ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Amber Resources Company of Colorado a subsidiary of Delta Petroleum Corporation, formerly named "Amber Resources Company" ("Amber," "we" or "us"), is engaged in the exploration, development and production of oil and gas properties. Our business is conducted in the U.S. coastal waters offshore California. As of December 31, 2007, our remaining principal assets include interests in three undeveloped Federal units located in the Santa Barbara Channel and the Santa Maria Basin offshore California. There continue to be uncertainties as to the timing of the development of these offshore properties. (See "Description of Properties," Item 2 herein.) On July 1, 2001 we sold all of our remaining proved producing properties to Delta Petroleum Corporation ("Delta").
On February 10, 2006, our Board of Directors made the decision to change our fiscal year end from June 30 to December 31, effective December 31, 2005. This Form 10-K includes information for the years ended December 31, 2007 and 2006, six-month transitional period ended December 31, 2005 and for the twelve-month period ended June 30, 2005.
In June 2004, we applied for and received a reinstatement of our charter with the State of Delaware which had been voided. In connection with our reinstatement, we were required to change our name to "Amber Resources Company of Colorado." This was due to the fact that our prior name was taken by another company during the period our charter was void.
We were established as a Delaware corporation on January 17, 1978. Our offices are located at Suite 4300, 370 17th Street, Denver, Colorado 80202. As of December 31, 2007, Delta owned 4,277,977 shares (91.68%) of our outstanding common stock. We are managed by Delta under a management agreement effective October 1, 1998 which provides for the sharing of the management between the two companies and allocation of related expenses.
At December 31, 2007, we had an authorized capital of 5,000,000 shares of $0.10 par value preferred stock of which no shares were issued and 25,000,000 shares of $0.0625 common stock of which 4,666,185 shares were issued and outstanding.
Business of Issuer
During the year ended December 31, 2007, we were engaged in only one industry, namely the acquisition, exploration and development of offshore oil and gas properties and related business activities. Our oil and gas operations now are comprised solely of the development of our offshore interests in undeveloped offshore Federal leases and units near Santa Barbara, California. We have no production and no proved reserves.
Principal Products or Services and Their Markets
Although we do not currently have any production, we anticipate that the principal products to be produced by us will be crude oil and natural gas.
It is anticipated that these products will be generally sold at the wellhead to purchasers in the immediate area where the product would be produced. The principal markets for oil and gas are refineries and transmission companies which have facilities near our producing properties.
Distribution Methods of the Products or Services
We do not currently have any oil or gas production. Generally, when a company does have production, oil is picked up and transported by the purchaser from the wellhead. In some instances a fee is charged for the cost of transporting the oil, which fee is deducted from or accounted for in the price paid for the oil. Natural gas wells are connected to pipelines generally owned by the natural gas purchasers. A variety of pipeline transportation charges is usually included in the calculation of the price paid for the natural gas.
Status of Any Publicly Announced New Product or Service
We have not made a public announcement of, and no information has otherwise become public about, a new product or industry segment requiring the investment of a material amount of our total assets.
Competitive Business Conditions
Oil and gas exploration and development of undeveloped properties is a highly competitive and speculative business. We compete with a number of other companies, including major oil companies and other independent operators, which are more experienced and which have greater financial resources. We do not hold a significant competitive position in the oil and gas industry.
Sources and Availability of Raw Materials and Names of Principal Suppliers
Oil and gas may be considered raw materials essential to our business. The acquisition, exploration, development, production, and sale of oil and gas are subject to many factors which are outside of our control. These factors include national and international economic conditions, availability of drilling rigs, casing, pipe, and other equipment and supplies, proximity to pipelines, the supply and price of other fuels, and the regulation of prices, production, transportation, and marketing by the Department of Energy and other federal and state governmental authorities.
Dependence on One or a Few Major Customers
The loss of any customer would not have a material adverse effect on our business because of the availability of alternative customers and the marketability of the oil and gas in the regions where our undeveloped properties are located. We currently do not have any oil or gas production and consequently we do not currently have any customers.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements and Labor Contracts
We do not own any patents, trademarks, licenses, franchises, concessions, or royalty agreements except oil and gas interests acquired from industry participants, private landowners and state and federal governments. We are not a party to any labor contracts.
Need for Any Governmental Approval of Principal Products or Services
Except that we must obtain certain permits and other approvals from various governmental agencies prior to drilling wells and producing oil and/or natural gas, we do not need to obtain governmental approval of our principal products or services. Governmental approval, however, has been a major impediment to the development of our undeveloped properties.
Government Regulation of the Oil and Gas Industry
General
Our business is affected by numerous federal, state and local laws and regulations, including those relating to protection of the environment, public health, and worker safety. The technical requirements of these laws and regulations are becoming increasingly expensive, complex, and stringent. Non-compliance with these laws and regulations may result in imposition of substantial liabilities including civil and criminal penalties. In addition, certain laws impose strict liability for environmental remediation and other costs. Changes in any of these laws and regulations could have a material adverse effect on our business. In light of the many uncertainties with respect to future laws and regulations, we cannot predict the overall effect of such laws and regulations on our future operations. Nevertheless, the trend in environmental regulation is to place more restrictions and controls on activities that may affect the environment, and future expenditures for environmental compliance or remediation may be substantially more than we expect.
We believe that our operations comply in all material respects with all applicable laws and regulations and that the existence and enforcement of such laws and regulations have no more restrictive effect on our method of operations than on other similar companies in the energy industry. Accidental leaks and spills requiring cleanup may occur in the ordinary course of business, and the costs of preventing and responding to such releases are embedded in the normal costs of doing business. In addition to the costs of environmental protection associated with our ongoing operations, we may incur unforeseen investigation and remediation expenses at facilities we formerly owned and operated or at third-party owned waste disposal sites that we have used. Such expenses are difficult to predict and may arise at sites operated in compliance with past industry standards and procedures. The following discussion contains summaries of certain laws and regulations and is qualified in its entirety by the foregoing.
Environmental Regulation
Our operations are subject to numerous federal, state, and local environmental laws and regulations concerning our oil and gas operations,
products and other activities. In particular, these laws and regulations govern, among other things, the issuance of permits associated with exploration, drilling and production activities, the types of activities that may be conducted in environmentally protected areas such as wetlands and wildlife habitats, the release of emissions into the atmosphere, the discharge and disposal of regulated substances and waste materials, offshore oil and gas operations, the reclamation and abandonment of well and facility sites, and the remediation of contaminated sites.
Governmental approvals and permits are currently, and may in the future be, required in connection with our operations. The success of obtaining, and the duration of, such approvals are contingent upon a significant number of variables, many of which are not within our control. To the extent such approvals are required and not granted, operations may be delayed or curtailed, or we may be prohibited from proceeding with planned exploration or operation of facilities.
Environmental laws and regulations are expected to have an increasing impact on our operations, although it is impossible to predict accurately the effect of future developments in such laws and regulations on our future earnings and operations. Some risk of environmental costs and liabilities is inherent in our operations and products, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs and liabilities will not be incurred. However, we do not currently expect any material adverse effect upon our results of operations or financial position as a result of compliance with such laws and regulations.
Although future environmental obligations are not expected to have a material adverse effect on our results of operations or financial condition, there can be no assurance that future developments, such as increasingly stringent environmental laws or enforcement thereof, will not cause us to incur substantial environmental liabilities or costs.
Hazardous Substances and Waste Disposal
We do not currently own or lease any interests in any producing properties. It is possible, however, that we might acquire interests in producing properties or that some of our non-producing properties may become productive in the future. The federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and comparable state statutes impose strict joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of "hazardous substances" found at sites where hydrocarbons or other waste is found to have been disposed of or released on or under their properties. The federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes govern the management and disposal of wastes. Although CERCLA currently excludes petroleum from cleanup liability, many state laws affecting our operations impose clean up liability regarding petroleum and petroleum related products.
In addition, although RCRA currently classifies certain exploration and production wastes as "non hazardous," such wastes could be reclassified as hazardous wastes, thereby making such wastes subject to more stringent handling and disposal requirements. If such a change were to occur, it could
have a significant impact on our operating costs, as well as the gas and oil industry in general.
