SecProbe.io

CORRESP
1
filename1.htm

WHITTIER ENERGY

WHITTIER ENERGY
CORPORATION

September 12, 2005

H. Roger Schwall

Assistant Director

United States Securities and
Exchange Commission

100 F Street NE

Washington, DC  20549-7010

  Re:

  Whittier
  Energy Corporation

  Forms SB-2

  Filed August
  9, 2005

  File Nos.
  333-127321 and 333-127320

  Form 10K-KSB
  for Fiscal Year Ended December 31, 2004

  Filed March
  31, 2005

  Form 10QSB
  for Fiscal Quarter Ended June 30, 2005

  Filed August
  15, 2005

  File No.
  0-30314

Dear Mr. Schwall:

Thank you for
the comments included in your letter dated August 31, 2005.  On behalf of Whittier Energy Corporation (the
“Company”), I have reproduced each of your comments below, and have included
specific responses following each comment.

Form SB-2

1.                                       Please
update the financial statements reported in your registration statement.

Response:

                                                We plan to update both registration statements on Form SB-2 to reflect
the Company’s financial statements for the quarter ended June 30, 2005.
Additionally, we plan to restate the Company’s financial statements for the
years ended December 31, 2004 and December 31, 2003 included in such
registration statements to reflect the Company’s conversion to the full cost
method of accounting for its oil and gas properties.

333 Clay• Suite 1100 • Houston, Texas 77002 • (713) 850-1880 • Fax (713) 850-1879

Exhibits

2.                                       Please
provide a signed consent from the independent accountants in your Exhibit 23.2.

Response:

We will update Exhibit 23.2 on both registration statements on Form
SB-2 to reflect the signature of RIMCO Production Company’s former independent
accounts, KPMG LLP.

3.                                       Please
provide a currently dated consent from the independent accountants in your
amendment.

Response:

We will include updated consents from the independent accountants in
both registration statements filed on Form SB-2 as Exhibits 23.1, 23.2, and
23.3.

Form 10-KSB for the year Ended December 31, 2004

Risks of Oil and Gas Activities, page 7

4.                                       Please
expand your disclosure to compare and contrast your discussion of discounted
future revenues to the information and measures disclosed in your supplemental
disclosures about oil and gas producing activities beginning on page F-32.

Response:

The Company requests that it modify its disclosure of “Risks of Oil and
Gas Activities” in its Form 10-KSB on a prospective basis to more clearly
reflect the information and measurements required under SFAS No. 69, “Disclosures
About Oil and Gas Producing Activities.” Specifically, we will include the SFAS
69 definition of proved reserves and discuss the related standardized measure
of discounted future net cash flows, calculated by applying year-end prices of
oil and gas to estimates of future production of proved oil and gas reserves,
less estimated future expenditures based on year-end costs.

2

5.                                       Please
remove your statements regarding SEC requirements.

Response:

The Company requests that it may remove the references to SEC
requirements in its disclosure of “Risks of Oil and Gas Activities,” on Form
10-KSB on a prospective basis and make any conforming changes for similar
disclosure presented in the Company’s registration statements presented on Form
SB-2 upon submission of the amendment to such registration statements.

Oil and gas reserves, page 14

6.                                       We
note your disclosure of the present value of estimated future net revenues
before income taxes.  Please reconcile
this disclosure to the information and measures disclosed in your supplemental
disclosures about oil and gas producing activities beginning on page F-32 and
include all disclosure required by Item 10(h) of Regulation S-B.

Response:

The Company requests that it modify its disclosure of net present value
of estimated future net revenues in both registrations statements filed on Form
SB-2 and prospectively on Form 10-KSB to reflect after tax amounts as disclosed
in the Company’s supplemental disclosures about its oil and gas producing
activities. In the event estimated future net revenues are presented on a prospective
basis, a reconciliation to after tax net revenues will also be provided as well
as the disclosures required by Item 10(h) of Regulation S-B.

Financial statements

Consolidated Statements of Cash Flows, page F-7

7.                                       Please
clarify the nature of the exploration costs that you have classified as a
non-cash reconciling item from net income to operating cash flows.  Refer to Item II.F.8(b) at the Division of Corporation Finance’s: Frequently Requested Accounting and
Financial Reporting Interpretations and Guidance which can be
located at our website at:

http://www.sec.gov/divisions/corpfin/guidance/cfactfaq.htm.

