CALGARY, May 14 /CNW/ - Bankers Petroleum Ltd. ("Bankers" or the "Company") (TSX: BNK, AIM: BNK) is pleased to provide its first quarter 2009 Financial and Operational Results.
During the retrenchment in commodity prices that persisted during the first quarter of 2009, Bankers continued its initiative of capital reduction by suspending its drilling program and reducing the number of operating service rigs from seven to four. The active producing well count was also reduced from 213 at the end of 2008 to 184 on March 31, 2009 by shutting down low productivity wells. Consequently, average production was 5,864 bopd during the quarter as compared to 6,561 during the preceding quarter and 5,218 bopd for the same period in 2008. Current production exceeds 6,200 bopd.
The reduction in capital expenditures and the cost cutting measures implemented during the last quarter of 2008 and the first quarter of 2009 succeeded in providing the Company with positive netbacks and the ability to endure during a difficult economic period with minimal balance sheet risk.
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Q1 - 2009 Q4 - 2008 Q1 - 2008
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Capital Expenditures ($000) 2,835 22,011 13,764
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Brent Oil Price $/bbl 44.40 54.91 96.90
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Patos Marinza Oil Price$/bbl 24.73 29.63 51.96
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Operating Costs $/bbl 10.44 13.54 12.02
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Transportation $/bbl 2.70 3.63 3.50
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Royalties $/bbl 6.61 6.69 9.05
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Netback $/bbl 4.98 5.77 27.39
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Some of the other highlights for the quarter ended March 31, 2009 are:
- Revenue from the first quarter was $13.1 million compared to $24.7
million for the same period in 2008.
- Net operating income (netbacks) for the three months ended March
31, 2009 was $2.6 million ($4.98/bbl) and $13.0 million
($27.39/bbl) for the first quarter in 2008. With reduced netbacks
during the first quarter of 2009, cash used in continuing
operations was $1.0 million as compared to cash provided from
continuing operations of $10.9 million in the first quarter of
2008.
- Bank loans were reduced to $26.9 million at the end of the first
quarter 2009 from $30.2 million on March 31, 2008 and $28.1
million at December 31, 2008.
- Working capital deficiency of $10.2 million inclusive of $21.0
million of current debt and $14.0 million in cash, as compared to
a deficiency of $7.4 million at December 31, 2008.
Three months ended March 31
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Results at a Glance 2009 2008
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Financial ($000s, except as noted)
Oil revenue 13,052 24,676
Net operating income 2,628 13,008
Net income (loss) (2,492) 539
Basic and diluted earnings (loss) per share (0.014) 0.003
Cash provided by (used in) operations (984) 10,852
Total assets 210,674 214,675
Bank loans 26,948 30,218
Other long-term liabilities 33,503 21,467
Shareholders' equity 123,622 125,358
Other significant events during and subsequent to the quarter included:
- The Company received approval for an $8.0 million increase to its
existing credit facility with Raiffeisen Bank. The existing $16
million operating loan facility will be increased by $4.0 million
and a new $4.0 million five-year term loan will be available in
conjunction with the existing $9.7 million term loan.
- On May 7, 2009 the Company completed a CAD$40.0 million bought-
deal equity financing with a syndicate of underwriters by issuing
22,858,000 common shares of the Company at CAD$1.75 per common
share.
- On May 8, 2009 the Company finalized agreements with the
International Finance Corporation, (a member of the World Bank
Group) and the European Bank for Reconstruction and Development,
for provision of a reserve-based long-term financing of up to
$110.0 million to supplement the Company's existing $33.7 million
Raiffeisen facility.
- With completion of the new equity and debt financings, Bankers has
redeployed all seven service rigs to resume its reactivation and
workover plans and initiated the process of restarting its
drilling program in the Patos Marinza field by July 2009.
With the recent recovery of commodity prices (resulting in higher netbacks), cash, equity proceeds and credit facilities available to the Company, the 2009 capital expenditure program has been set at $55 million and will consist of 12 horizontal and vertical wells, reactivation and workovers of 50 wells and other facilities construction projects. The exit production rate for 2009 is estimated to be approximately 8,000 bopd. The Company will continue to monitor oil prices and is prepared to make adjustments to its capital program if deemed necessary.
Further details of the 2009 work program and budget will be available on the Company's corporate presentation to be posted on its website by May 22, 2009.
BANKERS PETROLEUM LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis (MD&A) of Bankers Petroleum Ltd's (Bankers or the Company) operating and financial results for the three months ended March 31, 2009 compared to the preceding quarter and the corresponding period in the prior year, as well as information and expectations concerning the Company's outlook based on currently available information. The MD&A should be read in conjunction with the unaudited interim financial statements for the three months ended March 31, 2009 and the audited financial statements and MD&A for the year ended December 31, 2008. Additional information relating to Bankers, including its Annual Information Form, is on SEDAR at www.sedar.com and on the Company's website at www.bankerspetroleum.com. All dollar values are expressed in U.S. dollars, unless otherwise indicated. The Company reports its heavy oil production in barrels.
This report is prepared as of May 14, 2009.
NON-GAAP MEASURES
Netback per barrel and its components are calculated by dividing revenue, royalties, operating and sales and transportation expenses by the gross production volume during the period. Netback per barrel is a non-GAAP measure and is commonly used by oil and gas companies to illustrate the unit contribution of each barrel produced.
Net operating income is similarly a non-GAAP measure that represents revenue net of royalties and operating, sales and transportation expenses. The Company believes that net operating income is a useful supplemental measure to analyze operating performance and provides an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses.
The non-GAAP measures referred to above do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures used by other companies.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This MD&A offers our assessment of the Company's future plans and operations as of May 14, 2009 and contains forward-looking information. Such information is generally identified by the use of words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. Statements relating to "reserves" or "resources" are also forward- looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. All such statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Management believes the expectations reflected in those forward- looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this AIF should not be unduly relied upon. These statements speak only as of the date hereof.
In particular, this MD&A contains forward-looking statements pertaining to the following:
- performance characteristics of the Company's oil properties;
- crude oil production estimates and targets;
- the size of the oil reserves;
- capital expenditure programs and estimates;
- projections of market prices and costs;
- supply and demand for oil;
- expectations regarding the ability to raise capital and to
continually add to reserves through acquisitions and development; and
- treatment under governmental regulatory regimes and tax laws.
These forward looking statements are based on a number of assumptions, including but not limited to: those set out herein and in the Company's Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information (NI 51- 101 Report), availability of funds for capital expenditures, a consistent and improving success rate for well re-completions at Patos Marinza, increasing production as contemplated by the Plan of Development (PoD), stable costs, availability of equipment and personnel when required, continuing favourable relations with Albanian governmental agencies and continuing strong demand for oil.
Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties set forth below:
- volatility in market prices for oil and natural gas;
- risks inherent in oil and gas operations;
- uncertainties associated with estimating oil and natural gas
reserves;
- competition for, among other things, capital, acquisitions of
reserves, undeveloped lands and skilled personnel;
- the Company's ability to hold existing leases through drilling or
lease extensions;
- incorrect assessments of the value of acquisitions;
- geological, technical, drilling and processing problems;
- fluctuations in foreign exchange or interest rates and stock market
volatility;
- rising costs of labour and equipment;
- changes in income tax laws or changes in tax laws and incentive
programs relating to the oil and gas industry.
