FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2005.
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission File Number: 0 - 7261
CHAPARRAL RESOURCES, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-0630863
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 Gannett Drive, Suite 418
White Plains, New York 10604
----------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (866) 559-3822
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES |_| NO |X|
As of May 11, 2005 the Registrant had 38,209,502 shares of its common
stock, par value $0.0001 per share, issued and outstanding.
CHAPARRAL RESOURCES, INC.
FORM 10-Q
MARCH 31, 2005
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item l. Financial Statements
--------------------
Consolidated Condensed Balance Sheets as of
March 31, 2005 and December 31, 2004 1
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 2005 and 2004 3
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2005 and 2004 4
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
-----------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
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Item 4. Controls and Procedures 18
-----------------------
PART II. OTHER INFORMATION
Item 6. Exhibits 19
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Signatures 20
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Part I - Financial Information
Item 1 - Financial Statements
Chaparral Resources, Inc.
Consolidated Condensed Balance Sheets
March 31, December 31
2005 2004
(Unaudited)
------------------------------
$000 $000
Assets
Current assets:
Cash and cash equivalents 10,469 9,611
Accounts receivable:
Oil sales receivable 297 316
VAT receivable 3,808 2,212
Other receivables from affiliates -- 1,002
Prepaid expenses 2,868 3,472
Crude oil inventory 400 36
------------------------------
Total current assets 17,842 16,649
Materials and supplies 5,115 5,238
Other 378 336
Property, plant and equipment:
Oil and gas properties, full cost 158,912 153,001
Other property, plant and equipment 11,031 10,974
------------------------------
169,943 163,975
Less - accumulated depreciation, depletion and amortization (67,706) (62,495)
------------------------------
Property, plant and equipment, net 102,237 101,480
------------------------------
Total assets 125,572 123,703
==============================
See accompanying notes.
1
Chaparral Resources, Inc.
Consolidated Condensed Balance Sheets (continued)
March 31, December 31,
2005 2004
(Unaudited)
---------------------------------
$000 $000
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 8,902 8,540
Advances received -- 387
Prepaid sales 5,570 6,590
Accrued liabilities:
Accrued compensation 246 241
Accrued interest payable 513 713
Other accrued liabilities 1,586 1,822
Current income tax liability 2,540 2,052
Current portion of loans payable 15,000 19,778
-----------------------------
Total current liabilities 34,357 40,123
Accrued production bonus 318 299
Loans payable 12,929 12,000
Deferred tax liability 3,201 3,258
Minority interest 14,921 12,099
Asset retirement obligation 1,320 1,232
Stockholders' equity:
Common stock - authorized, 100,000,000
shares of $0.0001 par value; issued and outstanding,
38,209,502 shares as of March 31, 2005 and
December 31, 2004 4 4
Capital in excess of par value 107,226 107,226
Preferred stock - 1,000,000 shares authorized, 925,000 shares
undesignated. Issued and outstanding - none -- --
Accumulated deficit (48,704) (52,538)
-----------------------------
Total stockholders' equity 58,526 54,692
-----------------------------
Total liabilities and stockholders' equity 125,572 123,703
=============================
See accompanying notes.
2
Chaparral Resources, Inc.
Consolidated Condensed Statements of Operations (Unaudited)
For the Three Months Ended
------------------------------------
March 31, March 31,
2005 2004
------------------------------------
$000 (except share data)
Revenue 24,327 15,609
Costs and expenses:
Transportation costs 3,487 3,153
Operating expenses 3,826 2,210
Marketing fee 122 --
Depreciation and depletion 5,018 4,386
Management fee 193 --
Advisory fee -- 75
Accretion expense 36 25
General and administrative 1,421 1,649
------------------------------------
Total costs and expenses 14,103 11,498
------------------------------------
Income from operations 10,224 4,111
Other income/(expense):
Interest income 86 45
Interest expense (1,226) (1,234)
Currency exchange gain/(loss) 8 (80)
Minority interest (2,822) (1,066)
------------------------------------
Income before income taxes 6,270 1,776
Income tax expense 2,436 1,142
------------------------------------
Net income available to common Stockholders 3,834 634
====================================
Basic earnings per share:
Net income per share $ 0.10 $ 0.02
Weighted average number of shares outstanding (basic) 38,209,502 38,209,502
Diluted earnings per share:
Net income per share $ 0.10 $ 0.02
Weighted average number of shares outstanding (diluted) 39,117,455 38,209,502
See accompanying notes.
3
Chaparral Resources, Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended
----------------------------
March 31, March 31,
2005 2004
---------------------------
$000 $000
Cash flows from operating activities
Net income 3,834 634
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 5,018 4,386
Deferred income taxes (57) 431
Accretion expense 36 25
Amortization of note discount 151 109
Currency exchange (gain)/loss (8) 80
Minority interest 2,822 1,066
Changes in assets and liabilities:
(Increase)/decrease in:
Accounts receivable (578) (325)
Prepaid expenses 606 (1,341)
Crude oil inventory (171) 112
Increase/(decrease) in:
Accounts payable and accrued liabilities 293 823
Accrued interest payable (200) 148
Other liabilities (1,000) 52
--------------------------
Net cash provided by operating activities 10,746 6,200
--------------------------
Cash flows from investing activities
Additions to property, plant and equipment (58) (1,100)
Capital expenditures on oil and gas properties (5,788) (4,546)
--------------------------
Net cash used by investing activities (5,846) (5,646)
--------------------------
4
Chaparral Resources, Inc.