Response:

The Company’s  exploration
costs added back to net income to determine operating cash flows consist of
drilling costs, which were initially

3

capitalized and then charged to exploration expense when the Company
determined the wells were non-productive and which would not have been expensed
otherwise. Geological and geophysical costs included in exploration expense on
the Company’s income statement were included as a reduction of the Company’s
net cash provided from operating activities.

Note 1 – Summary of Significant Accounting Policies

Principles of Consolidation and Combination, page F-11

8.                                       Please
explain why you record your cost method investments at the lower of cost or
market.

Response:

The Company records its investments as a limited partner in certain
limited partnerships at the lower of cost or market due to the Company’s minor
ownership interest in each limited partnership. Furthermore, the Company has no
ownership rights, obligations, or any other means to influence the management
of these investments or influence the general partners’ determination of each
limited partnership’s operating and financial policies.

Accounts Receivable, page F-11

9.                                       Please
explain why you carry your accounts receivable at fair value.

Response:

The Company’s accounts receivable primarily consists of short-term
trade receivables generated in the normal course of business from the sale of
the Company’s oil and gas production or from third party billings of
reimbursable costs incurred relating to the Company’s oil and gas exploration
and development activities. The Company does assess its outstanding receivables
periodically for impairment, recording an allowance for doubtful accounts to
earnings at the time they are deemed uncollectible.

4

Oil and Gas Property and Equipment (Successful Efforts)

10.                                 Expand
your disclosure to separately address your accounting policy for the
amortization of acquisition costs apart from development costs.  Refer to paragraphs 30 and 35 of SFAS 19.

Response:

We believe this question is no longer applicable given the Company’s
conversion to the full cost method of accounting. The Company intends to
restate its financial statements for the years ended December 31, 2004 and
December 31, 2003, to be included in amendments to both registration statements
on Form SB-2. Under the successful efforts method of accounting, however, the
Company amortized acquisition costs for a given property using the
units-of-production method over the total proved reserves assigned to the
property. Development costs were amortized using the units-of-production method
over total proved developed reserves for the applicable property.

11.                                 Compare
and contrast your oil and gas property impairment policy to the requirements of
SFAS 144.  Additionally clarify what is
the lowest level of identifiable cash flows that you use to evaluate and
measure your assets for impairment.

Response:

Under the full cost method of accounting, the Company now determines a
potential impairment of its oil and gas properties using the full cost “ceiling
test” as stipulated under SEC Regulation S-X Rule 4-10. Consequently, we
believe this question is no longer applicable.

Under the successful efforts method of accounting, net capitalized
costs of the Company’s proved properties were assessed for impairment on a
periodic basis (at least annually) utilizing net cash flows on a field level. If
the net book value of an oil and gas property was in excess of its estimated
future undiscounted net cash flows, then an impairment would be recognized
equal to the difference between the property’s book value and estimated fair
value. The Company has not recognized an impairment of any of its proved oil
and gas properties through the date of this filing due to several factors. The
Company had a very low cost basis in the proved oil and gas properties
originally contributed to the corporation upon its formation in 1991.
Additionally, the Company has grown primarily through producing property
acquisitions from March 2002 through June 2005, a period of consistently
appreciating commodity prices.

5

12.                                 Clarify,
if true, that your reference to amortized capital costs refers to unproved
properties.  Please expand your
disclosure to separately address your accounting policy for the evaluation and
measurement of unproved property impairment apart from proved properties.  Refer to paragraph 28 of SFAS 19.

Response:

The Company’s reference to unamortized capital costs in Note 1 to its
consolidated financial statements refers to the Company’s proved oil and gas
properties. Under the successful efforts method of accounting, the Company
assessed its proved and unproved properties for impairment on at least an
annual basis. The Company would recognize impairment expense for capitalized
costs on unproved properties at the time the underlying leases were
surrendered, abandoned or otherwise deemed worthless due to material events
such as a dry hole being drilled on or adjacent to the property, etc. Net
capitalized costs of proved properties were assessed for impairment in
accordance with SFAS 144, which is discussed in the Company’s response to
Question #11 above.

