have prepared the financial statements included herein pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. We believe the
disclosures made are adequate to make the information not misleading and
recommend that these condensed financial statements be read in conjunction with
the financial statements and notes included in our Form 10-K for the year ended
August 31, 2001.
PYR Energy Corporation (formerly known as Mar Ventures Inc. ("Mar")) was
incorporated under the laws of the State of Delaware on March 27, 1996. Mar was
a public company with no significant operations as of July 31, 1997. On August
6, 1997, Mar acquired all the interests in PYR Energy LLC ("PYR LLC") (a
Colorado limited liability company organized on May 31, 1996), a development
stage company as defined by Statement of Financial Accounting Standards (SFAS)
No. 7. PYR LLC, an independent oil and gas exploration company, was engaged in
the acquisition of undeveloped oil and gas interests for exploration and
exploitation in the Rocky Mountain region and California. As of August 6, 1997,
PYR LLC had acquired only non-producing leases and acreage, and no exploration
had commenced on the properties. Upon completion of the acquisition of PYR LLC
by Mar, PYR LLC ceased to exist as a separate entity. Mar remained as the
surviving legal entity and, effective November 12, 1997, Mar changed its name to
PYR Energy Corporation. Effective July 2, 2001, the Company was re-incorporated
in Maryland through the merger of the Company into a wholly owned subsidiary,
PYR Energy Corporation, a Maryland corporation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS - For purposes of reporting cash flows, we consider as
cash equivalents all highly liquid investments with a maturity of three months
or less at the time of purchase. At February 28, 2002, there were no cash
equivalents.
PROPERTY AND EQUIPMENT - Furniture and equipment is recorded at cost.
Depreciation is provided by use of the straight-line method over the estimated
useful lives of the related assets of three to five years. Expenditures for
replacements, renewals, and betterments are capitalized. Maintenance and repairs
are charged to operations as incurred.
OIL AND GAS PROPERTIES - We follow the full cost method to account for our
oil and gas exploration and development activities. Under the full cost method,
all costs incurred which are directly related to oil and gas exploration and
development are capitalized and subjected to depreciation and depletion.
Depletable costs also include estimates of future development costs of proved
reserves. Costs related to undeveloped oil and gas properties may be excluded
from depletable costs until such properties are evaluated as either proved or
unproved. The net capitalized costs are subject to a ceiling limitation. Gains
or losses upon disposition of oil and gas properties are treated as adjustments
to capitalized costs, unless the disposition represents a significant portion of
the Company's proved reserves.
6
Unevaluated oil and gas properties consists of ongoing exploratory drilling
costs, for which no results have been obtained, and of leases and acreage that
we acquire for our exploration and development activities. The cost of these
non-producing leases is recorded at the lower of cost or fair market value.
We have adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long Lived Assets to Be Disposed of", which requires that
long-lived assets to be held and used be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. During the fiscal year ended August 31, 2001, we earned our
initial revenues from our oil and gas producing activities. A reserve report
prepared as of August 31, 2001 by an independent petroleum engineering firm
concluded that based on information available at that time, reserves from our
producing properties were not economic to produce. Therefore, at August 31,
2001, we had no proved reserves and recorded an impairment charge against the
entire net value of our evaluated properties of $13,339,911 based on the ceiling
test limitation. Although properties may be considered as evaluated for purposes
of the ceiling test and included in the impairment calculation, until these
properties are completely abandoned, we may continue to incur costs associated
with these properties. Until we can establish economic reserves, of which there
is no assurance, additional costs associated with these properties are charged
directly to impairment expense as incurred.