Consolidated Condensed Statements of Cash Flows (Unaudited) (continued)
For the Three Months Ended
------------------------------
March 31, March 31,
2005 2004
-------------------------------
$000 $000
Cash flows from financing activities
Proceeds from loans 6,000 2,000
Payments on loans (10,000) --
Other long-term assets (42) --
------- -------
Net cash (used in)/provided by financing activities (4,042) 2,000
------- -------
Net increase in cash and cash equivalents 858 2,554
Cash and cash equivalents at beginning of period 9,611 2,639
------- -------
Cash and cash equivalents at end of period 10,469 5,193
======= =======
Supplemental cash flow disclosure
Interest paid 1,275 1,045
Income taxes paid 1,947 713
Supplemental schedule of non-cash investing and
financing activities
Non-cash additions to oil and gas properties 79 1,432
See accompanying notes.
5
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
1. General
Chaparral Resources, Inc. ("Chaparral") was incorporated in the state of
Colorado on January 13, 1972, principally to engage in the exploration,
development and production of oil and gas properties. Chaparral focuses
substantially all of its efforts on the development of the Karakuduk Field, an
oil field located in the Central Asian Republic of Kazakhstan. In 1999,
Chaparral reincorporated from Colorado to Delaware.
The consolidated financial statements include the accounts of Chaparral and its
greater than 50% owned subsidiaries, Closed Type JSC Karakudukmunay ("KKM"),
Central Asian Petroleum (Guernsey) Limited ("CAP-G"), Korporatsiya Mangistau
Terra International ("MTI"), Road Runner Services Company ("RRSC"), Chaparral
Acquisition Corporation ("CAC"), and Central Asian Petroleum, Inc. ("CAP-D").
Chaparral owns 80% of the common stock of CAP-G directly and 20% indirectly
through CAP-D. Hereinafter, Chaparral and its subsidiaries are collectively
referred to as the "Company." All significant inter-company transactions have
been eliminated.
As of March 31, 2005, Chaparral owns a 60% interest in KKM, a Kazakhstan Joint
Stock Company of Closed Type. KKM was formed to engage in the exploration,
development, and production of oil and gas properties in the Republic of
Kazakhstan. KKM's only significant investment is in the Karakuduk Field, an
onshore oil field in the Mangistau region of the Republic of Kazakhstan. On
August 30, 1995, KKM entered into an agreement with the Ministry of Oil and Gas
Industry for Exploration, Development and Production of Oil in the Karakuduk Oil
Field in the Mangistau Region of the Republic of Kazakhstan (the "Agreement").
KKM's rights and obligations regarding the exploration, development, and
production of underlying hydrocarbons in the Karakuduk Field are determined by
the Agreement.
KKM's rights to the Karakuduk Field may be terminated under certain conditions
specified in the Agreement. The term of the Agreement is 25 years commencing
from the date of KKM's registration. The Agreement can be extended to a date
agreed between the Ministry of Energy and Mineral Resources and KKM as long as
production of petroleum and/or gas is continued in the Karakuduk Field.
KKM is owned jointly by CAP-G (50%), MTI (10%) and Nelson Resources Limited
("Nelson") (40%). Nelson bought its 40% share in December 2004 from KazMunayGas
JSC ("KMG"), the national petroleum company of Kazakhstan, owned by the
government of the Republic of Kazakhstan. Since May 2004, Nelson has owned
approximately 60% of the outstanding common stock of Chaparral.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. Reference should be made to
the relevant notes to the Company's financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2004.
The unaudited information furnished herein was taken from the books and records
of the Company. However, such information reflects all adjustments which are, in
the opinion of management, normal recurring adjustments necessary for the fair
statement of the results for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for any future interim period or for the year.
Use of Estimates
Application of generally accepted accounting principles requires the use of
estimates, judgments and assumptions that affect the reported amounts of assets
and liabilities as of the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The determination of proved oil and gas reserve quantities and the
application of the full cost method of accounting for exploration and production
activities requires management to make numerous estimates and judgments.
6
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
2. Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS 151, Inventory Costs, an Amendment of APB
Opinion No. 43, Chapter 4. SFAS 151 clarifies the accounting treatment for
various inventory costs and overhead allocations and is effective for inventory
costs incurred after July 1, 2005. It is not expected to have a material impact
on the Company's financial statements when adopted.
In December 2004, the FASB issued SFAS 153, Exchanges of Non-monetary Assets, an
Amendment of APB Opinion No. 29. SFAS 153 specifies the criteria required to
record a non-monetary asset exchange using carryover basis and is effective for
non-monetary asset exchanges occurring after July 1, 2005. It is not expected to
have a material impact on the Company's financial statements when adopted.
In December 2004, the FASB issued SFAS 123 (revised 2004) ("SFAS 123R"), Share
Based Payments. SFAS 123R requires that the cost from all share-based payment
transactions, including stock options, be recognized in the financial statements
at fair value and is effective for public companies in the first interim period
after June 15, 2005. It is not expected to have a material impact on the
Company's financial statements.
3. Prepaid Expenses
The breakdown of Prepaid Expenses is as follows:
$000
-----------------------------
March 31, December 31,
Description 2005 2004
----------- ----------------------------
Prepaid transportation costs 746 1,151
Advanced payments for materials
and supplies 1,048 1,461
Prepaid insurance 619 568
Other prepaid expenses 455 292
----------------------------
Total prepaid expenses 2,868 3,472
============================
Prepaid transportation costs represent prepayments of export tariffs to CJSC
KazTransOil ("KTO"), a 100% subsidiary of KMG, necessary to sell oil on the
export market, which is expensed in the period the related oil revenue is
recognized. Advanced payments for materials and supplies represent prepayments
for general materials and supplies to be used in the development of the
Karakuduk Field.
4. Asset Retirement Obligation
FASB No. 143 requires entities to record the fair value of the liability for
asset retirement obligations (ARO) in the period in which the liability is
incurred, if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
Since 1995, the core business of the Company has been the development of the
Karakuduk Field. The Company has developed an asset that is capable of
producing, processing and transporting crude oil to export markets. The field
still requires up to possibly 80 new wells, but the oil processing and
transportation infrastructure, apart from the obligatory gathering lines and up
to four more gathering stations, are in place. However, further infrastructure
development is planned to increase profitability of the operation, utilize gas
and to maximise oil and produced fluid processing. The Company is legally
required under the Agreement to restore the field to its original condition.
