SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2002
[ ] 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.)
475 17th Street, Suite 1400
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___
22,662,000 shares of common stock $.01 par value were outstanding as of
November 12, 2002.
FORM 10-Q
1st QTR.
FY 2003
INDEX
PART I FINANCIAL INFORMATION
PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 2002 and
June 30, 2002 (unaudited).................................... 1
Consolidated Statements of Operations -
Three Months Ended
September 30, 2002 and 2001 (unaudited)...................... 3
Consolidated Statement of Stockholders' Equity
and Comprehensive Income (loss)
Year Ended June 30, 2002 and
Three Months Ended September 30, 2002 (unaudited)............ 4
Consolidated Statements of Cash Flows -
Three Months Ended
September 30, 2002 and 2001 (unaudited)...................... 5
Notes to Consolidated Financial Statements (unaudited)....... 6
Item 2. Management's Discussion and Analysis
Or Plan of Operations........................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 20
Item 4. Controls and Procedures...................................... 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................ 21
Item 2. Changes in Securities........................................ 21
Item 3. Defaults upon Senior Securities.............................. 21
Item 4. Submission of Matters to a Vote of
Security Holders............................................. 21
Item 5. Other Information............................................ 21
Item 6. Exhibits and Reports on Form 8-K............................. 21
The terms "Delta", "Company", "we", "our", and "us" refer to Delta Petroleum
Corporation unless the context suggests otherwise.
i
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
September 30, June 30,
2002 2002
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,894,000 $ 1,024,000
Marketable securities available for sale 573,000 485,000
Trade accounts receivable, net of
allowance for doubtful accounts of $50,000 at
September 30, 2002 and June 30, 2002 3,553,000 4,713,000
Prepaid assets 993,000 785,000
Other current assets 379,000 442,000
----------- -----------
Total current assets 8,392,000 7,449,000
----------- -----------
Property and Equipment:
Oil and gas properties, at cost (using
the successful efforts method
of accounting) 74,863,000 73,002,000
Less accumulated depreciation and depletion (8,716,000) (7,018,000)
----------- -----------
Net property and equipment 66,147,000 65,984,000
----------- -----------
Long term assets:
Deferred financing costs 217,000 260,000
Partnership net assets 215,000 384,000
----------- -----------
Total long term assets 432,000 644,000
$74,971,000 $74,077,000
=========== ===========
1
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
- -----------------------------------------------------------------------------
September 30, June 30,
2002 2002
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,651,000 $ 3,498,000
Accounts payable 3,414,000 3,488,000
Derivative instruments 949,000 -
Current foreign tax payable 703,000 703,000
Other accrued liabilities 368,000 31,000
------------ -----------
Total current liabilities 7,085,000 7,720,000
------------ -----------
Long-term Liabilities:
Asset retirement obligation 651,000 -
Long-term debt, net 22,933,000 21,441,000
------------ -----------
Total long-term liabilities 23,584,000 21,441,000
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
22,659,000 shares at September 30, 2002
and 22,618,000 at June 30, 2002 227,000 226,000
Additional paid-in capital 76,564,000 76,514,000
Put option on Delta stock (2,886,000) (2,886,000)
Accumulated other comprehensive income (867,000) (85,000)
Accumulated deficit (28,736,000) (28,853,000)
------------ -----------
Total stockholders' equity 44,302,000 44,916,000
------------ -----------
Commitments
$74,971,000 $74,077,000
============ ===========
See accompanying notes to consolidated financial statements.
2
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- -----------------------------------------------------------------------------
Three Months Ended
September 30, September 30,
2002 2001
------------- -------------
Revenue:
Oil and gas sales $ 5,467,000 $ 2,416,000
Realized loss on derivative instruments, net (33,000) -
Operating fee income 214,000 27,000
----------- -----------
Total revenue 5,648,000 2,443,000
Operating expenses:
Lease operating expenses 2,226,000 721,000
Depreciation and depletion 1,685,000 793,000
Exploration expenses 7,000 72,000
Dry hole costs - 125,000
Professional fees 177,000 324,000
General and administrative 908,000 286,000
Stock option expense 11,000 17,000
----------- -----------
Total operating expenses 5,014,000 2,338,000
----------- -----------
Income from operations 634,000 105,000
Other income and expenses:
Other income 11,000 3,000
Interest and financing costs (508,000) (352,000)
----------- -----------
Total other income and expenses (497,000) (349,000)
Income (loss) before cumulative effect of a
Change in accounting principle 137,000 (244,000)
Cumulative effect on prior years of FAS 143 -
Accounting for Asset Retirement Obligations (20,000)
-----------
Net income (loss) $ 117,000 $ (244,000)
=========== ===========
Net income (loss) per common share:
Basic 0.01 (0.02)
=========== ===========
Diluted ** (0.02)*
=========== ===========
* Potentially dilutive securities outstanding were anti-dilutive
** Less than $.01 per share
See accompanying notes to consolidated financial statements.