Oil Spills
The Federal Clean Water Act ("CWA") and the Federal Oil Pollution Act of 1990, as amended ("OPA") impose significant penalties and other liabilities with respect to oil spills that damage or threaten navigable waters of the United States. Under the OPA, (i) owners and operators of onshore facilities and pipelines, (ii) lessees or permittees of an area in which an offshore facility is located and (iii) owners and operators of tank vessels ("Responsible Parties") are strictly liable on a joint and several basis for removal costs and damages that result from a discharge of oil into the navigable waters of the United States. These damages include, for example, natural resource damages, real and personal property damages and economic losses. OPA limits the strict liability of Responsible Parties for removal costs and damages that result from a discharge of oil to $350 million in the case of onshore facilities, $75 million plus removal costs in the case of offshore facilities, and in the case of tank vessels, an amount based on gross tonnage of the vessel. However, these limits do not apply if the discharge was caused by gross negligence or willful misconduct, or by the violation of an applicable Federal safety, construction or operating regulation by the Responsible Party, its agent or subcontractor or in certain other circumstances. To date, we have not had any material spills.
In addition, with respect to certain offshore facilities, OPA requires evidence of financial responsibility in an amount of up to $150 million. Tank vessels must provide such evidence in an amount based on the gross tonnage of the vessel. Failure to comply with these requirements or failure to cooperate during a spill event may subject a Responsible Party to civil or criminal enforcement actions and penalties.
The operators of our undeveloped offshore California properties will be primarily liable for oil spills and are required by the Minerals Management Service of the United States Department of the Interior ("MMS") to carry certain types of insurance and to post bonds in that regard. We are generally liable for oil spills as a non-operating working interest owner.
Offshore Production
Offshore oil and gas operations in U.S. waters are subject to regulations of the United States Department of the Interior, Mineral Management Service which currently imposes strict liability upon the lessee under a federal lease for the cost of clean up of pollution resulting from the lessee's operations. As a result, such lessee could be subject to possible liability for pollution damages. In the event of a serious incident of pollution, the Department of the Interior may require a lessee under federal leases to suspend or cease operations in the affected areas. Our leases are undeveloped and currently pose no liability for pollution damages.
Research and Development
We do not engage in any research and development activities. Since our inception, we have not had any customer or government-sponsored material research activities relating to the development of any new products, services or techniques, or the improvement of existing products.
Environmental Protection
Because we are engaged in the business of acquiring, operating, exploring for and developing natural resources, we are subject to various state and local provisions regarding environmental and ecological matters. Therefore, compliance with environmental laws may necessitate significant capital outlays, may materially affect our earnings potential, and could cause material changes in our proposed business. At the present time, however, these laws do not materially hinder nor adversely affect our business. Capital expenditures relating to environmental control facilities have not been material to our operation since our inception. In addition, we do not anticipate that such expenditures will be material during the year ending December 31, 2008.
Employees
We have no employees.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully read and consider the risks described below before deciding to invest in our securities. The occurrence of any of the following risks could materially harm our business, financial condition, results of operations or cash flows. In any such case, the trading price of our common stock and other securities could decline, and you could lose all or part of your investment. When determining whether to invest in our securities, you should also refer to the other information contained or incorporated by reference in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes.
Risks Related To Our Business and Industry
We currently have no revenues.
On July 1, 2001 we sold all of our proved producing properties to Delta. Since that time our assets have consisted almost entirely of non-revenue producing interests in three undeveloped Federal units located in the Santa Barbara Channel and the Santa Maria Basin offshore California. At the present time we have no revenues and there continue to be uncertainties as to the timing of the development of our offshore properties. There can be no assurance that we will ever be successful in establishing any revenues.
We are controlled by Delta.
As of December 31, 2007, Delta owned 91.68% of our outstanding common stock. Accordingly, Delta controls the election of our officers and directors and the management of our business. Delta's ownership of such a large percentage
of our shares may discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to stockholders for their common stock.
We are currently dependent upon Delta for management and funding.
We are managed by Delta under a management agreement that provides for the sharing of the management between the two companies and allocation of related expenses, but since we have no revenues we are currently dependent upon Delta to pay any expenses that we incur. In the event that Delta does not continue to provide funding for any reason, we would be forced to seek other sources of funds to sustain our operations.
The exploration, development and operation of oil and gas properties involve substantial risks that may result in a total loss of investment.
The business of exploring for and, to a lesser extent, developing and operating oil and gas properties involves a high degree of business and financial risk, and thus a substantial risk of investment loss that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Oil and gas drilling and production activities may be shortened, delayed or canceled as a result of a variety of factors, many of which are beyond our control. These factors include:
* unexpected drilling conditions; * pressure or irregularities in formations; * equipment failures or accidents; * adverse changes in prices; * weather conditions; * shortages in experienced labor; and * shortages or delays in the delivery of equipment.
We may drill wells that are unproductive or, although productive, do not produce oil and/or natural gas in economic quantities. Acquisition and completion decisions generally are based on subjective judgments and assumptions that are speculative. It is impossible to predict with certainty the production potential of a particular property or well. Furthermore, a successful completion of a well does not ensure a profitable return on the investment. A variety of geological, operational, or market-related factors, including, but not limited to, unusual or unexpected geological formations, pressures, equipment failures or accidents, fires, explosions, blowouts, cratering, pollution and other environmental risks, shortages or delays in the availability of drilling rigs and the delivery of equipment, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well or otherwise prevent a property or well from being profitable. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or natural gas from the well. In addition, production from any well may be unmarketable if it is contaminated with water or other deleterious substances.
Our industry experiences numerous operating hazards that could result in substantial losses.
The exploration, development and operation of oil and gas properties also involve a variety of operating risks including the risk of fire, explosions, blowouts, cratering, pipe failure, abnormally pressured formations, natural disasters, acts of terrorism or vandalism, and environmental hazards, including oil spills, gas leaks, pipeline ruptures or discharges of toxic gases. These industry-operating risks can result in injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, and suspension of operations which could result in substantial losses.
We depend on Delta to provide management services.
None of our management personnel is employed by our Company, but are instead employees of Delta. The loss of any one of our management personnel could severely harm our business. If we cannot retain our current management or attract additional experienced personnel, our ability to conduct our business could be adversely affected.
We may not be permitted to develop some of our offshore California properties or, if we are permitted, the substantial cost to develop these properties could result in a reduction of our interest in these properties or cause us to incur penalties.
Certain of our offshore California undeveloped properties, in which we have ownership interests ranging from 0.87% to 6.97%, are attributable to our interests in three unproved undeveloped oil and gas properties located offshore of California near Santa Barbara. These properties had a cost basis of approximately $5.0 million at December 31, 2007. The development of these properties is subject to extensive regulation and is currently the subject of litigation. Further actions to develop these properties have been delayed pending the outcome of a lawsuit that was filed in the United States Court of Federal Claims in Washington, D.C. by Amber Resources Company of Colorado and ten other property owners alleging that the U.S. government materially breached the terms of forty undeveloped federal leases, some of which are part of our offshore California properties. None of these leases is currently impaired, but in the event that they are found not to be valid for some reason, in the future it would appear that they would become impaired. For example, if there is a future adverse ruling by the California Coastal Commission under the Coastal Zone Management Act and we decide not to appeal such ruling to the Secretary of Commerce, or the Secretary of Commerce either refuses to hear our appeal of any such ruling or ultimately makes an adverse determination, it is likely that some or all of these leases would become impaired and written off at that time. It is also possible that other events could occur that would cause the leases to become impaired, and we will continuously evaluate those factors as they occur.
In addition, the cost to develop these properties will be substantial. The cost to develop all of the offshore California properties in which we own an interest, including delineation wells, environmental mitigation, development wells, fixed platforms, fixed platform facilities, pipelines and power
cables, onshore facilities and platform removal over the life of the properties (assumed to be 38 years), is estimated to be in excess of $3.0 billion. There will be additional costs of a currently undetermined amount to develop the Rocky Point Unit. Each working interest owner will be required to pay its proportionate share of these costs based upon the amount of the interest that it owns. If we are unable to fund our share of these costs or otherwise cover them through farm-outs or other arrangements, then we could either forfeit our interest in certain wells or properties or suffer other penalties in the form of delayed or reduced revenues under our various unit operating agreements, which could impact the ultimate realization of this investment. The estimates discussed above may differ significantly from actual results.
Our industry is highly competitive, making our results uncertain.
We operate in the highly competitive areas of oil and gas exploration, development and production. We compete for the purchase of leases from the U.S. government and from other oil and gas companies. These leases include exploration prospects as well as properties with proved reserves. We face competition in every aspect of our business, including, but not limited to:
* acquiring reserves and leases; * obtaining goods, services and employees needed to operate and manage our business; * access to the capital necessary to drill wells and acquire properties; and * marketing oil and natural gas.
Competitors include multinational oil companies, independent production companies and individual producers and operators. Many of our competitors have greater financial, technological and other resources than we do.
New technologies may cause our current exploration and drilling methods to become obsolete, resulting in an adverse effect on our production.
