SecProbe.io

CORRESP
1
filename1.htm

WHITTIER ENERGY

WHITTIER ENERGY
CORPORATION

November
9, 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 October 7, 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. We understand and acknowledge that the Division of Enforcement
has access to the disclosures contained in this letter and any other
information we furnish to the staff of the Division of Corporation Finance in
connection with either your review of our filings or our responses to your
comments on our filings.

Risks of Oil and Gas
Activities, page 7

1.                                       We have reviewed your response to prior
comment number four.  Please provide us
with your proposed disclosure.

Response:

The
Company’s proposed modification to its disclosure of risks of oil and gas
activities is as follows:

Risks of Oil and Gas Activities

Estimates of Proved Oil and Gas Reserves. Proved reserves are estimated
reserves of crude oil and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment and operating methods.

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

Petroleum
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
depend upon a number of variable factors and assumptions, including:

•                                          historical
production from the area compared with production from other analogous
producing properties;

•                                          the
assumed effects of regulations by governmental agencies;

•                                          assumptions
concerning future oil and gas prices; and

•                                          assumptions
concerning future operating costs, severance and excise taxes, development
costs and workover and remedial costs.

Because
all reserve estimates are to some degree subjective, each of the following
items may differ materially from those assumed in estimating reserves:

•              the quantities of oil and gas that are ultimately recovered;

•              the timing of the recovery of oil and gas reserves;

•              the production and operating costs incurred; and

•              the amount and timing of future development expenditures.

Furthermore,
different reserve engineers may make different estimates of reserves and cash
flows based on the same available data. Actual production, revenues and
expenditures with respect to reserves will vary from estimates and the
variances may be material.

The
standardized measure of discounted future net cash flows included in this
document is computed by applying year-end prices of oil and gas (with
consideration of price changes only to the extent provided by contractual
arrangements) to the estimated future production of proved oil and gas
reserves, less estimated future expenditures (based on year-end costs) to be
incurred in developing and producing the proved reserves, less estimated future
income tax expenses. The estimated future net cash flows are then discounted
using a rate of 10% a year to reflect the estimated timing of the future cash
flows.

The
estimated discounted future net revenues included herein should not be
considered the market value of the reserves attributable to our properties.
While the estimated discounted future net revenues from proved reserves are
based on prices and costs as of the date of the estimate, actual future prices
and costs may be materially higher or lower. Actual future net revenues will
also be affected by factors such as:

•              the amount and timing of actual production;

•              supply and demand for oil and gas; and

•              changes in governmental regulations or taxation.

In
addition, the 10% discount factor used to calculate discounted future net
revenues for reporting purposes, is not necessarily the most appropriate
discount factor based on the cost of capital in effect from time to time and
risks associated with our business and the oil and gas industry in general.

2

Oil
and gas reserves, page 14

2.               We have reviewed your response to prior
comment number six.  Please provide us
with your proposed disclosure.

Response:

The
Company plans to revise its disclosure of the estimated net present value of estimated
future net revenues as follows:

  As of the Year Ended December 31,

  2004

  2003

  2002

  Total
  Proved Reserves:

  Oil (Bbls)

  1,734,985

  1,462,770

  1,568,404

  Gas (Mcf)

  5,559,030

  2,988,550

  1,406,188

  Total Barrel
  of Oil Equivalent (Boe)

  2,661,490

  1,960,862

  1,802,769

  Present value of estimated future net revenues
  after income taxes, discounted at 10% (in thousands)

  $

  24,851

  $

  15,133

  $

  12,362

  Total
  Proved Developed Reserves:

  Oil (Bbls)

  1,603,964

  1,462,770

  1,559,029

  Gas (Mcf)

  4,094,890

  2,676,060

  1,397,800

  Total Barrel
  of Oil Equivalent (Boe)

  2,286,446

  1,908,780

  1,791,996

Consolidated
Statements of Cash Flows, page F-7

3.                                       We have reviewed your response to prior
comment number seven.  Please clarify
whether or not the exploration costs that you have classified as a non-cash
reconciling item from net income to operating cash flows includes amounts that
were expensed as incurred.  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:

We
hereby confirm that the exploration costs classified as a non-cash reconciling
item from net income to operating cash flows did not include any amounts that
were expensed as incurred.