3
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity and Comprehensive Income (Loss)
Year ended June 30, 2002 and Three Months Ended September 30, 2002
(Unaudited)
- -----------------------------------------------------------------------------
Accumu-
lated
other
compre-
Additional Put Option hensive
Common Stock paid-in on income Comprehensive Accumulated
Shares Amount capital Delta stock (loss) income (loss) deficit Total
---------- -------- ----------- ------------ --------- -------------- ----------- ----------
Balance, July 1, 2001 11,160,000 $112,000 40,700,000 69,000 (22,600,000) 18,281,000
Comprehensive loss:
Net loss - - - (6,253,000) (6,253,000) (6,253,000)
-----------
Other comprehensive loss,
net of tax
Unrealized loss on equity
securities - - - (154,000) (154,000) (154,000)
-----------
Comprehensive loss - - - (6,407,000)
===========
Stock options granted as
compensation - - 143,000 - - 143,000
Fair value of warrants issued
for common stock
investment agreement - - - - -
Warrant issued in exchange
for common stock
investment agreement - - - - -
Shares issued for cash,
net of commissions 72,000 1,000 224,000 - - 225,000
Shares issued for cash
upon exercise of options 266,000 2,000 405,000 - - 407,000
Shares issued for services 14,000 48,000 48,000
Shares issued for oil and
gas properties 9,703,000 97,000 26,862,000 - - 26,959,000
Put option on Delta stock - - 2,886,000 (2,886,000) -
Shares issued for all
outstanding shares of
Piper Petroleum Company 1,377,000 14,000 5,220,000 5,234,000
Shares issued for debt 51,000 - 157,000 157,000
Shares reacquired and
retired (25,000) - (131,000) - - (131,000)
---------- -------- ----------- ----------- ---------- ------------ ----------
Balance, June 30, 2002 22,618,000 226,000 76,514,000 (2,886,000) (85,000) (28,853,000) 44,916,000
Comprehensive loss:
Net income - - - 117,000 117,000 117,000
-----------
Other comprehensive loss,
net of tax
Unrealized gain on
equity securities - - - (782,000) (782,000) (782,000)
-----------
Comprehensive loss - - - (665,000)
===========
Stock options granted as
compensation - - 11,000 - - 11,000
Shares issued upon exercise
of options 41,000 1,000 39,000 - - 40,000
---------- -------- ----------- ----------- --------- ------------ ----------
Balance, September 30, 2002 22,659,000 $227,000 $76,564,000 ($2,886,000) ($867,000) (28,736,000) 44,302,000
========== ======== =========== =========== ========== ============ ==========
See accompanying notes to consolidated financial statements.
4
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- -----------------------------------------------------------------------------
Three Months Ended
September 30, September 30,
2002 2001
------------- -------------
Cash flows operating activities:
Net income (loss) $ 117,000 $ (244,000)
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Depreciation and depletion 1,685,000 793,000
Stock option expense 11,000 17,000
Amortization of financing costs 101,000 141,000
Dry hole costs - 125,000
Cumulative effect on change in accounting principle 20,000 -
Net changes in operating assets and operating
liabilities:
Decrease in trade accounts receivable 1,083,000 143,000
Increase in prepaid assets (208,000) (197,000)
(Increase) decrease in other current assets 4,000 (7,000)
Increase (decrease) in accounts payable trade (74,000) 401,000
Increase in other accrued liabilities 416,000 30,000
----------- ----------
Net cash provided by operating activities $ 3,155,000 $1,202,000
----------- ----------
Cash flows from investing activities:
Additions to property and equipment, net (1,139,000) (386,000)
Increase in long term assets 169,000 (48,000)
----------- ----------
Net cash used in investing activities (970,000) (434,000)
----------- ----------
Cash flows from financing activities:
Stock issued for cash upon exercise of options 40,000 -
Repayment of borrowings and financing costs (355,000) (841,000)
----------- ----------
Net cash provided by financing activities (315,000) (841,000)
----------- ----------
Net increase in cash and cash equivalents 1,870,000 (73,000)
----------- ----------
Cash at beginning of period 1,024,000 518,000
----------- ----------
Cash at end of period $ 2,894,000 $ 445,000
=========== ==========
Supplemental cash flow information -
Cash paid for interest and financing costs $ 310,000 $ 210,000
=========== ==========
See accompanying notes to consolidated financial statements.
5
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q 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-K. 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-K for the year ended June 30, 2002, previously filed with the
Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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 the reported amounts of revenues and expenses during the
reporting period. Significant estimates include oil and gas reserves, bad
debts, oil and gas properties, marketable securities, income taxes,
derivatives, contingencies and litigation. Actual results could differ from
these estimates.
(2) Marketable Securities
The Company classifies its investment securities as available-for-sale
securities. Pursuant to Statement of Financial Accounting Standards No. 115
(SFAS 115), such securities are measured at fair market value in the financial
statements with unrealized gains or losses recorded in other comprehensive
income. At the time securities are sold or otherwise disposed of, gains or
losses are included in earnings.