The oil and natural gas industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using new technologies. As competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, competitors may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. One or more of the technologies that we currently use or that we may implement in the future may become obsolete, and we may be adversely affected.
Terrorist attacks aimed at our facilities could adversely affect our business.
The United States has been the target of terrorist attacks of unprecedented scale. The U.S. government has issued warnings that U.S. energy assets may be
the future targets of terrorist organizations. These developments have subjected our operations to increased risks. Any future terrorist attack at our facilities, or those of our purchasers, could have a material adverse effect on our business.
We may incur substantial costs to comply with the various federal, state and local laws and regulations that affect our oil and gas operations.
The oil and gas business is subject to stringent federal, state and local laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to health and safety, environmental protection or the oil and gas industry generally. Legislation affecting the industry is under constant review for amendment or expansion, frequently increasing our regulatory burden. Compliance with such laws and regulations often increases our cost of doing business and, in turn, decreases our profitability. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the incurrence of investigatory or remedial obligations, or issuance of cease and desist orders.
The environmental laws and regulations to which we are subject may:
* require applying for and receiving a permit before drilling commences; * restrict the types, quantities and concentration of substances that can be released into the environment in connection with drilling and production activities; * limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and * impose substantial liabilities for pollution resulting from our operations.
Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance, and may otherwise have a material adverse effect on our earnings, results of operations, competitive position or financial condition. Under applicable environmental laws and regulations, including CERCLA, RCRA and analogous state laws, we could be held strictly liable for the removal or remediation of previously released materials or property contamination of properties that we own regardless of whether we were responsible for the release or if our operations were standard in the industry at the time they were performed.
Risks Related To Our Stock
There is currently no market for our common stock.
There have been no quotations for our stock for several years, and we do not know if any market for our stock will ever develop. As a result, an investment in our common stock would be considered illiquid. Persons who need to have liquidity in their investments should not purchase our common stock.
We may issue shares of preferred stock with greater rights than our common stock.
Although we have no current plans, arrangements, understandings or agreements to issue any preferred stock, our certificate of incorporation authorizes our board of directors to issue one or more series of preferred stock and set the terms of the preferred stock without seeking any further approval from our stockholders. Any preferred stock that is issued may rank ahead of our common stock, in terms of dividends, liquidation rights and voting rights.
There may be future dilution of our common stock.
If we sell additional equity or convertible debt securities, such sales could result in increased dilution to our stockholders.
We do not expect to pay dividends on our common stock.
We do not expect to pay any dividends, in cash or otherwise, with respect to our common stock in the foreseeable future.
The common stock is an unsecured equity interest in our Company.
As an equity interest, the common stock will not be secured by any of our assets. Therefore, in the event we are liquidated, the holders of the common stock will receive a distribution only after all of our secured and unsecured creditors have been paid in full. There can be no assurance that we will have sufficient assets after paying our secured and unsecured creditors to make any distribution to the holders of the common stock.
Our stockholders do not have cumulative voting rights.
Holders of our common stock are not entitled to accumulate their votes for the election of directors or otherwise. Accordingly, a plurality of holders of our outstanding common stock will be able to elect all of our directors. As of December 31, 2007, Delta owned 91.68% of our outstanding common stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTIES
Office Facilities
We share offices with Delta under a management agreement with Delta. Under this agreement, we pay Delta a quarterly management fee of $25,000 for our share of rent, secretarial and administrative, accounting and management services of Delta's officers and employees.
Oil and Gas Properties
We own interests in undeveloped offshore Federal leases and units located near Santa Barbara, California. We sold all of our onshore producing
properties to Delta on July 1, 2001. As such, no oil and gas revenues were recorded during the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 or fiscal year ended June 30, 2005. No reserves estimates were prepared for these periods as all remaining leases are undeveloped.
Offshore Federal Waters: Santa Barbara, California Area
Unproved Undeveloped Properties
We have ownership interests ranging from 0.87% to 6.97% in three unproved undeveloped oil and gas properties located offshore California in which we have a recorded aggregate carrying value of $5.0 million at December 31, 2007 and 2006. These non-operated property interests are located in close proximity to existing producing federal offshore units near Santa Barbara, California and represent the right to explore for, develop and produce oil and gas from offshore federal lease units. Preliminary exploration efforts on these properties have occurred and the existence of substantial quantities of hydrocarbons has been indicated. Based on indications of levels of hydrocarbons present from drilling operations conducted in the past, we believe that the fair values of our property interests are in excess of their carrying values at December 31, 2007, and that no impairment in the carrying values has occurred. The recovery of our investment in these properties will require extensive exploration and development activities (and costs) which cannot proceed without certain regulatory approvals that have been delayed and is subject to other substantial risks and uncertainties. Amber is among twelve plaintiffs in a lawsuit that was filed in the United States Court of Federal Claims (the "Court") in Washington, D.C. alleging that the U.S. government materially breached the terms of forty undeveloped federal leases, some of which are part of our offshore California properties. In November 2005 and October 2006, the Court granted summary judgment as to liability and partial summary judgment as to damages with respect to thirty six of the forty total federal leases that are the subject of the litigation.
On January 12, 2007, the Court entered an order of final judgment awarding the lessees restitution of the original lease bonuses paid for thirty five of the forty lawsuit leases. Under this order we are entitled to receive a gross amount of approximately $1.5 million as reimbursement for the portion of the litigation related to lease bonuses paid. The government has appealed the order and contends that, among other things, the Court erred in finding that it breached the leases, and in allowing the current lessees to stand in the shoes of their predecessors for the purposes of determining the amount of damages that they are entitled to receive. The current lessees are also appealing the order of final judgment to, among other things, challenge the Court's rulings that they cannot recover their and their predecessors' sunk costs as part of their restitution claim. No payments will be made until all appeals have either been waived or exhausted. In the event that we ultimately receive any proceeds as the result of this litigation, we will be obligated to pay a portion to landowners and other owners of royalties and similar interests, to pay the litigation expenses and to fulfill certain pre- existing contractual commitments to third parties. (See Item 3, "Legal Proceedings.") We cannot be certain of the outcome of any aspect of the litigation until all appeals have been waived or exhausted. However, should
the final outcome of any or all aspects of the litigation be adverse to the Company, the Company could be required to impair its properties in future periods.
Gato Canyon Unit. We hold a 6.97% working interest, with capitalized costs of approximately $3.2 million, in the Gato Canyon Unit. This 10,100 acre unit is operated by Samedan Oil Corporation. Seven test wells have been drilled on the Gato Canyon structure. Five of these were drilled within the boundaries of the Unit and two were drilled outside the Unit boundaries in the adjacent State Tidelands. The test wells were drilled as follows: within the boundaries of the Unit, three wells were drilled by Exxon, two in 1968 and one in 1969; one well was drilled by Arco in 1985; and one well was drilled by Samedan in 1989. Outside the boundaries of the Unit, in the State Tidelands but still on the Gato Canyon Structure, one well was drilled by Mobil in 1966 and one well was drilled by Union Oil in 1967. In April 1989, Samedan tested the P-0460 #2 which yielded a combined test flow rate of 5,160 Bbls of oil per day from six intervals in the Monterey Formation between 5,880 and 6,700 feet of drilled depth. The Monterey Formation is a highly fractured shale formation. The Monterey (which ranges from 500' to 2,900' in thickness) is the main productive and target zone in many offshore California oil fields (including our federal leases and/or units).
The Gato Canyon field is located in the Santa Barbara Channel approximately three to five miles offshore. Water depths range from 280 feet to 600 feet in the area of the field. Oil and gas produced from the field are anticipated to be processed onshore at the existing Las Flores Canyon facility. Las Flores Canyon has been designated a "consolidated site" by Santa Barbara County and is available for use by offshore operators. Any processed oil is expected to be transported out of Santa Barbara County in the All American Pipeline. Offshore pipeline distance to access the Las Flores site is approximately six miles. Our share of the estimated capital costs to develop the Gato Canyon field is approximately $20 million.
As a result of the Norton case, the Gato Canyon Unit leases are under directed suspensions of operations with no specified end date. An updated Exploration Plan is expected to include plans to drill an additional delineation well when activities are resumed. This well will be used to determine the final location of the development platform. Following the platform decision, a Development Plan will be prepared for submittal to the MMS and the other involved agencies. Two to three years will likely be required to process the Development Plan and receive the necessary approvals.
Lion Rock Unit. We hold a 1% net profits interest, with capitalized costs of approximately $1.5 million, in the Lion Rock Unit. The Lion Rock Unit is operated by Aera Energy LLC.
