e10vqza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2005 or
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o |
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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 0-13305
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE
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75-1971716 |
(State of other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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1004 N. Big Spring, Suite 400, |
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Midland, Texas
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79701 |
(Address of principal executive offices)
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(Zip Code) |
(432) 684-3727
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes þ No o
At May 4, 2005, 31,189,292 shares of the registrants common stock, $0.01 par value, were
outstanding.
Explanatory Note
We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q/A in response to
comments received by us from the Staff of the Securities and Exchange Commission. Unless otherwise
stated, all information contained in the amendment is as of May 10, 2005, the filing date of our
original Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31, 2005.
INDEX
(i)
PARALLEL PETROLEUM CORPORATION
Consolidated Balance Sheets
(dollars in thousands)
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March 31, |
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December 31, |
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2005 |
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2004 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,152 |
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$ |
4,781 |
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Accounts receivable: |
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Oil and gas |
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6,747 |
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6,642 |
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Other, net of allowance for doubtful account of $9 |
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790 |
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389 |
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Affiliates |
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5 |
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7 |
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7,542 |
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7,038 |
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Other current assets |
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104 |
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179 |
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Deferred tax asset |
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4,941 |
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2,531 |
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Total current assets |
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15,739 |
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14,529 |
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Property and equipment, at cost: |
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Oil and gas properties, full cost method (including $11,047 and $9,526
not subject to depletion) |
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235,256 |
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229,245 |
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Other |
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2,445 |
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2,062 |
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237,701 |
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231,307 |
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Less accumulated depreciation, depletion and amortization |
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(81,064 |
) |
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(78,782 |
) |
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Net property and equipment |
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156,637 |
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152,525 |
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Restricted cash |
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2,287 |
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Investment in Westfork Pipeline Company LP |
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761 |
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595 |
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Other assets, net of accumulated amortization of $662 and $581 |
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687 |
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735 |
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$ |
173,824 |
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$ |
170,671 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
5,988 |
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$ |
5,568 |
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Asset retirement obligations |
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135 |
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150 |
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Derivative obligations |
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15,827 |
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7,965 |
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Total current liabilities |
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21,950 |
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13,683 |
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Revolving credit facility |
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50,000 |
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79,000 |
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Asset retirement obligations |
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1,977 |
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1,982 |
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Derivative obligations |
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24,107 |
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9,525 |
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Deferred tax liability |
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1,764 |
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6,487 |
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Total long-term liabilities |
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77,848 |
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96,994 |
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Commitments and contingencies |
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Stockholders equity: |
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Series A preferred stock par value $0.10 per share, authorized 50,000 shares |
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Preferred stock 6% convertible preferred stock par value of $0.10 per share
(liquidation preference of $10 per share), authorized 10,000,000 shares,
issued and outstanding 950,000 |
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95 |
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95 |
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Common stock par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 31,189,292 and 25,439,292 |
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312 |
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254 |
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Additional paid-in capital |
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76,163 |
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48,328 |
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Retained earnings |
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21,523 |
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22,073 |
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Accumulated other comprehensive loss |
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(24,067 |
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(10,756 |
) |
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Total stockholders equity |
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74,026 |
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59,994 |
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$ |
173,824 |
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$ |
170,671 |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
(1)
PARALLEL PETROLEUM CORPORATION
Consolidated Statements of Operations
For three months ended March 31, 2005 and 2004
(unaudited)
(dollars in thousands, except per share data)
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2005 |
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2004 |
Oil and Natural Gas Revenues: |
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Oil and natural gas sales |
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$ |
12,969 |
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$ |
9,106 |
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Loss on hedging and derivatives |
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(3,212 |
) |
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$ |
(1,105 |
) |
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Total revenues |
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9,757 |
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8,001 |
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Cost and expenses: |
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Lease operating expense |
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2,558 |
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1,529 |
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Production taxes |
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580 |
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478 |
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General and administrative |
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1,688 |
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1,222 |
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Depreciation, depletion and amortization |
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2,282 |
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2,077 |
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Total costs and expenses |
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7,108 |
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5,306 |
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Operating income |
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2,649 |
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2,695 |
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Other income (expense), net: |
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Loss on ineffective portion of hedges |
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(2,276 |
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(10 |
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Interest and other income |
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19 |
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140 |
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Interest expense |
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(1,138 |
) |
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(468 |
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Other expense |
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(1 |
) |
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(26 |
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Equity loss in Westfork Pipeline Company LP |
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(79 |
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Total other expense, net |
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(3,475 |
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(364 |
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Income (loss) before income taxes |
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(826 |
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2,331 |
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Income tax benefit (expense), deferred |
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276 |
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(849 |
) |
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Net income (loss) |
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(550 |
) |
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1,482 |
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Cumulative preferred stock dividend |
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(143 |
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(143 |
) |
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Net income (loss) available to common stockholders |
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$ |
(693 |
) |
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$ |
1,339 |
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Net income (loss) per common share: |
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Basic |
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$ |
(0.02 |
) |
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$ |
0.05 |
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Diluted |
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$ |
(0.02 |
) |
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$ |
0.05 |
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Weighted average common share outstanding: |
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Basic |
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28,698 |
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25,223 |
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Diluted |
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28,698 |
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28,267 |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
(2)
PARALLEL PETROLEUM CORPORATION
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2005 and 2004
(unaudited)
(dollars in thousands)
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2005 |
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2004 |
Cash flows from operating activities: |
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Net income (loss) |
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$ |
(550 |
) |
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$ |
1,482 |
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Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
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Depreciation, depletion and amortization |
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2,282 |
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2,077 |
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Accretion of asset retirement obligation |
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26 |
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33 |
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Deferred income tax |
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(276 |
) |
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|
849 |
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Loss on ineffective portion of hedges |
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2,276 |
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10 |
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Stock option expense |
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42 |
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41 |
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Equity loss in Westfork Pipeline Company LP |
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79 |
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Changes in assets and liabilities: |
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Other, net |
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48 |
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(67 |
) |
Increase in accounts receivable |
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(504 |
) |
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(144 |
) |
Decrease (increase) in other current assets |
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75 |
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(11 |
) |
Increase (decrease) in accounts payable and
accrued liabilities |
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277 |
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(298 |
) |
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Net cash provided by operating activities |
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3,775 |
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3,972 |
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Cash flows from investing activities: |
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Additions to oil and gas property |
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(8,596 |
) |
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(7,626 |
) |
Use of restricted cash for acquisition of oil and
gas properties |
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2,287 |
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Proceeds from disposition of oil and gas properties |
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2,539 |
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25 |
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Additions to other property and equipment |
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(383 |
) |
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(360 |
) |
Investment in Westfork Pipeline Company LP |
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(245 |
) |
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Net cash used in investing activities |
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(4,398 |
) |
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(7,961 |
) |
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Cash flows from financing activities: |
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Net borrowing (payments) on revolving line of credit |
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(29,000 |
) |
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(9,750 |
) |
Proceeds (net) from common stock issued |
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27,994 |
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Deferred stock offering costs |
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(7 |
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Net cash used in financing activities |
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(1,006 |
) |
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(9,757 |
) |
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Net decrease in cash and cash equivalents |
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(1,629 |
) |
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(13,746 |
) |
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Cash and cash equivalents at beginning of period |
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4,781 |
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17,378 |
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Cash and cash equivalents at end of period |
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$ |
3,152 |
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$ |
3,632 |
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Non-cash financing and investing activities: |
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Oil and gas properties asset retirement obligation |
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$ |
(46 |
) |
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$ |
130 |
|
Accrued preferred stock dividend |
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$ |
143 |
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|
$ |
143 |
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
(3)
PARALLEL PETROLEUM CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2005 and 2004
(unaudited)
(dollars in thousands)
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2005 |
|
2004 |
Net income (loss) |
|
$ |
(550 |
) |
|
$ |
1,482 |
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|
|
|
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|
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|
Other comprehensive loss: |
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Unrealized losses on derivatives |
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(23,480 |
) |
|
|
(4,353 |
) |
Reclassification adjustments for losses
on derivatives included in net income (loss) |
|
|
3,312 |
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|
|
1,219 |
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|
|
|
|
|
|
|
|
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Change in fair value of derivatives |
|
|
(20,168 |
) |
|
|
(3,134 |
) |
Income tax benefit |
|
|
6,857 |
|
|
|
1,072 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Total other comprehensive loss |
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(13,311 |
) |
|
|
(2,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Total comprehensive loss |
|
$ |
(13,861 |
) |
|
$ |
(580 |
) |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
(4)
PARALLEL PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Parallel was incorporated in Texas on November 26, 1979, and reincorporated in the State of
Delaware on December 18, 1984.
We are engaged in the acquisition, development and exploitation of long life oil and natural
gas reserves and, to a lesser extent, the exploration for new oil and natural gas reserves. Our
activities are focused in the Permian Basin of west Texas and New Mexico, Liberty County in east
Texas and the onshore Gulf Coast area of south Texas. We are actively evaluating, leasing and
drilling new projects located in New Mexico, the Fort Worth Basin of Texas, the Cotton Valley Reef
trend of east Texas and the Uinta Basin of Utah.
The financial information included herein is unaudited, except the balance sheet as of
December 31, 2004 which has been derived from our audited Consolidated Financial Statements as of
December 31, 2004. However, such information includes all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management, necessary for a fair statement of
the results of operations for the interim periods. The results of operations for the interim period
are not necessarily indicative of the results to be expected for an entire year. Certain 2004
amounts have been reclassified to conform to the 2005 financial statement presentation.
Certain information, accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted in this Form 10-Q/A Report pursuant to
certain rules and regulations of the Securities and Exchange Commission. These financial statements
should be read in conjunction with the audited consolidated financial statements and notes included
in our Annual Report on Form 10-K for the year ended December 31, 2004.
Unless otherwise indicated or unless the context otherwise requires, all references in this
Quarterly Report on Form 10-Q/A to Parallel, we, us, and our are to Parallel Petroleum
Corporation and its consolidated subsidiaries, Parallel L.P. and Parallel, L.L.C.