7
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
4. Asset Retirement Obligation (continued)
The following table shows movements in the Company's asset retirement obligation
liability:
$000
------------------------
March 31, March 31,
2005 2004
---- ----
Asset retirement obligation at
beginning of period 1,232 804
Accretion expense 36 25
Additional provision for new wells 52 46
-------------------------
Asset retirement obligation at end of period 1,320 875
=========================
5. Change in Control
In May 2004, Nelson purchased from Central Asian Industrial Holdings, N.V.
("CAIH") 22,925,701 shares of Chaparral, representing 60% of Chaparral's issued
and outstanding common stock. As part of the transaction, a Stock Purchase
Warrant exercisable for 3,076,923 shares of the Company's common stock
originally issued to CAIH, and a promissory note of the Company payable to CAIH
(the "Note"), with a principal amount of $4 million (see Note 6), were
transferred by CAIH to Nelson. The total purchase price was $23.9 million.
6. Loans from Affiliates
The Note
--------
In May 2002, the Company received a total equity and debt capital infusion of
$45 million, which was partially utilized to repay a substantial portion of the
Company's loan agreement with Shell Capital, Inc. (the "Shell Capital Loan").
The Company received a total investment of $12 million from CAIH, including $8
million in exchange for 22,925,701 shares, or 60%, of the Company's outstanding
common stock, and $4 million in exchange for a three year note bearing interest
at 12% per annum (the "Note"). Along with the Note, CAIH received a warrant to
purchase 3,076,923 shares of the Company's common stock at $1.30 per share (the
"Warrant"). Additionally, Kazkommertsbank, an affiliate of CAIH, provided KKM
with a credit facility totaling $33 million (the "KKM Credit Facility"),
consisting of $28 million that was used to repay a portion of the Shell Capital
Loan and $5 million that was made available for KKM's working capital
requirements. The Company paid CAIH $1.79 million as a related restructuring
fee.
The Note was recorded net of a $2.47 million discount, based on the fair market
value of the Warrant issued in conjunction with the Note. The discount is
amortized using the effective interest rate over the original life of the Note.
The principal balance of the Note was originally due on May 10, 2005 and accrued
interest is payable quarterly. On March 24, 2005, Chaparral and CAP-G signed a
Promissory Note Amendment Agreement pursuant to which a $1million prepayment of
the Note was made on March 31, 2005 and the maturity of the remaining balance of
the Note was extended to May 10, 2006 (see further discussion below).
In June 2002, the Company prepaid $2 million of the $4 million outstanding
principal balance of the Note. As a result, the Company recognized an
extraordinary loss on the early extinguishment of debt of $1.22 million from the
write-off of 50% of the unamortized discount on the Note. The extraordinary loss
was netted against the extraordinary gain from the restructuring of the Shell
Capital Loan. In March 2004, the Company re-borrowed the $2 million.
In May 2004, the CAIH shares, the Warrant and the Note were purchased by Nelson.
On March 24, 2005, Chaparral and CAP-G signed a Promissory Note Amendment
Agreement with Nelson. This provided for a prepayment of $1 million of the $4
million due to be repaid to Nelson on May 10, 2005 under the existing $4 million
loan note and the replacement of the existing loan note with a new loan note for
$3 million on substantially similar terms, but with an increase in the interest
8
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
6. Loans from Affiliates (continued)
rate from 12% to 14% from May 10, 2005 and an extension of the maturity date of
one year to May 10, 2006. On March 31, 2005 the $1 million prepayment was made,
the existing loan note was cancelled and the new loan note was signed. See Item
2 paragraph 1, General Liquidity Considerations.
KKM Credit Facility
-------------------
As mentioned above, in May 2002, KKM established the KKM Credit Facility, a
five-year, $33 million credit line with Kazkommertsbank. The KKM Credit Facility
consisted of a $30 million non-revolving line and a $3 million revolving line,
both of which were fully borrowed by KKM in May 2002. The Company recognized
$0.90 million and $1.13 million of interest expense on the KKM Credit Facility
for the three months ended March 31, 2004 and 2005 respectively.
The non-revolving portion of the KKM Credit Facility accrues simple interest at
an annual rate of 14% and is repayable over a five-year period with final
maturity in May 2007. Accrued interest is payable quarterly, beginning in
December 2002, and KKM began making quarterly principal repayments in May 2003.
As of March 31, 2005, the Company had repaid $10 million in principal, with
another principal payment of $2 million scheduled for payment on November 6,
2004 being deferred, on agreement with Kazkommertsbank, to May 31, 2005.
The revolving portion of the KKM Credit Facility accrues simple interest at an
annual rate of 14%. The revolver is loaned to KKM for short-term periods up to
one year, but KKM has the right to re-borrow the funds through May 2006 with
final repayment due in May 2007. On December 30, 2003, Kazkommertsbank increased
the revolving portion of the KKM Credit Facility from $3 million to $5 million.
On the same date, KKM borrowed the additional $2 million to finance ongoing
operations. The additional $2 million accrues interest at 14%. As at March 31,
2005, there was an outstanding balance of $5 million on the revolving portion of
the loan, $3 million maturing on August 9, 2005 and $2 million maturing on
August 17, 2005. The revolving portion of the KKM Credit Facility is classified
as current as of March 31, 2005. Accrued interest on the revolving loan is
payable at maturity.
The original KKM Credit Facility included repayment terms of three years and
four years for the non-revolving and revolving portions, respectively, with an
option to extend the final maturity date for repayment of the entire KKM Credit
Facility to five years. KKM exercised the option as of May 2002.