The Lion Rock Unit is located in the Offshore Santa Maria Basin eight to ten miles from the coastline. Water depths range from 300 feet to 600 feet in the area of the field. It is anticipated that any oil and gas produced at Lion Rock would be processed at a new facility in the onshore Santa Maria Basin or at the existing Lompoc facility and would be transported out of Santa Barbara County in the All American Pipeline or the Tosco-Unocal Pipeline. Offshore pipeline distance will be eight to ten miles depending on the point of landfall.
The Lion Rock Unit is held under a directed suspension of operations with no specified end date. It is anticipated that, upon the resumption of activities, there will be an interpretation of the 3D seismic survey and the preparation of an updated Plan of Development leading to production. Additional delineation wells may or may not be drilled, depending on the outcome of the interpretation of the 3D survey.
Sword Unit. We hold a .87% working interest, with capitalized costs of approximately $280,000, in the Sword Unit. This 12,240 acre unit is operated by Samedan Oil Corporation. In aggregate, three wells have been drilled on this unit of which two wells were completed and tested in the Monterey formation with calculated flow rates of from 4,000 to 5,000 Bbls per day with an estimated average gravity of 10.6E API. The two completed test wells were drilled by Conoco, one in 1982 and the second in 1985.
The Sword field is located in the western Santa Barbara Channel ten miles west of Point Conception and five miles south of Point Arguello field's Platform Hermosa. Water depths range from 1000 feet to 1800 feet in the area of the field. It is anticipated that the oil and gas produced from the Sword Field will likely be processed at the existing Gaviota consolidated facility and the oil would then be transported out of Santa Barbara County in the All American Pipeline. Access to the Gaviota plant is through Platform Hermosa and the existing Point Arguello Pipeline system. A pipeline proposed to be laid from a platform located in the northern area of the Sword field to Platform Hermosa would be approximately five miles in length. Our share of the estimated capital costs to develop the Sword field is approximately $7 million.
The Sword Unit leases are held under directed suspensions of operations with no specified end date. An updated Exploration Plan is expected to include plans to drill an additional delineation well when activities are resumed.
Production
Since we sold our producing properties, we no longer have any sales contracts in place. During the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and the fiscal year ended June 30, 2005 we have not had, nor do we now have, any long-term supply or similar agreements with governments or authorities pursuant to which we acted as producer.
The profitability of any oil and gas production activities we may have will be affected by fluctuations in the sale prices of any oil and gas production. (See "Management's Discussion and Analysis of Financial Condition and Plan of Operations").
Impairment of Long Lived Assets
Unproved Undeveloped Offshore California Properties
We acquired many of our offshore properties in a series of transactions from 1992 to the present. These properties are carried at our cost bases and have been subject to an impairment review on an annual basis.
These properties will be expensive to develop and produce and have been subject to significant regulatory restrictions and delays. Substantial quantities of hydrocarbons are believed to exist based on estimates reported to us by the operator of the properties and the U.S. government's Minerals Management Service. The classification of these properties depends on many assumptions relating to commodity prices, development costs and timetables. We annually consider impairment of properties assuming that properties will be developed. Based on the range of possible development and production scenarios using current prices and costs, we have concluded that the cost bases of our offshore properties are not impaired at this time. There are no assurances, however, that when and if development occurs, we will recover the value of our investment in such properties.
Productive Wells and Acreage
As of December 31, 2007 we had no producing oil and gas wells or developed acreage. Productive wells are producing wells capable of production, including shut in wells. Developed acreage consists of acres spaced or assignable to productive wells.
Undeveloped Acreage
At December, 31, 2007, we held undeveloped acreage by state as set forth below:
Undeveloped Acres (1) Location Gross Net -------- ------ --- California (1) 22,340 811
(1) Consists of Federal leases offshore near Santa Barbara, California.
Drilling Activities
During the year ended December 31, 2007, we did not participate in any drilling activities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We are among twelve plaintiffs in a lawsuit that was filed in the United States Court of Federal Claims (the "Court") in Washington, D.C. alleging that the U.S. government materially breached the terms of forty undeveloped federal leases, some of which are part of our offshore California properties. In November 2005 and October 2006, the Court granted summary judgment as to liability and partial summary judgment as to damages with respect to thirty six of the forty total federal leases that are the subject of the litigation.
On January 12, 2007, the Court entered an order of final judgment awarding the lessees restitution of the original lease bonuses paid for thirty five of the forty lawsuit leases. Under this order we are entitled to receive a gross amount of approximately $1.5 million as reimbursement for the portion of the litigation related to lease bonuses paid. The government has appealed the order and contends that, among other things, the Court erred in finding
that it breached the leases, and in allowing the current lessees to stand in the shoes of their predecessors for the purposes of determining the amount of damages that they are entitled to receive. The current lessees are also appealing the order of final judgment to, among other things, challenge the Court's rulings that they cannot recover their and their predecessors' sunk costs as part of their restitution claim. No payments will be made until all appeals have either been waived or exhausted. In the event that we ultimately receive any proceeds as the result of this litigation, we will be obligated to pay a portion to landowners and other owners of royalties and similar interests, to pay the litigation expenses and to fulfill certain pre- existing contractual commitments to third parties.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the year ended December 31, 2007.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market or Markets
We currently have, and have had for the periods covered by this report, only limited trading in the over-the-counter market and there is no assurance that this trading market will expand or even continue. Recent regulations and rules by the SEC and the National Association of Securities Dealers virtually assure that there will be little or no trading in our stock unless and until we are quoted on the OTC Bulletin Board or similar quotation service, or listed on NASDAQ or an exchange. There is no assurance that we will be able to meet the requirements for such listing in the foreseeable future. Further, our capital stock may not be able to be traded in certain states until and unless we are able to qualify, exempt or register our stock. Quotations during the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and fiscal year ended June 30, 2005 have not been available.
Approximate Number of Holders of Common Stock
The number of holders of record of our securities at March 1, 2008 was approximately 1,000.
Dividends
We have not paid dividends on our stock and we do not expect to do so in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities
During the year ended December 31, 2007, we did not have any sales of securities that were not registered under the Securities Act of 1933, as amended.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information should be read in conjunction with our financial statements and the accompanying notes.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
Liquidity and Capital Resources
At December 31, 2007 and 2006, we had no working capital. The cash used in operating activities of $102,850, during the year ended December 31, 2007, remained consistent with $107,127 for the year ended December 31, 2006. The lack of cash flow from operations may inhibit the Company from meeting its obligations in a timely manner unless additional financing or the sale of properties occurs. The Company had a payable to Delta of $220,255 and $117,405 at December 31, 2007 and 2006, respectively. If necessary, we expect that Delta will provide funds to meet our operating needs and obligations for costs incurred with our offshore undeveloped California properties.
We do not currently have a credit facility with any bank and we have not determined the amount, if any, that we could borrow against our remaining properties. Together with Delta, we will seek additional sources of both short-term and long-term liquidity to fund our working capital needs and our capital requirements for development of our properties when determined to be necessary, including establishing a credit facility and/or sale of equity or debt securities, although there can be no assurance that we will be successful in our efforts. Many of the factors which may affect our future operating performance and liquidity are beyond our control, including oil and natural gas prices and the availability of financing.
After evaluation of the considerations described above, we believe that funding from Delta and other sources of funds will be adequate to fund our operating expenses and satisfy any other current liabilities over the next year.
Results of Operations
The following discussion and analysis relate to items that have affected our results of operations for the years ended December 31, 2007, 2006 and 2005, and the six months ended December 31, 2005 and 2004. During 2006, we changed our fiscal year end from June 30 to December 31, effective December 31, 2005. Accordingly, we have presented below for comparative purposes only unaudited historical statements of operations for the year ended December 31, 2005 and six months ended December 31, 2004. The following table sets forth (in thousands), for the periods presented, selected historical statements of operations data. The information contained in the table below should be read in conjunction with our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 (Unaudited)
Net Income. Our net losses for the years ended December 31, 2007 and 2006 were $102,850 and $107,127 respectively. As all of our producing properties were sold on July 1, 2001 there were no revenues, production volumes, lease operating expenses or depletion in the years ended December 31, 2007 and December 31, 2006.
Exploration Expenses. Exploration expenses consist of geological and geophysical costs and lease rentals relating to our offshore properties. We incurred exploration costs of $376 and $0 for the years ended December 31, 2007 and 2006, respectively.