The Company from time to time updates its forward-looking information based on the events and circumstances that occurred during the period. As a consequence of the recent sharp declines in oil prices the Company has adjusted its capital expenditure program to ensure that capital expenditures are funded by cash provided by operations, cash on hand and available credit.
Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
OVERVIEW & SELECTED QUARTERLY INFORMATION
Three months ended March 31
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Results at a Glance 2009 2008(x)
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Financial ($000s, except as noted)
Oil revenue 13,052 24,676
Net operating income 2,628 13,008
Net income (loss) (2,492) 539
Basic and diluted earnings (loss) per share (0.014) 0.003
Cash provided by (used in) operations (984) 10,852
Additions to property, plant and equipment 2,835 13,764
Total assets 210,674 214,675
Bank loans 26,948 30,218
Other long-term liabilities 33,503 21,467
Shareholders' equity 123,622 125,358
Operating
Average production (bopd) 5,864 5,218
Average sales price ($/bbl) 24.73 51.96
Netback ($/bbl) 4.98 27.39
Average Brent oil price ($/bbl) 44.40 96.90
(x) Excludes results from discontinued US operations.
Some of the highlights for the quarter ended March 31, 2009 are as
follows:
- Average production was 5,864 bopd compared to 5,218 bopd for the
same period in 2008, an increase of 12%. Production at the end of
March 31, 2009 was approximately 6,000 bopd.
- Revenue from the first quarter was $13.1 million ($24.73/bbl) and
$24.7 million ($51.96/bbl) for the same period in 2008.
- Net operating income (netback) for the three months ended March
31, 2009 was $2.6 million ($4.98/bbl) and $13.0 million
($27.39/bbl) for the first quarter in 2008.
Other significant events during 2009 year-to-date included:
- The Company received approval for an $8.0 million increase to its
existing credit facility. The existing $16 million operating loan
facility has been increased by $4.0 million and a new $4.0 million
five-year term facility is available.
- On May 7 the Company finalized an agreement with a syndicate of
underwriters whereby the members of the syndicate has purchased,
on a bought deal basis, 22,858,000 common shares of the Company at
CAD$1.75 per common share, generating gross proceeds of CAD$40.0
million.
- On May 11, 2009 the Company announced it has finalized agreements
with two international banks (International Finance Corporation -
a member of the World Bank Group, and the European Bank for
Reconstruction and Development) for provision of a reserve-based
long-term financing of up to $110.0 million to supplement the
Company's existing credit facility.
QUARTERLY SUMMARY
Below is a summary of Bankers' performance over the last eight quarters.
This summary excludes results from US operations for periods prior to July 1,
2008.
2008 2009
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($000s,
except
as noted) Second Quarter Third Quarter Fourth Quarter First Quarter
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$/bbl $/bbl $/bbl $/bbl
----------------------------------------------------------- -------------
Average
production
(bopd) 5,826 5,880 6,561 5,864
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Oil revenue 34,157 64.36 33,543 62.08 17,877 29.63 13,052 24.73
Royalties 6,601 12.43 7,790 14.40 4,163 6.69 3,486 6.61
Sales and
transportation 1,727 3.27 1,932 3.57 2,192 3.63 1,426 2.70
Operating
expenses 7,693 14.03 7,503 13.32 7,843 13.54 5,512 10.44
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Net operating
income 18,136 34.63 16,318 30.79 3,679 5.77 2,628 4.98
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2007 2008
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($000s,
except
as noted) Second Quarter Third Quarter Fourth Quarter First Quarter
----------------------------------------------------------- -------------
$/bbl $/bbl $/bbl $/bbl
----------------------------------------------------------- -------------
Average
production
(bopd) 4,314 4,753 5,429 5,218
----------------------------------------------------------- -------------
Oil revenue 12,913 32.89 16,239 37.14 21,398 42.84 24,676 51.96
Royalties 1,682 4.28 1,922 4.40 2,207 4.42 4,298 9.05
Sales and
transpor-
tation 1,007 2.56 1,068 2.44 1,332 2.67 1,664 3.50
Operating
expenses 4,048 9.91 4,535 10.37 5,303 10.93 5,706 12.02
-------------------------------------------- -------------
Net operating
income 6,176 16.14 8,714 19.93 12,556 24.82 13,008 27.39
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2008 2009
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Second Third Fourth First
($000s, except as noted) Quarter Quarter Quarter Quarter
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Financial
General and administrative 2,034 2,157 1,089 1,204
Cash provided by (used in)
operations 15,546 13,124 9,510 (984)
Net income (loss) 1,005 4,876 (8,007) (2,492)
Basic and diluted earnings 0.027/
(loss) per share 0.006 0.026 (0.044) (0.014)
Total assets 315,631 216,978 214,675 210,674
Capital expenditures 17,101 25,502 22,011 2,835
Bank loans 29,004 27,583 28,125 26,948
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2007 2008
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Second Third Fourth First
($000s, except as noted) Quarter Quarter Quarter Quarter
----------------------------- ---------
Financial
General and administrative 1,699 1,779 2,667 2,091
Cash provided by operations 5,930 6,549 5,946 10,852
Net income (loss) 897 572 (2,126) 539
Basic and diluted earnings
(loss) per share 0.006 0.004 (0.014) 0.003
Total assets 175,550 185,652 204,295 272,469
Capital expenditures 14,396 13,066 8,357 13,764
Bank loans 19,471 25,967 30,850 30,218
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DISCUSSION OF OPERATING RESULTS
Production, Revenue and Netback
Three months ended March 31
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2009 2008
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Average production (bopd) 5,864 5,218
Oil revenue ($000) 13,052 24,676
Netback ($/bbl)
Average price 24.73 51.96
Royalties 6.61 9.05
Sales and transportation 2.70 3.50
Operating 10.44 12.02
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Netback 4.98 27.39
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For the three months ended March 31, 2009 the Company continued its initiative of capital reduction commenced during the fourth quarter of 2008. Total well counts remained consistent at the end of December 2008, however active well counts were reduced from 213 at the end of 2008 to 184 on March 31, 2009. Consequently, average production was reduced to 5,864 bopd during the quarter from 6,561 during the preceding quarter. Compared to the same period in 2008 average production increased 12% from 5,218 bopd as a result of the successful 2008 drilling, workover and reactivation program,
The retrenchment in commodity prices that commenced in the third quarter of 2008, persisted during the first quarter of 2009. Accordingly, the Company received an average of $24.73/bbl as compared to $29.63/bbl for the fourth quarter of 2008 and $51.96 for the same period one year ago. The average Brent price for the first quarter in 2009 was $44.40, compared to $54.91 during the previous quarter and $96.90 for the same period in 2008. For the first quarter of 2009, the Company's average sales price represented 56% of the Brent oil price, an increase from 54% for the other two referenced quarters.
Oil revenue for the first quarter was $13.1 million, $17.9 during the preceding quarter and $24.7 million for the same period in 2008. Despite the lower commodity prices, the Company's netback (revenue less royalties, operating costs and sales/transportation expenses) remained positive at $4.98/bbl compared to $5.77/bbl during the preceding quarter and $27.39/bbl for the same period in 2008.
