Filing summary
Important period and issuer mismatch: The supplied filing is Delta Petroleum Corporation’s Form 10-Q for the quarter ended March 31, 2012, filed August 31, 2012. It is not a Par Pacific Holdings filing or a 2011 third-quarter report. The filing describes Delta as a debtor in possession; it also says the reorganized company was to be named Par Petroleum Corporation.
Business context and reporting period
Delta’s principal business was acquiring, exploring, developing, and producing oil and gas properties, primarily in the Rocky Mountain region. During the quarter it focused on restructuring under Chapter 11 and maintaining existing properties, with no significant exploration or drilling activity. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Three months ended March 31, 2012 | Comparable 2011 period |
|---|---|---|
| Oil and gas revenue | $9.91 | $17.64 |
| Operating loss | $(5.89) | $(9.18) |
| Net loss attributable to common stockholders | $(13.46) | $(27.84) |
| Basic and diluted loss per share | $(0.46) | $(1.00) |
| Cash from (used in) operations | $(3.64) | $5.61 |
| Cash used in investing | $(0.68) | $(16.80) |
- Revenue fell 44%, primarily because production declined and natural gas prices were lower. Average gas price was $3.71/Mcf versus $5.31/Mcf; average oil price rose to $89.83/bbl from $77.60/bbl. Production was 2,119 MMcfe versus 2,996 MMcfe.
- Operating expenses declined to $15.80 million from $26.81 million. General and administrative expense decreased to $4.02 million from $6.63 million, and depreciation, depletion, amortization and accretion decreased to $5.33 million from $11.95 million.
- The smaller net loss also reflected lower interest and financing expense and the absence of the prior-year derivative losses. 2012 included $5.73 million in bankruptcy-related professional and administrative costs, partly offset by a $0.39 million gain on settlement of liabilities.
- Cash and cash equivalents were $8.54 million at March 31, down from $12.86 million at year-end 2011. Current assets were $15.16 million versus current liabilities of $333.24 million, including $280.85 million of liabilities subject to compromise.
- The DIP facility had $45.0 million of borrowings and $0.75 million of accrued payment-in-kind interest outstanding. Its rate was 13% cash interest plus 6% PIK; the facility was secured by substantially all company assets. The filing lists $150 million of 7% notes and $115 million of convertible notes as subject to compromise, but the balance-sheet labels show those principal amounts in the opposite order.
Material changes, outlook, and risks
- Delta filed for Chapter 11 protection in December 2011. The filing states that bankruptcy creates substantial doubt about the company’s ability to continue as a going concern; the statements do not include adjustments that might result from the reorganization.
- After the quarter, the bankruptcy court approved Laramie Energy II as plan sponsor. The contemplated Piceance Energy joint venture would be 66.66% owned by Laramie and 33.34% by reorganized Delta. The transaction contemplated a $75 million distribution to reorganized Delta to fund bankruptcy expenses and repay secured debt. The plan was confirmed in August 2012; the filing expected completion around August 31.
- Under the plan, existing Delta shareholders were not expected to receive consideration; creditors would receive new common stock. The filing anticipated fresh-start accounting and an enterprise value of approximately $176 million, based partly on projections that management cautioned were uncertain.
- The filing says substantially all assets would be classified as held for sale in later reporting periods and expected a material write-down to fair value. It reported no impairment for the March quarter under its then-current held-for-use assessment.
- Management reported no open commodity derivative positions at March 31. Key risks included bankruptcy execution and financing, commodity prices, reserve and production uncertainty, asset impairments, and the ability to realize tax attributes.
- Disclosure controls and procedures were deemed ineffective because of material weaknesses in financial close and reporting, staffing, risk assessment, monitoring, significant estimates, and internal communication. The filing says related misstatements were corrected before issuance and that accounting consultants were engaged.
- Unresolved contingencies included offshore California well decommissioning, for which an operator estimated Delta’s share at about $756,000 but the company could not reasonably determine its liability, and Louisiana environmental litigation with uncertain liability and costs.
Important facts to verify
- Confirm the intended issuer and period: the source is Delta Petroleum’s March 31, 2012 Form 10-Q, not a Par Pacific 2011 Q3 filing.
- Reconcile the senior-note principal amounts: the balance sheet’s labels conflict with the debt note’s descriptions of the $150 million and $115 million notes.
- Reconcile the loss-per-share figures: the financial statements report $(0.46) for 2012 and $(1.00) for 2011, while the MD&A narrative gives different per-share amounts.
- Confirm cash-flow period labeling: the statements’ heading refers to nine months, but the figures and MD&A describe the three months ended March 31.
- Verify the final completion, asset transfers, financing, creditor recoveries, and treatment of existing equity under the confirmed reorganization plan.