Under the full cost method, the Company’s capitalized costs associated
with the acquisition, exploration, and development of proved reserves are
included in the full cost pool subject to amortization. Capitalized costs
associated with unproved properties are excluded from the amortizable base
until it is determined whether or not proved reserves can be assigned to the properties.
The Company assesses its unproved properties for reclassification into the amortizable
base on at least an annual basis, considering such factors as drilling results
on or adjacent to the property, surrendered and expired leases, etc. At the
time such a determination is made, the evaluated unproved costs are transferred
into the cost pool subject to amortization.

13.                                 Please
expand your disclosure to clarify your accounting policy for proved and
unproved property sales.  Specifically
address paragraphs 40 through 47 of SFAS 19 in your response.

Response:

We believe this question is no longer applicable given the Company’s
conversion to the full cost method of accounting, which requires all proceeds
from the sale of oil and gas properties to be offset against the Company’s
capitalized costs in its full cost pool.

6

Under the successful efforts method of accounting, the Company
recognized gain or loss on the sale of proved and unproved properties equal to
the proceeds received net of the remaining book basis in the property, in cases
where the entire property interest (i.e. field) was disposed of for cash
consideration. The Company did not recognize gains or losses on the exchange of
oil and gas property interests for other mineral interests or on the partial
disposition of oil and gas properties held by the Company (i.e. promoted
interests, farmouts, joint ventures, etc.).

Management of
Commodity Price Risk, page F-13

14.                                 Please
revise your disclosure to clarify, if true, that you adopted SFAS 133.

Response:

The Company will revise its disclosure in its financial statements
included in both amended registration statements on Form SB-2 and in all
prospective filings to clearly state the Company has adopted SFAS 133.

Note 4 – Oil
and gas Properties, Equipment and Fixtures, page F-19

15.                                 We
note that you have reported an asset retirement obligation as a separate line
item in your disclosure of oil and gas properties.  Please report this amount as a component of
the specific asset category in your oil and gas properties to which it relates.

Response:

As requested,  the Company
will revise its disclosure in its financial statements included in both amended
registration statements on Form SB-2 and will reflect the change on a
prospective basis in all other future filings of its financial statements.

16.                                 Clarify
the nature of your exploratory drilling projects and how you account for
them.  Specifically address paragraph 19
of SFAS 19 and FSP 19-1 in your response.

Response:

Given the Company’s conversion to the full cost method of accounting,
we believe this question is no longer applicable. However, under the successful
efforts method of accounting, the Company capitalized the cost of exploratory
wells pending determination of whether the wells had found proved reserves. If
so, the capitalized costs were reclassified as proved property costs subject to
amortization. If the well was determined to be

7

non-productive, the capital costs were charged to earnings at the time
the determination was made. The Company’s unproved oil and gas property costs
of $1.95 million as of December 31, 2004 consisted of three projects:

1) $1.7 million in undeveloped leasehold costs in a South Texas field
acquired by the Company in June 2004 and 2) approximately $250,000 in
capitalized costs relating to two non-operated onshore exploration projects,
one of which has not been drilled and the other which was drilled and
completed, but ongoing work was being performed and planned to further evaluate
the well as of December 31, 2004.

Note 6 – Notes
Payable

Convertible
Subordinated Note, page F-22

17.                                 Indicate
whether or not the conversion price was equal to or greater than market at the
time of issuance.  Specifically address
EITF 98-5 in your response.

Response:

The conversion price of the Company’s subordinated convertible note on
the date of grant was $2 per share of common stock, which was in excess of the
Company’s $1.80 closing stock price on the date of issuance. Therefore, the
note was not deemed to have a beneficial conversion feature as defined in EITF
98-5. Please note that the referenced conversion and closing stock prices above
do not reflect the Company’s one-for-three reverse stock split on July 1, 2005.

Note 13 –
Merger of WEC Acquisition, Inc. and Whittier energy Company, page F-30

18.                                 Please
explain why it was appropriate to value the purchase price of the transaction
using the net asset value method.

Response:

In the reverse merger of Whittier Energy Company into Olympic Resources
Ltd., Whittier Energy was the acquiring company for accounting purposes. The
stockholders of Whittier Energy Company transferred their privately held shares
of common stock in Whittier Energy in exchange for an 85% controlling interest
in the combined entity. Under SFAS 141, the costs of a business acquired in
exchange for non-marketable common equity securities of the acquiring entity
may be esti