NOTE 2. STOCKHOLDERS EQUITY
Options
In September, 2003, Parallel adopted the provisions of Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, an
amendment to SFAS No. 123, whereby certain transitional alternatives are
(5)
available for a voluntary change to the fair value based method of accounting for stock-based
employee compensation. Parallel used the prospective method which applied prospectively the
fair value recognition method to all employee and director awards granted, modified or settled
after the beginning of the fiscal year in which the fair value based method of accounting for
stock-based compensation was adopted. The potential impact of using the fair value method for all
options, on a pro forma basis, is presented in the table that follows.
For the three months ended March 31, 2005 and 2004, Parallel recognized compensation expense
of approximately $42,000 associated with its stock option grants. No options were granted during
the quarter ended March 31, 2005 or the quarter ended March 31, 2004.
The following table illustrates the effect on net income (loss) and earnings (loss) per share
as if the fair value based method had been applied to all outstanding and unvested awards in each
period. The fair value of each grant is estimated on the date of grant using the Black-Scholes
option-pricing model.
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Three Months Ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
|
|
(dollars in thousands except per share data) |
Net income (loss), as reported |
|
$ |
(550 |
) |
|
$ |
1,482 |
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
Expense recorded in 2005 and 2004 |
|
|
42 |
|
|
|
42 |
|
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|
|
|
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|
Deduct: |
|
|
|
|
|
|
|
|
Total stockbased employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |
|
|
(48 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
(556 |
) |
|
$ |
1,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Basic pro forma |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Diluted pro forma |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Sale of Equity Securities
On February 9, 2005, we sold 5,750,000 shares of our common stock, $.01 par value per share,
pursuant to a public offering at a price of $5.27 per share. Gross cash proceeds were $30.3
million, and net proceeds were approximately $28.0 million. The common shares were issued under
Parallels $100.0 million Universal Shelf Registration Statement on Form S-3 which
(6)
became effective in November 2004. The proceeds were used to reduce the revolving credit
facility.
NOTE 3. REVOLVING CREDIT FACILITY
On April 1, 2005, we entered into the Second Amendment to Second Amended and Restated Credit
Agreement (or the Credit Agreement) with Citibank Texas, N.A. (formerly known as First American
Bank, SSB, and referred to in this report as Citibank), BNP Paribas, Citibank, F.S.B. and Western
National Bank.
The Credit Agreement provides for a revolving credit facility which means that we can borrow,
repay and reborrow funds drawn under the credit facility. The total amount that we can borrow and
have outstanding at any one time is limited to the lesser of $200.0 million or the borrowing base
established by our lenders. Our current borrowing base is $90.0 million. The principal amount
outstanding under the credit facility at March 31, 2005 was $50.0 million, excluding $350,000
reserved for our letters of credit. The amount of the borrowing base is based primarily upon the
estimated value of our oil and gas reserves. The borrowing base amount is redetermined by the
lenders semi-annually on or about April 1 and October 1 of each year or at other times required by
the lenders or at our request. If, as a result of the lenders redetermination of the borrowing
base, the outstanding principal amount of our loan exceeds the borrowing base, we must either
provide additional collateral to the lenders or repay the principal of the note in an amount equal
to the excess. Except for the principal payments that may be required because of our outstanding
loans being in excess of the borrowing base, interest only is payable monthly.
Loans made to us under this credit facility bear interest at Citibanks base rate or the LIBOR
rate, at our election. Generally, Citibanks base rate is equal to the prime rate published in
the Wall Street Journal. At March 31, 2005, Parallel had no base set loans outstanding under the
credit facility.
The LIBOR rate is generally equal to the sum of (a) the rate designated as British Bankers
Association Interest Settlement Rates and offered on one, two, three, six or twelve month interest
periods for deposits of $1.0 million, and (b) a margin ranging from 2.25% to 2.75%, depending upon
the outstanding principal amount of the loans. If the principal amount outstanding is equal to or
greater than 75% of the borrowing base, the margin is 2.75%. If the principal amount outstanding is
equal to or greater than 50%, but less than 75% of the borrowing base, the margin is 2.50%. If the
principal amount outstanding is less than 50% of the borrowing base, the margin is 2.25%. At March
31, 2005, the average interest rate on our LIBOR rate loans was 5.0%
The interest rate we are required to pay on our borrowings, including the applicable margin,
may never be less than 4.50%. At March 31, 2005, our Libor interest rate was 5.05% on $31.0
million and 5.04% on $19.0 million. We obtain different interest rates on bank base rates and on
each LIBOR tranche.
In the case of base rate loans, interest is payable on the last day of each month. In the case
of LIBOR loans, interest is payable on the last day of each applicable interest period.
(7)
If the total outstanding borrowings under the credit facility are less than the borrowing
base, an unused commitment fee is required to be paid to the lenders. The amount of the fee is .25%
of the daily average of the unadvanced amount of the borrowing base. The fee is payable quarterly.
If the borrowing base is increased, we are required to pay a fee of .375% on the amount of any
increase in the borrowing base.
Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation, guaranteed payment of the
loans.
Parallels obligations to the lenders are secured by substantially all of its oil and gas
properties.
All outstanding principal under the revolving credit facility is due and payable on December
20, 2008. The maturity date of our outstanding loans may be accelerated by the lenders upon the
occurrence of an event of default under the Credit Agreement.
The Credit Agreement contains various restrictive covenants and compliance requirements as
follows:
|
|
|
at the end of each quarter, a current ratio (as defined in the credit agreement) of
at least 1.1 to 1.0; |
|
|
|
|
for each period (as calculated in the Credit Agreement) ending on December 31, March
31, June 30 and September 30, a funded debt ratio (as defined in the Credit
Agreement) of not more than 3.70, 3.60 and 3.50, respectively, for December 31, 2005,
2006 and 2007; and |
|
|
|
|
at all times, adjusted consolidated net worth (as defined in the Credit Agreement)
of at least (a) $50.0 million, plus (b) seventy-five percent (75%) of the net proceeds
from any equity securities issued by Parallel, plus (c) fifty percent (50%) of
consolidated net income for each fiscal quarter, if positive, and zero percent (0%) if
negative. |
As of March 31, 2005 we were in compliance with all covenants.
The Credit Agreement also contains restrictions on all retained earnings and net income for
payment of dividends on common stock.
If we have borrowing capacity under our Credit Agreement, we intend to borrow, repay and
reborrow under the revolving credit facility from time to time as necessary, subject to borrowing
base limitations, to fund:
(8)
|
|
|
interpretation and processing of 3-D seismic survey data; |
|
|
|
|
lease acquisitions and drilling activities; |
|
|
|
|
acquisitions of producing properties or companies owning producing properties; and, |
|
|
|
|
general corporate purposes. |
NOTE 4. ACQUISITIONS
In September and October 2004, with two separate transactions, we purchased additional
non-operated working interest in the Fullerton Field properties. The net purchase price for these
transactions was approximately $20.9 million.
In October and December 2004, we purchased properties in the Carm-Ann San Andres and North
Means Queen Unit located in Andrews and Gaines counties, Texas. The combined net purchase price
was approximately $16.5 million. In the first quarter of 2005, we acquired additional interest in
these properties for a net purchase price of approximately $2.3 million.
The unaudited pro forma results summarized below reflects our consolidated pro forma results
of operations for the three months ended March 31, 2004, assuming these acquisitions were
consummated on January 1, 2004.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
|
|
|
|
Pro Forma |
|
|
2005 |
|
2004 |
|
|
(in thousands, except per share data) |
Oil and gas revenue, net of hedge losses |
|
$ |
9,757 |
|
|
$ |
9,963 |
|
Operating income |
|
$ |
2,649 |
|
|
$ |
3,157 |
|
Net income (loss) available to common shareholder |
|
$ |
(693 |
) |
|
$ |
1,351 |
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
Diluted |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
NOTE 5. PREFERRED STOCK
We have outstanding 950,000 shares of 6% Preferred Stock, $0.10 par value per share.
Cumulative annual dividends of $0.60 per share are payable semi-annually on June 15 and December 15
of each year. Each share of preferred stock may be converted, at the option of the holder, into
2.8571 shares of common stock at an initial conversion price of $3.50 per share, subject to
adjustment in certain events. The preferred stock has a liquidation preference of $10
(9)
per share and has no voting rights, except as required by law. We may redeem the preferred
stock, in whole or part, for $10 per share plus accrued and unpaid dividends.
On May 4, 2005, notice was mailed that all 950,000 outstanding shares of our 6% preferred
stock would be redeemed on June 6, 2005 (the Redemption Date), at a price of $10.00 per share,
plus cash in an amount equal to all accumulated and unpaid dividends on the preferred stock up to
the Redemption Date. In lieu of redemption, holders of the shares of preferred stock have the
option to convert all or any portion of their shares prior to 5:00 p.m., Central Standard Time, on
or before the Redemption Date.
NOTE 6. FULL COST CEILING TEST
We use the full cost method to account for our oil and gas producing activities. Under the
full cost method of accounting, the net book value of oil and gas properties, less related deferred
income taxes and asset retirement obligations, may not exceed a calculated ceiling. The ceiling
limitation is the discounted estimated after-tax future net cash flows from proved oil and gas
properties. In calculating future net cash flows, current prices and costs are generally held
constant indefinitely as adjusted for qualifying cash flow hedges. The net book value of oil and
gas properties, less related deferred income taxes over the ceiling, is compared to the ceiling on
a quarterly and annual basis. Any excess of the net book value, less related deferred income
taxes, is generally written off as an expense. Under rules and regulations of the SEC, the excess
above the ceiling is not written off if, subsequent to the end of the quarter or year but prior to
the release of the financial results, prices have increased sufficiently that such excess above the
ceiling would not have existed if the increased prices were used in the calculations.
At March 31, 2005, we had a cushion (i.e. the excess of the ceiling over our capitalized cost)
of $137.6 million. As a result, we were not required to record a reduction of our oil and gas
properties under the full cost method of accounting at that time.
Under the full cost method of accounting, all costs incurred in the acquisition, exploration
and development of oil and natural gas properties, including a portion of our overhead, are
capitalized. In the three month periods ended March 31, 2005 and 2004, overhead costs capitalized
were approximately $286,000 and $290,000 respectively.