Note 1 – Summary of
Significant Account Policies

Principles of Consolidation
and Combination, page F-11

4.                                       We have received your response to prior
comment number eight.  Please tell us the
accounting literature that you relied on to base your conclusion to account for
your cost method investments at the lower of cost or market.

3

Response:

We have
accounted for our cost method investments in accordance with APB Opinion No.
18, The Equity Method of Accounting for Investments in
Common Stock. The Company records these investments at cost and
periodically assesses them for impairment. We will revise our disclosure to
state:

“Investment interests in partnerships less than 20%, where the Company
has limited liability and no significant influence over the investee, are
accounted for using the cost method, whereby the investment is recorded at cost
and the investment is periodically assessed for impairment. Cash distributions
are treated as return of capital and are only recognized in income when
cumulative distributions exceed the Company’s cost basis in the investment.”

Accounts
Receivable, page F-11

5.                                       We have reviewed your response to prior
comment number nine.  Please tell us the
accounting literature that you relied on to base your conclusion to carry your
accounts receivable at fair value.
Indicate whether or not the balance is remeasured to fair value at each
reporting date.

Response:

We record
and carry our account receivables at their initial fair value, (i.e. cost
basis), periodically assessing them for impairment. We do not re-measure our
receivables at each balance sheet date. We will revise our disclosure as
follows to avoid any future confusion:

“The Company carries its
accounts receivables at cost, recording allowances for doubtful accounts into earnings
when they are deemed to be uncollectible.”

Note
1. General, page 8

6.                                       We are currently continuing to consider your
response to prior comment number 21.

Response

We will
respond to your letter dated October 19, 2005 under separate cover.

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

7.                                       We have reviewed your response to prior
comment number 18.  Based on the
information provided, please provide us with an analysis of your accounting for
this transaction using fair value, based on the fair value of the consideration
exchanged, the public equity.  We may
have further comments.

4

Response:

Our analysis
of how the estimated purchase price of Whittier Energy Company’s reverse merger
with Olympic Resources Ltd. (the “Olympic Merger”) would have been reflected if
it was based upon Olympic’s average closing stock price when the terms of the Olympic
Merger were agreed to is as follows:

Olympic
purchase price allocation based on market capitalization

  Current assets:

  Cash

  $

  765,367

  Accounts receivable

  237,341

  Marketable securities

  71,720

  Oil and gas properties, net of excess
  purchase price impairment of $1,485,198

  996,510

  Total assets
  acquired

  2,070,938

  Current
  liabilities:

  Accounts payable

  (667,455

  )

  Deferred tax
  liability, oil and gas properties

  (130,984

  )

  Net purchase
  price allocation

  $

  1,272,499

However,
we believe the net asset value is appropriate in this circumstance after
considering the following from SFAS No. 141, paragraph 23:

“If the
quoted market price is not the fair value of the equity securities, either
preferred or common, the consideration received shall be estimated even though
measuring directly the fair values of net assets received is difficult. Both
the net assets received, including goodwill, and the extent of the adjustment
of the quoted market price of the shares issued shall be weighed to determine
the amount to be recorded. All aspects of the
acquisition, including the negotiations, shall be studied, and independent
appraisals may be used as an aid in determining the fair value of securities
issued [emphasis added].”