6
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
Cumulative
Unrealized Estimated
Cost Gain (loss) Market Value
-------- ----------- ------------
September 30, 2002
Bion Environmental Technologies, Inc. $152,000 $(117,000) $ 35,000
Tipperary Oil & Gas Company $418,000 $ 120,000 $538,000
-------- --------- --------
$570,000 $ 3,000 $573,000
-------- --------- --------
Cumulative
Unrealized Estimated
Cost Gain (loss) Market Value
-------- ----------- ------------
June 30, 2002
Bion Environmental Technologies, Inc. $152,000 $(92,000) $ 60,000
Tipperary Oil & Gas Company $418,000 $ 7,000 $425,000
-------- --------- --------
$570,000 $(85,000) $485,000
-------- --------- --------
(3) Recently Issued Accounting Standards and Pronouncements
Statement 145, Recission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections (SFAS No. 145) was issued
in April 2002. This statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of income taxes. As a result, the criteria in APB 30
will now be used to classify those gains and losses. Any gain or loss on the
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB 30 for classification
as an extraordinary item shall be reclassified. The provisions of this
Statement are effective for fiscal years beginning after January 1, 2003. The
Company does not believe this statement will have a material impact to the
Financial Statements.
7
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
Statement 146, Accounting for Exit or Disposal Activities (SFAS No. 146),
was issued in June 2002. SFAS No. 146 addresses significant issues regarding
the recognition, measurement and reporting of disposal activities, including
restructuring activities that are currently accounted in EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Activity." SFAS No.
146 will be effective in January 2003. The Company is currently assessing the
impact of SFAS No. 146.
(4) Asset Retirement Obligations
In July 2001, the Financial Accounting Standards Board approved for
issuance SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS
No. 143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset
and is effective for fiscal years beginning after June 15, 2002. The Company
adopted SFAS No. 143 on July 1, 2002 and recorded a liability for asset
retirement obligations of $644,000 (using an 8% discount rate) and a
cumulative effect on change in accounting principle on prior years of $20,000.
For the three months ended September 30, 2002, the Company recognized $7,000
of acretion on the liability as a component of depletion expense.
(5) Unproved Undeveloped Offshore California Properties
The Company has ownership interests ranging from 2.49% to 75% in five
unproved undeveloped offshore California oil and gas properties with aggregate
carrying values of $9,722,000, at September 30, 2002 and June 30, 2002. These
property interests are located in proximity to existing producing federal
offshore units near Santa Barbara, California and represent the right to
explore for, develop and produce oil and gas from offshore federal lease
units. Preliminary exploration efforts on these properties have occurred and
the existence of substantial quantities of hydrocarbons has been indicated.
The recovery of the Company's investment in these properties will require
extensive exploration and development activities (and costs) that cannot
proceed without certain regulatory approvals that have been delayed and is
subject to other substantial risks and uncertainties.
Based on the preliminary indicated levels of hydrocarbons present from
drilling operations conducted in the past, the Company believes the fair value
of its property interests are in excess of their carrying value at September
30, 2002 and June 30, 2002 and that no impairment in the carrying value has
occurred. Should the required regulatory approvals not be obtained or plans
for exploration and development of the properties not continue, the carrying
value of the properties would likely be impaired and written off.
8
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
(6) Long Term Debt
September 30, 2002 June 30, 2002
------------------ -------------
A $18,918,000 $18,918,000
B 5,666,000 6,021,000
----------- -----------
$24,584,000 $24,969,000
Current Portion 1,556,000 3,498,000
----------- -----------
Long-Term Portion $23,028,000 $21,441,000
----------- -----------
A. On May 31, 2002, the Company obtained a new $20 million credit facility
with Bank of Oklahoma and Local Oklahoma Bank (the "Banks). The facility has
a variable interest rate component based on the total debt outstanding, (6.25%
at September 30, 2002) and a monthly commitment reduction of $82,000 as of
September 30, 2002. The proceeds from this facility were used for the
acquisition of Castle's properties and to pay off the remaining US Bank debt.
The loan is collateralized by substantially all of Delta's oil and gas
properties excluding the oil and gas properties collateralized under the
Kaiser-Francis Oil Company ("KFOC") note discussed below. The Company's
borrowing base and monthly commitment amount will be redetermined at least
semi-annually. If as a result of any such monthly commitment reduction or
reduction in the amount of our borrowing base, the total amount of our
outstanding debt ever exceeds the amount of the revolving commitment then in
effect, then within 30 days after we are notified by the Bank of Oklahoma, we
must make a mandatory prepayment of principal that is sufficient to cause our
total outstanding indebtedness to not exceed our borrowing base. The Company
is in compliance with its quarterly debt covenants and restrictions.
B. On December 1, 1999, the Company borrowed $8,000,000 at prime plus 1-1/2%
from KFOC). In addition, the Company will be required to pay a fee of
$250,000 on June 1, 2003 if the loan has not been retired prior to this date.
The proceeds from this loan were used to pay off existing debt and the balance
of the Point Arguello Unit and New Mexico acquisitions. The Company is
required to make minimum monthly payments of principal and interest equal to
the greater of $150,000 or 75% of net cash flows from the acquisitions
completed on November 1, 1999 and December 1, 1999. The loan is
collateralized by the Company's oil and gas properties acquired with the loan
proceeds.
9
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
(7) Stockholder's Equity
Swartz Agreement
On July 21, 2000, the Company entered into an investment agreement with
Swartz Private Equity, LLC ("Swartz") and issued Swartz a warrant to purchase
500,000 shares of common stock exercisable at $3.00 per share until May 31,
2005. The Investment Agreement was amended and restated on April 10, 2002. A
warrant to purchase 150,000 shares of the Company's common stock at $3.00 per
share for five years was also issued to another unrelated company as
consideration for its efforts in this transaction and have been recorded as an
adjustment to equity.