NOTE 7. DERIVATIVE INSTRUMENTS
General
We enter into derivative contracts to provide a measure of stability in our oil and gas
revenues and interest rate payments and to manage exposure to commodity price and interest rate
risk. Our objective is to lock in a range of oil and gas prices and fixed interest rate. Our line
of credit agreement as of March 31, 2005, required at least 50% of our estimated monthly crude oil
produced from proved producing oil and gas properties during the 2005 calendar year and thereafter
until the maturity date to be hedged. We designate our interest rate swaps, costless collars and
commodity swaps as cash flow hedges. The effective portion of the unrealized gain or loss on cash
flow hedges is recorded in other comprehensive income until the forecasted
(10)
transaction occurs.
During the term of a cash flow hedge, the effective portion of the quarterly
change in the fair value of the derivatives is recorded in stockholders equity as other
comprehensive income (loss) and then transferred to oil and gas revenues when the production is
sold and interest expense as the interest accrues. Ineffective portions of hedges (changes in
realized prices that do not match the changes in the hedge price) are recognized in other expense
as they occur. While the hedge contract is open, the ineffective gain or loss may increase or
decrease until settlement of the contract.
As of March 31, 2005, we have recorded unrealized losses of $39.9 ($24.1 million, net of tax)
related to our derivative instruments, which represented the estimated aggregate fair values of our
open derivative contracts as of that date. These unrealized losses are presented on the
Consolidated Balance Sheet as a current liability of $15.8 million and long-term liabilities of
$24.1 million. During the twelve month period ending March 31, 2006, we expect approximately $9.6
million, net of tax, to be transferred out of other comprehensive income (loss) and charged to
earnings.
We are exposed to credit risk in the event of nonperformance by the counterparty to these
contracts, BNP Paribas. However, we periodically assess the creditworthiness of the counterparty
to mitigate this credit risk.
Interest Rate Sensitivity
We entered into fixed rate swap contracts with BNP Paribas based on the 90-day LIBOR rates at
the time of the contract. The effect of the swap is that we converted our variable rate debt into
fixed rate debt. We will receive variable interest rates (see Note 3) and pay fixed rates as shown
in the table below.
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
|
Period of Time |
|
Amounts |
|
Fixed Interest Rates |
|
|
$ in millions |
|
|
|
|
April 1, 2005 thru December 31, 2005 |
|
$ |
50 |
|
|
|
3.36 |
% |
January 1, 2006 thru December 31, 2006 |
|
$ |
50 |
|
|
|
3.82 |
% |
January 1, 2007 thru December 31, 2007 |
|
$ |
50 |
|
|
|
4.30 |
% |
January 1, 2008 thru December 30, 2008 |
|
$ |
50 |
|
|
|
4.74 |
% |
Commodity Price Sensitivity
Puts. On April 7, 2005, we purchased put floors on volumes of 1,000 Mcf per day for a
total of 214,000 Mcf during the seven month period from April 1, 2006 through October 31, 2006, at
a floor price of $5.50 per Mcf for a total consideration of approximately $35,310. These
derivatives were not held for trading purposes.
Costless Collars. Collars are created by purchasing puts to establish a floor price
and then selling a call which establishes a maximum amount we will receive for the oil or gas
(11)
hedged. Calls are sold to offset the premium paid for buying the put. We have entered into
several costless gas collars and light sweet crude oil collars.
A recap for the period of time, number of MMBtus, number of barrels, and oil and gas prices
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Ship Channel |
|
|
Barrels of |
|
NyMex oil prices |
|
MMBtu of |
|
gas prices |
Period of Time |
|
Oil |
|
Floor |
|
Cap |
|
Natural Gas |
|
Floor |
|
Cap |
April 1, 2005 thru October 31, 2005 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
428,000 |
|
|
$ |
5.00 |
|
|
$ |
7.26 |
|
April 1, 2005 thru December 31, 2005 |
|
|
55,000 |
|
|
$ |
36.00 |
|
|
$ |
49.60 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
January 1, 2006 thru December 31, 2006 |
|
|
70,800 |
|
|
$ |
35.00 |
|
|
$ |
44.00 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Swaps. Generally, swaps are an agreement to buy or sell a specified commodity
for delivery in the future, but at an agreed fixed price. Swap transactions convert a floating
price into a fixed price. For any particular swap transaction, the counterparty is required to
make a payment to the hedge party if the reference price for any settlement period is less than the
swap price for such hedge, and the hedge party is required to make a payment to the counterparty if
the reference price for any settlement period is greater than the swap price for such hedge.
We have entered into oil swap contracts with BNP Paribas. A recap for the period of time,
number of barrels and swap prices are as follows:
|
|
|
|
|
|
|
|
|
|
|
Barrels |
|
|
|
|
of |
|
Nymex Oil |
Period of Time |
|
Oil |
|
Swap Price |
April 1, 2005 thru December 31, 2005 |
|
|
467,500 |
|
|
$ |
30.18 |
|
January 1, 2006 thru December 20, 2006 |
|
|
448,000 |
|
|
$ |
28.46 |
|
January 1, 2007 thru December 31, 2007 |
|
|
474,500 |
|
|
$ |
34.36 |
|
January 1, 2008 thru December 31, 2008 |
|
|
439,200 |
|
|
$ |
33.37 |
|
NOTE 8. NET INCOME PER COMMON SHARE
Basic earnings per share (EPS) exclude any dilutive effects of option, warrants and
convertible securities and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted earnings per share are
computed similar to basic earnings per share. However, diluted earnings per share reflect the
assumed conversion of all potentially dilutive securities.
(12)
The following table provides the computation of basic and diluted earnings per share for the
three months ended March 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2005 |
|
2004 |
|
|
(in thousands except per share data) |
Basic EPS Computation: |
|
|
|
|
|
|
|
|
Numerator- |
|
|
|
|
|
|
|
|
Income (loss) |
|
$ |
(550 |
) |
|
$ |
1,482 |
|
Preferred stock dividend |
|
|
(143 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders |
|
$ |
(693 |
) |
|
$ |
1,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator- |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
28,698 |
|
|
|
25,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS: |
|
|
|
|
|
|
|
|
Income (loss) per share |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Computation: |
|
|
|
|
|
|
|
|
Numerator- |
|
|
|
|
|
|
|
|
Income (loss) |
|
$ |
(550 |
) |
|
$ |
1,482 |
|
Preferred stock dividend |
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders |
|
$ |
(693 |
) |
|
$ |
1,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
28,698 |
|
|
|
25,223 |
|
Employee stock options |
|
|
|
|
|
|
258 |
|
Warrants |
|
|
|
|
|
|
52 |
|
Preferred stock |
|
|
|
|
|
|
2,734 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for diluted earnings
per share assuming conversion |
|
|
28,698 |
|
|
|
28,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
Income (loss) per share |
|
$ |
(0.02 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Some stock options and the convertible preferred stock outstanding during 2005 were not
included in the computation of diluted net earnings (loss) per share because Parallel had a net
loss from continuing operations and therefore, the effect would be antidilutive.
NOTE 9. ASSET RETIREMENT OBLIGATIONS
On January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations SFAS 143. SFAS 143 requires us to recognize a liability for
the present value of all obligations associated with the retirement of tangible long-lived assets
and to capitalize an equal amount as a cost of the related oil and gas properties.
(13)
The following table summarizes our asset retirement obligation transactions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2005 |
|
2004 |
|
|
(dollars in thousands) |
Beginning asset retirement obligation |
|
$ |
2,132 |
|
|
$ |
1,701 |
|
Additions related to new properties |
|
|
17 |
|
|
|
172 |
|
Deletions related to property disposals |
|
|
(63 |
) |
|
|
(42 |
) |
Accretion expense |
|
|
26 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
Ending asset retirement obligation |
|
$ |
2,112 |
|
|
$ |
1,864 |
|
|
|
|
|
|
|
|
|
|
NOTE 10. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R).
SFAS No. 123(R) requires an entity to recognize the grant-date fair value of stock options and
other equity-based compensation issued to employees in the income statement. SFAS No. 123(R)
initially was to be effective for the Company beginning July 1, 2005. On April 14, 2005, the
Securities and Exchange Commission announced a delay in the implementation of SFAS No. 123(R) until
the beginning of the fiscal year after June 15, 2005. The Company does not expect SFAS No. 123(R)
to have a material impact on its results of operations.
NOTE 11. COMMITMENTS AND CONTINGENCIES
From time to time, we are a party to ordinary routine litigation incidental to our business.
We are currently a defendant in one lawsuit incidental to our business. We do not believe the
ultimate outcome of this lawsuit will have a material adverse effect on our financial condition or
results of operations. We are not aware of any other threatened litigation and we have not been a
party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding.
Effective January 1, 2005, we established a 401(k) Plan and Trust for eligible employees.
Employees may not participate in the former SEP plan with the establishment of the 401(k) Plan and
Trust. As of the quarter ended March 31, 2005 Parallel had made contributions to the 401(k) Plan
and Trust of approximately $38,000.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our Consolidated
Financial Statements and the related notes.
(14)
OVERVIEW
Strategy
Our primary objective is to increase shareholder value of our common stock through increasing
reserves, production, cash flow and earnings. We have shifted the balance of our investments from
properties having high rates of production in early years to properties expected to produce more
consistently over a longer term. We attempt to reduce our financial risks by dedicating a smaller
portion of our capital to high risk projects, while reserving the majority of our available capital
for exploitation and development drilling opportunities. Obtaining positions in long-lived oil and
natural gas reserves are given priority over properties that might provide more cash flow in the
early years of production, but which have shorter reserve lives. We also attempt to further reduce
risk by emphasizing acquisition possibilities over high risk exploration projects.
Since the latter part of 2002, we have reduced our emphasis on high risk exploration efforts
and focused on established geologic trends where we utilize the engineering, operational, financial
and technical expertise of our entire staff. Although we anticipate participating in exploratory
drilling activities in the future, reducing financial, reservoir, drilling and geological risks and
diversifying our property portfolio are important criteria in the execution of our business plan.