Royalties
Royalties in Albania are calculated pursuant to the Petroleum Agreement with Albpetrol and consist of Albpetrol's pre-existing production and a gross overriding royalty on new production. For the first quarter of 2009 royalties represented $6.61/bbl (27% of oil revenue), a slight reduction from $6.69/bbl (23%) for the fourth quarter of 2008 and $9.05/bbl (17%) during the corresponding period in 2008. The overall reduction in royalty is reflective of lower oil prices. As a result of the reduced capital activity level for the first quarter of 2009, suspended production from lower productivity wells and period end oil inventory fluctuations, a higher proportionate amount of royalties were expensed during the quarter.
Operating Expenses
Operating expenses for the first quarter of the year were reduced by 23% to $10.44/bbl from $13.54/bbl for the preceding quarter and $12.02/bbl for the same period in 2008, mainly due to lower commodity prices for fuel and diluent costs along with a reduction in well servicing activity to focus on higher impact wells. Correspondingly, the sales and transportation costs for the quarter were 26% lower, to $2.70/bbl from $3.63/bbl for the fourth quarter in 2008 and $3.50/bbl for the same period one year ago.
General and Administrative Expenses
General and administrative expenses (G&A) for the quarter were $1.2 million, relatively consistent with $1.1 million for the preceding quarter. In comparison to the $2.1 million recorded for the first quarter of 2008, G&A expenses were 43% lower primarily as a result of personnel and restructuring costs initiatives undertaken in 2008 and favorable impact off the softening Canadian dollar against the U.S. dollar.
During the quarter, the Company capitalized $0.4 million of G&A expenses compared to $0.4 million for the preceding quarter and $0.5 million for the same period in 2008. These expenses were directly related to acquisition, exploration and development activities in Albania.
Non-cash stock-based compensation expense pertaining to options vested and/or granted to officers, directors, employees and service providers were $0.7 million compared to $1.8 million for the preceding quarter and $1.5 million for the same period in 2008. Of this amount $0.6 million was charged to earnings during this quarter, compared to $1.4 million and $1.2 million that were charged to earnings for the preceding quarter and the quarter ended March 31, 2008, respectively. The balance was capitalized.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expense for the quarter ended March 31, 2009 were $4.0 million ($6.80/bbl) compared to $4.3 million ($6.67/bbl) for the preceding quarter and $2.9 ($5.65/bbl) million for the same period in 2008. The reduction in overall depletion, depreciation and accretion expenses from the fourth quarter of 2008 is reflective of the lower average production level. The increase from the first quarter of 2008 was mainly due to the increased depletable base and higher production level.
Income Taxes
The net loss recorded by the Company for the first quarter of 2009, resulted in a future income tax recovery of $1.1 million for the quarter as compared to future tax expense of $80,000 for the preceding quarter and $4.8 million for the same period in 2008. The reduction in future income taxes was mainly due to the net loss incurred in the quarter in Albania.
Future income tax liabilities result from the temporary differences between the carrying value and tax values of Albanian assets and liabilities after giving effect to all cost recovery pool costs. Bankers is presently not paying cash taxes in any jurisdiction.
Net loss and Cash provided by Operations
The Company recorded a net loss of $2.5 million ($0.014 per share) during the quarter, a net loss of $8.0 million ($0.044 per share) for the preceding quarter and net income of $0.5 million ($0.001 per share) for the same period in 2008. Exclusive of changes in non-cash working capital, the Company generated $1.3 million of cash from operating activities for the first quarter of 2009.
Cash used in operating activities amounted to $1.0 million for the quarter ended March 31, 2009 and cash provided by operating activities was $9.5 million for the fourth quarter in 2008 and $10.9 million for the period ending March 31, 2008.
OPERATIONS UPDATE Albania Patos Marinza Field -------------------
The Company's operational focus during the quarter was on cost reduction initiatives. Operating expenditures were reduced by 30% to $5.5 million ($10.44/bbl) from $7.8 million ($13.54/bbl) in the previous quarter. This was achieved by renegotiating diesel and propane supply contracts to capture the downward commodity price trend. The service rig fleet utilization was also reduced by 54% to target wells with high oil rate production that demonstrated performance stability. Allowances have been made to enable increased rig utilization when oil prices increase. Transportation contracts and third party equipment contracts were renegotiated to a monthly flat rate from a unit basis to enable better cost control measures.
The capital development program was curtailed during the quarter to focus on forward planning and allow stabilization of the oil price environment. Capital expenditures were reduced to $2.8 million from $22.0 million in the previous quarter. The 2009 first quarter costs were primarily for re- completion and servicing work on the new wells drilled in 2008 along with drilling stand-by costs to enable ramp up of drilling activities when oil prices increase. The Company did not take over any additional wellbores from Albpetrol and did not pursue well re-activation activities in the first quarter of 2009.
The production level was maintained relatively flat during the quarter: 5,851 bopd in January, 5,929 bopd in February, and 5,813 bopd in March for an average of 5,864 bopd for the quarter. This is down 11% from the previous quarter average of 6,561 bopd. Accordingly, the net oil inventory in the field increased by 38%, from 91,000 barrels to 126,000 barrels.
Export Capacity ---------------
In 2008, Bankers signed an agreement with the developers of the Port of Vlore oil export terminal for the storage and handling of its oil in a 13,000 cubic meter Company-dedicated oil tank. The storage facility will improve the Company's export operations and allow for larger oil liftings when the terminal is ready to receive larger vessels, expected in mid-2009.
Kucova Field ------------
Bankers deferred the start of field activity in the Kucova field until the third quarter of 2009 due to current market conditions. In the interim, Bankers technical team will finalize the initial test area which will include one production satellite and all wells will be flowlined into that group for evaluation. Subsequently, the Company will prepare five to ten wells for production, water injection or observation for a waterflood field trial from three potential areas for the initial field trails.
Kucova data acquisition and analysis for the existing wells in the five distinct fields is continuing and will be supplemented with reservoir pressure data when field operations commence. Fluid compatibility and fluid-reservoir rock compatibility evaluation work will also be done prior to the field trials. To date, eight cored wells have been identified in the prospective area and Bankers expects to obtain samples for laboratory analysis in the second quarter of 2009.
CAPITAL EXPENDITURES
Three months ended March 31
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($000s) 2009 2008
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Well re-activations 1,080 8,127
Drilling programs 1,294 243
Property acquisitions 92 2,212
Base program 633 1,830
Inventory change (264) 1,352
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2,835 13,764
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During the quarter ended March 31, 2009, Bankers spent $1.1 million on well re-activations compared to $5.8 million during the preceding quarter and $8.1 million during the same period in 2008. The decrease in well- reactivations was a direct result of capital expenditure reductions due to the economic downturn. The Company incurred $1.3 million on drilling program (primarily related to standby fees) compared to $9.4 million on drilling operations during the fourth quarter of 2008 and $0.2 million incurred in the first quarter of 2008. The balance represented maintenance-level capital projects and capitalized G&A.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2009, Bankers had a working capital deficiency of $10.2 million (inclusive of cash and cash equivalents totalling $14.0 million) and a long-term bank loan of $5.9 million. At December 31, 2008 the Company had a working capital deficiency of $7.4 million and a long-term bank loan of $6.9 million.