INCOME TAXES - We have adopted the provisions of SFAS No. 109, "Accounting
for Income Taxes". SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - Accounts receivable at February
28, 2002 includes $1,210,461 of net revenue due from operator for oil and gas
sales at our East Lost Hills project since commencement of production on
February 6, 2001 through February 28, 2002. We have not received any payments
for our working interest share of production from the operator, and the joint
operating agreement underlying the East Lost Hills project does not provide for
an offset of the receivable for oil and gas revenue against amounts due to the
operator. We believe that the operator is legally responsible to remit payment
and have withheld payments on certain billings in order to have the operator
agree, at minimum, to offset the unpaid revenues against amounts we owe. As of
February 28, 2002, we had recorded a liability due to the operator in excess of
the amount of the receivable for oil and gas sales by $2,441,647, although we
have raised questions with the operator as to whether some of these charges are
valid.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are a development stage independent oil and gas exploration company
whose strategic focus is the application of advanced seismic imaging and
computer aided exploration technologies in the systematic search for commercial
hydrocarbon reserves, primarily in the onshore western United States. We attempt
to leverage our technical experience and expertise with seismic data to identify
exploration and exploitation projects with significant potential economic
return. We intend to participate in selected exploration projects as a working
interest owner, sharing both risk and rewards with other participants. We do not
currently operate any projects in which we own a working interest. We may
operate projects in the future. Whether we participate in our projects as
operator or non-operator, our financial results depend on our ability to sell
prospect interests to outside industry participants. We do not have the ability
to commence exploratory drilling operations without outside industry
participation. We have pursued, and will continue to pursue, exploration
opportunities in regions in which we believe significant opportunity for
discovery of oil and gas exists. By attempting to reduce drilling risk through
seismic technology, we seek to improve the expected return on investment in our
oil and gas exploration projects.
7
Our future financial results continue to depend primarily on (1) our
ability to discover commercial quantities of hydrocarbons; (2) the market price
for oil and gas; (3) our ability to continue to source and screen potential
projects; and (4) our ability to fully implement our exploration and development
program with respect to these and other matters. There can be no assurance that
we will be successful in any of these respects or that the prices of oil and gas
prevailing at the time of production will be at a level allowing for profitable
production.
We paid approximately $2,487,000 and $6,863,000 during the six months ended
February 28, 2002 and 2001, respectively, for drilling costs, delay rentals,
acquisition of acreage, direct geological and geophysical costs, and other
related direct costs with respect to our identified exploration and exploitation
projects.
We currently anticipate that we could participate in the drilling of one to
four exploration/development wells during the next 12 months, although the
number of wells may increase as additional projects are added to our portfolio.
However, there can be no assurance that any wells will be drilled, or if
drilled, that any of these wells will be successful.
It is anticipated that the future development of our business will require
additional, and possibly substantial, capital expenditures. Depending upon the
extent of success of our ability to sell additional prospects for cash, the
level of industry participation in our exploration projects, and the continuing
results at East Lost Hills and the deep Temblor exploration program, we
anticipate spending a minimum of approximately $7 million for capital
expenditures relating to exploration and development of our projects during
calendar 2002. To limit additional capital expenditures, we intend to form
industry alliances to exchange a portion of our interest for cash and/or a
carried interest in our exploration projects. We may need to raise additional
funds to cover capital expenditures. These funds may come from cash flow, equity
or debt financing, or from sales of interests in our properties although there
is no assurance continued funding will be available.
At February 28, 2002, we had a working capital amount of approximately
$4,055,000. We had no outstanding long-term debt at February 28, 2002 and had
not entered into any commodity swap arrangements or hedging transactions.
Although we have no current plans to do so, we may enter into commodity swap
and/or hedging transactions in the future in conjunction with oil and gas
production.
The following is a summary of the current status of the East Lost Hills
project in the San Joaquin Basin of California operated by Anadarko Petroleum
Corporation:
During the second quarter ended February 28, 2002, our only producing well,
the ELH #1, produced a gross total of approximately 123 mmcfe, averaging
approximately 1.4 mmcfe per day. Water production during this period averaged
approximately 4,700 barrels per day. The oil and gas production from the ELH #1
well continues to be limited by the amount of production water that is accepted
at water disposal facilities owned by ChevronTexaco. The operator has reported
to the participants that due to its inability to secure a contract with a
surface owner, drilling a water disposal well at a site selected about six
months ago is unlikely. The operator reports that it has contacted a different
surface owner in the same area and they are attempting to negotiate access to
this surface for a water disposal well. The participants intend to drill a water
disposal well and to build associated pipeline and disposal facilities in order
to dispose of water without relying on the ChevronTexaco facility, thereby
removing the water disposal constraint that continues to limit the oil and gas
production from the ELH #1 well. However, there is no assurance that the
drilling of a disposal well will occur, or if drilled, will completely remove
the water disposal constraint. Although we expect to be able to increase oil and
gas production if we can increase the water disposal capability, it is unknown
whether removing the water disposal constraint will result in an increase or
decrease in the water to gas ratio.