KKM is subject to certain pledges, covenants, and other restrictions under the
KKM Credit Facility, including, but not limited to, the following:
(i) CAP-G pledged its 50% interest in KKM to Kazkommertsbank as collateral
for the KKM Credit Facility;
(ii) Chaparral has provided a written guarantee to Kazkommertsbank that it
will repay the KKM Credit Facility in the event KKM fails to do so;
(iii) KKM may not incur additional indebtedness or pledge its assets to
another party without the written consent of Kazkommertsbank; and
(iv) KKM may not pay dividends without the written consent of
Kazkommertsbank.
The KKM Credit Facility stipulates certain events of default, including, but not
limited to, KKM's inability to meet the terms of the KKM Credit Facility, KKM's
failure to meet its obligations to third parties in excess of $100,000, and
KKM's involvement in legal proceedings in excess of $100,000 where an adverse
judgment against KKM occurs or is expected to occur. If an event of default does
occur and is not waived by the lender, Kazkommertsbank has a right to call the
KKM Credit Facility immediately due and payable and exercise its security
interest by enforcing its collateral right on the Company's shares in KKM.
Furthermore, in the event of a material adverse change in the financial or
credit markets, Kazkommertsbank has a right to unilaterally alter any terms and
conditions of the KKM Credit Facility, including the rate of interest, by
written request. KKM may either agree to the amended terms or repay the
outstanding KKM Credit Facility within 10 days of notification.
9
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
6. Loans from Affiliates (continued)
The maturity schedule of the Company's indebtedness as of March 31, 2005 is as
follows:
Date Principal Amount Due
---- --------------------
$000
2005 13,000
2006 11,000
2007 4,000
------
Total principal due 28,000
======
Balances as of March 31, 2005 under the different facilities are as follows:
Principal Amount Due
--------------------
$000
KKM Credit Facility (non - revolving) 20,000
KKM Credit Facility (revolving) 5,000
The Note 3,000
------
Total principal due 28,000
======
The loans are shown in the balance sheet net of the loan discount, which
amounted to $71,000 at March 31, 2005 and $222,000 at December 31, 2004.
See Item 2 paragraph 1, General Liquidity Considerations, for details concerning
refininacing of the KKM Credit facility.
7. Income Taxes
Income tax expense as reported relates entirely to foreign income taxes provided
on the Company's operations within the Republic of Kazakhstan. KKM's principal
agreement with the government of the Republic of Kazakhstan for the exploration,
development and production of oil in the Karakuduk Field specifies the income
taxes and other taxes applicable to KKM, which is subject to the tax laws of the
Republic of Kazakhstan. The Company has used the best estimates available to
determine its current and deferred tax liabilities within Kazakhstan.
8. Capital Commitments
On December 31, 2004, the Company's contract with KazMunayGas-Drilling ("KMGD"),
an affiliate of KMG, for one development drilling rig currently operating in the
Karakuduk Field, expired. The same rig is now contracted through Oil and Gas
Drilling and Exploration of Kracow ("OGEC") for a one year term to December 31,
2005. The minimum payments under the drilling contract with OGEC for 2005 are
$4.50 million. The Company's other drilling and operations related contracts can
either be cancelled within 30 days or are on a call-off (as required) basis.
The Company has no other significant commitments other than those incurred
during the normal performance of the work program to develop the Karakuduk
Field.
10
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
9. Related Party Transactions
In August 2004, the Company approved a two-year agreement with Nelson to provide
corporate administrative services and financial advisory services (the "Service
Agreement") to support its business activities. The Service Agreement is
effective as of June 1, 2004 and can be terminated upon 30 days written notice
by either party. In consideration for these services Nelson will receive a fixed
monthly fee of $20,000 for administrative services and $25,000 for financial
advisory services (the "Management Fee"). As part of the Service Agreement,
Nelson is also required to provide personnel to cover Chaparral's executive and
managerial needs. The cost of executive and managerial personnel will be
allocated on the basis of the cost of personnel involved and on the percentage
of time actually spent by such personnel on matters related to Chaparral, as
mutually agreed by the parties from time to time. In addition, Nelson will use
its greater buying power to obtain more favorable rates for goods and services,
including insurance coverage, for Chaparral. These expenditures will be passed
to Chaparral at cost with a ten percent mark-up. For the three months to March
31, 2005, the Company has booked $193,000 for the Management Fee, the executive
and managerial cost, insurance coverage and the mark-up under the Service
Agreement.
In June 2004, KKM entered into a three year agency agreement with Nelson (the
"Marketing Agreement"), whereby Nelson becomes the duly authorized, exclusive
agent for the purpose of marketing crude oil, and is empowered to represent the
interests of KKM in relations with governmental authorities and commercial
organizations and also enter into contracts and agreements and any other
documents necessary for and related to the marketing of crude oil. The Marketing
Agreement is effective as of June 1, 2004 and can be terminated upon 90 days
written notice by either party. As consideration for the services provided under
the Marketing Agreement, KKM shall pay Nelson a fixed fee of $20,000 per month
and a variable fee of five US cents per barrel of total production in a
reporting calendar month, if the amount of supplies to the local market in that
month is more than 10% of the total amount of production, or eight US cents per
barrel of total production in a reporting calendar month, if the amount of
supplies to the local market in that month is less than 10% of the total amount
of production (the "Marketing Fee"). For the period ending March 31, 2005,
$122,000 was accrued under the Marketing Agreement.
In 2003, the Company approved a one-year agreement with OJSC Kazkommerts
Securities ("KKS"), an affiliate of Kazkommertsbank. The agreement was effective
as of January 7, 2003 and provided for KKS to assist the Company's senior
management with financial advisory and investment banking services. In
consideration for these services KKS received a monthly fee of $25,000 (the
"Advisory Fee"). The agreement with KKS was cancelled as of April 30, 2004.
Kazkommerts Policy, an affiliate of Kazkommertsbank, is the major insurer of KKM
oil and gas activities.