In summary, our current business plan:
|
|
|
focuses on projects having less geological risk; |
|
|
|
|
emphasizes exploitation and enhancement activities; |
|
|
|
|
focuses on acquiring producing properties; and |
|
|
|
|
expands the scope of operations by diversifying our exploratory and development
efforts, both in and outside of our current areas of operation. |
Although the direction of our exploration and development activities has shifted from high
risk exploratory activities to lower risk development opportunities, we will continue our efforts,
as we have in the past, to maintain low general and administrative expenses relative to the size of
our overall operations, utilize advanced technologies, serve as operator in appropriate
circumstances, and reduce operating costs.
The extent to which we are able to implement and follow through with our business plan will be
influenced by:
|
|
|
the prices we receive for the oil and natural gas we produce; |
|
|
|
|
the results of reprocessing and reinterpreting our 3-D seismic data; |
|
|
|
|
the results of our drilling activities; |
(15)
|
|
|
the costs of obtaining high quality field services; |
|
|
|
|
our ability to find and consummate acquisition opportunities; and |
|
|
|
|
our ability to negotiate and enter into work to earn arrangements, joint venture or
other similar agreements on terms acceptable to us. |
Significant changes in the prices we receive for the oil and natural gas, or the occurrence of
unanticipated events beyond our control may cause us to defer or deviate from our business plan,
including the amounts we have budgeted for our activities.
Operating Performance
Our operating performance is influenced by several factors, the most significant of which are
the prices we receive for our oil and natural gas and our production volumes. The world price for
oil has overall influence on the prices that we receive for our oil production. The prices
received for different grades of oil are based upon the world price for oil, which is then adjusted
based upon the particular grade. Typically, light oil is sold at a premium, while heavy grades of
crude are discounted. Natural gas prices we receive are influenced by:
|
|
|
seasonal demand; |
|
|
|
|
weather; |
|
|
|
|
hurricane conditions in the Gulf of Mexico; |
|
|
|
|
availability of pipeline transportation to end users; |
|
|
|
|
proximity of our wells to major transportation pipeline infrastructures; and |
|
|
|
|
to a lesser extent, world oil prices. |
Additional factors influencing our overall operating performance include:
|
|
|
production expenses; |
|
|
|
|
overhead requirements; and |
|
|
|
|
costs of capital. |
Our oil and natural gas exploration, development and acquisition activities require
substantial and continuing capital expenditures. Historically, the sources of financing to fund
our capital expenditures have included:
(16)
|
|
|
cash flow from operations; |
|
|
|
|
sales of our equity securities; |
|
|
|
|
bank borrowings; and |
|
|
|
|
industry joint ventures. |
For the three months ended March 31, 2005, the sale price we received for our crude oil
production (excluding hedges) averaged $45.29 per barrel compared with $44.07 per barrel for the
three months ended December 31, 2004 and $32.93 per barrel for the three months ended March 31,
2004. The average sales price we received for natural gas for the three months ended March 31,
2005 (excluding hedges), was $6.00 per Mcf compared with $6.99 per Mcf for the three months ended
December 31, 2004 and $5.21 per Mcf for the three months ended March 31, 2004. For information
regarding prices received including our hedges, refer to the selected operating data table in the
Results of Operations on page 18. Hedge costs for oil and natural gas was $3.2 million, $3.0
million and $1.1 million for the three months ended March 31, 2005, December 31, 2004 and March 31,
2004 respectively. The hedge loss associated with the ineffective portion of our hedges increased
$2.3 million in the three months ended March 31, 2005. The ineffectiveness is caused by a widening
of the differential price of West Texas Intermediate Light and current designated sales of West
Texas Sour barrels. U. S. refineries are currently paying a premium for West Texas Intermediate,
which is the NyMex benchmark. The majority of our oil is West Texas Sour. Actual gains or losses
may increase or decrease until settlement of these contracts.
Our oil and natural gas producing activities are accounted for using the full cost method of
accounting. Under this accounting method, we capitalize all costs incurred in connection with the
acquisition of oil and natural gas properties and the exploration for and development of oil and
natural gas reserves. These costs include lease acquisition costs, geological and geophysical
expenditures, costs of drilling productive and non-productive wells, and overhead expenses directly
related to land and property acquisition and exploration and development activities. Proceeds from
the disposition of oil and natural gas properties are accounted for as a reduction in capitalized
costs, with no gain or loss recognized unless a disposition involves a material change in reserves,
in which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and natural gas properties, including estimated
future development costs, is provided using the equivalent unit-of-production method based upon
estimates of proved oil and natural gas reserves and production, which are converted to a common
unit of measure based upon their relative energy content. Unproved oil and natural gas properties
are not amortized, but are individually assessed for impairment. The cost of any impaired property
is transferred to the balance of oil and gas properties being depleted. Depletion per BOE at March
31, 2005 and 2004 was $7.06 and $7.02 respectively.
(17)
Results of Operations
Our business activities are characterized by frequent, and sometimes significant, changes in
our:
|
|
|
reserve base; |
|
|
|
|
sources of production; |
|
|
|
|
product mix (gas versus oil volumes); and |
|
|
|
|
the prices we receive for our oil and gas production. |
Year-to-year or other periodic comparisons of the results of our operations can be difficult
and may not fully and accurately describe our condition. The following table shows selected
operating data for each of the three months ended March 31, 2005, December 31, 2004, and March 31,
2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
3/31/2005 |
|
12/31/2004 |
|
3/31/2004 |
|
|
(in thousands, except per unit data) |
Production Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Bbls) |
|
|
207 |
|
|
|
234 |
|
|
|
161 |
|
Natural gas (Mcf) |
|
|
602 |
|
|
|
695 |
|
|
|
732 |
|
BOE (1) |
|
|
307 |
|
|
|
349 |
|
|
|
283 |
|
BOE per day |
|
|
3.4 |
|
|
|
3.8 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Prices: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl)(2) |
|
$ |
45.29 |
|
|
$ |
44.07 |
|
|
$ |
32.93 |
|
Natural gas (per Mcf)(2) |
|
$ |
6.00 |
|
|
$ |
6.99 |
|
|
$ |
5.21 |
|
BOE price( 2 ) |
|
$ |
42.25 |
|
|
$ |
43.36 |
|
|
$ |
32.21 |
|
BOE price( 3 ) |
|
$ |
31.78 |
|
|
$ |
34.90 |
|
|
$ |
28.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
9,359 |
|
|
$ |
10,271 |
|
|
$ |
5,290 |
|
Oil hedge |
|
|
(3,011 |
) |
|
|
(2,654 |
) |
|
|
(1,124 |
) |
Natural gas |
|
|
3,610 |
|
|
|
4,853 |
|
|
|
3,816 |
|
Natural gas hedge |
|
|
(201 |
) |
|
|
(296 |
) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,757 |
|
|
$ |
12,174 |
|
|
$ |
8,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expense |
|
$ |
2,558 |
|
|
$ |
1,936 |
|
|
$ |
1,529 |
|
Production taxes |
|
|
580 |
|
|
|
701 |
|
|
|
478 |
|
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1,029 |
|
|
|
743 |
|
|
|
734 |
|
Public reporting |
|
|
659 |
|
|
|
754 |
|
|
|
488 |
|
Depreciation, depletion and amortization |
|
|
2,282 |
|
|
|
2,682 |
|
|
|
2,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,108 |
|
|
$ |
6,816 |
|
|
$ |
5,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
2,649 |
|
|
$ |
5,358 |
|
|
$ |
2,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one barrel of oil. |
|
(2) |
|
Excludes hedge transactions. |
|
(3) |
|
Includes hedge transactions. |
(18)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004:
Our oil and natural gas revenues and production product mix are displayed in the following
table for the three months ended March 31, 2005 and March 31, 2004.
Oil and Gas Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1) |
|
Production |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Oil (Bbls) |
|
|
65 |
% |
|
|
52 |
% |
|
|
67 |
% |
|
|
57 |
% |
Natural gas (Mcf) |
|
|
35 |
% |
|
|
48 |
% |
|
|
33 |
% |
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes hedge transactions |
The following table outlines the detail of our operating revenues for the following
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Increase |
|
% Increase |
|
|
2005 |
|
2004 |
|
(Decrease) |
|
(Decrease) |
|
|
(in thousands except per unit data) |
Production Volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (Bbls) |
|
|
207 |
|
|
|
161 |
|
|
|
46 |
|
|
|
29 |
% |
Natural gas (Mcf) |
|
|
602 |
|
|
|
732 |
|
|
|
(130 |
) |
|
|
(18 |
)% |
BOE |
|
|
307 |
|
|
|
283 |
|
|
|
24 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl)(1) |
|
$ |
45.29 |
|
|
$ |
32.93 |
|
|
$ |
12.36 |
|
|
|
38 |
% |
Natural gas (per MCF)(1) |
|
$ |
6.00 |
|
|
$ |
5.21 |
|
|
$ |
0.79 |
|
|
|
15 |
% |
BOE price(1) |
|
$ |
42.25 |
|
|
$ |
32.21 |
|
|
$ |
10.04 |
|
|
|
31 |
% |
BOE price(2) |
|
$ |
31.78 |
|
|
$ |
28.30 |
|
|
$ |
3.48 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
$ |
9,359 |
|
|
$ |
5,290 |
|
|
|
4,069 |
|
|
|
77 |
% |
Oil hedges |
|
$ |
(3,011 |
) |
|
$ |
(1,124 |
) |
|
|
(1,887 |
) |
|
|
(168 |
)% |
Natural gas |
|
$ |
3,610 |
|
|
$ |
3,816 |
|
|
|
(206 |
) |
|
|
(5 |
)% |
Natural gas hedges |
|
$ |
(201 |
) |
|
$ |
19 |
|
|
|
(220 |
) |
|
|
(1158 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,757 |
|
|
$ |
8,001 |
|
|
$ |
1,756 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes hedge transactions |
|
(2) |
|
Includes hedge transactions |
(19)
Oil revenues, excluding hedges, increased $4.1 million or 77% for the three months ended
March 31, 2005 compared to the same period of 2004. Oil production volumes increased 29%
attributable to acquisitions and re-stimulations in the Fullerton San Andres Field, acquisitions in
the Carm-Ann San Andres Field/N. Means Queen Unit and the drilling of producing and injection wells
on our Diamond M Property. The increase in oil production increased revenue approximately $1.5
million for 2005. Wellhead average realized crude oil prices increased $12.36 per Bbl or 38% to
$45.29 per Bbl for 2005 compared to 2004. The increase in oil price increased revenue
approximately $2.6 million for 2005.