8
The ELH #4 well commenced drilling on November 26, 2000 at a location
approximately four miles southeast of the ELH #1 well. After a successful
sidetrack operation, this well has been drilled to its total depth of
approximately 20,500 feet. Final casing has been run and a production liner has
been installed in anticipation of a production test. The operator has notified
the working interest participants that because of outstanding balances due from
certain outside working interest owners covering costs from operations on the
ELH #4 well and other wells, and because there is no non-consent penalty clause
for non-payment under the operating agreement, the operator will not commence
production testing of the ELH #4 well until the matter is resolved. The
participants are currently negotiating concerning this matter. PYR is one of the
participants whom the operator claims has an outstanding balance due. PYR has
funds available to pay validly owed amounts, however, there is no assurance that
all participants will be able to pay their proportionate share. It is uncertain
when production testing of the #4 well will occur.
The ELH #9 well commenced drilling on July 17, 2001 approximately six miles
southeast of the ELH #1 well. This well has reached its total depth of
approximately 21,100 feet. Current operations include running final casing and
completion operations are planned in order to production test this well.
However, because of the issues described above, it is uncertain when a
production test will occur.
The Aera Energy LLC NWLH 1-22 well, located in Section 22, T25S-R20E,
commenced drilling on August 23, 2001. This well is approximately three and a
half miles northwest of the ELH #1 well and is designed to test the Temblor
formation to a projected depth of 20,000 feet. We are participating in this well
operated by Aera Energy LLC through a pooling arrangement at a 4.04% working
interest. Operations to kick-off a sidetrack well bore from a depth of 14,100
feet were successful. An intermediate string of casing has been run to
approximately 17,500 feet and the well bore is being prepared for further
drilling.
Additional San Joaquin Basin California activities include the following
projects:
Pyramid Power Prospect. In April 1999, we purchased a working interest in
the Pyramid Power deep natural gas exploration project in the San Joaquin Basin.
This project is outside the East Lost Hills joint venture area. Our working
interest in this project is 3.75% with our interest being carried through the
tanks in the initial test well. The initial test well, operated by Anadarko and
located in Section 9, T25S-R18E, commenced drilling on November 22, 2001. This
well is designed to test the Temblor and the Point of Rocks formation to a total
depth of 18,500 feet. The participants at Pyramid Power jointly control
approximately 20,000 gross and 15,000 net acres over the prospect. After a
sidetrack operation, this well is currently drilling at an approximate depth of
16,000 feet.
Wedge Prospect. This is a seismic generated Temblor prospect located
northwest of and adjacent to the East Lost Hills deep gas discovery. During the
first fiscal quarter of 2001, we acquired approximately 17 miles of proprietary,
high effort 2D seismic data and combined this data with existing 2D seismic data
in order to refine what we interpret as the up-dip extension of the East Lost
Hills structure. Our seismic interpretation shows that the same trend that has
proven productive at East Lost Hills, extends approximately ten miles further
northwest of the East Lost Hills Area of Mutual Interest and can be encountered
as much as 3,000 feet higher. We currently control approximately 14,000 gross
and approximately 13,000 net acres here. Our approach is to sell down our
working interest and retain a 25% to 40% working interest in this prospect.
Bulldog Prospect. This project is a 2D seismic generated light oil and
natural gas prospect located adjacent to the giant Kettleman North Dome field in
the San Joaquin Basin. This prospect can be best characterized as a classic
footwall fault trap, similar to the many known footwall fault trap accumulations
that have produced significant quantities of hydrocarbons throughout the San
Joaquin basin. We currently control approximately 16,000 gross and approximately
15,000 net acres here. We are attempting to obtain industry participation to
drill a 14,000 foot test well, with the intent of retaining a 25% to 40% working
interest in this prospect.
9
Additional activities located in the Rocky Mountains include the following
projects:
Montana Foothills Project. This extensive natural gas project, located in
northwestern Montana, is part of the southern Alberta basin, and has been
classified as the southern extension of the Alberta Foothills producing
province. The USGS and numerous Canadian industry sources have estimated
significant recoverable reserves for the Montana portion of the Foothills trend.