KKM has a contract to transport 100% of its oil sales through the pipeline owned
and operated by KTO, a wholly owned subsidiary of KMG, the 40% minority
shareholder in KKM until December 2004. The rates for transportation are in
accordance with those approved by the government of the Republic of Kazakhstan.
Currently, the use of the KTO pipeline system is the only viable method of
exporting KKM's production. As KTO notifies KKM of the export sales allocated to
KKM on a monthly basis, KTO controls transportation of export sales.
KKM makes a prepayment for crude transportation costs based upon the allocation
of export sales received from the Ministry of Energy and Mineral Resources of
the Republic of Kazakhstan. This prepayment includes pipeline costs charged by
the operators of the pipeline systems outside Kazakhstan and is dependent upon
the point of sale of KKM's exports. For the three months ended March 31, 2005,
KKM incurred $3.3 million for transportation costs with KTO. As of March 31,
2005, KKM had a prepayment balance of $0.7 million with KTO in respect of sales
to be made in April 2005. Comparably, for the three months ended March 31, 2004,
KKM incurred $3.1 million for transportation costs with KTO. As of December 31,
2004, KKM had a prepayment balance of $1.2 million with KTO in respect of sales
that were not completed until January 2005.
KTO charges KKM for associated costs of oil storage within their pipeline
system, sales commission, customs clearance fees in respect of export sales and
with water through the Volga Water pipeline. Amounts recognized for these
services during the three months ended March 31, 2005 and 2004 were $62,000 and
$92,000, respectively.
11
Chaparral Resources, Inc
Notes to Consolidated Condensed Financial Statements (Unaudited)
(continued)
9. Related Party Transactions (continued)
The total amounts of the transactions with the above related companies for the
three months ended March 31, 2005 and 2004 are as follows:
$000
--------------------
2005 2004
---- ----
Nelson 326 -
KKS - 75
Kazkommerts Policy 169 177
KTO 3,384 3,162
KMGD - 1,232
Accounts payable balance to affiliates as at March 31, 2005 and December 31,
2004 are as follows:
$000
----------------------
2005 2004
---- ----
Nelson 237 -
Kazkommerts Policy - 195
KTO - 8
KMGD - 371
----------------------
237 574
======================
The loans with Kazkommertsbank and Nelson are disclosed in Note 6.
10. Contingencies
Taxation
--------
The existing legislation with regard to taxation in the Republic of Kazakhstan
is constantly evolving as the Government manages the transition from a command
to a market economy. Tax and other laws applicable to the Company are not always
clearly written and their interpretation is often subject to the opinions of the
local or main State Tax Service. Instances of inconsistent opinions between
local, regional and national tax authorities are not unusual.
Basis of Accounting
-------------------
KKM maintains its statutory books and records in accordance with U.S. generally
accepted accounting principles and calculates taxable income or loss using the
existing Kazakh tax legislation in effect on August 30, 1995, the date the
Agreement was signed. The Company considers these accounting methods correct
under the terms of the Agreement. The Republic of Kazakhstan currently requires
companies to comply with Kazakh accounting regulations and to calculate tax
profits or losses in accordance with these regulations as well as the prevailing
tax law.
12
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
1. Liquidity and Capital Resources
General Liquidity Considerations
--------------------------------
Going Concern
-------------
Our financial statements have been presented on the basis that the Company is a
going concern, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Chaparral has a working capital
deficiency as of March 31, 2005. In addition, we have experienced limitations in
obtaining 100% export quota for the sale of our hydrocarbons. Previously these
conditions raised substantial doubt about our ability to continue as a going
concern. However, due to recently completed refinancing of the Company's debt
(see below), we now expect to be able to meet all expenditure and cash flow
requirements through the next twelve months.
Chaparral has been successful in 2004 in stabilizing the export sales/local
market deliveries ratio which had significantly improved from 2002 to 2003. For
the year ended December 31, 2004, Chaparral sold approximately 2,758,000 barrels
of its current year production, of which approximately 2,544,000 barrels, or 92%
(2003: 2,591,000 barrels, 96%), have been sold at world market prices and
214,000 barrels, or 8% (2003: 103,000 barrels, 4%), have been sold at domestic
market prices. During the first quarter of 2005, exports accounted for 94% of
total sales.
On March 24, 2005, KKM signed a $40 million Structured Crude Oil Pre-export
Credit Facility Agreement with BNP Paribas (Suisse) SA and others (the "BNP
Credit Facility"). Subject to meeting conditions precedent, funds from this
facility will be available for use to cover any short-term working capital
deficiencies and to pay down the loan with Kazkommertsbank. Amounts borrowed
under the BNP Credit Facility are repayable in 36 equal monthly installments
commencing between six and seven months after the signing date. In addition, on
March 24, 2005, Chaparral and CAP-G signed a Promissory Note Amendment Agreement
with Nelson (the "Amended Note"). This provided for a prepayment of $1 million
of the $4 million due to be repaid to Nelson on May 10, 2005 under the existing
$4 million loan note and the replacement of the existing loan note with a new
loan note for $3 million on substantially similar terms, but with an increase in
the interest rate from 12% to 14% from May 10, 2005 and an extension of the
maturity date of one year to May 10, 2006. On March 31, 2005 the $1 million
prepayment was made, the existing loan note was cancelled and the new loan note
was signed. The BNP Credit Facility and Amended Note significantly improve the
Company's financial position, enabling it to meet all its current financial
obligations and continue with field development.
Liquidity and Capital Resources
-------------------------------
We are presently engaged in the development of the Karakuduk Field, which
requires substantial cash expenditures for drilling, well completions,
workovers, oil storage and processing facilities, pipelines, gathering systems,
water injection facilities, plant and equipment (pumps, transformer sub-stations
etc.) and gas utilization. We have invested approximately $160 million in the
development of the Karakuduk Field and have drilled or re-completed 63
producing wells by March 31, 2005. Total capital expenditures for the first
quarter of 2005 were approximately $6 million. Capital expenditures are
estimated to be at least $100 million from 2005 through 2009, including the
drilling of approximately 70 more wells over this period. We anticipate 2005
capital expenditures of approximately $46 million.
