Item 1. Business
(a) General Development of Business.
Coastal Caribbean Oils & Minerals, Ltd. (the "Company" or "Coastal Caribbean"), a Bermuda corporation, is engaged through its majority owned subsidiary in the exploration for oil and gas reserves. At December 31, 1999, Coastal Caribbean's principal asset was its 59 1/4 % interest in its subsidiary, Coastal Petroleum Company ("Coastal Petroleum"). Coastal Petroleum's principal assets are its nonproducing oil, gas and mineral leases and royalty interests in the State of Florida. Coastal Petroleum has made no commercial discoveries on the lands covered by these leases. At December 31,1999, the amount of unproved oil, gas and mineral properties totaled $4.8 million which costs the Company expects to recover.
Coastal Petroleum is the lessee under State of Florida leases relating to the exploration for and production of oil, gas and minerals on approximately 3,700,000 acres of submerged lands along the Gulf Coast and under certain inland lakes and rivers. The leases provide for a working interest in approximately 1,250,000 acres and a royalty interest in approximately 2,450,000 acres covered by the leases. Coastal Petroleum has made no commercial discoveries on its leaseholds.
In 1990, the State of Florida enacted legislation that prohibits drilling or exploration for oil or gas on Florida's offshore acreage. Although the law does not apply to areas where Coastal Petroleum is entitled to conduct exploration, the State of Florida has effectively prevented any exploratory drilling by denying the Company's application for drilling permits. In addition, in those areas where Coastal Petroleum has only a royalty interest, the law also effectively prohibits production of oil and gas, rendering it impossible for Coastal Petroleum to collect royalties from those areas. During 1998, Coastal Petroleum exhausted its legal remedies in its efforts to obtain compensation for the drilling prohibition on its royalty interest acreage.
Coastal Petroleum has been involved in various lawsuits for many years. Coastal Petroleum's current litigation (the "Florida Litigation") involves two basic claims : whether Coastal Petroleum may obtain an oil and gas exploration drilling permit and the amount of the required surety in connection with any drilling, and whether the denial of a permit is a taking of its property. In addition, Coastal Caribbean is a party to one additional action in which Coastal Caribbean claims that certain of its royalty interests have been confiscated by the State. During 1999, the Company actively pursued the Florida Litigation.
On October 6, 1999, the Florida First District Court of Appeal ruled that the DEP has the authority to deny Coastal Petroleum's drilling permit for its St. George Island prospect, provided that Coastal Petroleum receives just compensation for what has been taken. The State of Florida and certain Florida environmental groups filed on November 1, 1999 a joint motion for clarification, rehearing, or certification with respect to that decision, asking the Court of Appeal, among other things, to clarify that the questions of whether there has been a taking of Coastal Petroleum's leases should be determined in the Circuit Court. A decision by the Court of Appeal on that motion is pending.
On February 25, 1997, Coastal Petroleum filed twelve additional applications for drilling permits. Coastal Petroleum objected to certain requests for additional data by the Florida DEP. On March 26, 1999, an administrative law judge upheld the DEP's requirements. Coastal Petroleum filed a Notice of Appeal with the First District Court of Appeal. The decision of the administrative law judge was affirmed by the Court of Appeal on February 29, 2000.
In order to fully permit the Apalachicola Reef Play which includes the St. George Island prospect, on October 29, 1998 Coastal Petroleum filed four additional permits (1310-1313). The DEP also requested additional data for these permits. These applications are awaiting a decision of the First District Court of Appeal regarding the twelve permit applications' case as to the DEP's use of unadopted rules to require additional data. The permits are also dependent on the DEP's current rule making regarding offshore drilling.
During December 1998, the DEP began the administrative process to adopt new rules regarding offshore drilling in Florida. Coastal Petroleum who holds the only leases offshore and other interested parties have submitted comments. The DEP is still in the process of drafting the new rules.
See Item 3."Legal Proceedings" for a more complete discussion of the litigation.
(b) Financial Information About Industry Segments.
Because the Company is engaged in only one industry, namely, oil, gas and mineral exploration and development, this item is not applicable to the Company. See Item 8 for general financial information concerning the Company.
(c) Narrative Description of the Business.
Coastal Caribbean was organized in Bermuda on February 14, 1962. The Company is the successor to Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January 31, 1953 to be the holding company for Coastal Petroleum Company.
Coastal Petroleum caused oil and gas exploration to take place on its leases prior to the beginning of litigation in 1968 but has conducted more limited exploration since that time. The amount of exploration expenditures during the years 1999, 1998 and 1997 was $45,000, $371,000 and $504,000, respectively. Coastal Petroleum believes all drilling and exploration obligations imposed by its leases have been satisfied to date. No commercial oil or gas discoveries have been made on these properties; therefore, the Company has no proved reserves of oil and gas and has had no production. See Item 2.
Item 2. Properties
Properties
Coastal Petroleum, a Florida corporation, holds certain working interests in nonproducing oil, gas and mineral leases covering approximately 1,250,000 acres, and a royalty interest in approximately 2,450,000 acres, in and offshore the State of Florida. No commercial oil or gas discoveries have been made on the properties covered by these leases and Coastal Petroleum has no proved reserves of oil or gas and has had no significant production. At December 31, 1999, the amount of unproved oil, gas and mineral properties totaled $4.8 million which costs the Company expects to recover.
In 1941, Arnold Oil Explorations, Inc., renamed Coastal Petroleum Company in 1947, entered into a contract with the Trustees of the Internal Improvement Trust Fund of the State of Florida (the "Trustees"), in whom title to publicly owned lands in the State of Florida, including bottoms of salt and fresh waters, is irrevocably vested, for the exploration of oil, gas and minerals on such lands. Pursuant to an option to lease in this contract, the Trustees and Coastal Petroleum entered into three leases between 1944 and 1946. The acreage covered by these leases is located for the most part along offshore areas on the Gulf Coast of Florida and in submerged lands under certain bays, inlets, riverbeds and lakes, of which Lake Okeechobee is the largest.
In 1968, Coastal Petroleum sued the Secretary of the Army of the United States in a dispute regarding certain mineral rights. In 1969, as part of that litigation, the Trustees claimed that the leases were invalid and had been forfeited. Coastal Petroleum and the Trustees settled their disagreement in 1976.