Based on extensive geologic and seismic analysis, we have identified numerous
structural culminations of similar size, geometry, and kinematic history as
prolific Canadian foothills fields, such as Waterton and Turner Valley.
The geologic setting and hydrocarbon potential of this area was not
recognized by industry until the early 1980s. At that time, a number of
companies initiated exploration efforts, including Exxon, Arco, Chevron, Amoco,
Conoco, and Unocal. This initial exploration phase culminated in a deep test by
Unocal in 1989. Although this well was unsuccessful, recent improvements in
seismic imaging and pre-stack processing have resulted in our belief that this
test well was drilled based upon a misleading seismic image and was located
significantly off-structure.
We currently control approximately 262,000 gross and 224,000 net acres in
this project and are currently presenting this project to potential industry
participants in order to sell down our working interest and generate exploratory
drilling activity. We anticipate retaining a working interest in this project of
between 20% and 40%.
Cumberland Project. The Cumberland project, located within the Overthrust
Belt of southwest Wyoming, is a gas-condensate exploration prospect in Uinta
County, Wyoming. Cumberland is at the northern end of the historically
productive Nugget trend on the hangingwall of the Absaroka thrust fault. The
prospect lies along trend of and just north of Ryckman Creek field, which was
discovered in 1975.
The Cumberland prospect can be best characterized as a classic hangingwall
anticlinal trap, similar to the many known Nugget sandstone accumulations that
have produced significant quantities of hydrocarbons from Pineview to Ryckman
Creek. The Cumberland culmination is the result of structural deformation
related to back-thrusting off of the Absaroka thrust, a similar geometry to that
exhibited at East Painter Reservoir field.
We currently control approximately 5,400 gross and net acres in the project
and are attempting to secure industry participation in the drilling of the
initial exploration test well in the prospect. We anticipate retaining a working
interest in this prospect of 25% to 40 %.
Mallard Project. The Mallard project, located within the Overthrust Belt of
SW Wyoming, is a sour gas and condensate exploration prospect in Uinta County,
Wyoming. Mallard is within the Paleozoic trend of productive fields on the
Absaroka thrust. Mallard directly offsets and is adjacent to the giant sour gas
field of Whitney Canyon-Carter Creek.
We interpret the Mallard prospect to occupy a separate fault block,
adjacent to the Whitney Canyon field, generated by a complex imbricated system
of faults spaying off of the Absaroka thrust. Paleozoic targets at the Mallard
prospect include the Mississippian Mission Canyon, as well as numerous secondary
objectives in the Ordovician, Pennsylvanian, and Permian sections.
10
We currently control approximately 3,900 gross and net acres in the
project. We continue to refine our geological and geophysical model for the
prospect, and will be presenting the project to potential industry partners for
joint participation in the drilling of an initial exploration test well. We
anticipate retaining a working interest in this project of between 25% and 40%.
Results of Operations
The quarter ended February 28, 2002 compared with the quarter ended
February 28, 2001.
Operations during the quarter ended February 28, 2002 resulted in a net
loss of $280,102 compared to a net loss of $35,145 for the quarter ended
February 28, 2001. The increase in operating net loss is due largely to a
reduction in oil and gas revenues from production at the East Lost Hills #1
well.
Oil and Gas Revenues and Expenses. For the quarter ended February 28, 2002,
we recorded $19,892 from the sale of 9,336 mcf of natural gas for an average
price of $2.13 per mcf and $5,951 from the sale of 389 bbls of hydrocarbon
liquids for an average price of $15.29 per barrel during the quarter ended
February 28, 2002. In addition, we recorded overriding royalty revenues of $213.
Operating expenses during this period were $6,794. For the quarter ended
February 28, 2001, we recorded $224,834 from the sale of 17,800 mcf of natural
gas for an average price of $12.63 per mcf and $27,527 from the sale of 1,070
bbls of hydrocarbon liquids for an average price of $25.73 per barrel. Operating
expenses were $3,052 for this period. Production commenced at the East Lost
Hills #1 well on February 6, 2001.