We expect to finance the continued development of the Karakuduk Field primarily
through cash flows from the sale of crude oil. During the first quarter of 2005,
KKM sold approximately 679,000 barrels of crude oil for $24 million. As
mentioned above, KKM has recently secured $40 million of new funding with which
it intends to re-finance the loans provided by Kazkommertsbank. Current daily
oil production is in excess of 10,000 barrels per day.
During 2005, KKM expects to increase production by drilling new wells,
converting at least 15 more wells to artificial lift, converting three more
wells to water injection wells, adding four new water injection wells to the
injection fund and by continuing with hydraulic fracturing work in selected
wells. A sedimentological study was undertaken in 2004 which will also help in
identifying reservoir fairways that should result in more productive wells.
13
In addition, our short and long-term liquidity is impacted by local oil sales
obligations imposed on oil and gas producers within Kazakhstan to supply local
energy needs, and our ability to obtain export quota necessary to sell our crude
oil production on the international market. Under the terms of the Agreement, we
have a right to export, and receive export quota for, 100% of the production
from the Karakuduk Field. The domestic market does not permit world market
prices to be obtained, resulting in up to $18 lower cash flow per barrel.
Furthermore, the Government has not allocated sufficient export quota to allow
us to sell all of our available crude oil production on the world market. We are
taking steps to reduce our local market obligations and to obtain an export
quota that will enable us to sell all of our crude oil production on the export
market. The Company has determined that it is no longer in the best interests of
the Company to pursue arbitration proceedings in Switzerland for the breach of
the Agreement by the Government of Kazakhstan, instead we intend to seek an
amicable resolution of this matter. If the matter cannot be resolved in a
satisfactory manner, we have, however, reserved our right to commence formal
arbitration proceedings pursuant to our contractual arrangements with the
Government.
No assurances can be provided, however, that an amicable resolution will be
reached, or that if arbitration is instituted, it will be successful or that if
successful, Chaparral will be able to enforce the award in Kazakhstan, or that
we will be able to export 100% or a significant portion of production or that we
will be able to obtain additional cash flow from operations to meet working
capital requirements in the future.
During the first quarter of 2005 the Company continued with the development of
the Karakuduk Field. As of March 31, 2005 the total field well count had risen
to 69 compared to 66 on December 31, 2004. The producing well count at the field
as of March 31, 2005 was 50 wells compared to 45 at the end of 2004.
Production for the first quarter of 2005 was 779,500 barrels, equivalent to
8,661 barrels of oil per day ("bopd"), compared to 762,100 barrels, or 8,284
bopd, in the final quarter of 2004 and 7,760 bopd for the first quarter of 2004.
Competition for pipeline export quota meant that the Company received lower than
anticipated quota. The Company sold 84,000 tonnes to export markets (94% of
total sales) and 5,000 tonnes locally during the quarter, compared with 92,600
tonnes exported (97% of total sales) and 3,000 tonnes to the local market in the
fourth quarter of 2004.
Drilling activity continued in the first quarter. During winter the weather at
the field was far warmer and much wetter than is usual and this adversely
impacted all operations and field production. Drilling was also affected with
rig move times taking longer than normal. The Company also implemented a "closed
circulation system" as required by the Kazakh environmental authorities. This
means that waste drill cuttings and waste drilling fluids are no longer
discharged into lined pits at the drilling locations that are buried following
completion of the well. The waste material is now collected and taken to a
specially prepared pit near the field camp. Essential maintenance and a failure
of the drawworks bearings of the rig also impacted on drilling. The result was
that for the first quarter of 2005, the Company drilled only 8,624m for 2.8
wells. This compares to 12,701m for 4.1 wells in the last quarter of 2004 and
11,618m for 3.5 wells in the first quarter of 2004.
During April, production from the field rose to an average of 9,718 bopd as a
result of the successful completion of well 149 and the effects of the programme
to convert more wells to artificial lift. The Company also commissioned the
first phase of its gas utilization programme for the Karakuduk Field. The
pipeline linking the central processing facility to the pipeline booster pump
station at km 15 was commissioned on April 7, 2005. Oil heaters at this station
are now gas-fired, and this will result in significant cost savings for the
Company.
The Company will continue with the development of the Karakuduk Field throughout
the remainder of 2005. One drilling rig and two workover rigs will operate at
the field. The Company forecasts that up to 16 wells will be drilled, including
two horizontal wells, the first such wells to be drilled at Karakuduk. Phase 2
of the gas utilization project will commence which includes the extension of the
gas pipeline from km 15 to the Transfer Pumping Station where the gas can be
sold into the Central Asian Transit System gas pipeline. The company will
continue to investigate the use of field gas to generate electricity. The
Company will also continue with its water injection programme, and further
hydraulic fracturing of wells is also planned.
We expect KKM's production to reach a level of between 12,000 to 13,000 bopd by
the end of the year.
14
Capital Commitments and Other Contingencies
-------------------------------------------
On December 31, 2004, the Company's contract with KMGD, an affiliate of KMG, for
one development drilling rig currently operating in the Karakuduk Field,
expired. The same rig is now contracted through Oil and Gas Drilling and
Exploration of Kracow ("OGEC") for a one year term to December 31, 2005. The
minimum payments under the drilling contract with OGEC for 2005 are $4.50
million. The Company's other drilling and operations related contracts can
either be cancelled within 30 days or are on a call-off (as required) basis.
The Company has no other significant commitments other than those incurred
during the normal performance of the work program to develop the Karakuduk
Field.