The investment agreement entitles the Company to issue and sell ("Put")
up to $20 million of its common stock to Swartz, subject to a formula based on
the Company's stock price and trading volume over a three year period
following the effective date of a registration statement covering the resale
of the shares to the public. Pursuant to the terms of this investment
agreement the Company is not obligated to sell to Swartz all of the common
stock and additional warrants referenced in the agreement nor does the Company
intend to sell shares and warrants to the entity unless it is beneficial to
the Company.
To exercise a Put, the Company must have an effective registration
statement on file with the Securities and Exchange Commission covering the
resale to the public by Swartz of any shares that it acquires under the
investment agreement. Swartz will pay the Company the lesser of the market
price for each share minus $0.25, or 91% of the market price for each share of
common stock under the Put. The market price of the shares of common stock
during the 20 business days immediately following the date the Company
exercises a Put is used to determine the purchase price Swartz will pay and
the number of shares the Company will issue in return.
The Company cannot determine the exact number of shares of its common
stock issuable under the investment agreement and the resulting dilution to
its existing shareholders, which will vary with the extent to which the
Company utilizes the investment agreement and the market price of its common
stock.
On September 4, 2002, Swartz exercised 100,000 warrants in a cashless
exercise transaction, which was permitted in the investment agreement. As a
result of this exercise, Swartz received 20,761 shares of the Company's common
stock.
10
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
(8) Commodity Derivative Instruments and Hedging Activities
The Company periodically enters into commodity price risk transactions to
manage its exposure to oil and gas price volatility. These transactions may
take the form of futures contracts, swaps or options. All transactions are
accounted for in accordance with requirements of SFAS No. 133 which the
Company adopted on January 1, 2001. Accordingly, unrealized gains and losses
related to the change in fair market value of derivative contracts which
qualify and are designated as cash flow hedges are recorded as other
comprehensive income or loss and such amounts are reclassified to oil and gas
sales revenues as the associated production occurs. Derivative contracts that
do not qualify for hedge accounting treatment are recorded as derivative
assets and liabilities at market value in the consolidated balance sheet, and
the associated unrealized gains and losses are recorded as current income or
expense in the consolidated statement of operations. While such derivative
contracts do not qualify for hedge accounting, management believes these
contracts can be utilized as an effective component of commodity price risk
activities.
As of September 30, 2002, the Company recorded a derivative liability of
approximately $870,000 for the fair market value of its derivative instruments
designated as cash flow hedges and a corresponding loss in other comprehensive
income. The hedging realized net losses were $33,000 for the three months
ended September 30, 2002.
The Company also recorded a liability of approximately $79,000
representing the fair value of derivatives that do not qualify as hedges.
As of September 30, 2002, the Company had approximately 61,500 Bbls of
oil and 1,220,000 Mcf of natural gas subject to commodity price risk contracts
for the remainder of fiscal 2003. The fiscal 2003 contracts have weighted
average floor prices of $25.61 per barrel and $3.03 per Mmbtu, with weighted
average ceiling prices of $25.61 per barrel and $3.96 per Mmbtu, respectively.
The Company has approximately 18,000 Bbls of oil and 386,000 Mcf of natural
gas subject to commodity price risk contracts for fiscal 2004. The fiscal 2004
contracts have weighted average floor prices of $25.02 per barrel and $3.00
per Mmbtu, with weighted average ceiling prices of $25.02 per barrel and $4.50
per Mmbtu, respectively. The contracts discussed above represent both the
Company's hedge and non-hedge positions as of September 30, 2002.
(9) Comprehensive Income
Comprehensive income (loss) includes all changes in equity during a
period. The components of comprehensive income (loss) for the three months
ended September 30, 2002 and 2001 are as follows:
11
DELTA PETROLEUM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Months Ended September 30, 2002 and 2001
(Unaudited)
- -----------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net Income (loss) $ 117,000 $ (244,000)
Other comprehensive income
Change in fair value of derivative (870,000) -
hedging instruments
Unrealized gain (loss) on marketable
Securities $ 88,000 (126,000)
------------- --------------
Other comprehensive income (782,000) (126,000)
------------- --------------
Comprehensive income (loss) $ (665,000) $ (370,000)
------------- --------------
(10) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
September 30,
-------------
2002 2001
---- ----
Numerator:
Numerator for basic and diluted
earnings per share - income available
to common stockholders $ 117,000 $ (244,000)
------------ ------------
Denominator:
Denominator for basic earnings
per share-weighted average shares
outstanding 22,629,000 11,164,000
Effect of dilutive securities-
stock options and warrants 2,584,000 *
------------ ------------
Denominator for diluted
earnings per common share 25,213,000 11,164,000
------------ ------------
Basic earnings per common share $ .01 $ (.03)
------------ ------------
Diluted earnings per common share $ ** $ (.02)
* Potentially dilutive securities outstanding were anti-dilutive.