Under the terms of the 1976 settlement agreement, the two leases (224-A and 224-B) bordering the Gulf Coast were divided into three areas, each running the entire length of the coastline from Apalachicola Bay to the Naples area: (1) The inner area, including rivers, bays, and harbors, extends seaward from the Florida shoreline a distance of 4.36 statute miles (5,280 feet per statute mile) into the Gulf, covers approximately 2.25 million acres, and is subject to a royalty interest payable to Coastal Petroleum. This interest is a 6 1/4% royalty on the wellhead value of all oil and gas, 25 cents per long ton on sulfur, receivable in cash or in kind at Coastal Petroleum's option, and a 5% royalty on production or the market value of other minerals. (2) The middle area, three statute miles wide and covering more than 800,000 acres, was released by Coastal Petroleum to the Trustees, and Coastal Petroleum has no further interest in the area. (3) Coastal Petroleum presently owns a 100% working interest in the outside area, which extends seaward an additional three statute miles and borders federal offshore acreage. This area, exceeding 800,000 acres, remains subject to royalties payable to the State of Florida of 12 1/2% on oil and gas, $.50 per long ton of sulfur and 10% on other minerals. The Florida legislature has enacted statutes designed to protect the Big Bend Seagrass Aquatic Preserve, an area covering approximately one quarter of Coastal Petroleum's working interest area. However, the legislation and legislative history recognize and preserve Coastal Petroleum's prior rights as granted by the leases.
Coastal Petroleum retains a 100% working interest in 450,000-acre Lake Okeechobee which is a part of Lease 248 and which is also subject to royalties payable to the State of Florida of 12 1/2% on oil and gas, $.50 per long ton of sulfur and 10% on other minerals. Pursuant to its settlement with the State of Florida in 1976, Coastal Petroleum agreed not to conduct exploration, drilling or mining operations on Lake Okeechobee without the prior approval of the State. As to the balance of this lease, covering approximately 200,000 acres, Coastal Petroleum retains royalty interests of 6 1/4% on oil, gas and sulfur and 5% on other minerals.
Under the 1976 settlement agreement with the Trustees, the three leases have a term of 40 years beginning from January 6, 1976 and require the payment of an annual rental of $59,247; if oil, gas or minerals are being produced in economically sustainable quantities at January 6, 2016, these operations will be allowed to continue until they become uneconomic. Further, the settlement agreement provides that the drilling requirements shall be governed by Chapter 20680, Laws of Florida, Acts of 1941, and that all other drilling requirements are waived. Under the 1941 Act, a lessee is required to drill at least one test well on lands leased in each five-year period under the term of the lease. Coastal Petroleum believes it is current in fulfilling its drilling requirements.
See Item 3.
Item 3. Legal Proceedings
Coastal Petroleum has been involved in various lawsuits for many years. Coastal Petroleum's current litigation (the "Florida Litigation") involves two basic claims: whether Coastal Petroleum may obtain an oil and gas exploration drilling permit and the amount of the required surety in connection with any drilling, and whether the denial of a permit is a taking of its property. In addition, Coastal Caribbean is a party to another action in which Coastal Caribbean claims that certain of its royalty interests have been confiscated by the State. During 1999, the Company actively pursued the Florida Litigation.
1. Coastal Petroleum Company v. State Department of Environmental Protection, (Case No. 98-1998, First District Court of Appeal). Drilling Permit Litigation.
In 1992, Coastal Petroleum applied to the Florida Department of Environmental Protection (the "DEP") for a permit to drill an exploratory oil and gas well off Apalachicola, Florida. The proposed well would be located in an area included within Lease 224A. The DEP subsequently denied the application for issuance of a drilling permit for various reasons and imposed a $1.9 billion bond. Coastal Petroleum appealed the actions of the DEP to the Florida First District Court of Appeal ("Court of Appeal"). After two decisions by the Court of Appeal in favor of Coastal Petroleum, the Florida Supreme Court in July 1996 denied the DEP's petition to review an April 1996 Court of Appeal decision. The Florida Supreme Court had also refused to review an earlier Court of Appeal decision.
On August 16, 1996, the DEP notified Coastal Petroleum that it was prepared to issue the drilling permit subject to Coastal Petroleum publishing a Notice of Intent to Issue ("Notice") the permit. The Notice allowed interested parties to request administrative hearings on the permit.
On May 28, 1997, the Oil and Gas Drilling Bill (SB550) was enacted in Florida. The legislation requires that a surety will now be based on the projected cleanup costs and possible natural resource damage associated with offshore drilling as estimated by the DEP and as established by the Administration Commission (the "Commission") which is comprised of the Governor and Cabinet. Previously, the required surety was satisfied by a payment of $4,000 to the Mineral Trust Fund in the first year, with a maximum $30,000 per year and a payment of $1,500 per well for each subsequent year. On September 9, 1997, the State of Florida set a new surety amount of $4.25 billion as a precondition for the issuance of the drilling permit.
On October 20, 1997, a public hearing on the permit application convened and concluded on November 6, 1997. The hearing included the Company's appeal of the $4.25 billion surety requirement. On April 8, 1998, a Florida Administrative Law Judge recommended that Coastal Petroleum was entitled to a drilling permit with the requirement of a $225 million surety. On May 13, 1998, the Commission rejected the $225 million surety and remanded the proceedings to the Administrative Law Judge with instructions to recalculate the surety amount.
On May 26, 1998, the DEP refused to issue a permit to Coastal Petroleum to drill an offshore exploration well near St. George's Island. Coastal Petroleum appealed both the denial of the permit by the DEP and the imposition of the surety to the Court of Appeal.
On October 6, 1999, the Court of Appeal ruled that the DEP has the authority to deny Coastal Petroleum's drilling permit for its St. George Island prospect, provided that Coastal Petroleum receives just compensation for what has been taken. The State of Florida and certain Florida environmental groups filed on November 1, 1999 a joint motion for clarification, rehearing, or certification with respect to that decision, asking the Court of Appeal, among other things, to clarify that the question of whether there has been a taking of Coastal Petroleum's leases should be determined in the Circuit Court. A decision by the Court of Appeal on that motion is pending.
2. Coastal Petroleum Company v. State of Florida, Department of Environmental Protection (DOAH Case Nos. 98-1901-1912). (DCA Case 1999-2112) 12 Permit Applications.
On February 25, 1997, Coastal Petroleum filed 12 additional applications for drilling permits. Coastal Petroleum objected to certain requests for additional data by the Florida DEP. On March 26, 1999, an administrative law judge upheld the DEP's requirements. Coastal Petroleum filed a Notice of Appeal with the First District Court of Appeal. The decision of the administrative law judge was affirmed by the Court of Appeal on February 29, 2000.
In order to fully permit the Apalachicola Reef Play which includes the St. George Island prospect on October 29, 1998, Coastal Petroleum filed four additional permits (1310-1313). The DEP also requested additional data for these permits. These applications awaiting a decision of the First District Court of Appeal regarding the twelve permit applications' case, as to the DEP's use of unadopted rules to require additional data. The permits are also dependent on the DEP's current rule making regarding offshore drilling.
During December 1998, the DEP began the administrative process to adopt new rules regarding offshore drilling in Florida. Coastal Petroleum who holds the only leases offshore and other interested parties have submitted comments. The DEP is still in the process of drafting the new rules.