Our operations may be subject to other regulations by the government of the
Republic of Kazakhstan or other regulatory bodies responsible for the area in
which the Karakuduk Field is located. In addition to taxation, customs
declarations and environmental controls, regulations may govern such things as
drilling permits and production rates. Drilling permits could become difficult
to obtain or prohibitively expensive. Production rates could be set so low that
they would make production unprofitable. These regulations may substantially
increase the costs of doing business and may prevent or delay the starting or
continuation of any given exploration or development project.
All regulations are subject to future changes by legislative and administrative
action and by judicial decisions. Such changes could adversely affect the
petroleum industry in general and us in particular. It is impossible to predict
the effect that any current or future proposals or changes in existing laws or
regulations may have on our operations.
2. Results of Operations
Results of Operations for the Three Months Ended March 31, 2005 Compared to the
Three Months Ended March 31, 2004
--------------------------------------------------------------------------------
Our operations for the three months ended March 31, 2005 resulted in a net
income of $3.83 million compared to a net income of $0.63 million for the three
months ended March 31, 2004. The $3.20 million increase in our net income is
primarily a result of higher crude prices.
Revenues. Revenues were $24.33 million for the first quarter of 2005 compared
with $15.61 million for the first quarter of 2004. The $8.72 million increase is
the result of higher crude prices achieved during the first quarter of 2005 as
compared to the same period of 2004, partially offset by lower sales volumes.
During the first quarter of 2005, we sold approximately 679,000 barrels of crude
oil, recognizing $24.33 million in revenue, or $35.82 per barrel after quality
differential losses. Comparably, we sold approximately 721,000 barrels of crude
oil, recognizing $15.61 million in revenue, or $21.65 per barrel, for the first
quarter of 2004. The result is a positive price variance of $10.22 million
offset by an unfavorable volume variance of $1.50 million.
Transportation and Operating Expenses. Transportation costs for the first
quarter of 2005 were $3.49 million, or $5.14 per barrel, and operating costs
associated with sales were $3.83 million, or $5.63 per barrel. Comparatively,
transportation costs for the first quarter of 2004 were $3.15 million, or $4.37
per barrel, and operating costs associated with sales were $2.21 million, or
$3.07 per barrel. The increase in transportation cost per barrel during the
first quarter of 2005 is the result of higher tariffs imposed on the Company.
The main reason for the increase in operating cost per barrel is changes in cost
allocation procedures resulting in a lower percentage of field expenditures
being capitalized.
Depreciation and Depletion. Depreciation and depletion expense was $5.02 million
for the first quarter of 2005 compared with $4.39 million for the first quarter
of 2004. The $0.63 million increase is the result of a higher effective
depletion rate due to a proportionately higher increase in future capital costs
associated with increased reserves. During the first quarter of 2005, the
Company recognized a total depletion expense of $4.83 million or $7.11 per
barrel, compared to $4.22 million or $5.86 per barrel for the first quarter of
2004.
15
Estimates of our proved oil and gas reserves are prepared by an independent
engineering company in accordance with guidelines established by the Securities
and Exchange Commission ("SEC"). Those guidelines require that reserve estimates
be prepared under existing economic and operating conditions with no provisions
for increases in commodity prices, except by contractual arrangement. Estimation
of oil and gas reserve quantities is inherently difficult and is subject to
numerous uncertainties. Such uncertainties include the projection of future
rates of production, export allocation, and the timing of development
expenditures. The accuracy of the estimates depends on the quality of available
geological and geophysical data and requires interpretation and judgment.
Estimates may be revised either upward or downward by results of future
drilling, testing or production. In addition, estimates of volumes considered to
be commercially recoverable fluctuate with changes in commodity prices and
operating costs. Our estimates of reserves are expected to change as additional
information becomes available. A material change in the estimated volumes of
reserves could have an impact on the depletion rate calculation and the
financial statements.
Interest Expense. Interest expense was $1.23 million for the first quarter of
both 2005 and 2004. Although interest charges under the KKM Credit Facility were
$0.23 million lower due to reduction in principal outstanding, interest on the
Note was $0.06 million higher as $4 million was outstanding during the first
quarter of 2005 compared to $2 million for most of the first quarter of 2004,
and there was no interest capitalized in 2005, compared to $0.18 million
capitalized for the first three months of 2004.
General and Administrative Expense. General and administrative costs decreased
from $1.65 million for the three months ended March 31, 2004 to $1.42 million
for the three months ended March 31, 2005. The decrease of $0.23 million is the
result of reductions in expatriate staff numbers, no office leasing expenses and
lower salaries and wages.
Income Tax Expense. Income tax expense increased from $1.14 million for the
three months ended March 31, 2004 to $2.44 million for the three months ended
March 31, 2005, representing 65% and 39% respectively of pre-tax income. The tax
charge has increased as income has increased. The effective tax rate has
decreased largely because Chaparral parent company administrative costs, which
are not deductible against KKM's Kazakh taxable income, are smaller relative to
pre-tax income as KKM's profits rise.
3. Commodity Prices for Oil and Gas
Our revenues, profitability, growth and value are highly dependent upon the
price of oil. Market conditions make it difficult to estimate prices of oil or
the impact of inflation on such prices. Oil prices have been volatile, and it is
likely they will continue to fluctuate in the future. Various factors beyond our
control affect prices for oil, including supplies of oil available worldwide and
in Kazakhstan, the ability of OPEC to agree to maintain oil prices and
production controls, political instability or armed conflict in Kazakhstan or
other oil producing regions, the price of foreign imports, the level of consumer
demand, the price and availability of alternative fuels, the availability of
transportation routes and pipeline capacity, and changes in applicable laws and
regulations.
4. Inflation and Exchange Rates
We cannot control prices received from our oil sales and to the extent we are
unable to pass on increases in operating costs, we may be affected by inflation.
The devaluation of the Tenge, the currency of the Republic of Kazakhstan, can
significantly decrease the value of the monetary assets that we hold in
Kazakhstan as well as our assets in that country that are based on the Tenge.