General and Administrative Expenses. General and administrative expense for the year ended December 31, 2007 was $102,474 compared to $107,127 for the year ended December 31, 2006 and primarily consisted of expenses allocated from Delta.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005 (Unaudited)
Net Income. Our net losses for the years ended December 31, 2006 and 2005 were $107,127 and $116,221 respectively. As all of our producing properties were sold on July 1, 2001 there were no revenues, production volumes, lease operating expenses or depletion in the years ended December 31, 2006 and December 31, 2005.
Exploration Expenses. Exploration expenses consist of geological and geophysical costs and lease rentals relating to our offshore properties. We incurred exploration costs of $0 and $6,041 for the years ended December 31, 2006 and 2005, respectively.
General and Administrative Expenses. General and administrative expense for the year ended December 31, 2006 was $107,127 compared to $110,180 for the year ended December 31, 2005 and primarily consisted of expenses allocated from Delta.
Six Months Ended December 31, 2005 Compared to Six Months Ended December 31, 2004 (Unaudited)
Net Income. Our net losses for the six months ended December 31, 2005 and 2004 were $57,775 and $51,795 respectively. As all of our producing properties were sold on July 1, 2001 there were no revenues, production volumes, lease operating expenses or depletion in the six months ended December 31, 2005 and December 31, 2004.
Exploration Expenses. Exploration expenses consist of geological and geophysical costs and lease rentals relating to our offshore properties. We incurred exploration costs of $4,302 and ($1,504) for the six months ended December 31, 2005 and 2004, respectively.
General and Administrative Expenses. General and administrative expense for the six months ended December 31, 2005 was $53,473 compared to $53,299 for the six months ended December 31, 2004 and primarily consisted of expenses allocated from Delta.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations were based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our significant accounting policies are described in Note 1 to our financial statements. In response to SEC Release No. 33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies," we have identified certain of these policies as being of particular importance to the portrayal of our financial position and results of operations and which require the application of significant judgment by management. We analyze our estimates, including those related to
oil and gas reserves, bad debts, oil and gas properties, marketable securities, income taxes, derivatives, contingencies and litigation, and base our estimates on historical experience and various other assumptions that we believe reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the Company's financial statements.
Successful Efforts Method of Accounting
We account for our natural gas and crude oil exploration and development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Gas and oil lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for gas and oil leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.
The application of the successful efforts method of accounting requires managerial judgment to determine the proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and actually deliver gas and oil in quantities insufficient to be economic, which may result in the abandonment of the wells at a later date. Wells are drilled that have targeted geologic structures that are both developmental and exploratory in nature and an allocation of costs is required to properly account for the results. Delineation seismic incurred to select development locations within an oil and gas field is typically considered a development cost and capitalized, but often these seismic programs extend beyond the reserve area considered proved and management must estimate the portion of the seismic costs to expense. The evaluation of gas and oil leasehold acquisition costs requires managerial judgment to estimate the fair value of these costs with reference to drilling activity in a given area. Drilling activities in an area by other companies may also effectively condemn leasehold positions.
The successful efforts method of accounting can have a significant impact on the operational results reported when we are entering a new exploratory area in hopes of finding a gas and oil field that will be the focus of future development drilling activity. The initial exploratory wells may be unsuccessful and will be expensed. Seismic costs can be substantial which will result in additional exploration expenses when incurred.
Reserve Estimates
We do not currently own any reserves and we do not currently have any estimates of any gas or oil reserves.
Impairment of Gas and Oil Properties
We review our gas and oil properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. We estimate the expected future cash flows of our gas and oil properties and compare such future cash flows to the carrying amount of the gas and oil properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, we will adjust the carrying amount of the gas and oil properties to their fair value. The factors used to determine fair value include, but are not limited to, estimates of hydrocarbons that we believe are recoverable even though they are not proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected.
Given the complexities associated with such estimates and the history of price volatility in the gas and oil markets, events may arise that would require us to record an impairment of the book values associated with our gas and oil properties. As a result of our review, we did not record an impairment during the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 or year ended June 30, 2005.
Recently Issued Accounting Standards and Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"), which replaces SFAS 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any resulting goodwill, and any noncontrolling interest in the acquiree. The Statement also provides for disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008, or our fiscal year 2009, and must be applied prospectively to business combinations completed on or after that date. We will evaluate how the new requirements could impact the accounting for any acquisitions completed beginning in fiscal 2009 and beyond, and the potential impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51" ("SFAS 160"), which establishes accounting and reporting standards for noncontrolling interests ("minority interests") in subsidiaries. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent's equity. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, or our fiscal year 2009, and must be applied prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. Under our current structure, the adoption of SFAS 160 is not expected to have any impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, or fiscal year 2008. We have not yet determined if we will elect to apply any of the provisions of SFAS 159 or what effect the adoption of the Statement would have, if any, on our consolidated financial statements.
Effective January 1, 2007, we adopted provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS 109. Tax positions must meet a "more-likely-than-not" recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. Upon the adoption of FIN 48, we had no unrecognized tax benefits. During the year ended December 31, 2007, no adjustments were recognized for uncertain tax benefits.
We recognize interest and penalties related to uncertain tax positions in income tax benefit/expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2007.
The tax years 2003 through 2007 for federal returns and 2002 through 2007 for state returns remain open to examination by the major taxing jurisdictions in which we operate, although no material changes to unrecognized tax positions are expected within the next twelve months.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. SFAS 157 aims to improve the consistency and comparability of fair value measurements by creating a single definition of fair value. The Statement emphasizes that fair value is not entity-specific, but instead is a market-based measurement of an asset or liability. SFAS 157 upholds the requirements of previously issued pronouncements concerning fair value measurements and expands the required disclosures. This Statement is effective for fiscal year commencing January 1, 2008. The Company anticipates the primary impact of the standard will be additional disclosures related to measurements of fair value.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates and commodity prices. We do not use financial instruments to any degree to manage foreign currency exchange and interest rate risks and do not hold or issue financial instruments to any degree for trading purposes. All of our revenue and related receivables are payable in U.S. dollars.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements are included beginning on Page. There are no financial statement schedules since they are either not applicable or the information is included in the notes to the financial statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.
With the participation of management, our chief executive officer and chief financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the conclusion of the period ended December 31, 2007. Based upon this evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting for Amber. As defined by the Securities and Exchange Commission (Rule 13a-15(f) under the Exchange Act), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting is supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual consolidated financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.
Based on this assessment, management has concluded that as of December 31, 2007, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Changes in Internal Controls
There were no significant changes in our internal controls or, to the knowledge of our management, in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation of our disclosure controls and procedures utilized to compile information included in this filing.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to our executive officers and directors as of March 1, 2008 is set forth below:
The following is biographical information as to the business experience of each of our current officers and directors.
Roger A. Parker has been our President, Chief Executive Officer and a Director since May of 1987 and our Chairman since January 3, 2006. Mr. Parker also serves as a Director, Chief Executive Officer since April of 2002 and Chairman of the Board since July 1, 2005 for Delta Petroleum Corporation. Since April 1, 2005, he also serves as Executive Vice President and Director of DHS Drilling Company. He received a Bachelor of Science in Mineral Land Management from the University of Colorado in 1983. He is a board member of the Independent Producers Association of the Mountain States (IPAMS). He also serves on other boards, including Community Banks of Colorado.
Jerrie F. Eckelberger is an investor, real estate developer and attorney who has practiced law in the State of Colorado since 1971. He graduated from Northwestern University with a Bachelor of Arts degree in 1966 and received his Juris Doctor degree in 1971 from the University of Colorado School of Law. From 1972 to 1975, Mr. Eckelberger was a staff attorney with the Eighteenth Judicial District Attorney's Office in Colorado. From 1975 to present, Mr. Eckelberger has been engaged in the private practice of law and is presently a member of the law firm of Eckelberger & Jackson, LLC. Mr. Eckelberger previously served as an officer, director and corporate counsel for Roxborough Development Corporation. Since March, 1996, Mr. Eckelberger has engaged in the investment and development of Colorado real estate through several private companies in which he is a principal.
Kevin K. Nanke, Treasurer and Chief Financial Officer, joined Amber in April 1995. Since April 1, 2005 he has also served as Treasurer and Chief Financial Officer for Delta Petroleum Corporation and as Treasurer, Chief
Financial Officer and Director of DHS Drilling Company. Since 1989, he has been involved in public and private accounting with the oil and gas industry. Mr. Nanke received a Bachelor of Arts in Accounting from the University of Northern Iowa in 1989. Prior to working with us, he was employed by KPMG LLP. He is a member of the Colorado Society of CPA's and the Council of Petroleum Accounting Society.