The
Company evaluated the following aspects of the Olympic Merger in reaching its
conclusion that the quoted market price of Olympic’s common stock did not represent
the fair value of the shares received by Whittier Energy’s stockholders in the
Olympic Merger. The two companies negotiated an 85/15 sharing ratio for Olympic’s
common stock based on the relative net asset values of each company’s assets.
Furthermore, Howard Frazier Barker Elliot, Inc. (“HFBE”), Olympic’s independent
financial advisor, did not consider Olympic’s quoted stock price to be relevant
to the transaction, stating in its report to Olympic’s board of directors the
following:

“given
the lack of trading volume in Olympic common shares, the market price of
Olympic common stock was not a reliable indicator of the value of Olympic and,
therefore, an analysis of the premiums paid on the Transaction would not be
meaningful.”

The
most compelling evidence that the quoted market price of Olympic did not
represent the fair value of the stock was the fair market value of Olympic’s net
assets at the time of the transaction. Olympic’s assets and liabilities
included cash, two rapidly declining

5

natural
gas properties in California, and short term accounts receivables and payables.
The valuation of Olympic’s gas properties was readily determinable at the time
of the merger using internal estimates of Olympic’s underlying reserves, a
third party reserve report and the independent fairness opinion prepared for
Olympic’s board. The Company’s estimated value of Olympic’s gas properties using
the net asset value method was approximately $996,000, including deferred taxes,
with a relatively short 2-3 year production life. This valuation has been corroborated
by the independent reserve evaluations prepared for the Company after the Olympic
Merger. Specifically, the estimated pre-tax SEC 10 value of Olympic’s gas
properties was approximately $865,000 and $370,000, respectively, as of
December 31, 2003 and December 31, 2004.

Utilizing
the quoted price of Olympic’s stock to determine the purchase price would
effectively result in approximately $1.5 million in excess purchase price. The acquisition of an oil and
gas company generally involves the allocation of the purchase price on a fair value
basis to the entity’s assets and liabilities, with the excess being allocated
to oil and gas properties. Olympic’s gas properties were proved developed
producing and they did not have any undeveloped acreage or other prospects. The
estimated net realizable value of Olympic’s underlying assets simply could not
support a purchase price based on market capitalization. Accordingly,
since there were no other assets acquired or basis to support goodwill, the
excess purchase price would be considered an impairment upon acquisition,
resulting in a net purchase price allocation equivalent to what was originally
recognized.

In our opinion,
this result can only be true if the quoted market price is not a reflection of
fair value. We are not making such a determination in hindsight, however, as we believed throughout
the merger negotiations that Olympic’s quoted market price was not
representative of the fair value of the common stock to be (and actually) received
in the Olympic Merger, a conclusion which was shared by HFBE.

8.                                       We have reviewed your response to prior
comment number 19.  Please provide us a
reconciliation that demonstrates how you determined the amounts, both in terms
of shares and dollars that you have reported in your statement of shareholders
equity for all periods prior to and as of the date of the transaction.

Response:

The
Company’s common stock outstanding in stockholders’ equity on or before
September 10, 2003 was based on the actual common stock outstanding immediately
after the Olympic Merger was consummated, including shares of Series A
Preferred stock issued to Whittier Energy’s stockholders that were convertible
into 600,000 shares of common stock. The balances for paid in capital, retained
earnings, and accumulated other comprehensive income (loss) presented for
periods prior to the Olympic Merger reflect the stand-alone activity for the
accounting acquirer, Whittier Energy Company. A reconciliation of the common
stock outstanding and paid in capital is as follows:

  Common

  Stock

  Olympic
  Resources Ltd’s common stock outstanding, September 9, 2003

  1,506,938

  Common stock
  issued to Whittier Energy Company stockholders

  8,539,358

  Total common
  stock outstanding as of September 10, 2003

  10,046,296

  Paid in

  Capital

  Paid in
  capital as of December 31, 2002, Whittier Energy Company

  $

  1,411,679

  Net purchase
  price paid for Olympic Resources Ltd

  $

  1,282,499

  Paid in
  capital as of December 31, 2003

  $

  2,694,178

6

If you have any further comments or
questions, please contact me at any time. My direct number is 713 850-1903.

Sincerely,

/s/ Michael B. Young

Michael B. Young

Chief Financial Officer

7