KKM retains the majority of its cash and cash equivalents in U.S. dollars, but
KKM's statutory tax basis in its assets, tax loss carry-forwards, and VAT
receivables are all denominated in Tenge and subject to the effects of
devaluation. Local tax laws allow basis adjustments to offset the impact of
inflation on statutory tax basis assets, but there is no assurance that any
adjustments will be sufficient to offset the effects of inflation in whole or in
part. If not, KKM may be subject to much higher income tax liabilities within
Kazakhstan due to inflation or devaluation of the local currency. Additionally,
devaluation may create uncertainty with respect to the future business climate
in Kazakhstan and to our investment in that country. As of March 31, 2005, the
exchange rate was 132.59 Tenge per U.S. dollar compared to 130.00 as of December
31, 2004.
16
5. Critical Accounting Policies
The preparation of the Company's consolidated financial statements requires
management to make estimates, assumptions and judgments that affect the
Company's assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities. Management bases these estimates and
assumptions on historical data and trends, current fact patterns, expectations
and other sources of information it believes are reasonable. Actual results may
differ from these estimates under different conditions. For a full description
of the Company's critical accounting policies, see Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's 2004 Annual Report on Form 10-K.
6. Special Note Regarding Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements." Forward-looking statements relate to future events
or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "estimates," "believes," "predicts," "potential," "likely,"
or "continue," or by the negative of such terms or comparable terminology.
Forward-looking statements are predictions based on current expectations that
involve a number of risks and uncertainties. Actual events may differ
materially. In evaluating forward-looking statements, you should consider
various factors, including the risks discussed above. These factors may cause
our actual results to differ materially from any forward-looking statement.
Although we believe that these statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements, and you are
encouraged to exercise caution in considering such forward-looking statements.
Unless otherwise required by law, we are not under any duty to update any of the
forward-looking statements after the date of this Quarterly Report on Form 10-Q
to conform these statements to actual results.
Item 3 - Quantitative and Qualitative Disclosures About Market Risks
Foreign Currency
The functional currency is the U.S. dollar. All transactions arising in
currencies other than U.S. dollars, including assets, liabilities, revenue,
expenses, gains, or losses are measured and recorded in U.S. dollars using the
exchange rate in effect on the date of the transaction.
Cash and other monetary assets held and liabilities denominated in currencies
other than U.S. dollars are translated at exchange rates prevailing as of the
balance sheet date (132.59 and 130.00 Tenge per U.S. dollar as of March 31, 2005
and December 31, 2004, respectively). Non-monetary assets and liabilities
denominated in currencies other than U.S. dollars have been translated at the
estimated historical exchange rate prevailing on the date of the transaction.
Exchange gains and losses arising from translation of non-U.S. dollar amounts at
the balance sheet date are recognized as an increase or decrease in income for
the period. See Item 2 section 4 for discussion on inflation and exchange rate
risks.
The Tenge is not a convertible currency outside of the Republic of Kazakhstan.
The translation of Tenge denominated assets and liabilities in these financial
statements does not indicate Chaparral could realize or settle these assets and
liabilities in U.S. dollars.
Commodity Prices for Oil
Our revenues, profitability, growth and value are highly dependent upon the
price of oil. Market conditions make it difficult to estimate prices of oil or
the impact of inflation on such prices. Oil prices have been volatile, and it is
likely they will continue to fluctuate in the future. Various factors beyond our
control affect prices for oil, including supplies of oil available worldwide and
in Kazakhstan, the ability of OPEC to agree to maintain oil prices and
production controls, political instability or armed conflict in Kazakhstan or
other oil producing regions, the price of foreign imports, the level of consumer
demand, the price and availability of alternative fuels, the availability of
transportation routes and pipeline capacity, and changes in applicable laws and
regulations.
17
In addition, under the terms of our Agreement with the government of the
Republic of Kazakhstan, the Company has the right to export, and receive export
quota for, 100% of the production from the Karakuduk Field. However, oil
producers within Kazakhstan are required to supply a portion of their crude oil
production to the local market to meet domestic energy needs. Local market oil
prices are significantly lower than prices obtainable on the export market. For
the three months ended March 31, 2005, the Company sold 36,000 barrels of crude
oil, or 6% of its total oil sales, to the local market, compared to 96,000
barrels, or 13%, during the three months ended March 31, 2004. Local market
prices obtained by the Company are up to $18 per barrel below export market
prices, net of transportation costs. We have attempted, in accordance with our
Agreement, to effect the 100% export of all hydrocarbons produced from the
Karakuduk Field, through discussions with the government of the Republic of
Kazakhstan. We plan to continue to work with the government to increase our
export quota and minimize or eliminate future local sales requirements. In
addition, we entered into an agency agreement with Nelson to assist in reducing
our local market obligation (see Note 9 to the interim financial statements
presented in Item 1). However, no assurances can be provided that we will be
able to export a higher portion of our production and that our cash flow from
operations will be sufficient to meet working capital requirements in the
future.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in the periodic reports we
file with the SEC is recorded, processed, summarized and reported within the
time periods specified in the rules of the SEC. The Company carried out an
evaluation as of March 31, 2005, under the supervision and the participation of
our management, including our chief executive officer and chief financial
officer, of the design and operation of these disclosure controls and procedures
pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934. Based upon that evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC filings.
Changes in Internal Controls over Financial Reporting
There have been no significant changes in internal controls over financial
reporting or other factors subsequent to December 31, 2004.
18
Part II- Other Information
Item 6 - Exhibits
*31.1 CEO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*31.2 CFO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
*32.1 CEO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*32.2 CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed herewith.
19
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 11, 2005
Chaparral Resources, Inc.
By: /s/ Simon Gill
--------------------------------------------
Simon Gill
Chief Executive Officer
By: /s/ Nigel Penney
--------------------------------------------
Nigel Penney
VP Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
20