The Company's bank loans with a European financial institution totalled $26.9 million on March 31, 2009. This credit facility includes a revolving operating loan of $20.0 million, a $4.0 million five-year term facility and a three-year term loan of $9.7 million. Repayments of $0.9 million were made on the term loan during this quarter. These levels reflect the $8.0 million increase in the credit facility finalized on March 31, 2009.
On May 7, 2009 the Company finalized an agreement with a syndicate of underwriters whereby the members of the syndicate purchased, on a bought deal basis, 22,858,000 common shares of the Company at CAD$1.75 per common share, generating gross proceeds of CAD$40.0 million. The Company has also granted the underwriters an over-allotment option to purchase, on the same terms, up to an additional 2,285,800 common shares exercisable until June 6, 2009, at their discretion. If the over-allotment is fully exercised, the maximum gross proceeds raised through this financing will be CAD$44.0 million.
On May 8, 2009 the Company finalized agreements with two international banks (European Bank for Reconstruction and Development and the International Finance Corporation) for provision of a reserve-based long-term financing of up to $110.0 million to supplement the Company's existing $33.7 million facility with the Raiffeisen Bank.
The Company's approach to managing liquidity is to ensure a balance between capital expenditure requirements and the cash provided by operations, available credit facilities and working capital. In recognition of the operating cash flow reduction from lower commodity prices, capital expenditures for the first and second quarters of 2009 have been reduced.
There were approximately 183 million shares and 206 million shares outstanding as at March 31, 2009 and May 14, 2009 respectively. In addition, the Company had approximately 11 million stock options outstanding on March 31 and May 14, 2009. The Company had approximately 10 million and 26 million warrants outstanding as of March 31, 2009 and May 14, 2009, respectively. In conjunction with the $110.0 million credit facility finalized on May 11, the Company issued 16 million warrants. Each warrant will entitle the holder to purchase one common share of the Company at a price of CAD$1.50 per share when the Brent oil price is above $55 per barrel for ten consecutive trading days until the earlier of i) one year from such date or ii) 45 days after the date on which the Company has notified that its common shares close at or above the exercise price for twenty consecutive trading days.
Officers and executives of the Company represent approximately ten percent and nine percent ownership in the Company on a fully diluted basis as of March 31, 2009 and May 14, 2009, respectively. The ownership by the officers and executives creates an alignment with shareholders and a team that is dedicated to activities that support future value creation.
In Albania, the Company considers any amounts greater than 60 days as past due. Of the total receivables of $18.9 million in Albania, approximately $16.6 million is due from one domestic customer of which $9.9 million is considered past due. Corresponding to these receivables, the Company has royalty obligations of $10.0 million recorded as accounts payable and accrued liabilities. These royalty payments will be made when the related receivables are collected. In an effort to collect these receivables, the Company has regular dialogue with this customer; payments totalling $5.0 million have been received subsequent to March 31, 2009. The Albanian government continues to own 15% of this customer; the remainder was privatized for $167.0 million in December 2008. The two refineries owned by this customer are the only ones in Albania and are strategically important to the country. Bankers, as the largest supplier of crude oil to these refineries, continues to deliver some oil to this customer and maintains a good working relationship with them and the Albanian government. Bankers' management has confidence that these amounts will be collected and has not recorded a loss provision. In order to diversify its customer base, Bankers expects to expand export deliveries, especially by way of the expanded shipping terminal, expected to be operational in mid-2009.
Plan of Development
Bankers has no capital expenditure commitment for the Patos Marinza oilfield under the Petroleum Agreement. Bankers annually submits a work program to AKBN which includes the nature and the amount of capital expenditures to be incurred during that year. Significant deviations in this annual program from the Plan of Development will be subject to AKBN approval. The Petroleum Agreement provides that disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retains and the future capital expenditures will be adjusted accordingly.
Commitments
The Company has long-term lease commitments in Canada and Albania. The
minimum lease payments for the next four years are $0.6 million as follows:
($000s) Canada Albania Total
------------------------------------------
2009 102 149 251
2010 137 55 192
2011 137 - 137
2012 6 - 6
-----------------------------
382 204 586
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-----------------------------
The Company has a $9.7 million term loan with a European financial institution that is repayable in equal monthly instalments of $0.3 million ending on November 30, 2011. Of the amount outstanding, $3.8 million is classified as current and $5.9 million as long-term. Principal repayments of the term loan over the next three years are as follows:
($000s)
-----------------------------
2009 2,813
2010 3,750
2011 3,125
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9,688
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-----------------------------
The Company is committed to contributing $0.7 million ((euro)0.5 million) to a dedicated oil export terminal facility upon service commencement in the second half of 2009 and will pay a throughput rate when the facility is operational.
PRINCIPAL BUSINESS RISKS
Bankers' business and results of operations are subject to a number of risks and uncertainties, including but not limited to the following:
Exploration, development, production and marketing of oil and natural gas involves a wide variety of risks which include but are not limited to the uncertainty of finding oil and gas in commercial quantities, securing markets for existing reserves, commodity price fluctuations, exchange and interest rate exposure and changes to government regulations, including regulations relating to prices, taxes, royalties and environmental protection. The oil and gas industry is intensely competitive and the Company competes with a large number of companies with greater resources.
Bankers' ability to increase its reserves in the future will depend not only on its ability to develop its current properties but also on its ability to acquire new prospects and producing properties. The acquisition, exploration and development of new properties also require that sufficient capital from outside sources will be available to the Company in a timely manner. The availability of equity or debt financing is affected by many factors many of which are beyond the control of the Company.
Bankers has a significant investment in Albania. There are a number of risks associated with conducting foreign operations over which the Company has no control, including political instability, potential and actual civil disturbances, ability to repatriate funds, changes in laws affecting foreign ownership and existing contracts, environmental regulations, oil and gas prices, production regulations, royalty rates, income tax law changes, potential expropriation of property without fair compensation and restriction on exports. Additional risks that may affect the Company and its operations are set out in its AIF filed under the Company's profile on www.sedar.com.
RELATED PARTY TRANSACTIONS
The Company has a note receivable from BNK Petroleum Inc. (BKX), a related party, in the amount of $13.0 million that is considered to be in the normal course of business. Bankers has no further obligation to increase the note, which is due on October 2012 and accrues interest at LIBOR plus 5.5%. At March 31, 2009 no principal or interest amounts were due. The Company is entitled to receive up to 50% of any future equity financing by BKX and 90% of any increase in BKX's borrowing base, as repayment of this note. Subsequent to March 31, 2009 the Company received $2.0 million in payment of accrued interest receivable of $0.7 million and principal on the note of $1.3 million as a result of a new financing facility finalized by BKX.
NEW ACCOUNTING STANDARDS
- Goodwill (Section 3064) - This section applies to goodwill subsequent
to initial recognition and establishes standards for the recognition,
measurement, presentation and disclosure of goodwill and intangible
assets. This new standard has not had a material impact on Bankers'
consolidated financial statements.