3. Cottingham v. State of Florida, (Case No. 94-768-CA-01, Circuit Court of the Second Judicial Circuit in Leon County). Coastal Caribbean Royalty Litigation.
The offshore areas covered by Coastal Petroleum's original leases (prior to the 1976 Settlement Agreement) are subject to certain other royalty interests held by third parties, including Coastal Caribbean. Several of those third parties, including Coastal Caribbean, have instituted a separate lawsuit against the State. That lawsuit claims that the royalty holders' interests have been confiscated as a result of the State's actions discussed above and that they are entitled to compensation for that taking.
The royalty holders were not parties to the 1976 Settlement Agreement, and the royalty holders contend that the terms of the Settlement Agreement do not insulate the State from taking claims by those royalty holders. The case is currently pending before the Circuit Court in Tallahassee. On December 2,1999, the Circuit Court denied the State's motion to dismiss the plaintiffs' claim of inverse condemnation but dismissed several other claims. The case will now proceed to trial.
Any recovery made in the royalty holders' lawsuit would be shared among the various plaintiffs in that lawsuit, including Coastal Caribbean but not Coastal Petroleum.
Counsel
Mr. Robert J. Angerer of Tallahassee, Florida is Coastal Petroleum's principal trial counsel in the Florida Litigation. Mr. Angerer, age 53, is a graduate of the University of Michigan (B.S.E. 1969) and received his law degree with high honors from Florida State University in 1974.
Fee Arrangements
In connection with the Florida Litigation against the State of Florida described herein, Coastal Petroleum has agreed to pay the following firms, in addition to their charges on a time spent basis, a total of 5.25 % in contingent fees based upon any net recovery from execution on or satisfaction of judgment or from settlement of such lawsuit as follows:
Percent of net recovery Robert J. Angerer 1.50 Other counsel 3.75 ---- Total 5.25 ====
Coastal Petroleum has also assigned 3.4% of net recoveries from the Florida Litigation to its officers and others.
Uncertainty
At December 31, 1999, the amount of unproved oil, gas and mineral properties totaled $4.8 million which costs the Company expects to recover. But, no assurances can be given that Coastal Petroleum or Coastal Caribbean will prevail on any of the issues set forth above, that they will recover compensation for any of their claims, or that a drilling permit will be granted. In addition, even if Coastal Petroleum were to prevail on any or all of the issues to be decided, no assurance can be given that Coastal Caribbean or Coastal Petroleum will have sufficient financial resources to survive until such decisions become final or to drill any wells for which permits are received. There is also no assurance that any wells drilled will be successful and lead to production of any oil or gas in commercial quantities.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Company
The following information with respect to the executive officers of the Company is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Other Positions Office Length of Service Held With The Name Age Held as an Officer Company
Benjamin W. Heath 85 President Since 1953 Director
Phillip W. Ware 50 Vice President Since 1982 Director, President of Coastal Petroleum
James R. Joyce 59 Treasurer, Since 1994 Secretary/Treasurer Assistant Secretary of Coastal Petroleum and Chief Financial Officer
All officers of the Company are elected annually by the Board of Directors and serve at the pleasure of the Board of Directors.
The Company is not aware of any arrangements or understandings between any of the individuals named and any other person pursuant to which any individual named above was selected as an officer.
PART II
Item 5.
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
(a) Market Information.
The principal market for the Company's common stock is the Boston Stock Exchange. The quarterly high and low closing prices on that exchange during the last two years were as follows:
- --------------------------------------------------------------------------------
1999 1st quarter 2nd quarter 3rd quarter 4th quarter - ---- ----------- ----------- ----------- -----------
High 1.88 2.00 1.81 2.06 Low 1.00 1.50 1.31 1.06 - --------------------------------------------------------------------------------
1998 1st quarter 2nd quarter 3rd quarter 4th quarter - ---- ----------- ----------- ----------- -----------
High 2.88 3.50 1.81 1.56 Low 1.50 1.56 1.00 1.06 - --------------------------------------------------------------------------------
(b) Holders.
The approximate number of record holders of the Company's common stock at February 1, 2000 was approximately 9,200.
(c) Dividends.
The Company has never paid a dividend on its capital stock and will be unable to do so until its accumulated deficit($27,362,000 at December 31, 1999) is eliminated.
The Company's Memorandum of Association and Bye-laws do not permit the Company to repurchase or redeem shares of its common stock.
(d) Recent Sales of Unregistered Securities.
None.
Foreign Exchange Control Regulations
The Company is subject to the applicable laws of The Islands of Bermuda relating to exchange control, but has the permission of the Foreign Exchange Control of Bermuda to carry on business in, to receive, disburse and hold United States dollars and dollar securities under its designation as an External Account Company. The Company has been advised that, although as a matter of law it is possible for such designation to be revoked, there is little precedent for revocation under Bermuda law.
Taxes
Coastal Caribbean is a Bermuda corporation. Bermuda currently imposes no taxes on corporate income or capital gains realized outside of Bermuda. Any amounts received by Coastal Caribbean from United States sources as dividends, interest, or other fixed or determinable annual or periodic gains, profits and income, will be subject to a 30% United States withholding tax. In addition, any dividends from its domestic subsidiary, Coastal Petroleum, will not be eligible for the 100% dividends received deduction, which is allowable in the case of a United States parent corporation. Shares of the Company held by persons who are citizens or residents of the United States are subject to federal estate and gift and local inheritance taxation. Any dividends received by such persons will also be subject to federal, State and local income taxation. The foregoing rules are of general application only, and reflect law in force as of the date of this report.
A convention between Bermuda and the United States relating to mutual assistance on tax matters became operative in 1988.
Item 6.
Item 6. Selected Consolidated Financial Information
The following selected consolidated financial information for the Company insofar as it relates to each of the five years in the period ended December 31, 1999 has been extracted from the Company's consolidated financial statements.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
(1) Liquidity and Capital Resources
Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature are intended to be, and are hereby identified as, "forward looking statements" for purposes of the "Safe Harbor Statement" under the Private Securities Litigation Reform Act of 1995. The Company cautions readers that forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements. Among the risks and uncertainties are:
1. the uncertainty of any decision favorable to Coastal Petroleum in its litigation against the State of Florida;
2. the substantial cost of continuing the litigation;
3. the uncertainty of obtaining the financing which would be necessary to fund the litigation against the State of Florida.
The Company's principal assets are oil, gas, and mineral leases, the costs of which total $4.8 million at December 31, 1999. As more fully described in Notes 1 and 5 to the consolidated financial statements, the Company has a limited amount of working capital, has incurred recurring losses and has an accumulated deficit. The Company has been and continues to be involved in several legal proceedings against the State of Florida which has limited the Company's ability to commence development activities on its unproved oil and gas properties or obtain compensation for certain property rights it believes have been taken. These situations raise substantial doubt about the Company's ability to continue as a going concern. The Company's consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.