** Less than $.01 per share
12
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 included in
the following text as well as other risks previously discussed in the
Company's annual report on Form 10-K.
Critical Accounting Policies and Estimates
------------------------------------------
The discussion and analysis of the Company's financial condition and
results of operations were based upon the consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses. Our significant accounting
policies are described in Note 1 to our consolidated financial statements
filed in Form 10-K for June 30, 2002. In response to SEC Release No. 33-8040,
"Cautionary Advise Regarding Disclosure About Critical Accounting Policies,"
we have identified certain of these policies as being of particular importance
to the portrayal of our financial position and results of operations and which
require the application of significant judgment by management. These are
discussed in Form 10-K for June 30, 2002. We analyze our estimates, including
those related to oil and gas reserves, bad debts, oil and gas properties,
marketable securities, income taxes, derivatives, contingencies and
litigation, and base our estimates on historical experience and various other
assumptions that we believe reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of the
Company's financial statements.
Recently Issued Accounting Standards and Pronouncements
-------------------------------------------------------
Statement 145, Recission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections (SFAS No. 145) was issued
in April 2002. This statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of income taxes. As a result, the criteria in APB 30
will now be used to classify those gains and losses. Any gain or loss on the
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB 30 for classification
as an extraordinary item shall be reclassified. The provisions of this
Statement are effective for fiscal years beginning after January 1, 2003. The
Company does not believe this statement will have a material impact to the
Financial Statements.
13
Statement 146, Accounting for Exit or Disposal Activities (SFAS No. 146),
was issued in June 2002. SFAS No. 146 addresses significant issues regarding
the recognition, measurement and reporting of disposal activities, including
restructuring activities that are currently accounted in EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Activity." SFAS No.
146 will be effective in January 2003. The Company is currently assessing the
impact of SFAS No. 146.
Liquidity and Capital Resources
-------------------------------
Liquidity is a measure of a company's ability to access cash. We have
historically addressed our long-term liquidity requirements through the
issuance of debt and equity securities, when market conditions permit, and
most recently through the use of a new bank credit facility and cash provided
by operating activities. The prices we receive for future oil and natural gas
production and the level of production have significant impacts on operating
cash flows. We are unable to predict with any degree of certainty the prices
we will receive for our future oil and gas production. We continue to examine
alternative sources of long-term capital, including bank borrowings, the
issuance of debt instruments, the sale of common stock, sales of non-strategic
assets, and joint venture financing. Availability of these sources of capital
and, therefore, our ability to execute our operating strategy will depend upon
a number of factors, some of which are beyond our control.
Working Capital
---------------
At September 30, 2002, we had working capital of $1,402,000 compared to a
working capital deficit of $271,000 at June 30, 2002. Our current assets
include trade accounts receivable of $3,553,000. Our current liabilities
include the current portion of long-term debt of $1,556,000 at September 30,
2002. The decrease in the current portion of long-term debt and increase in
working capital from June 30, 2002 is primarily attributed the reduction of
our monthly commitment under our current bank facility.
Cash Provided by (Used in) Operating Activities
-----------------------------------------------
During the three months ended September 30, 2002, we had cash provided by
operating activities of $3,155,000 compared to cash provided by operating
activities of $1,202,000 during the same period ended September 30, 2001.
This increase in operating activities is a result of increased cash flow from
the properties acquired from Castle Energy Corporation ("Castle") and Piper
Petroleum Company ("Piper") during fiscal year 2002.
14
Offshore Undeveloped Properties
-------------------------------
On January 9, 2002, we and several other plaintiffs filed a lawsuit in
the United States Court of Federal Claims in Washington, D.C. alleging that
the U.S. Government has materially breached the terms of forty undeveloped
federal leases, some of which are part of our Offshore California properties.
The suit seeks compensation for the lease bonuses and rentals paid to the
Federal Government, exploration costs and related expenses. The total amount
claimed by all lessees for bonuses and rentals exceeds $1.2 billion, with
additional amounts for exploration costs and related expenses. Our claim
(including the claim of our subsidiary Amber Resources Company) for lease
bonuses and rentals paid by us and our predecessors is in excess of
$152,000,000. In addition, our claim for exploration costs and related
expenses will also be substantial. The Complaint is based on allegations by
the collective plaintiffs that the United States has materially breached the
terms of certain of their Offshore California leases by attempting to deviate
significantly from the procedures and standards that were in effect when the
leases were entered into, and by failing to carry out its own obligations
relating to those leases in a timely and fair manner. More specifically, the
plaintiffs have alleged that the judicial determination in the California v.