Stanley F. ("Ted") Freedman has served as our Executive Vice President and Secretary since January 3, 2006 and has also served as the Executive Vice President, General Counsel and Secretary of Delta Petroleum Corporation and DHS Drilling Company since January 1, 2006. He graduated from the University of Wyoming with a Bachelor of Arts degree in 1970 and a Juris Doctor degree in 1975. From 1975 to 1978, Mr. Freedman was a staff attorney with the United States Securities and Exchange Commission. From 1978 to December 31, 2005, he was engaged in the private practice of law in Denver, Colorado.
There is no family relationship among or between any of our officers and/or directors.
We do not have any committees of our Board of Directors. Our parent, Delta Petroleum Corporation, has an audit committee and an audit committee expert.
We do not have our own code of ethics. We have not adopted a code of ethics because Delta Petroleum Corporation has a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to us during our most recent fiscal year, and Forms 5 and amendments thereto furnished with respect to our most recent fiscal year and certain representations, no persons who were either a director, officer, or beneficial owner of more than 10% of the Company's common stock failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No officer or director received compensation directly from us during the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 or year ended June 30, 2005. Messrs. Parker and Nanke, Chairman and President and Chief Financial Officer, respectively, are compensated by Delta, which compensation is paid under a management agreement with us. No officer or director received stock appreciation rights, restricted stock awards, options, warrants or other similar compensation reportable under this section during any of the above referenced periods.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) & (b) Security Holdings of Management and Persons Controlling more than 5% of Shares of Common Stock Outstanding on a Fully-Diluted Basis.
Name and Address of Amount & Nature of Beneficial Owners Beneficial Ownership Percent of Class - ------------------- -------------------- ----------------
Delta Petroleum Corporation 4,277,977 (1) 91.68% (1) 370 17th Street, Suite 4300 Denver, CO 80202
Roger A. Parker 4,277,977 (1) 91.68% (1) 370 17th Street, Suite 4300 Denver, CO 80202
Jerrie F. Eckelberger 4,277,977 (1) 91.68% (1) 370 17th Street, Suite 4300 Denver, CO 80202
Kevin K. Nanke 4,277,977 (1) 91.68% (1) 370 17th Street, Suite 4300 Denver, CO 80202
Stanley F. Freedman 4,277,977 (1) 91.68% (1) 370 17th Street, Suite 4300 Denver, CO 80202
All Directors and Executive Officers as a Group (4 persons) 4,277,977 (1) 91.68% (1)
(1) All shares are owned by Delta; Messrs. Parker, Eckleberger, Nanke and Freedman are officers, directors and/or shareholders of Delta.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective October 1, 1998, we entered into an agreement with Delta which provides for the sharing of management between the two companies. Under this agreement we pay Delta $25,000 per quarter for our share of rent, administrative, accounting and management services of Delta officers and employees. This agreement may be cancelled by either party at any time. It is our opinion that fees paid to Delta for services rendered are comparable to fees that would be charged by similarly qualified non-affiliated persons. This agreement replaces a previous agreement which allocated similar expenses based on our proportionate share of oil and gas production. The charges to us for the provision of services by Delta were $100,000 for the years ended December 31, 2007 and 2006, $50,000 for the six months ended December 31, 2005 and $100,000 for the year ended June 30, 2005. We had payables to Delta of $220,255, $117,405 and $10,278 at December 31, 2007, 2006 and 2005, respectively, and a receivable from Delta of $47,498 recorded as a reduction in equity at June 30, 2005.
On July 1, 2001, we sold all of our proved producing properties to Delta, which owns over 91% of our issued and outstanding shares, for approximately $107,000. The sale price was calculated as being an amount equal to the net present value of the estimated hydrocarbons beneath the properties using a
discount rate of 10% as determined by third party, independent engineers. Management believes that the terms of this transaction were on terms no less favorable to us than could have been obtained from an independent third party.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT FEES: The aggregate fees billed for professional services rendered by KPMG LLP for the audit of the annual financial statements of the Company for the year ended December 31, 2007 and the review of the financial statements included in the Company's Forms 10-Q for such fiscal year were paid by Delta, our parent, pursuant to our agreement under which we pay Delta $25,000 per quarter. (See Item 13. "Certain Relationships and Related Transactions.")
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: No fees were billed for professional services rendered by KPMG LLP for financial information systems design and implementation services for the year ended December 31, 2007.
ALL OTHER FEES: No fees were billed for services rendered by KPMG LLP, other than the services referred to above, for the year ended December 31, 2007.
AUDIT COMMITTEE PRE-APPROVAL POLICY: The Company's independent registered public accounting firm may not be engaged to provide non-audit services that are prohibited by law or regulation to be provided by it, nor may the Company's independent registered public accounting firm be engaged to provide any other non-audit service unless it is determined that the engagement of the principal accountant provides a business benefit resulting from its inherent knowledge of the Company while not impairing its independence. The Audit Committee of Delta must pre-approve permissible non-audit services. During the year ended December 31, 2007, Delta's Audit Committee did not have to approve any non-audit services provided to Delta and its subsidiaries by the independent registered public accounting firm, as none were provided.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements --------------------
Report of Independent Registered Public Accounting Firm ...
Balance Sheets as of December 31, 2007 and 2006 ...........
Statements of Operations and Accumulated Deficit Years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and year ended June 30, 2005 ......
Statements of Cash Flows Years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and year ended June 30, 2005 ......
Notes to Financial Statements .............................
(a) (2) Financial Statement Schedules -----------------------------
None
(a) (3) Exhibits --------
The Exhibits listed in the Index to Exhibits appearing at page 25 are filed as part of this report. Management contracts and compensatory plans required to be filed as exhibits are marked with an "*".
INDEX TO EXHIBITS
(2) Plan of Acquisitions, Reorganization, Arrangement, Liquidation, or Succession. Not applicable.
(3) Articles of Incorporation and Bylaws.
3.1 The Articles of Incorporation(Certificate of Incorporation) and Bylaws of the Registrant filed as Exhibits 4 and 5 to Registrant's Form S-1 Registration Statement filed August 28, 1978 with the Securities and Exchange Commission are incorporated herein by reference. The Restated Articles of Incorporation (Restated Certificate of Incorporation) dated January 26, 1988 and Amendment to Restated Certificate of Incorporation dated September 18, 1989 are incorporated by reference to Exhibits 3.1 and 3.2 to the Company's Form 10-KSB for the fiscal year ended June 30, 1997.
3.2 Certificate for Renewal and Revival of Charter. Incorporated by reference from Exhibit 3.2 of the Company's Form 10-K for the fiscal year ended June 30, 2003.
(4) Instruments Defining the Rights of Security Holders.
4.1 Certificate of Designation of the Relative Rights of the Class A Preferred Stock of Amber Resources Company dated July 25, 1989. Incorporated by reference to Exhibit 4.1 of the Company's Form 10-KSB for the fiscal year ended June 30, 1997.
(9) Voting Trust Agreement. Not applicable.
(10) Material Contracts.
10.1 Agreement dated March 31, 1993 between Delta Petroleum Corporation and Amber Resources Company. Incorporated by reference from Exhibit 10.1 of the Company's Form 10-KSB for the fiscal year ended June 30, 1997.
10.2 Amber Resources Company 1996 Incentive Plan. Incorporated by reference from Exhibit 99.1 of the Company's December 4, 1996 Form 8-K.*
10.3 Agreement between Amber Resources Company and Delta Petroleum Corporation dated effective October 1, 1998. Incorporated by reference from Exhibit 10.2 of the Company's Form 10-KSB for the fiscal year ended June 30, 1999.
10.4 Purchase and Sale Agreement between Amber Resources Company and Delta Petroleum Corporation dated July 1, 2001. Incorporated by reference to Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended June 30, 2002.
(11) Statement Regarding Computation of Per Share Earnings. Not applicable.
(12) Statement Regarding Computation of Ratios. Not applicable.
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders. Not applicable.
(16) Letter re: Change in Certifying Accountants. Not applicable.
(17) Letter re: Director Resignation. Not applicable.
(18) Letter Regarding Change in Accounting Principals. Not applicable.
(19) Previously Unfiled Documents. Not applicable.
(21) Subsidiaries of the Registrant. Not applicable.
(22) Published Report Regarding Matters Submitted to Vote of Security Holders. Not applicable.
(23) Consent of Experts and Counsel. Not applicable.
(24) Power of Attorney. Not applicable.
(31) Rule 13a-14(a)/15d-14(a) Certifications.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith electronically.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith electronically.
(32) Section 1350 Certifications.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. Filed herewith electronically.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. Filed herewith electronically.
(99) Additional Exhibits. Not applicable.