Natural gas revenues, excluding hedges, decreased $0.2 million or 5% for the three months
ended March 31, 2005 compared to the same period of 2004. Natural gas production volumes decreased
18% due to natural production declines in our south Texas Yegua/Frio and Cook Mountain projects.
The decline in natural gas volumes decreased revenue approximately $0.7 million for 2005. Average
realized wellhead natural gas prices increased 15% or $0.79 per Mcf to $6.00 per Mcf. The increase
in natural gas prices had a positive effect on revenues of approximately $0.5 million for the three
months ending March 31, 2005.
Losses on oil hedges increased $1.9 million or 168% for 2005 compared to 2004 due to the
increase in oil prices. Natural gas hedge losses were $0.2 million in 2005 compared to a gain of
$19,000 in 2004. On a BOE basis, hedges accounted for a realized loss of $10.46 per BOE in 2005
compared to $3.90 per BOE in 2004. We have hedged certain oil and natural gas volumes to try and
mitigate price changes in our oil and natural gas movements and to meet the requirements under our
loan facility.
With our recently announced results in the Diamond M Canyon Reef Unit, the New Mexico Gas
Project and our onshore Gulf Coast Wilcox well, we expect increased production volumes over the
first quarter 2005 if initial rates are maintained.
Cost and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Increase |
|
% Increase |
|
|
2005 |
|
2004 |
|
(Decrease) |
|
(Decrease) |
|
|
(dollars in thousands) |
Lease operating expense |
|
$ |
2,558 |
|
|
$ |
1,529 |
|
|
$ |
1,029 |
|
|
|
67 |
% |
Production taxes |
|
|
580 |
|
|
|
478 |
|
|
|
102 |
|
|
|
21 |
% |
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
1,029 |
|
|
|
734 |
|
|
|
295 |
|
|
|
40 |
% |
Public reporting |
|
|
659 |
|
|
|
488 |
|
|
|
171 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative |
|
|
1,688 |
|
|
|
1,222 |
|
|
|
466 |
|
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
2,282 |
|
|
|
2,077 |
|
|
|
205 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,108 |
|
|
$ |
5,306 |
|
|
$ |
1,802 |
|
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating costs increased approximately $1.0 million, or 67%, to $2.6 million
during the three months ended March 31, 2005 compared with $1.5 million for the same period of
2004. The increase in lease operating expense is primarily due to our acquisitions in the
(20)
Fullerton
San Andres Field and the Carm-Ann San Andres Field/N. Means Queen Unit, increased ad valorem taxes
and increased utility costs on our oil properties. Lifting costs were
$8.33 per BOE in 2005 compared to $5.41 per BOE in 2004 on a BOE bases. As we continue to
exploit and develop our long-life Permian Basin oil properties (Fullerton, Carm-Ann and Diamond M),
we expect that lifting costs will continue around the same level or decline due to increased
activity. The lifting costs are also expected to be reduced by the development of natural gas
properties in south Texas, Barnett Shale and New Mexico.
Production taxes increased 21% or $0.1 million in 2005, associated with a net wellhead
increase in revenues of $3.9 million. Production taxes in future periods will be a function of
product mix, production volumes and product prices.
General and administrative expenses in total increased 38% or $0.5 million in 2005 compared to
2004. Included in our total general and administrative expenses is public reporting cost which
increased 35% or $0.2 million for 2005. The SOX 404 costs continue to be a significant portion of
the increase in our public reporting costs and we expect SOX 404 costs to continue through 2005.
The remainder of the increase in general and administrative costs is due to increased estimated
Texas franchise tax, salary increases and legal expense. General and administrative expenses
capitalized to the full cost pool were $0.3 million for 2005 and 2004. On a BOE basis, general and
administrative costs were $3.35 per BOE in 2005 compared to $2.60 per BOE in 2004, while public
reporting costs were $2.14 per BOE and $1.72 per BOE for the same period. General and
administrative expenses will increase in 2005 in association with reporting requirements and
operational support.
Depreciation, depletion and amortization expense increased 10% or $0.2 million for 2005
compared to 2004. Depletion per BOE was $7.43 for 2005 and $7.34 for 2004. This increase is
attributable to increased drilling costs and producing property purchases. Depletion costs are
highly correlated with production volumes and capital expenditures. Fiscal year 2005 depletion
costs will increase with increased production volumes.
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Increase |
|
% Increase |
|
|
2005 |
|
2004 |
|
(Decrease) |
|
(Decrease) |
|
|
(dollars in thousands) |
Loss on ineffective portion of hedges |
|
$ |
(2,276 |
) |
|
$ |
(10 |
) |
|
$ |
(2,266 |
) |
|
|
22660 |
% |
Interest and other income |
|
|
19 |
|
|
|
140 |
|
|
|
(121 |
) |
|
|
(86 |
)% |
Interest expense |
|
|
(1,138 |
) |
|
|
(468 |
) |
|
|
(670 |
) |
|
|
143 |
% |
Other expense |
|
|
(1 |
) |
|
|
(26 |
) |
|
|
25 |
|
|
|
(96 |
)% |
Equity loss in Westfork Pipeline Company LP |
|
|
(79 |
) |
|
|
|
|
|
|
(79 |
) |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3,475 |
) |
|
$ |
(364 |
) |
|
$ |
(3,111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss associated with the ineffective portion of our hedges increased $2.3 million for
2005 compared to 2004. Commodity prices continued to increase into the first quarter of 2005. The
spread between sweet and sour crude was wider for the first quarter of 2005 as compared to
(21)
the same
period of 2004 resulting in an increased ineffectiveness. The actual gain or loss may increase or
decrease until settlement of these contracts. Interest expense increased with the increase of debt
from approximately $30.0 million at March 31, 2004 to $50.0 million at March 31, 2005 along with an
increase of our loan interest rate for 2005. Overhead expenses related to our equity investment in the construction phase of the Westfork Pipeline Company LP, resulted
in a loss for the first quarter of 2005.
Income tax benefit was $0.3 million in 2005 compared to an expense of $0.8 million in 2004.
Income tax expense for 2005 will be dependent on our earnings and is expected to be approximately
35% of income before income taxes.
We had basic net loss per share of $.02 and net earnings of $.05 and diluted net loss per
share of $.02 and net earnings of $.05 for 2005 and 2004, respectively. Basic weighted average
common shares outstanding increased from 25.2 million shares in 2004 to 28.7 million shares in
2005. The increase in common shares is due to the sale of 5,750,000 shares of common stock in a
public offering in February of 2005. The stock options and the convertible preferred stock
outstanding were not included in the computation of diluted net earnings (loss) per share for the
first quarter 2005 because we had a net loss and the effect would be antidilutive.
LIQUIDITY AND CAPITAL RESOURCES
Our capital resources consist primarily of cash flows from our oil and gas properties and bank
borrowings supported by our oil and gas reserves. Our level of earnings and cash flows depends on
many factors, including the prices we receive for oil and gas we produce.
Working capital decreased 834% or approximately $7.1 million as of March 31, 2005 compared
with December 31, 2004. Current liabilities exceeded current assets by $6.2 million at March 31,
2005. The working capital decrease was primarily due to the increased current maturity of
derivative obligations of approximately $7.9 million.
We incurred net property costs of $4.3 million for the three months ended March 31, 2005
compared to $8.0 million for the same period in 2004. Our property expenditures were $8.6 million
for the first quarter of 2005, which was partially offset by restricted cash utilized for property
purchases and proceeds from non-strategic property dispositions. Included in our property basis
for the first quarter of 2005 and 2004 were net asset retirement costs (deletions) of approximately
($46,000) and $130,000 respectively (see Note 9 to Consolidated Financial Statements). Our
property leasehold acquisition, development and enhancement activities were financed by our
revolving credit facility, the utilization of cash flows provided by operations, cash on hand and
proceeds from non strategic property sales and bank borrowings.
On February 9, 2005, we had gross cash proceeds of $30.3 million and net proceeds of
approximately $28.0 million from the sale of common stock (see Note 2 to Consolidated Financial
Statements). These proceeds and cash available were used to reduce our borrowings on the revolving
line of credit by approximately $29.0 million.
(22)
Stockholders equity is $74.0 million for March 31, 2005 compared to $60.0 million at December
31, 2004, an increase of 23%. The increase is attributable to the net proceeds of approximately
$28.0 received from the sale of equity securities of 5,750,000 shares of our common stock offset by
the increase in accumulated comprehensive loss of $13.3 million related to our derivative
instruments (see Note 7 to Consolidated Financial Statements) and the net
income loss of $550,000. Proceeds from the stock offering were used to reduce our long-term
debt.
Based on our projected oil and gas revenues and related expenses, available bank borrowings
and expected cash derived from non-strategic asset divestitures, we believe that we will have
sufficient capital resources to fund normal operations and capital requirements, interest expense
and principal reduction payments on bank debt, if required, and preferred stock dividends and
redemption. We continually review and consider alternative methods of financing.
Bank Borrowings
On April 1, 2005, we entered into the Second Amendment to Second Amended and Restated Credit
Agreement (or the Credit Agreement) with Citibank Texas, N.A. (formerly known as First American
Bank, SSB, and referred to in this report as Citibank), BNP Paribas, Citibank, F.S.B. and Western
National Bank.