Norton case that a 1990 amendment to the Coastal Zone Management Act required
the Government to make a consistency determination prior to granting lease
suspension requests in 1999 constitutes a material change in the procedures
and standards that were in effect when the leases were issued. The plaintiffs
have also alleged that the United States has failed to afford them the timely
and fair review of their lease suspension requests which has resulted in
significant, continuing and material delays to their exploratory and
development operations. The forty undeveloped leases are located in the
Offshore Santa Maria Basin off the coast of Santa Barbara and San Luis Obispo
counties, and in the Santa Barbara Channel off Santa Barbara and Ventura
counties. None of these leases are currently impaired, but in the event that
there is some future adverse ruling by the California Coastal Commission under
the Coastal Zone Management Act and we decide not to appeal such ruling to the
Secretary of Commerce, or the Secretary of Commerce either refuses to hear our
appeal of any such ruling or ultimately makes a determination adverse to us,
it is likely that some or all of these leases would become impaired and
written off at that time. In addition, it should be noted that our pending
litigation against the United States is predicated on the ruling of the lower
court in California v. Norton. The United States has appealed the decision of
the lower court to the 9th Circuit Court of Appeals. In the event that the
United States is not successful in its appeal(s) of the lower court's decision
in the Norton case and the pending litigation with us is not settled, it would
be necessary for us to reevaluate whether the leases should be considered
impaired at that time. As the ruling in the Norton case currently stands, the
United States has been ordered to make a consistency determination under the
Coastal Zone Management Act, but the leases are still valid. If through the
appellate process the leases are found not to be valid for some reason, or if
the United States is finally ordered to make a consistency determination and
either does not do so or finds that development is inconsistent with the
Coastal Zone Management Act, it would appear that the leases would become
impaired even though Delta would undoubtedly proceed with its litigation. It
is also possible that other events could occur during the appellate process
that would cause the leases to become impaired, and we will continuously
evaluate those factors as they occur.
15
Offshore Producing Properties
-----------------------------
Point Arguello Unit. Pursuant to a financial arrangement between Whiting
and us, we hold what is essentially the economic equivalent of a 6.07% working
interest, which we call a "net operating interest", in the Point Arguello Unit
and related facilities. In layman's terms, the term "net operating interest"
is defined in our agreement with Whiting as being the positive or negative
cash flow resulting to the interest from a seven step calculation which in
summary subtracts royalties, operating expenses, severance taxes, production
taxes and ad valorem taxes, capital expenditures, Unit fees and certain other
expenses from the oil and gas sales and certain other revenues that are
attributable to the interest. Within this unit are three producing platforms
(Hidalgo, Harvest and Hermosa) which are operated by Arguello, Inc., a
subsidiary of Plains Resources, Inc. In an agreement between Whiting and
Delta, Whiting agreed to retain all of the abandonment costs associated with
our interest in the Point Arguello Unit and the related facilities.
We anticipate that we will participate in the drilling of four wells in
fiscal 2003. Each well will cost approximately $2.8 million ($170,000 to our
interest). We anticipate the drilling costs to be paid through current
operations or additional financing.
Onshore Producing Properties
----------------------------
We estimate our capital expenditures for onshore properties to be
approximately $6,000,000 for the year ending June 30, 2003. However, we are
not obligated to participate in future drilling programs and will not enter
into future commitments to do so unless management believes we have the
ability to fund such projects.
Agreement with Swartz
---------------------
On July 21, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC ("Swartz") and issued Swartz a warrant to purchase 500,000
shares of common stock exercisable at $3.00 per share until May 31, 2005. The
Investment Agreement was amended and restated on April 10, 2002. A warrant to
purchase 150,000 shares of the Company's common stock at $3.00 per share for
five years was also issued to another unrelated company as consideration for
its efforts in this transaction and has been recorded as an adjustment to
equity.
The investment agreement entitles us to issue and sell ("Put") up to $20
million of our common stock to Swartz, subject to a formula based on our stock
price and trading volume over a three year period following the effective date
of a registration statement covering the resale of the shares to the public.
Pursuant to the terms of this investment agreement the Company is not
obligated to sell to Swartz all of the common stock referenced in the
agreement nor does the Company intend to sell shares to the entity unless it
is beneficial to the Company.
16
To exercise a Put, we must have an effective registration statement on
file with the Securities and Exchange Commission covering the resale to the
public by Swartz of any shares that it acquires under the investment
agreement. The Company has filed a registration statement covering the Swartz
transaction with the SEC. Swartz will pay us the lesser of the market price
for each share minus $0.25, or 91% of the market price for each share of
common stock under the Put. The market price of the shares of common stock
during the 20 business days immediately following the date we exercise a Put
is used to determine the purchase price Swartz will pay and the number of
shares we will issue in return.
If we do not Put at least $2,000,000 worth of common stock to Swartz
during each one year period following the effective date of the Investment
Agreement, we must pay Swartz an annual non-usage fee. This fee equals the
difference between $200,000 and 10% of the value of the shares of common stock
we Put to Swartz during the one year period. The fee is due and payable on the
last business day of each one year period. Each annual non-usage fee is
payable to Swartz, in cash, within five (5) business days of the date it
accrued. We are not required to pay the annual non-usage fee to Swartz in
years we have met the Put requirements. We are also not required to deliver
the non-usage fee payment until Swartz has paid us for all Puts that are due.
If the investment agreement is terminated, we must pay Swartz the greater of
(i) the non-usage fee described above, or (ii) the difference between $200,000
and 10% of the value of the shares of common stock Put to Swartz during all
Puts to date. We may terminate our right to initiate further Puts or
terminate the investment agreement at any time by providing Swartz with
written notice of our intention to terminate. However, any termination will
not affect any other rights or obligations we have concerning the investment
agreement or any related agreement.