Depreciation, Depletion and Amortization. We recorded no depreciation,
depletion and amortization expense from oil and gas properties for the quarter
ended February 28, 2002. Although the East Lost Hills #1 began producing in
2001, we recorded an impairment against our entire amortizable full cost pool at
August 31, 2001, and therefore have no costs to amortize. No additional
impairment was recorded against our oil and gas properties for the quarter ended
February 28, 2002. We recorded $16,065 in depreciation, depletion and
amortization from oil and gas properties for the quarter ended February 28,
2001. This amount was computed using reserve report estimates based on the best
information available at the time. We recorded $3,730 and $4,813 in depreciation
expense associated with capitalized office furniture and equipment during the
quarters ended February 28, 2002 and February 28, 2001, respectively.
General and Administrative Expense. We incurred $328,142 and $320,781 in
general and administrative expenses during the quarters ended February 28, 2002
and February 28, 2001, respectively. We recorded increases in salary related
expenses from additional personnel and higher salaries, funding and acquisition
costs and an increase in rent expense. These increases were partially offset by
decreases in travel, legal, and shareholder and investor relations expenses.
The six months ended February 28, 2002 compared with the six months ended
February 28, 2001.
Oil and Gas Revenues and Expenses. For the six months ended February 28,
2002, we recorded $40,887 from the sale of 18,321 mcf of natural gas for an
average price of $2.23 per mcf and $14,650 from the sale of 874 bbls of
hydrocarbon liquids for an average price of $16.76 per barrel. In addition, we
recorded overriding royalty revenues of $16,775 dating back to the commencement
of production of the ELH #1 well. Operating expenses during this period were
$31,961. For the six months ended February 28, 2001, we recorded $224,834 from
the sale of 17,800 mcf of natural gas for an average price of $12.63 per mcf and
$27,527 from the sale of 1,070 bbls of hydrocarbon liquids for an average price
of $25.73 per barrel. Operating expenses were $3,052 for this period. Production
commenced at the East Lost Hills #1 well on February 6, 2001.
Depreciation, Depletion and Amortization. We recorded no depreciation,
depletion and amortization expense from oil and gas properties for the six
months ended February 28, 2002. Although the East Lost Hills #1 began producing
in 2001, we recorded an impairment against our entire amortizable full cost pool
at August 31, 2001, and therefore have no costs to amortize. We recorded $16,065
in depreciation, depletion and amortization from oil and gas properties for the
six months ended February 28, 2001. This amount was computed using reserve
report estimates based on the best information available at the time. We
recorded $7,226 and $8,911 in depreciation expense associated with capitalized
office furniture and equipment during the six months ended February 28, 2002 and
February 28, 2001, respectively.
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General and Administrative Expense. We incurred $652,285 and $585,047 in
general and administrative expenses during the six months ended February 28,
2002 and February 28, 2001, respectively. The increase results primarily from
increases in salary related expenses from increasing personnel and salaries,
costs associated with our first independent reserve analysis and an increase in
rent expense. These increases were partially offset by decreases in travel,
legal, and shareholder and investor relations expenses.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds; Recent Sales Of Unregistered
Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders at the
annual meeting of stockholders which was held on March 13, 2002:
The stockholders voted to re-elect D. Scott Singdahlsen, S.L.
Hutchison and Bryce W. Rhodes to continue as directors of the Company. A
total of 14,049,943 votes were represented with respect to this matter.
13,938,618 (99.2%) of the shares voted for each nominee, no shares voted
against any nominee, and the remaining shares abstained from voting.
A proposal to ratify the selection of Wheeler Wasoff, P.C. as
Certified Public Accountants was approved by the stockholders. A total of
14,049,943 votes were represented with a total of 13,993,297 (99.6%) shares
voting for the proposal, 50,830 shares voting against the proposal, and
5,816 shares abstaining from voting.
Item 5. Other Information
None
12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) During the Quarter ended February 28, 2002, we filed two reports on
Form 8-K:
A Form 8-K was filed on December 17, 2001 reporting a news release
dated December 14, 2001.
A Form 8-K was filed on January 14, 2002 reporting a news release
dated January 11, 2002.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Signatures Title Date
---------- ----- ----
/s/ D. Scott Singdahlsen President, Chief Executive Officer April 15, 2002
------------------------- and Chairman Of The Board
D. Scott Singdahlsen
/s/ Andrew P. Calerich Vice-President and Chief Financial April 15, 2002
----------------------- Officer
Andrew P. Calerich
13