Short Term Liquidity
At December 31 1999, Coastal Caribbean had approximately $1.1 million of cash and securities available and this amount should be sufficient to fund the Company's operations in the year 2000. These funds are expected to be used for general corporate purposes, including any required exploration and development and to continue the litigation against the State of Florida.
Long Term Liquidity
The Company is currently spending approximately $400,000 annually on the Florida Litigation. In order to continue the litigation and operate the Company beyond the year 2000, the Company believes it will be necessary for the Company to obtain additional capital either from Coastal Caribbean's or Coastal Petroleum's shareholders.
The Company's oil and gas properties are currently unproved and undeveloped. The Company had applied for a drilling permit from the State of Florida to drill an exploratory well (the St. George Island prospect) in the water near Apalachicola, Florida. The State of Florida resisted the issuance of a drilling permit. On October 6, 1999, Florida's First District Court of Appeal ruled that Florida's Department of Environmental Protection has the authority to deny Coastal Petroleum's drilling permit for its St. George Island prospect, provided that Coastal receives just compensation for what has been taken. The State of Florida and certain Florida environmental groups filed on November 1, 1999 a joint motion for clarification, rehearing, or certification with respect to that decision, asking the Court of Appeal, among other things, to clarify that the question or whether there has been a taking of Coastal Petroleum's leases should be determined in the Circuit Court. A decision by the Court of Appeal on that motion is pending. In the event that the Court of Appeal affirms its decision and Coastal Petroleum commences an inverse condemnation action in the Circuit Court to be compensated for the value of Lease 224A, the cost of the litigation would be substantial and would require the Company to obtain additional capital.
In 1997, the Company filed 12 additional applications for drilling permits. The Company has objected to certain requests for additional data by the State of Florida DEP. On March 26,1999, an administrative law judge upheld the DEP's requirements. Coastal Petroleum filed a Notice of Appeal with the First District Court of Appeal. The decision of the administrative law judge was affirmed by the Court of Appeal on February 29, 2000.
If any of the drilling permits were granted, the Company would not have the assets sufficient to fund all the expenditures which would be necessary to drill the St. George Island prospect (5.5 million) or any other exploration wells. If oil and/or gas is discovered in commercial quantities, a production program would require additional permitting and construction of production, storage and delivery systems. The Company would be required to seek additional financing or partners to fund these expenditures.
(2) Results of Operations
The Company has never had substantial revenues and has operated at a loss each year since its inception in 1953. The Company has been involved in litigation since 1968 and its total Florida Litigation related expenses have been approximately $ 2 million during the three years ended December 31, 1999.
1999 vs. 1998
The Company recorded a loss of $1,105,000 for 1999, compared to a loss of $1,155,000 in 1998.
Interest income and other income decreased 67% to $55,000 in 1999 from $167,000 in 1998 because less funds were available for investment during 1999.
Legal fees and costs decreased 19% in 1999 to $405,000 compared to $502,000 in the prior year. In 1998, the Company had been involved in various appeals and hearings in connection with the opposition by the State of Florida and others to the issuance of a drilling permit and the taking claim regarding its royalty interest acreage. During 1999, the level of legal activity decreased.
Administrative expenses decreased 4% in 1999 to $474,000 compared to $495,000 in 1998.
Salaries decreased 2% to $158,000 during 1999 compared to $161,000 during 1998.
Shareholder communications decreased 23% from $133,000 in 1998 to $103,000 in 1999. The decrease in costs during 1999 resulted from a reduction in mailing costs to the Company's shareholders.
Exploration costs decreased from $31,000 in 1998 to $21,000 in 1999 in connection with the Company's program to identify potential drilling prospects. These miscellaneous exploration expenses do not include the exploration expenditures totaling $24,000 that were capitalized in 1999 ($340,000 in 1998).
1998 vs. 1997
The Company recorded a loss of $1,155,000 for 1998, compared to a loss of $1,611,000 in 1997.
Interest income and other income decreased 40% to $167,000 in 1998 from $279,000 in 1997 because less funds were available for investment during 1998 and interest rates were lower.
Legal fees and costs decreased 52% in 1998 to $502,000 compared to $1,047,000 in the prior year. In 1997, the Company had been involved in various appeals and hearings in connection with the opposition by the state and others to the issuance of a drilling permit and the taking claim regarding its royalty interest acreage. During 1998, the level of legal activity decreased.
Administrative expenses increased 11% in 1998 to $495,000 compared to $448,000 in 1997. The primary reason for the increase was an increase in the amount of directors' and officers' liability insurance in 1998.
Shareholder communications decreased 29% from $188,000 in 1997 to $133,000 in 1998. In 1997, the cost of printing and mailing was higher because of the size of the documents and the number of mailings compared to 1998.
Exploration costs decreased from $53,000 in 1997 to $31,000 in 1998 in connection with the Company's program to identify potential drilling prospects. These miscellaneous exploration expenses do not include the exploration expenditures totaling $340,000 that were capitalized in 1998 ($452,000 in 1997).
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have any significant exposure to market risk as the only market risk sensitive instruments are its investments in marketable securities. At December 31, 1999, the carrying value of such investments was approximately $391,000, the fair value was $391,000 and the face value was $400,000.
Item 8.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
The Board of Directors Coastal Caribbean Oils & Minerals, Ltd.
We have audited the accompanying consolidated balance sheets of Coastal Caribbean Oils & Minerals, Ltd. (a development stage company) as of December 31, 1999 and 1998, and the related consolidated statements of operations, cash flows, and common stock and capital in excess of par value from inception (January 31, 1953) to December 31, 1999 and for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coastal Caribbean Oils & Minerals, Ltd. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows from inception (January 31, 1953) to December 31, 1999 and for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Notes 1 and 5 to the consolidated financial statements, the Company has a limited amount of working capital, has incurred recurring losses and has an accumulated deficit. In addition, the Company has been and continues to be involved in several legal proceedings which have limited the Company's ability to commence development activities on its unproved oil or gas properties or obtain compensation for certain property rights it believes have been confiscated. These situations raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result form the outcome of this uncertainty.
/s/ Ernst & Young LLP
Stamford, Connecticut January 14, 2000
COASTAL CARIBBEAN OILS & MINERALS, LTD. (A Bermuda Corporation) A Development Stage Company
CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars)
COASTAL CARIBBEAN OILS & MINERALS, LTD. (A Bermuda Corporation) A Development Stage Company
CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in U.S. Dollars)
COASTAL CARIBBEAN OILS & MINERALS, LTD. (A Bermuda Corporation) A Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. Dollars)
See accompanying notes.
COASTAL CARIBBEAN OILS & MINERALS, LTD. (A Bermuda Corporation) A Development Stage Company
CONSOLIDATED STATEMENT OF COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE (Expressed in U.S. dollars) From inception (January 31, 1953) to December 31, 1999
See accompanying notes.