We cannot determine the exact number of shares of our common stock
issuable under the investment agreement and the resulting dilution to our
existing shareholders, which will vary with the extent to which we utilize the
investment agreement and the market price of our common stock.
Options
-------
We received the proceeds from the exercise of options to purchase shares
of our common stock of $40,000 and $407,000 during the three months ended
September 30, 2002 and year ended June 30, 2002, respectively.
Credit Facility
---------------
We entered into our credit facility with Bank of Oklahoma and Local
Oklahoma Bank ("Credit Facility") upon closing the Castle acquisition, which
was subsequently amended. The Credit Facility, as amended, provides for a
maximum borrowing base of $20 Million and a monthly commitment reduction of
$82,000. The Credit Facility has a variable interest rate component of prime
+1.5%/-.5% based on the total debt outstanding, (currently at prime +.5%).
As of September 30, 2002, we had outstanding borrowings and letter of
credits of $19,443,000 under the Credit Facility.
17
Our borrowing base and monthly commitment reduction will be redetermined
at least semi-annually. This determination will be based on our "Engineered
Value". This value is determined by our future net revenues discounted at the
discount rate used by the Bank of Oklahoma as of the date that the
redetermination is made using the pricing parameters used in the engineering
report that is furnished to the Bank of Oklahoma. The most recent
redetermination was effective October 1, 2002.
The foregoing does not purport to be a complete summary of the Credit
Agreement and other loan documents. Complete copies of the original credit
facility documents are filed as exhibits to our Report on Form 8-K dated May
24, 2002.
Results of Operations Three Months Ended September 30, 2002
Compared to Three Months Ended September 30, 2001
-----------------------------------------------------------
Net Earnings (Loss). Our net income for the three months ended September
30, 2002 was $117,000 compared to a net loss of $244,000 for the three months
ended September 30, 2001. The results for the three months ended September
30, 2002 and 2001 were effected by the items described in detail below.
Revenue. Total revenue for the three months ended September 30, 2002 was
$5,648,000 compared to $2,443,000 for the three months ended September 30,
2001. Oil and gas sales for the three months ended September 30, 2002 were
$5,467,000 compared to $2,416,000 for the three months ended September 30,
2001. The increase in oil and gas sales during the three months ended
September 30, 2002 resulted from the acquisitions completed during fiscal 2002
offset by a slight decrease in oil and gas prices.
Production volumes and average prices received for the three months ended
September 30, 2002 and 2001 are as follows:
Three Months Ended
September 30,
------------------
2002 2001
Onshore Offshore Onshore Offshore
------- -------- ------- --------
Production:
Oil (barrels) 64,000 62,000 27,000 69,000
Gas (Mcf) 801,000 - 149,000 -
Average Price:
Net of forward contract sales
and derivative activity
Oil (per barrel) $25.50 $ 20.03 $26.03 $ 17.41
Gas (per Mcf) $ 3.19 - $ 3.37 -
Gross of forward contract sales
and derivative activity
Oil (per barrel) $25.74 $ 20.79 $26.15 $ 17.41
Gas (per Mcf) $ 3.21 - $ 3.37 -
Revenues for 2002 include impact of derivative loss of $33,000
18
Lease Operating Expenses. Lease operating expenses for the three months
ended September 30, 2002 were $2,226,000 compared to $721,000 for the three
months ended September 30, 2001. Lease operating expense increased compared
to 2001 as a result of the acquisitions completed during fiscal 2002 compared
to fiscal 2001. On a per Bbl equivalent basis, production expenses and taxes
were $6.67 for onshore properties and $14.60 for offshore properties during
the three months ended September 30, 2002 compared to $3.84 for onshore
properties and $7.53 for offshore properties for the three months ended
September 30, 2001. Our North Dakota properties owned during first quarter
fiscal 2001 and sold during second quarter fiscal 2001 had low operating costs
compared to it's production. The properties acquired during fiscal 2002 have
more typical operating costs and as such, lease operating costs per equivalent
Bbl increase during compared to the prior year.
Depreciation and Depletion Expense. Depreciation and depletion expense
for the three months ended September 30, 2002 was $1,685,000 compared to
$793,000 for the three months ended September 30, 2001. On a per Bbl
equivalent basis, the depletion rate was $6.91 for onshore properties and
$4.83 for offshore properties during the three months ended September 30, 2002
compared to $10.82 for onshore properties and $3.30 for offshore properties
for the three months ended September 30, 2001. The properties acquired during
fiscal 2002 have longer remaining lives that what was owned previously. As
such, depletion per equivalent Bbl decreased.
Exploration Expenses and Dry Hole Expenses. Exploration expenses consist
of geological and geophysical costs and lease rentals. Exploration expenses
were $7,000 for the three months ended September 30, 2002 compared to $72,000
for the three months ended September 30, 2001. During the three months ended
September 30, 2001, we incurred $125,000 in dry hole costs relating to an
unsuccessful drilling program in South Dakota.
Professional Fees. Professional fees for the three months ended
September 30, 2002 were $177,000 compared to $324,000 for the three months
ended September 30, 2001. Professional fees consist of corporate, legal and
accounting costs related to investor relations and legal fees for
representation in negotiations and discussions with various state and federal
governmental agencies relating to the Company's undeveloped offshore
California leases.