* Management contracts and compensatory plans.
Report of Independent Registered Public Accounting Firm
The Board of Directors Amber Resources Company of Colorado (A subsidiary of Delta Petroleum Corporation):
We have audited the accompanying balance sheets of Amber Resources Company of Colorado (the "Company"), a subsidiary of Delta Petroleum Corporation, as of December 31, 2007 and 2006 and the related statements of operations and accumulated deficit, and cash flows for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005, and the year ended June 30, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amber Resources Company of Colorado as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005, and the year ended June 30, 2005, in conformity with United States generally accepted accounting principles.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado March 14, 2008
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) BALANCE SHEETS
December 31, December 31, 2007 2006 ----------- ----------- ASSETS
Current assets: $ - $ -
Property and equipment: Oil and gas properties, successful efforts method of accounting: Unproved undeveloped offshore California 5,006,560 5,006,560 ----------- ----------- Net property 5,006,560 5,006,560 ----------- ----------- Total assets $ 5,006,560 $ 5,006,560 =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: Payable to parent $ 220,255 $ 117,405
Stockholders' equity: Preferred stock, $.10 par value: authorized 5,000,000 shares of Class A convertible preferred stock, none issued - - Common stock, $.0625 par value; authorized 25,000,000 shares, issued 4,666,185 shares at December 31, 2007 and 2006 291,637 291,637 Additional paid-in capital 5,755,232 5,755,232 Accumulated deficit (1,260,564) (1,157,714) ----------- ----------- Total stockholders' equity 4,786,305 4,889,155 ----------- ----------- Total liabilities and stockholders' equity $ 5,006,560 $ 5,006,560 =========== ===========
See accompanying notes to consolidated financial statements.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
See accompanying notes to consolidated financial statements.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(1) Summary of Significant Accounting Policies
Organization
Amber Resources Company of Colorado, formerly Amber Resources Company (the "Company"), was incorporated in January, 1978, and is principally engaged in acquiring, exploring, developing, and producing offshore oil and gas properties. The Company owns interests in three undeveloped oil and gas properties in federal units offshore California, near Santa Barbara. As of December 31, 2007 Delta Petroleum Corporation ("Delta") owned 4,277,977 shares (91.68%) of the Company's common stock.
Fiscal Year Change
On February 10, 2005, the Board of Directors approved the change of the fiscal year end from June 30 to December 31, effective December 31, 2005. This Form 10-K includes information for the years ended December 31, 2007 and 2006, six-month transitional period ended December 31, 2005 and for the twelve-month period ended June 30, 2005. The unaudited financial information for the year ended December 31, 2005 is as follows:
Year Ended December 31, 2005 ------------------------------------- (In thousands, except per share data)
Total Revenues $ - Operating Loss (116,221) Net Loss (116,221)
Basic loss per common share $ (.02)
Liquidity
The Company essentially has no remaining operations resulting in deficiencies in cash flow from operations. During the year ended June 30, 2002 the Company sold its remaining producing reserves to Delta. Consequently, without increased cash flow from the sale of our oil and gas properties or additional financing, the Company may not be able to meet its obligations in a timely manner or be able to fund exploration and development of its remaining oil and gas properties. The Company believes that it could sell oil and gas properties or obtain additional financing; however, there can be no assurance that such financing would be available in a timely fashion or on acceptable terms.
Revenue Recognition
The Company uses the sales method of accounting for oil and gas revenues. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(1) Summary of Significant Accounting Policies, Continued
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its oil and gas activities. Accordingly, costs associated with the acquisition, drilling, and equipping of successful exploratory wells are capitalized.
Geological and geophysical costs, delay and surface rentals and drilling costs of unsuccessful exploratory wells are charged to expense as incurred. Costs of drilling development wells, both successful and unsuccessful, are capitalized.
Upon the sale or retirement of oil and gas properties, the cost thereof and the accumulated depreciation and depletion are removed from the accounts and any gain or loss is credited or charged to operations.
Depreciation and depletion of capitalized acquisition, exploration and development costs is computed on the units-of-production method by individual fields as the related proved reserves are produced. Capitalized costs of undeveloped properties are assessed periodically on an individual field basis and a provision for impairment is recorded, if necessary, through a charge to operations.
Impairment of Long Lived Assets
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") establishes a single accounting model for long-lived assets to be disposed of by sale and requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations.
For undeveloped properties, the need for an impairment reserve is based on the Company's plans for future development and other activities impacting the life of the property and the ability of the Company to recover its investment. When the Company believes the cost of the undeveloped property is no longer recoverable, an impairment charge is recorded based on the estimated fair value of the property. There has been no impairment recorded for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 or the year ended June 30, 2005.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares outstanding during each period, excluding treasury shares. The Company does not have any dilutive instruments and as such, no diluted earnings per share have been presented.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(1) Summary of Significant Accounting Policies, Continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Significant estimates include oil and gas reserves, bad debts, oil and gas properties, income taxes, contingencies and litigation. Actual results could differ from these estimates.
Recently Issued Accounting Standards and Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"), which replaces SFAS 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any resulting goodwill, and any noncontrolling interest in the acquiree. The Statement also provides for disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008, or fiscal year 2009, and must be applied prospectively to business combinations completed on or after that date. The Company will evaluate how the new requirements could impact the accounting for any acquisitions completed beginning in fiscal 2009 and beyond, and the potential impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51" ("SFAS 160"), which establishes accounting and reporting standards for noncontrolling interests ("minority interests") in subsidiaries. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be accounted for as a component of equity separate from the parent's equity. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, or fiscal year 2009, and must be applied prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. Under the Company's current structure, the adoption of SFAS 160 is not expected to have any impact on the consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, or fiscal year 2008. The Company has not yet determined if it will elect to apply any of the provisions of SFAS 159 or what effect the adoption of the Statement would have, if any, on its consolidated financial statements.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(1) Summary of Significant Accounting Policies, Continued
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. SFAS 157 aims to improve the consistency and comparability of fair value measurements by creating a single definition of fair value. The Statement emphasizes that fair value is not entity-specific, but instead is a market-based measurement of an asset or liability. SFAS 157 upholds the requirements of previously issued pronouncements concerning fair value measurements and expands the required disclosures. This Statement is effective for fiscal year commencing January 1, 2008. The Company does not expect the impact of SFAS 157 to be material to the Company's financial condition or results of operations. The Company anticipates the primary impact of the standard will be additional disclosures related to measurements of fair value.
Recently Adopted Accounting Standards and Pronouncements
Effective January 1, 2007, the Company adopted provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements in accordance with SFAS 109. Tax positions must meet a "more-likely-than- not" recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. Upon the adoption of FIN 48, the Company had no unrecognized tax benefits. During the year ended December 31, 2007, no adjustments were recognized for uncertain tax benefits.
The Company recognizes interest and penalties related to uncertain tax positions in income tax (benefit)/expense. No interest and penalties related to uncertain tax positions were accrued at December 31, 2007.
The tax years 2003 through 2007 for federal returns and 2002 through 2007 for state returns remain open to examination by the major taxing jurisdictions in which the Company operates, although no material changes to unrecognized tax positions are expected within the next twelve months.
(2) Oil and Gas Properties
The Company has ownership interests ranging from .87% to 6.97% in three unproved undeveloped offshore California oil and gas properties with aggregate carrying values of $5.0 million on December 31, 2007 and 2006. These property interests are located in proximity to existing producing federal offshore units near Santa Barbara, California and represent the right to explore for, develop and produce oil and gas from offshore federal lease
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(2) Oil and Gas Properties, Continued
units. Preliminary exploration efforts on these properties have occurred and the existence of substantial quantities of hydrocarbons has been indicated. The recovery of the Company's investment in these properties will require extensive exploration and development activities (and costs) that cannot proceed without certain regulatory approvals that have been delayed and is subject to other substantial risks and uncertainties as discussed herein.
The Company is not the designated operator of any of these properties but is an active participant in the ongoing activities of each property along with the designated operator and other interest owners. If the designated operator elected not to or was unable to continue as the operator, the other property interest owners would have the right to designate a new operator as well as share in additional property returns prior to the replaced operator being able to receive returns. Based on the Company's size, it would be difficult for the Company to proceed with exploration and development plans should other substantial interest owners elect not to proceed; however, to the best of its knowledge, the Company believes the designated operators and other major property interest owners would proceed with exploration and development plans under the terms and conditions of the operating agreement if they were permitted to do so by regulators.
Based on indications of levels of hydrocarbons present from drilling operations conducted in the past, the Company believes the fair values of its property interests are in excess of their carrying values at December 31, 2007 and 2006 and that no impairment in the carrying value has occurred. Should the required regulatory approvals not be obtained or plans for exploration and development of the properties not continue, the carrying value of the properties would likely be impaired and written off.
The ownership rights in each of these properties have been retained under various suspension notices issued by the Minerals Management Service (MMS) of the U.S. federal government whereby, as long as the owners of each property were progressing toward defined milestone objectives, the owners' rights with respect to the properties will continue to be maintained. The issuance of the suspension notices has been necessitated by the numerous delays in the exploration and development process resulting from regulatory requirements imposed on the property owners by federal, state and local agencies.
In 2001, however, a Federal Court in the case of California v. Norton, et al. ruled that the MMS does not have the power to grant suspensions on the subject leases without first making a consistency determination under the Coastal Zone Management Act ("CZMA"), and ordered the MMS to set aside its approval of the suspensions of the Company's offshore leases and to direct suspensions for a time sufficient for the MMS to provide the State of California with the required consistency determination. In response to the ruling in the Norton case, the MMS made a consistency determination under the CZMA and the leases are still valid.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(2) Oil and Gas Properties, Continued
Further actions to develop the leases have been delayed, however, pending the outcome of a separate lawsuit (the "Amber case") that was filed in the United States Court of Federal Claims (the "Court") in Washington, D.C. by the Company, its parent, Delta Petroleum Corporation, and ten other property owners alleging that the U.S. government materially breached the terms of forty undeveloped federal leases, some of which are part of the Company's and Delta's offshore California properties. On November 15, 2005 and October 31, 2006, the Court granted summary judgment as to liability and partial summary judgment as to damages with respect to thirty six of the forty total federal leases that are the subject of the litigation. Under a restitution theory of damages, the Court ruled that the government must give back to the current lessees the $1.1 billion in lease bonuses it had received at the time of sale.
On January 12, 2007, the Court entered an order of final judgment awarding the lessees restitution of the original lease bonuses paid for thirty five of the forty lawsuit leases. Under this order the Company is entitled to receive a gross amount of approximately $1.5 million as reimbursement for the portion of the litigation related to lease bonuses paid. The government has appealed the order and contends that, among other things, the Court erred in finding that it breached the leases, and in allowing the current lessees to stand in the shoes of their predecessors for the purposes of determining the amount of damages that they are entitled to receive. The current lessees are also appealing the order of final judgment to, among other things, challenge the Court's rulings that they cannot recover their and their predecessors' sunk costs as part of their restitution claim. No payments will be made until all appeals have either been waived or exhausted. In the event that the Company ultimately receives any proceeds as the result of this litigation, it will be obligated to pay a portion to landowners and other owners of royalties and similar interests, to pay the litigation expenses and to fulfill certain pre-existing contractual commitments to third parties. The Company cannot be certain of the outcome of any aspect of the litigation until all appeals have been waived or exhausted. However, should the final outcome of any or all aspects of the litigation be adverse to the Company, the Company could be required to impair its properties in future periods.
If new activities are commenced on the any of the leases, the requisite exploration and development plans will be subject to review by the California Coastal Commission for consistency with the CZMA and by the MMS for other technical requirements. None of the leases is currently impaired, but in the event that they are found not to be valid for some reason in the future, it would appear that they would become impaired. For example, if there is a future adverse ruling by the California Coastal Commission under the CZMA and the Company decides not to appeal such ruling to the Secretary of Commerce, or the Secretary of Commerce either refuses to hear the Company's appeal of any such ruling or ultimately makes an adverse determination, it is likely that some or all of these leases would become impaired and written off at
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(2) Oil and Gas Properties, Continued
that time. It is also possible that other events could occur that would cause the leases to become impaired, and the Company will continuously evaluate those factors as they occur.
(3) Preferred Stock
The Board of Directors is authorized to issue 5,000,000 shares of preferred stock having a par value of $.10 per share. As of the years ended December 31, 2007 and 2006, six months ended December 31, 2005, and year ended June 30, 2005, no preferred stock was issued and outstanding.
(4) Income Taxes
At December 31, 2007, 2006 and 2005, and June 30, 2005, the Company's significant deferred tax assets and liabilities are summarized as follows:
Six Months Years Ended Ended Year Ended December 31, December 31, June 30, -------------------- ------------ ----------- 2007 2006 2005 2005 -------- -------- -------- -------- Deferred tax assets: Net operating loss carryforwards $602,173 $578,965 $367,333 $402,521 -------- -------- -------- -------- Gross deferred tax assets 602,173 578,965 367,333 402,521
Less valuation allowance (602,173) (578,965) (367,333) (402,521) -------- -------- -------- -------- Net deferred tax asset $ - $ - $ - $ - ======== ======== ======== ========
No income tax expense or benefit has been recorded for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 or year ended June 30, 2005 since the deferred income taxes that would have otherwise been provided were offset by an increase in the valuation allowance for such net deferred tax assets. The Company is consolidated in Delta's income tax return and accounts for its income tax as if it filed a separate return. Delta accounts for income taxes in accordance with the provisions of Statement of Financial Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") and includes Amber's attributes in calculating its tax obligations.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(4) Income Taxes, Continued
The deferred tax asset has a full valuation allowance because the Company does not believe it is more likely than not that the net operating loss carryforwards will be used due to the lack of current or planned income generating activities. At December 31, 2007, the Company had net operating loss carryforwards for regular and alternative minimum tax purposes of approximately $1,623,000. If not utilized, the tax net operating loss carryforwards will expire during the period from 2008 through 2028. If not utilized, $960,000 of net operating losses will expire over the next three years.
(5) Related Party Transactions
Effective October 1, 1998, the Company and Delta entered into an agreement which provides for the sharing of management between the two companies. Under this agreement the Company pays Delta $25,000 per quarter for its share of rent, administrative, accounting and management services of Delta officers and employees. This agreement replaces a previous agreement which allocated similar expenses based on the Company's proportionate share of oil and gas production. The charges to the Company for the provision of services by Delta were $100,000 for the years ended December 31, 2007 and 2006, $50,000 for the six months ended December 31, 2005 and $100,000 for the year ended June 30, 2005. The Company had non-interest bearing payables to Delta of $220,255, $117,405 and $10,278 at December 31, 2007, 2006 and 2005, respectively, and a receivable from Delta of $47,498 recorded as a reduction in equity at June 30, 2005.
(6) Disclosures About Capitalized Costs, Costs Incurred and Major Customers
Capitalized costs related to oil and gas producing activities are as follows:
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(6) Disclosures About Capitalized Costs, Costs Incurred and Major Customers, Continued
Costs incurred in oil and gas producing activities for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and year ended June 30, 2005 are as follows:
A summary of the results of operations for oil and gas producing activities, excluding general and administrative cost, for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and year ended June 30, 2005 is as follows:
Statement of Financial Accounting Standards 131 "Disclosures about Segments of an Enterprise and Related Information" "SFAS 131" establishes standards for reporting information about operating segments in annual and interim financial statements. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company manages its business through one operating segment.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(6) Disclosures About Capitalized Costs Incurred and Major Customers, Continued
As the Company had sold its producing properties at the beginning of fiscal year 2002, there were no customers for the years ended December 31, 2007 and 2006, the six months ended December 31, 2005 and the year ended June 30, 2005.
(7) Information Regarding Proved Oil and Gas Reserves (Unaudited)
Proved Oil and Gas Reserves. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions; i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as "indicated additional reserves;" (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (C) crude oil, natural gas, and natural gas liquid, that may occur in underlaid prospects; and (D) crude oil, natural gas, and natural gas liquid, that may be recovered from oil shales, coal, gilsonite and other such sources.
AMBER RESOURCES COMPANY OF COLORADO (A subsidiary of Delta Petroleum Corporation) Notes to Financial Statements December 31, 2007 and 2006
(7) Information Regarding Proved Oil and Gas Reserved (Unaudited)
Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.
Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.
The Company sold all its producing properties to Delta on July 1, 2001. As such, no reserve estimates were prepared for the past three years.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have caused this Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized, in the City of Denver and State of Colorado on the 19th day of March, 2008
AMBER RESOURCES COMPANY OF COLORADO
By:/s/ Roger A. Parker Roger A. Parker, Chief Executive Officer
By:/s/ Kevin K. Nanke Kevin K. Nanke, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on our behalf and in the capacities and on the dates indicated.
Signature and Title Date
/s/ Roger A. Parker March 19, 2008 Roger A. Parker, Director
/s/ Jerrie F. Eckelberger March 19, 2008 Jerrie F. Eckelberger, Director