COASTAL CARIBBEAN OILS & MINERALS, LTD. Notes to Consolidated Financial Statements December 31, 1999
1. Summary of significant accounting policies
Consolidation
The accompanying consolidated financial statements include the accounts of Coastal Caribbean Oils & Minerals, Ltd. ("Coastal Caribbean") and its majority owned subsidiary, Coastal Petroleum Company ("Coastal Petroleum"), hereinafter referred to collectively as the Company. The Company, which is engaged in a single industry and segment, is considered to be a development stage company since its exploration for oil, gas and minerals has not yielded any significant revenue or reserves. All intercompany transactions have been eliminated.
Continuation as going concern
The Company has a limited amount of working capital, has incurred recurring losses and has an accumulated deficit. Furthermore, as discussed in Note 5, the Company believes the State of Florida has taken its working interest properties. In the event that the Court of Appeal affirms its decision and Coastal Petroleum commences an inverse condemnation action in the Circuit Court to be compensated for the value of its properties, the cost of that litigation would be substantial and would require the Company to obtain additional capital. There can be no assurances that funds on hand or realized or realizable on the sales of the Company's shares described in Note 6 will be sufficient to allow the Company to survive until such litigation is concluded.
At December 31, 1999, the Company had cash and securities of $1.1 million. These funds are expected to be used principally to continue the litigation in which Coastal Petroleum is involved and also to pay operating and limited exploration expenses. Current working capital should be sufficient to finance the Company's operations and litigation through December 31, 2000.
In order to continue the litigation and operate the Company beyond the year 2000, the Company believes it will be necessary to obtain additional capital either from Coastal Caribbean's or Coastal Petroleum's shareholders. Success in realizing significant funds is critical to the existence of the Company. If the Company is unsuccessful in obtaining additional capital from its shareholders or the time necessary to obtain such funds is unduly protracted, or Coastal Petroleum's shareholders are unwilling to provide additional capital, then the Company will likely have insufficient funds to continue operations and the Company will be unable to continue as a going concern.
Cash and cash equivalents
The Company considers all highly liquid short-term investments with maturities of three months or less at the date of acquisition to be cash equivalents. Cash and cash equivalents are carried at cost which approximates market value. The components of cash and cash equivalents are as follows:
December 31, 1999 1998 Cash $59,061 $52,480 Short term investments 592,063 - -------- ------- $651,124 $52,480 ======== =======
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The outcome of the litigation and the ability to develop the Company's oil and gas properties will have a significant effect on the Company's financial position and results of operations. Actual results could differ from those estimates.
Unproved oil and gas properties
The Company follows the full cost method of accounting for its oil and gas properties. All costs, whether successful or unsuccessful, associated with property acquisition, exploration and development activities are capitalized. Since the Company's properties are undeveloped and nonproducing, capitalized costs are not being amortized.
The Company does not expect to amortize these costs until there is production from the properties. Production cannot begin until several events occur because the Company must: (1) obtain state and federal drilling permits (2) finance the drilling of an exploratory well, either with internal resources or by securing one or more partners in the drilling activity, (3) discover commercial quantities of oil and/or gas, and (4) finance and begin a production program. The Company cannot predict if or when any of these events may occur; however, the Company expects that under the most favorable circumstances production would not begin before 2002. If the Company obtains the permits to drill, the total cost of drilling an exploration well is currently estimated to be approximately $5.5 million. The Company does not currently have assets sufficient to fund all of this cost and would be required to seek debt or equity financing from public or private sources to drill the exploration well, if a permit were granted. If oil and/or gas is discovered in commercial quantities, a production program would require additional permitting and construction of production, storage and delivery systems. The Company would be required to seek additional financing to fund these development activities.
The Company assesses whether its unproved properties are impaired on a periodic basis. This assessment is based upon work completed on the properties to date, the expiration date of its leases and technical data from the properties and adjacent areas. These properties are subject to extensive litigation with the State of Florida. Although the property interests may be impaired by the actions taken by the State, the likelihood of loss with respect to the recorded costs of the leasehold interests is not probable. (See Note 5 "Litigation".) Based on the exploration activities on the properties completed to date, the exploration and development activities of others in the Gulf of Mexico and the laws applicable to the taking of property, the Company expects to recover its $4.8 million of capitalized costs. However, there can be no assurance that it will be successful and that costs associated with these properties will be realized.
Sale of Subsidiary Shares
All amounts realized from the sale of Coastal Petroleum shares have been credited to capital in excess of par value.
Earnings per share
Earnings per common share is based upon the weighted average number of common and common equivalent shares outstanding during the period. The Company's basic and diluted calculations of EPS are the same because the exercise of options is not assumed in calculating diluted EPS, as the result would be anti-dilutive (the Company has continuing losses).
Financial instruments
The carrying value for cash and cash equivalents, accounts receivable, marketable securities and accounts payable approximates fair value based on anticipated cash flows and current market conditions.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The statement requires all derivatives to be recognized on the balance sheet at fair value and establishes standards for the recognition of changes in such fair value. SFAS No. 133 is effective for the Company's 2001 fiscal year. Because the Company does not currently use derivatives, the adoption of SFAS No. 133 will not have a significant effect on earnings or the financial condition of the Company.
2. Coastal Petroleum Company - Minority Interests
In 1992, Coastal Caribbean granted Lykes Minerals Corp. ("Lykes"), a wholly owned subsidiary of Lykes Bros. Inc., an option to acquire 78 shares of Coastal Petroleum at $40,000 per share. Lykes exercised all of its options to purchase Coastal Petroleum shares at a total cost of $3,120,000 and at December 31, 1998 and 1997, held 26.7% of Coastal Petroleum.
The Lykes agreement provides that Lykes is entitled to exchange each Coastal Petroleum share for 100,000 Coastal Caribbean shares, subject to adjustment for dilution and other factors. If fully exercised, that entitlement would leave Lykes with about 16% of Coastal Caribbean's outstanding shares. Lykes also has the right to exchange Coastal Petroleum shares for overriding royalty interests in Coastal Petroleum's properties. If Lykes were to exchange its 26.7% interest in Coastal Petroleum for a royalty interest, its overriding royalty interest in Coastal Petroleum's working-interest acreage would be 3.3%.