General and Administrative Expenses. General and administrative expenses
for three months ended September 30, 2002 were $908,000 compared to $286,000
for the three months ended September 30, 2001. The increase in general and
administrative expenses is primarily attributed to increased costs associated
with the acquisitions completed in fiscal 2002 including office relocation and
additional staff.
Stock Option Expense. Stock option expense has been recorded for the
three months ended September 30, 2002 and 2001 of $11,000 and $17,000,
respectively, for options granted to certain directors and consultants at
option prices below the market price at the date of grant. The stock option
expense for fiscal 2002 and 2001 can primarily be attributed to options to
certain consultants that provide us with shareholder relations services and
options to our directors.
19
Interest and Financing Costs. Interest and financing costs for the three
months ended September 30, 2002 were $508,000 compared to $352,000 for the
three months ended September 30, 2001. The increase in interest and financing
costs can be attributed to the Castle acquisition which closed on May 31,
2002.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates and
commodity prices. We do not use financial instruments to any degree to manage
foreign currency exchange and interest rate risks and do not hold or issue
financial instruments to any degree for trading purposes. All of our revenue
and related receivables are payable in U.S. dollars.
Market Rate and Price Risk
--------------------------
Beginning in fiscal 2003, we began to hedge a portion of our oil and gas
production using swap and collar agreements. The purpose of these hedge
agreements is to provide a measure of stability to our cash flow in an
environment of volital oil and gas prices and to manage the exposure to
commodity price risk.
Interest Rate Risk
------------------
We were subject to interest rate risk on $24,584,000 of variable rate
debt obligations at September 30, 2002. The annual effect of a one percent
change in interest rates would be approximately $250,000. The interest rate
on these variable rate debt obligations approximates current market rates as
of September 30, 2002.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
have evaluated the effectiveness of the design and operation and our
disclosure controls and procedures within 90 days of the filing date of this
quarterly report, and, based upon their evaluation, our principal executive
officer and principal financial officer have concluded that these controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On January 9, 2002, we filed a lawsuit along with several other companies
in the United States Court of Federal Claims in Washington, D.C. alleging that
the U.S. Government materially breached the terms of forty undeveloped federal
leases, some of which are part of our Offshore California properties. The
Complaint is based on our collective claims that post-leasing amendments to a
federal statute governing offshore activities have now been interpreted to
alter significantly our rights and abilities to move forward with further
exploration and development activities, and that the Government has failed to
carry out its own obligations under the leases which has resulted in
substantial delays and interference in our exploration and development
efforts. The forty undeveloped leases are located in the Offshore Santa Maria
Basin off the coast of Santa Barbara and San Luis Obispo counties, and in the
Santa Barbara Channel off Santa Barbara and Ventura counties.
The suit seeks compensation for the lease bonuses and rentals paid to the
Federal Government, exploration costs, and related expenses. The total amount
claimed by all of the collective plaintiffs for bonuses and rentals exceeds
$1.2 billion, with additional amounts for exploration costs and related
expenses. Our claim (including the claim of our subsidiary Amber Resources
Company) for lease bonuses and rentals paid by us and our predecessors is in
excess of $152,000,000. In addition, we have asserted a claim for exploration
costs and related expenses. The U.S. Government has not yet filed an answer
to our Complaint.
Item 2. Changes in Securities.
During the quarter ended September 30, 2002, Delta issued securities in
transactions that were not registered under the Securities Act of 1933 as
follows:
On September 4, 2002, Swartz exercised 100,000 options in a cashless
exercise transaction, which was permitted in the investment agreement. As a
result of this exercise, Swartz received 20,761 shares of the Company's common
stock.
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. None.
(b) Reports on Form 8-K. During the quarter ended September 30, 2002,
Delta filed Reports on Form 8-K as follows:
1. Report on Form 8-K/A dated May 24, 2002, reporting information
under Item 7, filed on August 9, 2002.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amended Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DELTA PETROLEUM CORPORATION
(Registrant)
By: /s/ Roger A. Parker
-------------------------------------
Roger A. Parker
President and Chief Executive Officer
By: /s/ Kevin K. Nanke
-------------------------------------
Kevin K. Nanke, Treasurer and
Chief Financial Officer
Date: November 13, 2002
CERTIFICATIONS PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Roger A. Parker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Petroleum
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
22
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Roger A. Parker
-------------------------------------
Name: Roger A. Parker
Title: Chief Executive Officer
CERTIFICATIONS PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Kevin K. Nanke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Petroleum
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
23
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Kevin K. Nanke
--------------------------------------
Name: Kevin K. Nanke
Title: Chief Financial Officer
24
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER OF
DELTA PETROLEUM CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350
We certify that, to the best of our knowledge, the Quarterly Report on
Form 10-Q of Delta Petroleum Corporation, for the period ending September 30,
2002:
(1) complies with the requirements of Section 13(a) or 15(d) of the
Securities and Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of Delta
Petroleum Corporation.
/s/ Roger A. Parker /s/ Kevin K. Nanke
- ------------------------------ ------------------------------
Roger A. Parker Kevin K. Nanke
Chief Executive Officer Chief Financial Officer
November 13, 2002 November 13, 2002
25