The Credit Agreement provides for a revolving credit facility which means that we can borrow,
repay and reborrow funds drawn under the credit facility. The total amount that we can borrow and
have outstanding at any one time is limited to the lesser of $200.0 million or the borrowing base
established by our lenders. Our current borrowing base is $90.0 million. The principal amount
outstanding under the credit facility at March 31, 2005 was $50.0 million, excluding $350,000
reserved for our letters of credit. The amount of the borrowing base is based primarily upon the
estimated value of our oil and gas reserves. The borrowing base amount is redetermined by the
lenders semi-annually on or about April 1 and October 1 of each year or at other times required by
the lenders or at our request. If, as a result of the lenders redetermination of the borrowing
base, the outstanding principal amount of our loan exceeds the borrowing base, we must either
provide additional collateral to the lenders or repay the principal of the note in an amount equal
to the excess. Except for the principal payments that may be required because of our outstanding
loans being in excess of the borrowing base, interest only is payable monthly.
Loans made to us under this credit facility bears interest at Citibanks base rate or the
LIBOR rate, at our election. Generally, Citibanks base rate is equal to the sum the prime rate
published in the Wall Street Journal.
The LIBOR rate is generally equal to the sum of (a) the rate designated as British Bankers
Association Interest Settlement Rates and offered on one, two, three, six or twelve month interest
periods for deposits of $1.0 million, and (b) a margin ranging from 2.25% to 2.75%, depending upon
the outstanding principal amount of the loans. If the principal amount outstanding is equal to or
greater than 75% of the borrowing base, the margin is 2.75%. If the principal amount outstanding is
equal to or greater than 50%, but less than 75% of the borrowing
(23)
base, the margin is 2.50%. If the
principal amount outstanding is less than 50% of the borrowing base, the margin is 2.25%.
The interest rate we are required to pay on our borrowings, including the applicable margin,
may never be less than 4.50%. At March 31, 2005, our Libor interest rate was 5.05% on $31.0 million and 5.04% on $19.0 million. We obtain different interest rates on bank base
rates and on each LIBOR tranche.
In the case of base rate loans, interest is payable on the last day of each month. In the case
of LIBOR loans, interest is payable on the last day of each applicable interest period.
If the total outstanding borrowings under the credit facility are less than the borrowing
base, an unused commitment fee is required to be paid to the lenders. The amount of the fee is .25%
of the daily average of the unadvanced amount of the borrowing base. The fee is payable quarterly.
If the borrowing base is increased, we are required to pay a fee of .375% on the amount of any
increase in the borrowing base.
Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation, guaranteed payment of the
loans.
Parallels obligations to the lenders are secured by substantially all of its oil and gas
properties.
All outstanding principal under the revolving credit facility is due and payable on December
20, 2008. The maturity date of our outstanding loans may be accelerated by the lenders upon the
occurrence of an event of default under the Credit Agreement.
The Credit Agreement contains various restrictive covenants and compliance requirements as
follows:
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at the end of each quarter, a current ratio (as defined in the credit agreement) of
at least 1.1 to 1.0; |
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|
for each period (as calculated in the Credit Agreement) ending on December 31, March
31, June 30 and September 30, a funded debt ratio (as defined in the Credit Agreement) of not more than 3.70, 3.60 and 3.50, respectively, for December 31, 2005,
2006 and 2007; and |
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at all times, adjusted consolidated net worth (as defined in the Credit Agreement)
of at least (a) $50.0 million, plus (b) seventy-five percent (75%) of the net proceeds
from any equity securities issued by Parallel, plus (c) fifty percent (50%) of
consolidated net income for each fiscal quarter, if positive, and zero percent (0%) if
negative. |
(24)
As of March 31, 2005 we were in compliance with all covenants.
The Credit Agreement also contains restrictions on all retained earnings and net income for
payment of dividends on common stock.
If we have borrowing capacity under our Credit Agreement, we intend to borrow, repay and
reborrow under the revolving credit facility from time to time as necessary, subject to borrowing
base limitations, to fund:
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interpretation and processing of 3-D seismic survey data; |
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|
|
lease acquisitions and drilling activities; |
|
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|
acquisitions of producing properties or companies owning producing properties; and, |
|
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|
general corporate purposes. |
Preferred Stock
At March 31, 2005 we had 950,000 shares of 6% preferred stock outstanding. The preferred
stock:
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requires us to pay dividends of $.60 per annum, semi-annually on June 15 and
December 15 of each year; |
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|
is convertible into common stock at any time, at the option of the holder, into
2.8751 shares of common stock at an initial conversion price of $3.50 per shares,
subject to adjustment in certain events; |
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|
is redeemable at our option, in whole or in part, for $10 per share, plus accrued
dividends; |
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|
has no voting rights, except as required by applicable law, and except that as long
as any shares of preferred stock remain outstanding, the holders of a majority of the
outstanding shares of the preferred stock may vote on any proposal to change any
provision of the preferred stock which materially and adversely affects the rights,
preferences or privileges of the preferred stock; |
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|
is senior to the common stock with respect to dividends and on liquidation,
dissolution or winding up of Parallel; and |
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|
has a liquidation value of $10 per share, plus accrued and unpaid dividends. |
(25)
On May 4, 2005 notice was mailed that all 950,000 outstanding shares of its 6% Preferred Stock
would be redeemed on June 6, 2005 (the Redemption Date), at a price of $10.00 per share, plus
cash in an amount equal to all accumulated and unpaid dividends on the preferred stock up to the
Redemption Date. In lieu of redemption, holders of the shares of preferred stock have the option
to convert all or any portion of their shares prior to 5:00 p.m., Central Standard Time, on or
before the Redemption Date.
Sale of Equity Securities
On February 9, 2005, we sold 5,750,000 shares of our common stock, $.01 par value per share,
pursuant to a public offering at a price of $5.27 per share. Gross cash proceeds were $30.3
million, and net proceeds were approximately $28.0 million. The common shares were issued under
Parallels $100.0 million Universal Shelf Registration Statement on Form S-3 which became effective
in November 2004. The proceeds were used to reduce the revolving credit facility.
Commodity Price Risk Management Transactions
The purpose of our hedges is to provide a measure of stability in our oil and gas prices and
interest rate payments and to manage exposure to commodity price and interest rate risk. Our
objective is to lock in a range of oil and gas prices and a fixed interest rate for certain
notional amounts.
Under cash flow hedge accounting, the quarterly change in the fair value of the commodity
derivatives is recorded in stockholders equity as other comprehensive income (loss) and then
transferred to revenue when the production is sold. Ineffective portions of cash flow hedges
(changes in realized prices that do not match the changes in the hedge price) are recognized in
other expense as they occur. While the cash flow hedge contract is open, the ineffective gain or
loss many increase or decrease until settlement of the contract.
Under cash flow hedge accounting for interest rate swaps, the quarterly change in the fair
value of the derivatives is recorded in stockholders equity as other comprehensive income (loss)
and then transferred to interest expense when the contract settles. Ineffective portions of cash
flow hedges are recognized in other expense as they occur.
We are exposed to credit risk in the event of nonperformance by the counterparty in its
derivative instruments. However, we periodically assess the creditworthiness of the counterparty
to mitigate this credit risk.
Certain of our commodity price risk management arrangements have required us to deliver cash
collateral or other assurances of performance to the counterparties in the event that our payment
obligations with respect to our commodity price risk management transactions exceed certain levels.
(26)
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
We have contractual obligations and commitments that may affect our financial position.
However, based on our assessment of the provisions and circumstances of our contractual obligation
and commitments, we do not feel there would be an adverse effect on our consolidated results of
operations, financial condition or liquidity.
The following table is a summary of significant contractual obligations as of March 31, 2005:
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|
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|
|
|
Obligation Due in Period |
|
|
Periods ended December 31, |
|
After |
|
|
Contractual Cash Obligations |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
5 years |
|
Total |
|
|
(in thousands) |
Revolving Credit Facility (secured) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,000 |
|
Office Lease (Dinero Plaza) |
|
|
118 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223 |
|
Andrews and Snyder Field Offices |
|
|
17 |
|
|
|
23 |
|
|
|
23 |
|
|
|
14 |
|
|
|
14 |
|
|
|
|
(1) |
|
|
97 |
|
Preferred Stock Dividend |
|
|
427 |
|
|
|
570 |
|
|
|
570 |
|
|
|
570 |
|
|
|
570 |
|
|
|
|
(2) |
|
|
2,850 |
|
Asset retirement obligations(3) |
|
|
135 |
|
|
|
30 |
|
|
|
206 |
|
|
|
30 |
|
|
|
136 |
|
|
|
1,575 |
|
|
|
2,112 |
|
Derivative Obligations |
|
|
15,827 |
|
|
|
10,900 |
|
|
|
7,867 |
|
|
|
5,340 |
|
|
|
|
|
|
|
|
|
|
|
39,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,524 |
|
|
$ |
11,628 |
|
|
$ |
8,666 |
|
|
$ |
55,954 |
|
|
$ |
720 |
|
|
$ |
998 |
|
|
$ |
95,216 |
|
|
|
|
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|
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|
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(1) |
|
The Snyder field office lease remains in effect until the termination of our trade agreement with a third party
working
interest owner in the Diamond M project. The Andrews field office lease expires in December The lease cost for these
2007.
two office facilities are billed to nonaffiliated third party working interest owners under our joint operating
agreements with
these third parties. |
|
(2) |
|
Payments of preferred dividends so long as preferred stock remains outstanding and not converted. In connection with
the
redemption of our preferred stock, if none of the holders elect to convert to common stock, we would have an obligation
of
$9.5 million. |
|
(3) |
|
Assets retirement obligations of oil and natural gas assets, excluding salvage value and
accretion. |
Outlook
The oil and natural gas industry is capital intensive. We make, and anticipate that we will
continue to make, substantial capital expenditures in the exploration for, development and
acquisition of oil and natural gas reserves. Historically, our capital expenditures have been
financed primarily with:
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internally generated cash from operations; |
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proceeds from bank borrowings; and |
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proceeds from sales of equity securities. |
(27)
The continued availability of these capital sources depends upon a number of variables,
including:
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our proved reserves; |
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the volumes of oil and natural gas we produce from existing wells; |
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the prices at which we sell oil and gas; and |
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our ability to acquire, locate and produce new reserves. |
Each of these variables materially affects our borrowing capacity. We may from time to time
seek additional financing in the form of:
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increased bank borrowings; |
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|
sales of Parallels securities; |
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sales of non-core properties; or |
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other forms of financing. |
Except for the revolving credit facility we have with our bank lenders, we do not have
agreements for any future financing and there can be no assurance as to the availability or terms
of any such financing.