- Transition to International Financial Reporting Standards (IFRS) - In
February 2008 the Canadian Accounting Standards Board confirmed
January 1, 2011 as the effective date for the requirement to report
under IFRS along with conversion of comparative 2010 periods. The
impact of IFRS on our results of operations and future financial
position is not reasonably determinable at this time. The Company has
supported staff training programs, has engaged external advisors to
plan the IFRS initiative and is in the process of completing a
preliminary assessment of transitional requirements to identify
expected impacts on the Company. Regular reports on the IFRS
transition status will be made to Management and the Audit Committee.
Business combinations - In December 2008 the CICA issued the new accounting standard 1582, Business Combination replacing Section 1581. This Section establishes principles and requirements for accounting for business combinations. Significant changes include determination of the purchase price based on the fair value of shares exchanged at the market price on the acquisition or closing date. The new guidance also requires that all acquisition related costs be expensed as incurred and contingent liabilities are to be measured at fair value at acquisition date and re-measured to fair value at each reporting period through earnings until settled. In addition, negative goodwill is required to be recognized in earnings on the acquisition date. The new Section will be applied prospectively effective January 1, 2011.
INTERNAL CONTROLS
The Company's President and Chief Executive Officer (CEO) and Vice President, Finance and Chief Financial Officer (CFO) are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in NI 52-109.
Disclosure controls and procedures have been designed to ensure that information to be disclosed by the Company is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. The Company's CEO and CFO have evaluated the effectiveness of the disclosure controls and procedures as at March 31, 2009 and have concluded that they provide reasonable assurance that all material information relating to the Company is disclosed in a timely manner.
Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the Company's financial reporting and compliance with generally accepted accounting principles. The CEO and CFO have evaluated the Company's internal controls over financial reporting as at March 31, 2009 based on the framework in "Internal Control Over Financial Reporting - Guidance for Smaller Public Companies" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and have concluded they are designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. During the quarter ended March 31, 2009 there have been no changes to the Company's internal controls over financial reporting that will, or are reasonably likely to, materially affect the internal controls over financial reporting.
Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, errors or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable and not absolute assurance that the objectives of the control systems are met.
OUTLOOK
With the recent recovery of commodity prices (resulting in higher netbacks), cash, equity proceeds and credit facilities available to the Company, the 2009 capital expenditure program has been set at $55 million and will consist of 12 horizontal and vertical wells, reactivation and workovers of 50 wells and other facilities construction projects. The exit production rate for 2009 is estimated to be approximately 8,000 bopd. The Company will continue to monitor oil prices and is prepared to make adjustments to its capital program if deemed necessary.
BANKERS PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited, expressed in thousands of U.S. dollars)
-------------------------------------------------------------------------
ASSETS
March December
31 2009 31 2008
-----------------------
Current assets
Cash and cash equivalents (Note 11) $ 10,548 $ 15,607
Short-term deposit 2,000 3,000
Restricted cash 1,500 1,500
Investments 134 134
Accounts receivable 19,847 17,591
Crude oil inventory 1,936 1,588
Deposits and prepaid expenses 1,480 1,231
-----------------------
37,445 40,651
Note receivable (Note 3) 13,000 13,000
Property, plant and equipment (Note 4) 160,229 161,024
-----------------------
$ 210,674 $ 214,675
-----------------------
-----------------------
LIABILITIES
Current liabilities
Operating loan (Note 5) $ 17,260 $ 17,500
Accounts payable and accrued liabilities 26,601 26,788
Current portion of term loan (Note 5) 3,750 3,750
-----------------------
47,611 48,038
Term loan (Note 5) 5,938 6,875
Asset retirement obligations (Note 6) 3,124 2,896
Future income tax liability (Note 7) 30,379 31,508
SHAREHOLDERS' EQUITY
Share capital (Note 8) 121,972 121,907
Warrants (Note 8) 2,088 2,088
Contributed surplus (Note 8) 12,553 11,862
Deficit (12,991) (10,499)
-----------------------
123,622 125,358
-----------------------
$ 210,674 $ 214,675
-----------------------
-----------------------
Commitments (Note 10)
Subsequent events (Note 13)
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT, COMPREHENSIVE INCOME
(LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME
(Unaudited, Expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended
March 31
2009 2008
-----------------------
Deficit
Balance, beginning of period $ (10,499) $ (8,324)
Net income (loss) for the period (2,492) 306
-----------------------
Balance, end of period $ (12,991) $ (8,018)
-----------------------
-----------------------
Comprehensive income (loss)
Net income (loss) for the period $ (2,492) $ 306
Unrealized gain on investments - 308
-----------------------
Comprehensive income (loss) $ (2,492) $ 614
-----------------------
-----------------------
Accumulated other comprehensive income
Balance, beginning of period $ - $ -
Unrealized gain on investments - 308
-----------------------
Balance, end of period $ - $ 308
-----------------------
-----------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited, expressed in thousands of
U.S. dollars, except per share amounts)
-------------------------------------------------------------------------
2009 2008
-----------------------
Revenue
Oil revenue $ 13,052 $ 24,676
Royalties (3,486) (4,298)
Interest 257 234
-----------------------
9,823 20,612
-----------------------
Expenses
Operating 5,512 5,706
Sales and transportation 1,426 1,664
General and administrative 1,204 2,091
Interest and bank charges 307 280
Interest on term loan 170 335
Foreign exchange loss 253 1,048
Stock-based compensation (Note 8) 562 1,240
Depletion, depreciation and accretion 4,010 2,869
-----------------------
13,444 15,233
-----------------------
Income (loss) from continuing operations before
income tax (3,621) 5,379
Future income tax recovery (expense) (Note 7) 1,129 (4,840)
-----------------------
Income (loss) from continuing operations (2,492) 539
Discontinued operations - (233)
-----------------------
Net income (loss) for the period $ (2,492) $ 306
-----------------------
-----------------------
Basic earnings (loss) per share - continuing
operations $ (0.014) $ 0.003
-----------------------
-----------------------
Diluted earnings per share - continuing operations - 0.003
-----------------------
-----------------------
Basic loss per share - discontinued operations $ - $ (0.001)
-----------------------
-----------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited, expressed in thousands of U.S. dollars)
-------------------------------------------------------------------------
2009 2008
-----------------------
Cash provided by (used in):
Continuing operations:
Net income (loss) from continuing operations $ (2,492) $ 539
Items not involving cash:
Depletion, depreciation and accretion 4,010 2,869
Future income tax (recovery) expense (1,129) 4,840
Stock-based compensation 562 1,240
Unrealized foreign exchange loss 314 -
Change in non-cash working capital (Note 11) (2,249) 1,364
-----------------------
(984) 10,852
-----------------------
Cash used in operating activities of discontinued
operations - (860)
-----------------------
Investing activities
Additions to property, plant and equipment (2,835) (13,764)
Additions to property, plant and equipment of
discontinued operations - (5,803)
Increase in restricted cash - (1,500)
Change in non-cash working capital (Note 11) (791) 427
-----------------------
(3,626) (20,640)
-----------------------
Financing activities
Issue of shares for cash 42 60,034
Share issue costs - (1,485)
Short-term deposit 1,000 -
Increase (decrease) in operating loan (240) 975
Decrease in term loan (937) (1,562)
-----------------------
(135) 57,962
-----------------------
Foreign exchange loss on cash and cash equivalents
held in foreign currencies (314) -
-----------------------
Increase (decrease) in cash and cash equivalents (5,059) 47,314
Cash and cash equivalents, beginning of period 15,607 2,599
-----------------------
Cash and cash equivalents, end of period
(Note 11) $ 10,548 $ 49,913
-----------------------
-----------------------
See accompanying notes to consolidated financial statements.