As of December 31, 1999 and 1998, Coastal Petroleum shares were owned as follows:
Shares % ------ ---- Coastal Caribbean 173 59.3 Lykes 78 26.7 Others 41 14.0 ---- ------ 292 100.0 === =====
3. Marketable Securities
At December 31, 1999 the following marketable securities were available for sale because of the Company's capital requirements:
Maturity Carrying Security Par Value Date Value Fair Value --------- --------- ---- ----- ---------- Connecticut State Serial A Taxable Bond 6.25% $400,000 July 1, 2003 $390,941 $390,941 ======== ======== ========
At December 31, 1998, the Company had the following marketable securities held until maturity: Maturity Carrying Security Par Value Date Value Fair Value --------- --------- ---- ----- ---------- Short-term securities - --------------------- Federal Home Loan Bank $150,000 Jan. 6, 1999 $147,091 $149,912 Federal Home Loan Bank 500,000 Feb. 22, 1999 486,422 489,938 Federal Home Loan Bank 200,000 May 11, 1999 195,326 195,550 --------- --------- --------- Total $850,000 $828,839 $835,400 ======== ======== ========
Long-term securities Federal Home Loan Bank $1,300,000 Jan. 28, 2000 $1,300,000 $1,300,403 ========== ========== ==========
4. Unproved oil, gas and mineral properties
Coastal Petroleum holds three unproved and nonproducing oil, gas and mineral leases granted by the Trustees of the Internal Improvement Fund of the State of Florida (the "Trustees"). These leases cover submerged and unsubmerged lands, principally along the Florida Gulf Coast, and certain inland lakes and rivers throughout the State.
The two leases bordering the Gulf Coast have been divided into three areas, each running the entire length of the coastline from Apalachicola Bay to the Naples area. Coastal Petroleum has certain royalty interests in the inner area, no interest in the middle area and has a 100% working interest in the outside area.
Coastal Petroleum also has a 100% working interest in Lake Okeechobee, and a royalty interest in other areas. Coastal Petroleum has agreed not to conduct exploration, drilling, or mining operations on said lake, except with prior approval of the Trustees.
The three leases have a term of 40 years from January 6, 1976 and require the payment of annual lease rentals of $59,247; if oil, gas or minerals are being produced in economically sustainable quantities at January 6, 2016, these operations will be allowed to continue until they become uneconomic. The drilling requirements are governed by Chapter 20680, Laws of Florida, Acts of 1941. The Company is current in fulfilling its drilling requirements. During July 1998, the Company resumed the payment of lease rentals which had been suspended during the litigation.
The working interest areas of the three leases are subject to royalties payable to the Trustees of 12 1/2% on oil and gas, $.50 per long ton of sulfur and 10% on other minerals. The leases are subject to additional overriding royalties which aggregate 1/16th as to oil, gas and sulfur and 13/600ths as to other minerals. The Coastal Petroleum leases also are subject to a 10% overriding royalty granted by Coastal Petroleum to Coastal Caribbean.
During 1999, the Company capitalized approximately $24,000 ($340,000 in 1998 and $452,000 in 1997) under a program to identify potential drilling prospects. The amount of 2000 expenditures, if any, will depend on the outcome of the Florida litigation.
The following is a summary of the cost of unproved oil, gas and mineral properties, accounted for under the full cost method, all of which are located in Florida:
1999 1998 Lease acquisition costs $ 914,619 $ 914,619 Lease and royalty costs (principally legal fees) 591,616 591,616 Lease rentals 2,447,774 2,388,527 Dry hole costs 587,987 587,987 Other exploratory expenses 1,240,372 1,275,706 Salaries 466,983 466,983 ------------ ------------ 6,249,351 6,225,438 ----------- ----------- Deduct: Reimbursement for lease rentals and other expenses 1,243,086 1,243,086 Proceeds from relinquishment of surface rights 246,733 246,733 ------------ ------------ 1,489,819 1,489,819 ----------- ----------- Total unproved oil, gas and mineral properties $4,759,532 $4,735,619 ========== ==========
5. Litigation
Florida Litigation
Coastal Petroleum has been involved in various lawsuits for many years. Coastal Petroleum's current litigation (the "Florida Litigation") involves two basic claims : whether Coastal Petroleum may obtain an oil and gas exploration drilling permit and the amount of the required surety in connection with any drilling, and whether the denial of a permit is a taking of its property. In addition, Coastal Caribbean is a party to another action in which Coastal Caribbean claims that certain of its royalty interests have been confiscated by the State. During 1999, the Company actively pursued the Florida Litigation.
1. Coastal Petroleum Company v. State Department of Environmental Protection, (Case No. 98-1998, First District Court of Appeal). Drilling Permit Litigation.
In 1992, Coastal Petroleum applied to the Florida Department of Environmental Protection (the "DEP") for a permit to drill an exploratory oil and gas well off Apalachicola, Florida. The proposed well would be located in an area included within Lease 224A. The DEP subsequently denied the application for issuance of a drilling permit for various reasons and imposed a $1.9 billion bond. Coastal Petroleum appealed the actions of the DEP to the Florida First District Court of Appeal ("Court of Appeal"). After two decisions by the Court of Appeal in favor of Coastal Petroleum, the Florida Supreme Court in July 1996 denied the DEP's petition to review an April 1996 Court of Appeal decision. The Florida Supreme Court had also refused to review an earlier Court of Appeal decision.
On August 16, 1996, the DEP notified Coastal Petroleum that it was prepared to issue the drilling permit subject to Coastal Petroleum publishing a Notice of Intent to Issue ("Notice") the permit. The Notice allowed interested parties to request administrative hearings on the permit.
On May 28, 1997, the Oil and Gas Drilling Bill (SB550) was enacted in Florida. The legislation requires that a surety will now be based on the projected cleanup costs and possible natural resource damage associated with offshore drilling as estimated by the DEP and as established by the Administration Commission (the "Commission") which is comprised of the Governor and Cabinet. Previously, the required surety was satisfied by a payment of $4,000 to the Mineral Trust Fund in the first year, with a maximum $30,000 per year and a payment of $1,500 per well for each subsequent year. On September 9, 1997, the State of Florida set a new surety amount of $4.25 billion as a precondition for the issuance of the drilling permit.
On October 20, 1997, a public hearing on the permit application convened and concluded on November 6, 1997. The hearing included the Company's appeal of the $4.25 billion surety requirement. On April 8, 1998, a Florida Administrative Law Judge recommended that Coastal Petroleum was entitled to a drilling permit with the requirement of a $225 million surety. On May 13, 1998, the Commission rejected the $225 million surety and remanded the proceedings to the Administrative Law Judge with instructions to recalculate the surety amount.
On May 26, 1998, the DEP refused to issue a permit to Coastal Petroleum to drill an offshore exploration well near St. George's Island. Coastal Petroleum appealed both the denial of the permit by the DEP and the imposition of the surety to the Court of Appeal.
On October 6, 1999, the Court of Appeal ruled that the DEP has the authority to deny Coastal Petroleum's drilling permit for its St. George Island prospect, provided that Coastal Petroleum receives just compensation for what has been taken. The State of Florida and certain Florida environmental groups filed on November 1, 1999 a joint motion for clarification, rehearing, or certification with respect to that decision, asking the Court of Appeal, among other things, to clarify that the question of whether there has been a taking of Coastal Petroleum's leases should be determined in the Circuit Court. A decision by the Court of Appeal on that motion is pending.