Inflation
Our drilling costs have escalated and we would expect this trend to continue, but our
commodity prices have also increased at the same time.
Critical Accounting Policies
This discussion should be read in conjunction with the financial statements and the
accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report or Form 10-K for the year ended December 31, 2004, filed
with the Securities and Exchange Commission on March 15, 2005.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)).
SFAS No. 123(R) requires an entity to recognize the grant-date fair value of stock options and
other equity-based compensation issued to employees in the income
(28)
statement. SFAS No. 123(R) initially was effective for Parallel beginning July 1, 2005. On April
14, 2005, the Securities and Exchange Commission announced a delay in the implementation of SFAS
No. 123(R) until the beginning of the fiscal year after June 15, 2005. We do not expect SFAS No.
123(R) to have a material impact on its results of operations.
Effects of Derivative Instruments
As of January 1, 2003 we designated our costless collars, oil and gas swaps and interest rate
swaps as cash flow hedges under the provisions of SFAS 133, as amended. The adoption of cash flow
hedge accounting allows us to record changes in fair value of contracts designated as cash flow
hedges through other comprehensive income until realized. When realized, we reflect the gain or
loss on commodity derivatives designated as cash flow hedges in revenue and on interest rate
derivatives designated as cash flow hedges in interest expense. We utilize mark-to-market
accounting for our put positions. The purpose of our hedges is to provide a measure of stability
in our oil and gas prices and interest rate payments and to manage exposure to commodity price and
interest rate risk. Our objective is to lock in a range of oil and gas prices and a fixed interest
rate for certain notional amounts.
Under cash flow hedge accounting, the quarterly change in the fair value of the derivatives is
recorded in stockholders equity as other comprehensive income (loss) and then transferred to
earnings when the production is sold. Ineffective portions of cash flow hedges (changes in
realized prices that do not match the changes in the hedge price) are recognized in other expense
as they occur. While the cash flow hedge contract is open, the ineffective gain or loss many
increase or decrease until settlement of the contract.
We are exposed to credit risk in the event of nonperformance by the counterparty in its
derivative instruments. However, we periodically assess the creditworthiness of the counterparty
to mitigate this credit risk.
TRENDS AND PRICES
Changes in oil and gas prices significantly affect our revenues, cash flows and borrowing
capacity. Markets for oil and natural gas have historically been, and will continue to be,
volatile. Prices for oil and natural gas typically fluctuate in response to relatively minor
changes in supply and demand, market uncertainty, seasonal, political and other factors beyond our
control. We are unable to accurately predict domestic or worldwide political events or the effects
of other such factors on the prices we receive for our oil and natural gas.
Our capital expenditure budgets are highly dependent on future oil and natural gas prices and
will be consistent with internally generated cash flows.
During fiscal year 2004 the average realized sales price for our oil and natural gas was
$37.55 (unhedged) per BOE. For the three months ended March 31, 2005, our average realized price
was $42.25 (unhedged) per BOE.
(29)
FORWARD-LOOKING STATEMENTS
Cautionary Statement Regarding Forward-Looking Statements
Some statements contained in this Quarterly Report on Form 10-Q/A are forward-looking
statements. These forward looking statements relate to, among others, the following:
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our future financial and operating performance and results; |
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our business strategy; |
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market prices; |
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sources of funds necessary to conduct operations and complete acquisitions; |
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development costs; |
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number and location of planned wells; |
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our future commodity price risk management activities; and |
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our plans and forecasts. |
We have based these forward-looking statements on our current assumptions, expectations and
projections about future events.
We use the words may, will, expect, anticipate, estimate, believe, continue,
intend, plan, budget, present value, future or reserves or other similar words to
identify forward-looking statements. These statements also involve risks and uncertainties that
could cause our actual results or financial condition to materially differ for our expectations.
We believe the assumptions and expectations reflected in these forward-looking statements are
reasonable. However, we cannot give any assurance that our expectations will prove to be correct
or that we will be able to take any actions that are presently planned. All of these statements
involve assumptions of future events and risks and uncertainties. Risks and uncertainties
associated with forward-looking statements include, but are not limited to:
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fluctuations in prices of oil and natural gas; |
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demand for oil and natural gas; |
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losses due to potential or future litigation; |
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future capital requirements and availability of financing; |
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geological concentration of our reserves; |
(30)
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risks associated with drilling and operating wells; |
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competition; |
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general economic conditions; |
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governmental regulations; |
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receipt of amounts owed to us by purchasers of our production and counterparties to
our hedging contracts; |
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hedging decisions, including whether or not to hedge; |
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events similar to 911; |
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actions of third party co-owners of interests in properties in which we also own an
interest; and |
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fluctuations in interest rates and availability of capital. |
For these and other reasons, actual results may differ materially from those projected or
implied. We believe it is important to communicate our expectations of future performance to our
investors. However, events may occur in the future that we are unable to accurately predict, or
over which we have no control. We caution you against putting undue reliance on forward-looking
statements or projecting any future results based on such statements.
Before you invest in our common stock, you should be aware that there are various risks
associated with an investment. We have described some of these risks under Risks Related to Our
Business beginning on page 20 of our Form 10-K for year ended December 31, 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following quantitative and qualitative information is provided about market risks and
derivative instruments to which Parallel was a party at March 31, 2005, and from which Parallel may
incur future earnings, gains or losses from changes in market interest rates and oil and natural
gas prices.
(31)
Interest Rate Sensitivity as of March 31, 2005
Our only financial instrument sensitive to changes in interest rates is our bank debt. As the
interest rate is variable and reflects current market conditions, the carrying value approximates
the fair value. The table below shows principal cash flows and related weighted average interest
rates by expected maturity dates. Weighted average interest rates were determined using weighted
average interest paid and accrued in March, 2005. You should read Note 3 to the Consolidated Financial Statements for further discussion of our debt that is
sensitive to interest rates.
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|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
Total |
|
|
(in thousands, except interest rates) |
Variable rate debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
Revolving Facility (secured)
Average interest rate |
|
|
5.12 |
% |
|
|
5.12 |
% |
|
|
5.12 |
% |
|
|
5.12 |
% |
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|
At March 31, 2005, we had bank loans in the amount of approximately $50.0 million
outstanding on our revolving credit facility at an average interest rate of 5.12%. Borrowings
under our credit facility bear interest, at our election, at (i) the banks base rate or (ii) the
LIBOR rate, plus LIBOR margin, but in no event less than 4.50%. As a result, our annual interest
cost in 2005 will fluctuate based on short-term interest rates. As the interest rate is variable
and is reflective of current market conditions, the carrying value approximates the fair value.
Under our credit facility, we may elect an interest rate based upon the agent lenders base
lending rate, or the LIBOR rate, plus a margin ranging from 2.25% to 2.75% per annum, depending on
our borrowing base usage. The interest rate we are required to pay, including the applicable
margin, may never be less than 4.50%. At March 31, 2005, the average interest rate for our LIBOR
rate loans was 5.0%
We entered into LIBOR fixed interest rate swap contracts with BNP Paribas. We will pay a
fixed interest rate, as noted in the table below, for the period beginning April 1, 2005 through
December 30, 2006.
A recap for the period of time, notional amounts, LIBOR fixed interest rates, expected margin
rates and expected fixed interest rates for the contract are as follows:
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Notional |
|
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|
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Fair |
Period of Time |
|
Amounts |
|
Fixed Interest Rates |
|
Market Value |
|
|
($ in millions) |
|
|
|
|
|
($ in millions) |
April 1, 2005 thru December 31, 2005 |
|
$ |
50 |
|
|
|
3.36 |
% |
|
$ |
0.114 |
|
January 1, 2006 thru December 31,
2006 |
|
$ |
50 |
|
|
|
3.82 |
% |
|
|
0.184 |
|
January 1, 2007 thru December 31,
2007 |
|
$ |
50 |
|
|
|
4.30 |
% |
|
|
0.063 |
|
January 1, 2008 thru December 30,
2008 |
|
$ |
50 |
|
|
|
4.74 |
% |
|
|
(0.059 |
) |
|
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|
|
|
|
|
|
|
|
Total Fair Market Value |
|
|
|
|
|
|
|
|
|
$ |
0.302 |
|
|
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|
(32)
Commodity Price Sensitivity as of March 31, 2005
Our major market risk exposure is in the pricing applicable to our oil and natural gas
production. Market risk refers to the risk of loss from adverse changes in oil and natural gas
prices. Realized pricing is primarily driven by the prevailing domestic price for crude oil and
spot prices applicable to the region in which we produce natural gas. Historically, prices
received for oil and gas production have been volatile and unpredictable. We expect pricing
volatility to continue. Oil prices ranged from a low of $26.76 per barrel to a high of $52.82 per
barrel during 2004. Natural gas prices we received during 2004 ranged from a low of $2.31 per Mcf
to a high of $8.79 per Mcf. During the first quarter ended March 31, 2005 oil prices ranged from a
low of $36.43 to a high of $49.12. Natural gas prices we received during the first quarter ended
March 31, 2005 ranged from a low of $2.59 per Mcf to a high of $9.95 per Mcf. A significant
decline in the prices of oil or natural gas could have a material adverse effect on our financial
condition and results of operations.
Costless Collar. Collars are created by purchasing puts to establish a floor price
and then selling a call which establishes a maximum amount the producer will receive for the oil or
gas hedged. Calls are sold to offset or reduce the premium paid for buying the put. In 2003, we
entered into several costless, seven-month Houston ship channel gas collars. A majority of our natural gas production is sold based on Houston ship channel prices. A recap for the period of
time, number of MMBtus and gas prices is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Ship Channel |
|
Fair |
|
|
Barrels of |
|
NyMex oil prices |
|
MMBtu of |
|
gas prices |
|
Market |
Period of Time |
|
Oil |
|
Floor |
|
Cap |
|
Natural Gas |
|
Floor |
|
Cap |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
April 1, 2005 thru
October 31, 2005 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
428,000 |
|
|
$ |
5.00 |
|
|
$ |
7.26 |
|
|
$ |
(158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2005 thru
December 31, 2005 |
|
|
55,000 |
|
|
$ |
36.00 |
|
|
$ |
49.60 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2006 thru
December 31, 2006 |
|
|
70,800 |
|
|
$ |
35.00 |
|
|
$ |
44.00 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Market Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps. Generally, swaps are an agreement to buy or sell a specified commodity
for delivery in the future, but at an agreed fixed price. Swap transactions convert a floating
price into a fixed price. For any particular swap transaction, the counterparty is required to
make a payment to the hedge party if the reference price for any settlement period is less than the
swap price for such hedge, and the hedge party is required to make a payment to the counterparty if
the reference price for any settlement period is greater than the swap price for such hedge.