Notes to the Consolidated Financial Statements
(Unaudited, Expressed in U.S. dollars)
-------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
(GAAP). Certain information and note disclosures normally included in
financial statements prepared in accordance with Canadian GAAP have
been condensed or omitted. These interim consolidated financial
statements should be read together with the audited consolidated
financial statements and the accompanying notes for the year ended
December 31, 2008. In the opinion of the Company, its unaudited
interim consolidated financial statements contain all adjustments
necessary in order to present a fair statement of the results of the
interim periods presented. The preparation of interim financial
statements is based on accounting principles and practices consistent
with those used in the preparation of annual financial statements,
except for the following changes in accounting policies:
Goodwill (Section 3064) - This section applies to goodwill subsequent
to initial recognition and establishes standards for the recognition,
measurement, presentation and disclosure of goodwill and intangible
assets. This new standard does not have an impact on Bankers'
consolidated financial statements.
The unaudited consolidated financial statements include the accounts
of the Company and its wholly-owned operating subsidiary - Bankers
Petroleum Albania Ltd. (BPAL).
Unless where otherwise noted, the unaudited interim consolidated
financial statements are presented in thousands of United States
dollars.
2. FUTURE ACCOUNTING CHANGES
International Financial Reporting Standards
In February 2008, the Canadian Accounting Standards Board confirmed
January 1, 2011 as the effective date for the requirement to report
under International Financial Reporting Standards (IFRS) with
comparative 2010 periods converted as well.
In order to meet the requirement to transition to IFRS the Company
has appointed internal staff to lead the conversion project along
with sponsorship from an executive steering committee. The Company
involves the external auditors and external consultants, as required,
during the conversion project. The Company has provided training to
key employees, completed a preliminary analysis of the accounting
differences and is monitoring the impact of the transition on its
business practices, information systems and internal control over
financial reporting. During the Company's preliminary analysis,
accounting implementation for certain areas was identified as having
the greatest potential impact to the Company's consolidated
statements in terms of complexity and effort. The Company has
determined that accounting for property, plant and equipment,
impairment testing, asset retirement obligations, stock-based
compensation, employee future benefits and income taxes will be
impacted by the conversion to IFRS. The precise impact of IFRS on the
Company's consolidated financial statements is not reasonably
determinable at this time.
3. NOTE RECEIVABLE
The note receivable of $13.0 million (December 31, 2008 -
$13.0 million) represents the residual amount due from BNK Petroleum
Inc. (BKX). The note, which is due on October 2012, accrues interest
at LIBOR plus 5.5% and is secured by a floating charge debenture and
a general security agreement. At March 31, 2009 no principal or
interest amounts were due. The outstanding accrued interest
receivable pertaining to this note was $0.7 million (December 31,
2008 - $0.4 million) and was included in accounts receivable as at
March 31, 2009. The Company is entitled to receive up to 50% of any
future equity financing by BKX and 90% of any increase in BKX's
borrowing base as repayment of this note. The Company has no further
obligation to increase the note. BKX is considered a related party as
BKX and the Company have two common directors. The above transaction
is considered to be in the normal course of business and has been
measured at the exchange amount being the amounts agreed to by both
the parties. Subsequent to March 31, 2009 the Company received
$2.0 million in payment of accrued interest receivable of
$0.7 million and principal on the note of $1.3 million.
4. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the Company's property, plant and
equipment as at March 31, 2009 and December 31, 2008:
March 31, 2009
---------------------------------------------------------------------
Accumulated
Depletion and Net Book
($000s) Cost Depreciation Value
---------------------------------------------------------------------
Oil properties $ 189,754 $ 31,637 $ 158,117
Equipment, furniture and fixtures 3,448 1,336 2,112
------------------------------------
$ 193,202 $ 32,973 $ 160,229
------------------------------------
------------------------------------
December 31, 2008
---------------------------------------------------------------------
Accumulated
Depletion and Net Book
($000s) Cost Depreciation Value
---------------------------------------------------------------------
Oil properties $ 186,650 $ 27,812 $ 158,838
Equipment, furniture and fixtures 3,400 1,214 2,186
------------------------------------
$ 190,050 $ 29,026 $ 161,024
------------------------------------
------------------------------------
The depletion expense calculation for the three months ended March
31, 2009, excluded $4.0 million (2008 - $2.0 million) relating to
undeveloped and non-producing properties in Albania.
Depletable assets for the depletion calculation for the three months
ended March 31, 2009 included $297.0 million (2008 - $183.0 million)
for estimated future development costs associated with proved
undeveloped reserves in Albania.
The Company capitalized general and administrative expenses and
stock-based compensation of $0.5 million during the three months
ended March 31, 2009 (2008 - $0.7 million) that were directly related
to exploration and development activities in Albania.
5. TERM AND OPERATING LOAN FACILITY
The Company has established credit facilities with a European
financial institution based in Albania. The credit facility comprises
a $20.0 million operating loan, a $4.0 million five-year term
facility and a $9.7 million term loan. The facility is secured by all
of the assets of BPAL, assignment of proceeds from the Albanian
domestic and export crude oil sales contracts, a pledge of the common
shares of BPAL and a guarantee by the Company. The credit facilities
are subject to certain covenants requiring the maintenance of certain
financial ratios, all of which were met as at March 31, 2009.
(a) Operating Loan
The operating loan consists of a one year facility bearing interest
at a rate relative to the bank's refinancing rate plus 3.5%. The term
of the operating loan may be extended for further twelve month
periods up to four times upon request by the Company and acceptance
by the lender. As at March 31, 2009 $17.3 million (December 31,
2008 - $17.5 million) was outstanding.
(b) Term Loan - 2006
The term loan bears interest at a rate relative to the bank's
financing rate plus 4.5% and is repayable in equal monthly
instalments of $0.3 million ending on October 31, 2011. As at March
31, 2009 the entire term loan was utilized. Of the amount
outstanding, $3.8 million is classified as current and $5.9 million
as long-term.
Principal repayments of the term loan over the next three years are
as follows:
($000s)
---------------------------------------------------------------------
2009 $ 2,813
2010 3,750
2011 3,125
----------
$ 9,688
----------
----------
(c) Term Loan - 2009
During the quarter, the Company obtained a new $4.0 million five-year
term facility bearing an interest rate relative to the bank's
refinancing rate plus 4.65%. The facility has no scheduled repayments
during the first six months, after which it is repayable in equal
monthly instalments over a 54-month period. As at March 31, 2009 none
of the facility amount was utilized.
6. ASSET RETIREMENT OBLIGATIONS
In Albania the Company estimated the total undiscounted amount
required to settle the asset retirement obligations at March 31, 2009
at $20.7 million (December 31, 2008 - $16.5 million). These
obligations will be settled at the end of the Company's 25-year
license of which 22 years are remaining. The liability has been
discounted using a credit-adjusted risk-free interest rate of 10%
(December 31, 2008 - 10%) and an inflation rate of 2.5% (December 31,
2008 - 2.5%) to arrive at asset retirement obligations of
$3.1 million as at March 31, 2009.
($000s)
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2008 $ 2,896
Liabilities incurred during the period 164
Accretion 64
----------
Asset retirement obligations, March 31, 2009 $ 3,124
----------
----------
7. INCOME TAXES
Future income tax expense relates to the Albanian operations and
results from the following:
March 31 December 31
($000s) 2009 2008
---------------------------------------------------------------------
Net book value of property, plant and
equipment, net of asset retirement
obligations $ 151,167 $ 151,972
Cost recovery pool (90,409) (88,956)
-----------------------
Timing difference $ 60,758 $ 63,016
-----------------------
-----------------------
Future income tax liability at 50% $ 30,379 $ 31,508
-----------------------
-----------------------
The cost recovery pool represents deductions for income taxes in
Albania.
The provision for income taxes reported differs from the amounts
computed by applying the cumulative Canadian federal and provincial
income tax rates to the loss before tax provision due to the
following:
($000s) 2009 2008
---------------------------------------------------------------------
Earnings (loss) before income taxes $ (3,621) $ 5,379
Statutory tax rate 29.00% 29.50%
-----------------------
(1,050) 1,587
Difference in tax rates between Albania
and Canada (560) 1,760
Non-deductible expenses 163 366
Valuation allowance and other 318 1,127
-----------------------
Future income tax (recovery) expense $ (1,129) $ 4,840
-----------------------
-----------------------
8. SHAREHOLDERS' EQUITY
(a) Share Capital
Authorized
Unlimited number of common shares with no par value.
Issued
Number of Amount
Common Shares ($000)
---------------------------------------------------------------------
Balance, December 31, 2007 452,509,492 $ 136,513
Consolidation adjustment(x) (301,672,997) -
Discontinued operations - (97,472)
Private placement 22,222,222 59,749
Stock options exercised 6,179,624 15,038
Warrants exercised 3,301,838 9,569
Share issuance costs - (1,490)
--------------------------
Balance, December 31, 2008 182,540,179 121,907
Stock options exercised 67,958 65
--------------------------
Balance, March 31, 2009 182,608,137 $ 121,972
--------------------------
--------------------------
The following table summarizes the calculation of basic and diluted
weighted average number of common shares:
Three months
ended March 31
--------------------------
2009 2008
---------------------------------------------------------------------
Weighted-average number of common shares
outstanding - basic 182,570,188 165,755,056
Dilution effect of stock options(xx) - 4,270,540
Dilution effect of warrants(xx) - 842,164
--------------------------
Weighted-average number of common shares
outstanding - diluted 182,570,188 170,867,760
--------------------------
--------------------------
(x) On July 30, 2008, the Company's shares, warrants and options
were consolidated on a one-for-three (1:3) basis, as approved
by the shareholders
(xx) Due to loss for the period ended March 31, 2009, the effect is
anti-dilutive.
(b) Warrants
A summary of the changes in warrants is presented below:
Weighted
Average
Exercise
Number of Amount Price
Warrants ($000) (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2007 38,323,452 $ 2,539 -
Consolidation adjustment(x) (25,548,968) - -
------------- ------------
12,774,484 2,539 2.45
Issued 240,729 255 1.97
Transferred to share capital
on exercise (3,301,838) (706) 2.97
---------------------------------------
Balance, December 31, 2008 and
March 31, 2009 9,713,375 $ 2,088 2.46
---------------------------------------
---------------------------------------
(x) On July 30, 2008, the Company's shares, warrants and options
were consolidated on a one-for-three (1:3) basis, as approved
by the shareholders
The following table summarizes the outstanding and exercisable
warrants at March 31, 2009:
---------------------------------------------------------------------
Weighted
Average
Number of Warrants Exercise
Outstanding and Price
Expiry Date exercisable (CAD $)
---------------------------------------------------------------------
November 10, 2009 3,573,041 2.49
November 15, 2010 1,266,667 2.63
March 1, 2012 4,873,667 2.37
------------------------------------
9,713,375 2.46
------------------------------------
------------------------------------
(c) Stock Options
The Company has established a "rolling" Stock Option Plan. The number
of shares reserved for issuance may not exceed 10% of the total
number of issued and outstanding shares and, to any one optionee, may
not exceed 5% of the issued and outstanding shares on a yearly basis
or 2% if the optionee is engaged in investor relations activities or
is a consultant. The exercise price of each option shall not be less
than the market price of the Company's stock at the date of grant.
A summary of the changes in stock options is presented below:
Weighted
Average
Exercise
Price
Number of Options (CAD$)
---------------------------------------------------------------------
Balance, December 31, 2008 11,936,128 2.26
Granted 30,000 1.83
Exercised (67,958) 0.80
Forfeited (1,225,220) 2.78
--------------------------------
Balance, March 31, 2009 10,672,950 2.21
--------------------------------
--------------------------------
(d) Stock-based Compensation
Using the fair value method for stock-based compensation, the Company
calculated stock based compensation expense for the three months
ended March 31, 2009 as $0.7 million (2008 - $1.5 million) for the
stock options vested and/or granted to officers, directors, employees
and service providers. Of this amount $0.6 million (2008 -
$1.2 million) was charged to earnings and $0.2 million (2008 -
$0.2 million) was capitalized.
The Company determined these amounts using the Black-Scholes option
pricing model assuming a risk free interest rate range of 1.80% (2008
- 2.91% to 3.50%), a dividend yield of 0% (2008 - 0%), an expected
volatility range of 125% (2008 - 69% to 72%) and expected lives of
the stock options of five years (2008 - five) from the date of grant.
(e) Contributed Surplus
The following table summarizes the changes in contributed surplus as
of March 31, 2009 and December 31, 2008:
($000s) 2009 2008
---------------------------------------------------------------------
Balance, beginning of period $ 11,862 $ 8,308
Stock-based compensation 714 9,136
Discontinued operations - (1,591)
Transferred to share capital on exercise (23) (3,991)
-----------------------
Balance, end of period $ 12,553 $ 11,862
-----------------------
-----------------------
9. SEGMENTED INFORMATION
The Company defined its reportable segments based on geographic
locations.
Three months ended
March 31, 2009 ($000s) Albania Canada Total
---------------------------------------------------------------------
Revenue
Oil revenue $ 13,052 $ - $ 13,052
Royalties (3,486) - (3,486)
Interest 1 256 257
------------------------------------
9,567 256 9,823
------------------------------------
Expenses
Operating 5,512 - 5,512
Sales and transportation 1,426 - 1,426
General and administrative 566 638 1,204
Interest and bank charges 307 - 307
Interest on term loan 170 - 170
Foreign exchange (gain) loss 222 31 253
Stock-based compensation 47 515 562
Depletion, depreciation and
accretion 3,982 28 4,010
------------------------------------
12,232 1,212 13,444
------------------------------------
Loss before income taxes (2,665) (956) (3,621)
Future income tax recovery 1,129 - 1,129
------------------------------------
Net loss for the period $ (1,536) $ (956) (2,492)
------------------------------------
------------------------------------
Assets, March 31, 2009 $ 182,099 $ 28,676 $ 210,775
------------------------------------
------------------------------------
Additions to property, plant
and equipment $ 2,828 $ 7 $ 2,835
------------------------------------
------------------------------------
Three months ended
March 31, 2008 ($000s) Albania Canada Total
---------------------------------------------------------------------
Revenue
Oil revenue $ 24,676 $ - $ 24,676
Royalties (4,298) - (4,298)
Interest - 234 234
------------------------------------
20,378 234 20,612
------------------------------------
Expenses
Operating 5,706 - 5,706
Sales and transportation 1,664 - 1,664
General and administrative 846 1,245 2,091
Interest and bank charges 280 - 280
Interest on term loan 335 - 335
Foreign exchange (gain) loss (126) 1,174 1,048
Stock-based compensation 257 983 1,240
Depletion, depreciation and
accretion 2,831 38 2,869
------------------------------------
11,793 3,440 15,233
------------------------------------
Income (loss) from continuing
operations before income taxes 8,585 (3,206) 5,379
Future income tax expense (4,840) - (4,840)
------------------------------------
Income (loss) from continuing
operations $ 3,745 $ (3,206) 539
------------------------
Discontinued operations (233)
-----------
Net income for the period $ 306
-----------
-----------
Assets, March 31, 2008 $ 123,886 $ 53,241 $ 177,127
------------------------------------
------------------------------------
Additions to property, plant and
equipment $ 13,720 $ 44 $ 13,764
------------------------------------
------------------------------------
10. COMMITMENTS
The Company leases office premises, of which the minimum lease
payments for the next four years are:
($000s) Canada Albania Total
---------------------------------------------------------------------
2009 $ 102 $ 149 $ 251
2010 137 55 192
2011 137 - 137
2012 6 - 6
------------------------------------
$ 382 $ 204 $ 586
------------------------------------
------------------------------------
The Company is committed to contributing $0.7 million
((euro)0.5 million) to a dedicated oil export terminal facility upon
service commencement in the second half of 2009 and will pay a
throughput rate when the facility is operational.
The Company has debt repayment commitments as disclosed in Note 5(b).
11. SUPPLEMENTAL CASH FLOW INFORMATION
March 31, March 31,
($000s) 2009 2008
---------------------------------------------------------------------
Operating activities
Decrease (increase) in current assets
Accounts receivable $ (2,357) $ (1,147)
Crude oil inventory (348) (281)
Deposits and prepaid expenses (249) (4)
Increase (decrease) in current liabilities
Accounts payable and accrued liabilities 705 2,796
-----------------------
$ (2,249) $ 1,364
-----------------------
-----------------------
Investing activities
(Decrease) increase in current liabilities
Accounts payable and accrued liabilities $ (791) $ 427
-----------------------
-----------------------
Interest paid $ 477 $ 615
-----------------------
-----------------------
Interest received $ 45 $ 234
-----------------------
-----------------------
March 31, December 31,
($000s) 2009 2008
---------------------------------------------------------------------
Cash and cash equivalents
Cash $ 1,652 $ 933
Deposit certificates with Canadian chartered
banks 8,896 14,674
-----------------------
$ 10,548 $ 15,607
-----------------------
-----------------------
12. FINANCIAL RISK MANAGEMENT
Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Company's
receivables from petroleum refineries relating to accounts
receivable. As at March 31, 2009, the Company's receivables consisted
of $18.9 million (December 31, 2008 - $16.9 million) of receivables
from petroleum refineries and $0.9 million (December 31, 2008 -
$0.7 million) of other trade receivables as summarized below:
30 - 60 61 - 90 Over 90
($000s) Current days days days Total
---------------------------------------------------------------------
Albania $ 4,679 $ 4,301 $ 2,364 $ 7,574 $ 18,918
Canada 222 - 228 479 929
----------------------------------------------------------
$ 4,901 $ 4,301 $ 2,592 $ 8,053 $ 19,847
----------------------------------------------------------
----------------------------------------------------------
In Albania the Company considers any amounts greater than 60 days as
past due. The accounts receivable, included in the table, past due or
not past due are not impaired. They are from counterparties with whom
the Company has a history of timely collection and the Company
considers the accounts receivable collectible. Domestic receivables
from a petroleum refinery are due by the end of the month following
production. Export receivables are collected within 30 days from the
date of the shipment. The Company's policy to mitigate credit risk
associated with these balances is to establish marketing
relationships with large purchasers. Of the total receivables of
$18.9 million in Albania, approximately $16.6 million (December 31,
2008 - $13.6 million) is due from one domestic customer of which
$9.9 million is considered past due. Subsequent to March 31, 2009 the
Company has received $5.0 million from this customer as payments on
account of sales.
In Canada, no amounts are considered past due or impaired.
The carrying amount of accounts receivable represents the maximum
credit exposure. As of March 31, 2009 and December 31, 2008 the
Company does not have an allowance for doubtful accounts and did not
provide for any doubtful accounts nor was it required to write-off
any receivables.
The Company also has credit risk with respect to the $13.0 million
Note Receivable from BKX and regularly monitors the operations and
financial condition of the borrower (See Note 3). Subsequent to March
31, 2009 the Company received $2.0 million in payment of accrued
interest receivable of $0.7 million and principal on the note of
$1.3 million.
13. SUBSEQUENT EVENTS
a) On May 7, 2009 the Company finalized an agreement with a syndicate
of underwriters and issued an aggregate of 22,858,000 common
shares at a price of CAD$1.75 per common share on a bought deal
basis, resulting in gross proceeds of approximately
CAD$40.0 million; commissions and share issue expenses are
expected to be CAD$2.3 million. The Company has also granted the
underwriters an over-allotment option to purchase, on the same
terms, up to an additional 2,285,800 common shares exercisable 30
days after closing, at their discretion. If the over-allotment is
fully exercised, the maximum gross proceeds raised through this
financing will be CAD$44.0 million.
b) On May 8, 2009 the Company finalized agreements with two
international banks (European Bank for Reconstruction and
development and the International Finance Corporation) for a
reserve-based long-term credit facility of $110.0 million. The
facility consists of two six-year revolving facilities,
aggregating $50.0 million each and two eight-year term loans,
totalling $10.0 million to be used for environmental remediation
purposes. All of the facilities are equally funded by these two
banks. The $10.0 million term loan is expected to be available
immediately, for environmental and social programs. The first
$50.0 million revolving facility will be fully available when the
Brent oil price exceeds $55 per barrel for ten consecutive trading
days and the second $50.0 million will be available subject to
mutual agreement among the Company and the two banks, Bankers'
production above 10,000 bopd and the Brent oil price exceeding $62
per barrel for ten consecutive trading days. The Company has
reserved for issuance 16 million common share purchase warrants,
eight million for each of the two banks. Each warrant will entitle
the holder to purchase one common share of the Company at a price
of CAD$1.50 when the Brent oil price is above $55 per barrel for
ten consecutive trading days until the earlier of i) one year from
such date or ii) 45 days after the date on which the Company has
notified that its common shares close at or above the exercise
price for twenty consecutive trading days.