2. Coastal Petroleum Company v. State of Florida, Department of Environmental Protection (DOAH Case Nos. 98-1901-1912). (DCA Case 1999-2112) 12 Permit Applications.
On February 25, 1997, Coastal Petroleum filed 12 additional applications for drilling permits. Coastal Petroleum objected to certain requests for additional data by the Florida DEP. On March 26, 1999, an administrative law judge upheld the DEP's requirements. Coastal Petroleum filed a Notice of Appeal with the First District Court of Appeal. The decision of the administrative law judge was affirmed by the Court of Appeal on February 29, 2000. In order to fully permit the Apalachicola Reef Play which includes the St. George Island prospect on October 29, 1998, Coastal Petroleum filed four additional permits (1310-1313). The DEP also requested additional data for these permits. These applications awaiting a decision of the First District Court of Appeal regarding the twelve permit applications' case, as to the DEP's use of unadopted rules to require additional data.
During December 1998, the DEP began the administrative process to adopt new rules regarding offshore drilling in Florida. Coastal Petroleum who holds the only leases offshore and other interested parties have submitted comments. The DEP is still in the process of drafting the new rules.
3. Cottingham v. State of Florida, (Case No. 94-768-CA-01, Circuit Court of the Second Judicial Circuit in Leon County). Coastal Caribbean Royalty Litigation.
The offshore areas covered by Coastal Petroleum's original leases (prior to the 1976 Settlement Agreement) are subject to certain other royalty interests held by third parties, including Coastal Caribbean. Several of those third parties, including Coastal Caribbean, have instituted a separate lawsuit against the State. That lawsuit claims that the royalty holders' interests have been confiscated as a result of the State's actions discussed above and that they are entitled to compensation for that taking.
The royalty holders were not parties to the 1976 Settlement Agreement, and the royalty holders contend that the terms of the Settlement Agreement do not insulate the State from taking claims by those royalty holders. The case is currently pending before the Circuit Court in Tallahassee. On December 2,1999, the Circuit Court denied the State's motion to dismiss the plaintiffs' claim of inverse condemnation but dismissed several other claims. The case will now proceed to trial.
Any recovery made in the royalty holders' lawsuit would be shared among the various plaintiffs in that lawsuit, including Coastal Caribbean but not Coastal Petroleum.
Fee Arrangements
In connection with the Florida Litigation against the State of Florida described herein, Coastal Petroleum has agreed to pay the following firms, in addition to their charges on a time spent basis, a total of 5.25 % in contingent fees based upon any net recovery from execution on or satisfaction of judgment or from settlement of such lawsuit as follows:
Percent of net recovery Robert J. Angerer 1.50 Other counsel 3.75 ---- Total 5.25 ====
Coastal Petroleum has also assigned 3.4% of net recoveries from the Florida Litigation to its officers and others.
Uncertainty
At December 31, 1999, the amount of unproved oil, gas and mineral properties totaled $4.8 million which costs the Company expects to recover. But, no assurances can be given that Coastal Petroleum or Coastal Caribbean will prevail on any of the issues set forth above, that they will recover compensation for any of their claims, or that a drilling permit will be granted. In addition, even if Coastal Petroleum were to prevail on any or all of the issues to be decided, no assurance can be given that Coastal Caribbean or Coastal Petroleum will have sufficient financial resources to survive until such decisions become final or to drill any wells for which permits are received. There is also no assurance that any wells drilled will be successful and lead to production of any oil or gas in commercial quantities.
6. Common Stock
The Company's Bye-Law No. 21 provides that any matter to be voted upon must be approved not only by a majority of the shares voted at such meeting, but also by a majority in number of the shareholders present in person or by proxy and entitled to vote thereon.
The Company has been financing its operations primarily from sales of common stock and sales of shares of Coastal Petroleum (See Note 2).
During 1997, the shareholders of the Company approved an increase in the authorized capital of the Company from 100,000,000 shares to 250,000,000 shares.
During April 2000, the Company expects to file a registration statement with the Securities and Exchange Commission for a proposed offering of its common stock to its shareholders.
The following represents shares issued upon sales of common stock:
Number of Capital in Excess Shares Capital Stock of Par Value 1953 300,000 $ 30,000 $ 654,000 1954 53,000 5,300 114,265 1955 67,000 6,700 137,937 1956 77,100 7,710 139,548 1957 95,400 9,540 152,492 1958 180,884 18,088 207,135 1959 123,011 12,301 160,751 1960 134,300 13,430 131,431 1961 127,500 12,750 94,077 1962 9,900 990 8,036 1963 168,200 23,548 12,041 1964 331,800 46,452 45,044 1965 435,200 60,928 442,391 1966 187,000 26,180 194,187 1967 193,954 27,153 249,608 1968 67,500 9,450 127,468 1969 8,200 1,148 13,532 1970 274,600 32,952 117,154 1971 299,000 35,880 99,202 1972 462,600 55,512 126,185 1973 619,800 74,376 251,202 1974 398,300 47,796 60,007 1975 - - (52,618) 1976 - - (8,200) 1977 850,000 102,000 1,682,706 1978 90,797 10,896 158,343 1979 1,065,943 127,914 4,124,063 1980 179,831 21,580 826,763 1981 30,600 3,672 159,360 1983 5,318,862 638,263 1,814,642 1985 - - (36,220) 1986 6,228,143 747,378 2,178,471 1987 4,152,095 498,251 2,407,522 1990 4,298,966 515,876 26,319 1996 6,672,726 800,727 5,555,599 ----------- ---------- --------- 33,502,212 $4,024,741 $22,374,443 ========== ========== ===========
The following represents shares issued upon exercise of stock options:
1955 73,000 $ 7,300 $175,200 1978 7,000 840 6,160 1979 213,570 25,628 265,619 1980 76,830 9,219 125,233 1981 139,600 16,752 227,548 1996 10,000 1,200 12,300 1997 10,000 1,200 10,050 -------- --------- ---------- 530,000 $62,139 $822,110 ======= ======= ========
Coastal Caribbean has reserved 7,800,000 shares which may be issued in exchange for Coastal Petroleum shares, as described in Note 2.
7. Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related Interpretations in accounting for its stock options because the alternative fair value accounting provided under FASB Statement No. 123, "Accounting for Stock Based Compensation," requires use of option valuation models that were not developed for use in valuing stock options. Under APB No. 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
During 1995, the Company adopted a Stock Option Plan covering 1,000,000 shares of the Company's common stock. Options are normally immediately exercisable and issued for a period of five years. The following table summarizes stock option activity:
Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model.
Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The assumptions used in the valuation model were: risk free interest rate - 5.45%, expected life - 5 years, expected volatility - .707 and expected dividend - 0.
Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
For the purpose of pro forma disclosures, the estimated fair value of the stock options is expensed in the year of grant since the options are immediately exercisable. The Company's pro forma information follows:
Amount Per Share Net loss as reported - December 31, 1998 $(1,154,681) $(.03) Stock option expense (369,000) $(.01) ------------ ------ Pro forma net loss (1,523,681) $(.04) =========== ======
8. Income taxes
Bermuda currently imposes no taxes on corporate income or capital gains outside of Bermuda. The Company's subsidiary, Coastal Petroleum, has U.S. net operating loss carry forwards for federal and state tax purposes, which may be used to reduce its taxable income, if any, during future years which aggregated approximately $12,077,000 at December 31, 1999 ($11,806,000 at December 31, 1998) and expire in varying amounts from 1999 through 2019. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax assets relating to those carry forwards. Significant components of the Company's deferred tax assets were as follows:
1999 1998 ---- ---- Net operating losses $4,544,000 $4,443,000 Deferred intercompany interest deduction 1,109,000 652,000 ---------- ---------- Total deferred tax assets 5,653,000 5,095,000 Valuation allowance (5,653,000) (5,095,000) ----------- ----------- Net deferred tax assets $ - $ - =========== ===========
9. Related parties
G&O'D INC provides accounting and administrative services and office facilities and support staff to the Company. G&O'D INC is owned by Mr. James R. Joyce, Treasurer and Assistant Secretary. During 1999, 1998 and 1997, G&O'D billed fees of $144,495, $160,764 and $172,160, respectively.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
For information concerning Item 10
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements.
The financial statements listed below and included under Item 8 above are filed as part of this report. Page
Report of Independent Auditors 25
Consolidated balance sheets at December 31, 1999 and 1998 26
Consolidated statements of operations from inception (January 31, 1953) to December 31, 1999 and for each of the three years in the period ended December 31, 1999 27
Consolidated statements of cash flows from inception (January 31, 1953) to December 31, 1999 and for each of the three years in the period ended December 31, 1999 28
Consolidated statements of common stock and capital in excess of par value from inception (January 31, 1953) to December 31, 1999 29
Notes to consolidated financial statements 30
(2) Financial Statement Schedules.
All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and the notes thereto.
(3) Exhibits.
List of each management contract or compensatory or arrangement required to be filed as an exhibit pursuant to Item 14(c).
None.
(b) Reports on Form 8-K.
On October 7, 1999, the Company filed a Current Report on Form 8-K to report an October 6, 1999 ruling by the Florida First District Court of Appeal regarding the ongoing drilling permit litigation between the State of Florida and the Company.
(c) Exhibits.
The following exhibits are filed as part of this report:
Item Number
2. Plan of acquisition, reorganization, arrangement, liquidation or succession.
Not applicable.
3. Articles of incorporation and By-Laws.
(a) Memorandum of Association as amended on June 30, 1982, May 14, 1985 and April 7, 1988 filed as Exhibit 3(a) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference.
(b) Bye-laws are incorporated by reference to Schedule 14(a) Proxy Statement filed on May 13, 1997.
4. Instruments defining the rights of security holders, including indentures.
Not applicable.
9. Voting trust agreement.
Not applicable.
10. Material contracts.
(a) Drilling Lease No. 224-A, as modified, between the Trustees of the Internal Improvement Fund of the State of Florida and Coastal Petroleum Company dated February 27, 1947 filed as Exhibit 10(a) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference.
(b) Drilling Lease No. 224-B, as modified, between the Trustees of the Internal Improvement Fund of the State of Florida and Coastal Petroleum Company dated February 27, 1947 filed as Exhibit 10(b) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference.
(c) Drilling Lease No. 248, as modified, between the Trustees of the Internal Improvement Fund of the State of Florida and Coastal Petroleum Company dated February 27, 1947 filed as Exhibit 10(c) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference.
(d) Memorandum of Settlement dated January 6, 1976 between Coastal Petroleum Company and the State of Florida filed as Exhibit 10(d) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference.
(e) Agreement between the Company and Coastal Petroleum dated December 3, 1991 filed as Exhibit 10(e) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference
(f) Agreement between Lykes Minerals Corp. and Coastal Caribbean and Coastal Petroleum dated October 16, 1992 filed as Exhibit 10(f) to Report on Form 10-K for the year ended December 31, 1998 is incorporated herein by reference.
(g) Stock Option Plan adopted March 7, 1995 filed as Exhibit 4A to form S-8 dated July 28, 1995 is incorporated herein by reference.
(h) The decision Coastal Petroleum Company v. Florida Wildlife Federation et. al. of the First District Court of Appeal dated October 6, 1999 (St. George Island permit application case), is incorporated by reference to Exhibit 99(a) to the Company's Current Report on Form 8-K filed on October 7, 1999.
11. Statement re: computation of per share earnings.
None.
12. Statement re: 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 accountant.
Not applicable.
18. Letter re: change in accounting principles.
Not applicable.
21. Subsidiaries of the registrant.
The Company has one subsidiary, Coastal Petroleum Company, a Florida corporation which is 59 1/4 % owned.
22. Published report regarding matters submitted to vote of security holders.
Not applicable.
23. Consent of experts and counsel.
Consent of Ernst & Young LLP is filed herein.
24. Power of attorney.
Not applicable.
27. Financial data schedule.
Filed herein (EDGAR filing only).
99. Additional exhibits.
Not applicable.
(d) Financial Statement Schedules.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COASTAL CARIBBEAN OILS & MINERALS, LTD. (Registrant)
By /s/ Benjamin W. Heath Benjamin W. Heath, President and Chief Executive Officer
Dated: March 1, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
By /s/ Benjamin W. Heath By /s/ James R. Joyce Benjamin W. Heath James R. Joyce President, Director and Chief Executive Treasurer and Chief Financial and Officer Accounting Officer
Dated: March 1, 2000 Dated: March 1, 2000 --------------------------------- ------------------------------
By /s/ Graham B. Collis By /s/ John D. Monroe Graham B. Collis John D. Monroe Director Director
Dated: March 1, 2000 Dated: March 1, 2000 --------------------------------- ------------------------------
By /s/ Phillip W. Ware By /s/ Nicholas B. Dill Phillip W. Ware Nicholas B. Dill Director Director
Dated: March 1, 2000 Dated: March 1, 2000 --------------------------------- ------------------------------
INDEX TO EXHIBITS
Exhibit No.
23. Consent of Ernst & Young LLP
27. Financial Data Schedule (EDGAR filing only)
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the Stock Option plan of Coastal Caribbean Oils & Minerals, Ltd. of our report dated January 14, 2000, with respect to the consolidated financial statements of Coastal Caribbean Oils & Minerals, Ltd. in this Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Stamford, Connecticut March 1, 2000