(33)
We have entered into oil swap contracts with BNP Paribas. A recap for the period of time,
number of barrels and swap prices are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels |
|
|
|
|
|
Fair |
|
|
of |
|
Nymex Oil |
|
Market |
Period of Time |
|
Oil |
|
Swap Price |
|
Value |
|
|
|
|
|
|
|
|
|
|
($ in thousands) |
April 1, 2005 thru December 31, 2005 |
|
|
467,500 |
|
|
$ |
30.18 |
|
|
$ |
(12,235 |
) |
January 1, 2006 thru December 20, 2006 |
|
|
448,000 |
|
|
$ |
28.46 |
|
|
|
(11,411 |
) |
January 1, 2007 thru December 31, 2007 |
|
|
474,500 |
|
|
$ |
34.36 |
|
|
|
(8,161 |
) |
January 1, 2008 thru December 31, 2008 |
|
|
439,200 |
|
|
$ |
33.37 |
|
|
|
(7,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Market Value |
|
|
|
|
|
|
|
|
|
$ |
(38,953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q/A, the effectiveness
of our disclosure controls and procedures was evaluated by our management, with the participation
of our chief executive officer, Larry C. Oldham (principal executive officer), and our chief
financial officer, Steven D. Foster (principal financial officer). Our disclosure controls and
procedures are designed to help ensure that information we are required to disclose in reports that
we file with the SEC is accumulated and communicated to our management and recorded, processed,
summarized and reported within the time periods prescribed by the SEC. Mr. Oldham and Mr. Foster
have concluded that our disclosure controls and procedures are effective for their intended
purposes. There were no changes in internal control over financial reporting that occurred during
the last fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to ordinary routine litigation incidental to our business.
We are currently a defendant in one lawsuit incidental to our business. We do not believe the
ultimate outcome of this lawsuit will have a material adverse effect on our financial condition or
results of operations. We are not aware of any other threatened litigation and we have not been a
party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding.
(34)
ITEM 6. EXHIBITS
|
|
|
No. |
|
Description of Exhibit |
3.1
|
|
Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1
to Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2004) |
|
|
|
3.2
|
|
Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form
8-K, dated October 9, 2000, as filed with the Securities and Exchange Commission on
October 10, 2000) |
|
|
|
3.3
|
|
Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.3 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004) |
|
|
|
3.4
|
|
Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to
Exhibit No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October
13, 2004) |
|
|
|
3.5
|
|
Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
3.6
|
|
Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
4.1
|
|
Certificate of Designations, Preferences and Rights of Serial Preferred Stock 6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004) |
|
|
|
4.2
|
|
Certificate of Designation, Preferences and Rights of Series A Preferred Stock
(Incorporated by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2000) |
|
|
|
4.3
|
|
Rights Agreement, dated as of October 5, 2000, between the Registrant and
Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to |
(35)
|
|
|
No. |
|
Description of Exhibit |
|
|
Exhibit
4.3 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000) |
|
|
|
4.4
|
|
Form of Indenture relating to senior debt securities of the Registrant (Incorporated
by reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
4.5
|
|
Form of Indenture relating to subordinated debt securities of the Registrant
(Incorporated by reference to Exhibit No. 4.5 of the Registrants Registration Statement
on Form S-3, No. 333-119725 filed on October 13, 2004) |
|
|
|
4.6
|
|
Form of common stock certificate of the Registrant (Incorporated by reference to
Exhibit No. 4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
4.7
|
|
Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004) |
|
|
|
4.8
|
|
Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004) |
|
|
|
|
|
Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8): |
|
|
|
10.1
|
|
1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004) |
|
|
|
10.2
|
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension
Plan (Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal
year ended December 31, 1995) |
|
|
|
10.3
|
|
Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.6 of
the Registrants Form 10-K Report for the fiscal year ended December 31, 1997) |
|
|
|
10.4
|
|
1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998) |
|
10.5
|
|
Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit |
(36)
|
|
|
No. |
|
Description of Exhibit |
|
|
Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2001) |
|
|
|
10.6
|
|
2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7
of the Registrants Form 10-Q Report for the first fiscal quarter ended March 31, 2004) |
|
|
|
10.7
|
|
2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of
the Registrants Form 8-K Report dated September 22, 2004) |
|
|
|
10.8
|
|
Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 23, 2004 and filed with the Securities and
Exchange Commission on September 29, 2004) |
|
|
|
10.9
|
|
Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated June 30, 1999) |
|
|
|
10.10
|
|
Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999) |
|
|
|
10.11
|
|
Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2000) |
|
|
|
10.12
|
|
Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999) |
|
|
|
10.13
|
|
Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999) |
|
|
|
10.14
|
|
Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C.,
Bank One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to
Exhibit 10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000) |
|
|
|
10.15
|
|
Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001) |
|
|
|
10.16
|
|
Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. |
(37)
|
|
|
No. |
|
Description of Exhibit |
|
|
(Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002) |
|
|
|
10.17
|
|
First Amended and Restated Credit Agreement, dated December 20, 2002, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
Western National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K
of the Registrant, dated December 20, 2002) |
|
|
|
10.18
|
|
Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB,
as Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated
December 20, 2002) |
|
|
|
10.19
|
|
First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003) |
|
|
|
10.20
|
|
Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004) |
|
|
|
10.21
|
|
Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by
reference to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December
31, 2004) |
|
|
|
10.22
|
|
First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004) |
|
|
|
10.23
|
|
Second Amendment to Second Amended and Restated Credit Agreements dated as of April 1,
2005, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-
K Report dated April 4, 2005 and filed with the Securities and Exchange Commission on
April 8, 2005) |
(38)
|
|
|
No. |
|
Description of Exhibit |
14
|
|
Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004) |
|
|
|
21
|
|
Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004) |
|
|
|
*31.1
|
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 |
|
|
|
*31.2
|
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 |
|
|
|
*32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
|
|
|
*32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
(39)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
PARALLEL PETROLEUM CORPORATION |
|
|
|
|
|
|
|
|
|
BY: /s/ Larry C. Oldham |
|
|
|
|
|
|
|
Date: August 22, 2005
|
|
Larry C. Oldham |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
Date: August 22, 2005
|
|
BY: /s/ Steven D. Foster |
|
|
|
|
|
|
|
|
|
Steven D. Foster, |
|
|
|
|
Chief Financial Officer |
|
|
INDEX TO EXHIBITS
|
|
|
No. |
|
Description of Exhibit |
3.1
|
|
Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1
to Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2004) |
|
|
|
3.2
|
|
Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form
8-K, dated October 9, 2000, as filed with the Securities and Exchange Commission on
October 10, 2000) |
|
|
|
3.3
|
|
Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.3 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004) |
|
|
|
3.4
|
|
Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to
Exhibit No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October
13, 2004) |
|
|
|
3.5
|
|
Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
3.6
|
|
Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
4.1
|
|
Certificate of Designations, Preferences and Rights of Serial Preferred Stock 6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004) |
|
|
|
4.2
|
|
Certificate of Designation, Preferences and Rights of Series A Preferred Stock
(Incorporated by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2000) |
|
|
|
4.3
|
|
Rights Agreement, dated as of October 5, 2000, between the Registrant and
Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit
4.3 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000) |
|
|
|
4.4
|
|
Form of Indenture relating to senior debt securities of the Registrant (Incorporated
by reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
No. |
|
Description of Exhibit |
4.5
|
|
Form of Indenture relating to subordinated debt securities of the Registrant
(Incorporated by reference to Exhibit No. 4.5 of the Registrants Registration Statement
on Form S-3, No. 333-119725 filed on October 13, 2004) |
|
|
|
4.6
|
|
Form of common stock certificate of the Registrant (Incorporated by reference to
Exhibit No. 4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004) |
|
|
|
4.7
|
|
Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004) |
|
|
|
4.8
|
|
Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004) |
|
|
|
|
|
Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8): |
|
|
|
10.1
|
|
1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004) |
|
|
|
10.2
|
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension
Plan (Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal
year ended December 31, 1995) |
|
|
|
10.3
|
|
Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.6 of
the Registrants Form 10-K Report for the fiscal year ended December 31, 1997) |
|
|
|
10.4
|
|
1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998) |
|
|
|
10.5
|
|
Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2001) |
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10.6
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2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7
of the Registrants Form 10-Q Report for the first fiscal quarter ended March 31, 2004) |
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No. |
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Description of Exhibit |
10.7
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2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of
the Registrants Form 8-K Report dated September 22, 2004) |
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10.8
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Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 23, 2004 and filed with the Securities and
Exchange Commission on September 29, 2004) |
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10.9
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Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated June 30, 1999) |
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10.10
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Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999) |
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10.11
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Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2000) |
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10.12
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Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999) |
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10.13
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Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999) |
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10.14
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Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C.,
Bank One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to
Exhibit 10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000) |
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10.15
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Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001) |
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10.16
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Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002) |
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10.17
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First Amended and Restated Credit Agreement, dated December 20, 2002, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
Western National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K
of the Registrant, dated December 20, 2002) |
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No. |
|
Description of Exhibit |
10.18
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Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB,
as Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated
December 20, 2002) |
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10.19
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First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003) |
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10.20
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Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004) |
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10.21
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Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by
reference to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December
31, 2004) |
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10.22
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First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004) |
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10.23
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Second Amendment to Second Amended and Restated Credit Agreements dated as of April 1,
2005, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed
with the Securities and Exchange Commission on April 8, 2005) |
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14
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Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004) |
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21
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Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004) |
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*31.1
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 |
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No. |
|
Description of Exhibit |
*31.2
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Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 |
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*32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
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*32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |