CALGARY, Nov. 13 /CNW/ - Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) achieved record production and net income and significantly improved its revenues and funds from operations during the period ended September 30, 2008:
- Average production was 5,880 bopd compared to 4,753 bopd for the same
period in 2007 an increase of 24%. Production at the end of
September 2008 was approximately 6,200 bopd and current production
exceeds 6,600 bopd.
- Net income was $4.9 million ($0.026 per share) during the quarter,
compared to a net income of $572,000 ($0.004 per share) for the same
period in 2007.
- Funds from continuing operations were $14.8 million, an increase of
130% from $6.4 million for the three months ended September 30, 2007.
For the comparable nine month periods in 2008 and 2007, funds from
operations totalled $41.4 million and $14.7 million, respectively.
- An independent evaluation of the Kucova oil field estimates Bankers
share of reserves to be 8.6 million barrels of proved plus probable
reserves and 33.6 million barrels of proved, probable and possible
reserves.
- With recent sharp declines in oil prices Bankers has chosen a
measured reduction of its capital expenditure program in 2009 with an
objective to remain self-funding from cash flow, cash on hand and
available credit facilities.
PATOS MARINZA
Revenue from the third quarter was $33.5 million ($62.08 per barrel) as compared to $16.2 million ($37.14 per barrel) for the same period in 2007.
Net operating income (netbacks) for the three months ended September 30 2008 increased to $16.3 million ($30.79 per barrel) from $8.7 million ($19.93 per barrel) in the corresponding 2007 quarter, an increase of 87%.
Bankers initiated its vertical infill drilling program on June 21, 2008 to evaluate the different producing horizons and undrilled spacing units in the field. Seven successful oil wells have been drilled as of September 30, 2008. The initial production rates from these wells have been between 15 and 45 bopd per well from four different zones and it is expected that production rates from each individual well will continue to increase. Overall the production levels from the new wells are in line with forecast. Since the end of the third quarter an additional three vertical oil wells have been drilled and will shortly be completed and put on production. Current average production from the new wells is between 15 and 60 bopd.
The drilling program is continuing with the rig currently drilling the 11th vertical location following which the rig will be mobilized to drill the first ever horizontal well in Albania, in the Patos Marinza oil field.
The well re-activation and re-completion program continued concurrently in the third quarter and into the fourth quarter with good results. The recent re-completion and workovers initiatives have demonstrated improved productivity from the wells and have contributed to the production increase.
KUCOVA
An independent reserves evaluation to define the reserves and production potential of the Kucova oil field, compliant with National Instrument 51-101 with an effective date of September 30, 2008 has now been completed. The following table represents a summary of the Kucova oil field reserves:
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Forecast Price and Costs
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Before After
Before Tax Tax Disc. After Tax Tax Disc.
Oil Undiscounted At 10% Undiscounted At 10%
----------------------------------------------------
(Mbbl) ($000) ($000) ($000) ($000)
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Proved Undeveloped 1,518 30,406 14,583 20,137 9,294
Probable 7,042 278,209 122,265 162,622 71,291
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Total Proved Plus
Probable 8,560 308,615 136,848 182,759 80,585
Possible 25,067 1,122,460 337,416 652,337 164,163
----------------------------------------------------
Total Proved,
Probable & Possible 33,627 1,431,075 474,264 835,096 244,748
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2009 CAPITAL BUDGET
With recent sharp declines in oil prices, Bankers has decided to slow down its capital expenditure program in 2009 with an objective to remain self funding from cash flow, cash on hand and available credit facilities. Strategic allocation of the work program and budget is designed to prove additional recoverable reserves at the Patos Marinza and Kucova oil fields and still achieve an appropriate growth in production.
The revised capital program for 2009 includes the following:
- Reactivation and recompletion of existing wells:
- Drilling of vertical and horizontal wells including three
field delineation wells and one exploration well;
- A waterflood program;
- A cyclic thermal steam pilot project; and
- Field evaluation program at Kucova.
Capital investment is estimated to be in the range of $60 million and is intended to achieve a forecast exit production rate for 2009 of 9,000 bopd. The budget for 2010 remains unchanged however the exit production target has been adjusted to 14,000 bopd to reflect the reduced investment in 2009. Bankers corporate presentation will be updated and posted on its website next week.
To implement this slow down the Company terminated its recently awarded contract for an additional drilling rig and three service rigs, and will maintain its existing drilling rig and service rig agreements for 2009. Bankers will consider adding additional equipment when warranted.
LIQUIDITY
At September 30, 2008, Bankers had working capital of $17.5 million (including cash of $32.2 million). A total of $27.6 million was drawn on the facility at September 30, 2008. The Company is examining proposals for an additional expansion to its credit facility. The additional funds will be provided under a reserve-based facility and will be utilized to reaccelerate the capital spending program when favourable oil prices and economic returns would support such initiatives.
Caution Regarding Forward-looking Information
Information in this news release respecting matters such as the expected future production levels from wells, future prices and netback, work plans, anticipated total oil recovery of the Patos Marinza and Kucova oil fields constitute forward-looking information. Statements containing forward-looking information express, as at the date of this news release, the Company's plans, estimates, forecasts, projections, expectations, or beliefs as to future events or results and are believed to be reasonable based on information currently available to the Company.
Exploration for oil is a speculative business that involves a high degree of risk. The Company's expectations for its Albanian operations and plans are subject to a number of risks in addition to those inherent in oil production operations, including: that Brent oil prices could fall resulting in reduced returns and a change in the economics of the project; availability of financing; delays associated with equipment procurement, equipment failure and the lack of suitably qualified personnel; the inherent uncertainty in the estimation of reserves; exports from Albania being disrupted due to unplanned disruptions; and changes in the political or economic environment.
Production and netback forecasts are based on a number of assumptions including that the rate and cost of well takeovers, well reactivations and well recompletions of the past will continue and success rates will be similar to those rates experienced for previous well recompletions/reactivations/development; that further wells taken over and recompleted will produce at rates similar to the average rate of production achieved from wells recompletions/reactivations/development in the past; continued availability of the necessary equipment, personnel and financial resources to sustain the Company's planned work program; continued political and economic stability in Albania; approval of the Addendum to the Plan of Development; the existence of reserves as expected; the continued release by Albpetrol of areas and wells pursuant to the Plan of Development and Addendum; the absence of unplanned disruptions; the ability of the Company to successfully drill new wells and bring production to market; and general risks inherent in oil and gas operations.
Forward-looking statements and information are based on assumptions that financing, equipment and personnel will be available when required and on reasonable terms, none of which are assured and are subject to a number of other risks and uncertainties described under "Risk Factors" in the Company's Annual Information Form and Management's Discussion and Analysis, which are available on SEDAR under the Company's profile at www.sedar.com.
There can be no assurance that forward-looking statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. Readers should not place undue reliance on forward-looking information and forward looking statements.
Review by Qualified Person
This release was reviewed by Abdel F. (Abby) Badwi, CEO of Bankers Petroleum Ltd., who is a "qualified person" under the rules and policies of AIM in his role with the Company and due to his training as a professional petroleum geologist (member of APEGGA) with over 39 years experience in domestic and international oil and gas operations.
About Bankers Petroleum Ltd.
Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration and production company focused on developing large oil and gas reserves. In Albania, Bankers operates and has the full rights to develop both the Patos Marinza and the Kucova heavy oil fields. Bankers' shares are traded on the Toronto Stock Exchange and the AIM Market in London, England under the stock symbol BNK.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis (MD&A) reports on the financial condition and results of operation of Bankers Petroleum Ltd. (Bankers or the Company) for the three and nine month periods ended September 30, 2008, 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 consolidated financial statements for the three and nine month periods ended September 30, 2008 and the audited consolidated financial statements and MD&A for the year ended December 31, 2007. Additional information relating to Bankers, including its Annual Information Form, is on SEDAR at www.sedar.com or on the Company's website at www.bankerspetroleum.com. All dollar values are expressed in U.S. dollars, unless otherwise indicated, and are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). The Company reports its heavy oil production in barrels.
This report is prepared as of November 13, 2008.
NON-GAAP MEASURES
Netback per barrel and its components are calculated by dividing revenue less royalties, operating, sales and transportation expenses by the gross production volume during the period. Netback per barrel is a non-GAAP measure but it 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.
Funds from operations is a non-GAAP measure that represents cash provided by (used in) operating activities, as per the consolidated statements of cash flows, before changes in non-cash working capital. The Company considers this a key measure as it demonstrates its ability to generate the funds necessary to provide for future growth. Significant fluctuations in non-cash working capital balances as a result of activity level changes can distort the actual funds generated from operations. Reconciliation to the GAAP measure is as follows:
Three months ended Nine months ended
September 30 September 30
------------------------ ------------------------
($000s) 2008 2007 % 2008 2007 %
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Cash provided by (used
in) continuing
operating activities 13,124 6,549 100 39,522 12,615 213
Change in non-cash
working capital 1,671 (113) 1,579 1,852 2,060 (10)
------------------------ ------------------------
Funds from continuing
operations 14,795 6,436 130 41,374 14,675 182
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------------------------ ------------------------
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. The Company plans its cash requirements, in part, based on funds available from continuing operations. This allows for the effective management of payables in accordance with the collection of receivables and other non-cash working capital items.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This MD&A offers our assessment of the Company's future plans and operations as of November 13, 2008 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 MD&A 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 and natural gas
properties;
- crude oil production estimates and targets;
- the size of the oil and natural gas reserves;
- capital expenditure programs and estimates;
- projections of market prices and costs;
- supply and demand for oil and natural gas;
- 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, stable costs, availability of equipment and personnel when required, continuing favourable relations with Albanian governmental agencies and continuing strong demand for oil and natural gas.
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; and
- changes in income tax laws or changes in tax laws and incentive
programs relating to the oil and gas industry.
The Company's policy is to update its forward-looking information based on the events and circumstances that occurred during the period. In addition, the Company regularly reviews and, if necessary, updates the assumptions and risk factors associated with its forward-looking information.
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
Three months ended Nine months ended
September 30 September 30
------------------------ ------------------------
Results at a Glance(x) 2008 2007 % 2008 2007 %
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Operating
Average production
(bopd) 5,880 4,753 24 5,646 4,486 26
Average price ($/bbl) 62.08 37.14 67 59.71 32.57 83
Netback ($/bbl) 30.79 19.93 54 30.68 15.97 92
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Financial ($000s,
except as noted)
Oil revenue 33,543 16,239 107 92,377 39,891 132
Net operating income 16,318 8,714 87 47,463 19,556 143
Net income 4,876 572 752 6,420 992 547
Cash provided by
operating activities 13,124 6,549 100 39,522 12,615 213
Changes in non-cash
working capital 1,671 (113) 1,579 1,852 2,060 (10)
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Funds from operations 14,795 6,436 130 41,374 14,675 182
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Additions to property,
plant and equipment 25,502 13,066 95 56,367 37,453 51
September 30
------------------------
2008 2007 %
------------------------
Assets/liabilities
Cash and cash equivalents 32,168 8,331 286
Total assets 216,978 109,765 98
Bank loans 27,583 25,967 6
Other long-term liabilities 34,615 22,030 57
Shareholders' equity 131,262 60,790 116
(x) Excludes results from discontinued US operations.
Bankers achieved record production and significantly improved its
revenues, netback and funds from operations during the three and nine month
periods ended September 30, 2008 as compared to the same periods in 2007:
- Average production was 5,880 bopd compared to 4,753 bopd for the same
period in 2007 and 5,826 from the second quarter of 2008, an increase
of 24% and 1% respectively. Production at the end of September 2008
was approximately 6,200 bopd.
- Revenue from the third quarter was $33.5 million ($62.08/bbl) and
$92.4 million ($59.71/bbl) for the nine months ended September 30,
2008, as compared to $16.2 million ($37.14/bbl) and $38.9 million
($32.57/bbl) for the same periods in 2007.
- Net operating income (netbacks) for the three months ended
September 30 2008 increased to $16.3 million ($30.79/bbl) from
$8.7 million ($19.93/bbl) in the corresponding 2007 quarter, an
increase of 87%.
- Funds from continuing operations were $14.8 million, an increase of
130% from $6.4 million for the three months ended September 30, 2007.
For the same periods, cash provided by (used in) operating activities
was $13.1 million compared to $16.1 million in the second quarter of
2008 and $6.5 million for the same period in 2007, a decrease of 19%
and an increase of 54% respectively.
Other significant events during the quarter included:
- Continuation of drilling operations in the Patos Marinza oil field
and commencement of production from new wells. Seven successful oil
wells have been drilled as of September 30. The wells are programmed
to test the potential of multiple Gorani and Driza sandstone
formations from undrilled spacing units in the field that the Company
interprets as being undrained areas.
- Continuation of geological analysis and data gathering on the Kucova
field, of which the Company controls 100% of the working interest.
The Kucova oil field has approximately 300 million barrels of oil in
place.
- At the beginning of July 2008, Bankers completed its plan of
arrangement whereby all of the US operations and assets were split
into a new and independent company, BNK Petroleum Inc. ("BKX"). BKX
commenced trading on the Toronto Stock Exchange on July 10, 2008
(symbol: BKX); all future activities related to BKX are reported
separately. All historical financial information is referred to as
Discontinued Operations.
QUARTERLY SUMMARY
Below is a summary of Bankers' performance over the last eight quarters.
2007 2008
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($000s, except as noted) Fourth Quarter First Quarter
--------------------------------------------------- --------------------
$/bbl $/bbl
--------------------------------------------------- --------------------
Albania - crude oil
-------------------- --------------------
Average production (bopd) 5,429 5,218
-------------------- --------------------
Oil revenue 21,398 42.84 24,676 51.96
Royalties 2,207 4.42 4,298 9.05
Sales and transportation 1,332 2.67 1,664 3.50
Operating expenses 5,303 10.93 5,706 12.02
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Net operating income 12,556 24.82 13,008 27.39
-------------------- --------------------
-------------------- --------------------
2008
------------------------------------------
($000s, except as noted) Second Quarter Third Quarter
-------------------------------------------------------------------------
$/bbl $/bbl
-------------------------------------------------------------------------
Albania - crude oil
------------------------------------------
Average production (bopd) 5,826 5,880
------------------------------------------
Oil revenue 34,157 64.36 33,543 62.08
Royalties 6,601 12.43 7,790 14.40
Sales and transportation 1,727 3.27 1,932 3.57
Operating expenses 7,693 14.03 7,503 13.32
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Net operating income 18,136 34.63 16,318 30.79
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------------------------------------------
2006 2007
-------------------- --------------------
($000s, except as noted) Fourth Quarter First Quarter
--------------------------------------------------- --------------------
$/bbl $/bbl
--------------------------------------------------- --------------------
Albania - crude oil
-------------------- --------------------
Average production (bopd) 4,113 4,388
-------------------- --------------------
Oil revenue 9,250 24.44 10,739 27.19
Royalties 1,149 3.04 1,440 3.65
Sales and transportation 670 1.77 775 1.96
Operating expenses 3,737 9.88 4,014 10.16
-------------------- --------------------
Net operating income 3,694 9.75 4,510 11.42
-------------------- --------------------
-------------------- --------------------
2007
------------------------------------------
($000s, except as noted) Second Quarter Third Quarter
-------------------------------------------------------------------------
$/bbl $/bbl
-------------------------------------------------------------------------
Albania - crude oil
------------------------------------------
Average production (bopd) 4,314 4,753
------------------------------------------
Oil revenue 12,913 32.89 16,239 37.14
Royalties 1,682 4.28 1,922 4.40
Sales and transportation 1,007 2.56 1,068 2.44
Operating expenses 4,048 9.91 4,535 10.37
------------------------------------------
Net operating income 6,176 16.14 8,714 19.93
------------------------------------------
------------------------------------------
2007 2008
--------- -------------------------------
Fourth First Second Third
($000s, except as noted) Quarter Quarter Quarter Quarter
--------- -------------------------------
General and administrative 2,667 2,091 2,034 2,157
Funds from continuous
operations 9,680 9,488 16,753 14,795
Net income (loss) from
continuous operations (2,126) 539 1,005 4,876
Basic/diluted earnings (loss) 0.027/
per share(1) (0.014) 0.003 0.006 0.026
Total assets 204,295 272,469 315,631 216,978
Bank loans 30,850 30,218 29,004 27,583
2006 2007
--------- -------------------------------
Fourth First Second Third
Quarter Quarter Quarter Quarter
--------- -------------------------------
General and administrative 1,650 1,249 1,699 1,779
Funds from continuous
operations 1,750 3,247 4,946 6,453
Net income (loss) from
continuous operations (372) (477) 897 572
Basic and diluted earnings
(loss) per share(1) (0.003) (0.003) 0.006 0.004
Total assets 138,030 168,005 175,550 185,652
Bank loans 6,772 15,987 19,471 25,967
(1) On July 30, 2008, the Company completed the consolidation of its
shares on the basis of one (1) new post-consolidation share for each
three (3) pre-consolidation shares. The computations of basic and
diluted earnings (loss) per share for all the periods presented are
based on the new number of shares after giving effect to the share
consolidation.
DISCUSSION OF OPERATING RESULTS
Production, Revenue and Netback
Three months ended Nine months ended
September 30 September 30
------------------------ ------------------------
2008 2007 % 2008 2007 %
-------------------------------------------------------------------------
Average production
(bopd) 5,880 4,753 24 5,646 4,486 26
Oil and gas revenue
($000) 33,543 16,239 107 92,377 39,891 132
Netback ($/bbl)
Average price 62.08 37.14 67 59.71 32.57 83
Royalties 14.40 4.40 227 12.08 4.12 193
Sales and transportation 3.57 2.44 46 3.44 2.33 48
Operating 13.32 10.37 28 13.51 10.16 33
Netback 30.79 19.93 54 30.68 15.97 92
For the three months ended September 30, 2008, Bankers continued its production increase as more wells were re-activated and re-completed in Albania, bringing the active well count to 195 with the re-activation of 29 wells in the quarter. At September 30, 2008, the Company also had 43 wells waiting for minor servicing and three wells awaiting reactivation. Average production increased to 5,880 bopd during the quarter, an increase of 24% from 4,753 bopd from the same quarter a year ago. For the nine months ended September 30, 2008, average production increased by 26% to 5,646 bopd from 4,486 bopd for the comparable nine months in 2007.
Even though commodity prices commenced a retrenchment during the third quarter, the Company received an average of $62.08/bbl as compared to $37.14/bbl for the same period in 2007, an increase of 67%. For the nine months ended September 30, 2008, Bankers averaged $59.71/bbl, an increase of 83%, as compared to $32.57/bbl for the same period in 2007.
Oil revenue for the third quarter was $33.5 million, an increase of 107% from $16.2 million for the corresponding quarter a year ago. Oil revenue was $92.4 million for the nine months ended September 30, 2008, compared to $39.9 million for the same period in 2007, an increase of 132%.
For the 2008 third quarter, the Company's netback (revenue less royalties, operating costs and sales/transportation expenses) increased to $30.79/bb from $19.93/bbl for the same period in 2007. For the nine months ended September 30, 2008, the average netback increased by 92% to $30.68/bbl from $15.97/bbl in the comparable 2007 period. The improvement in netback resulted from higher oil prices and improved economics of higher production.
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 third quarter, royalties increased to $14.40/bbl (23% of oil revenue) from $4.40/bbl (12%) for the corresponding period in 2007. Royalties increased primarily in relation to implementation of a higher royalty rate, effective April 1, 2008, and higher domestic sales prices. Bankers had previously proposed a 9% increase in the gross overriding royalty during the cost recovery period in exchange for expanded development opportunities of the Patos Marinza oil field, and effective August 12, 2008 the Albanian Parliament approved an amendment to the hydrocarbon fiscal system by establishing a 10% royalty tax. Bankers is awaiting approval of amendments to the Petroleum and License Agreements that will, effectively offset the royalty tax against future income taxes. For the nine months ended September 30, 2008, royalties increased to $12.08/bbl (20%) from $4.12/bbl (13%) in the same 2007 period.
Operating Expenses
Operating expenses for the third quarter increased to $13.32/bbl from $10.37/bbl for the same period in 2007, mainly due to higher average fuel/diluent costs. Correspondingly, the sales and transportation costs for the quarter increased to $3.57/bbl from $2.44/bbl for the 2007 third quarter. For the nine months ended September 30, 2008, operating costs averaged $13.51/bbl while sales and transportation costs averaged $3.44/bbl, as compared to $10.16/bbl and $2.33/bbl, respectively for the comparable 2007 periods. Lower commodity prices in the third quarter of 2008 have resulted in lower fuel and diluent costs as compared to the 2008 second quarter which reported operating costs of $14.03/bbl. Sales and transportation expenses increased in the third quarter to $3.57/bbl compared to $3.27/bbl in the preceding quarter due to an inventory adjustment recorded in the second quarter which reduced the average costs for that period.
General and Administrative Expenses
General and administrative expenses (G&A) were $2.2 million for the quarter compared to $2.0 million for the preceding quarter and $1.8 million for the same period in 2007. G&A increased to $6.3 million for the nine months ended September 30, 2008, from $4.7 million for the same period in 2007. The increase in general and administrative expenses primarily reflected increased personnel costs and higher travel expenses related to the Company's operating and financing activities.
During the quarter, the Company capitalized Albanian general and administrative expenses of $786,000 compared to $1.1 million for the preceding quarter and $583,000 for the same period in 2007. These expenses were directly related to acquisition, exploration and development activities.
Non-cash stock-based compensation expense pertaining to options vested and/or granted to officers, directors, employees and service providers were $1.4 million compared to $4.1 million for the preceding quarter and $816,000 for the same period in 2007. Of this amount, $1.1 million was charged to earnings during this quarter, compared to $3.5 million and $780,000 that was charged to earnings for the preceding period and the period ending September 30, 2007.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expense for the quarter ended September 30, 2008 were $3.3 million, compared to $3.2 million for the preceding quarter and $2.1 million for the same period in 2007. The increase in depletion, depreciation and accretion expense reflects an overall increase in the depletable base, commensurate with production level for the period. Depletion expense represented $5.68/bbl for the quarter compared to $5.67/bbl and $4.46/bbl, respectively for the preceding quarter and the same period in 2007. For the nine months ended September 30, 2008, the depletion expense attributable to the Albanian production was $8.7 million ($5.67/bbl), compared to $5.6 million ($4.41/bbl) for the same period in 2007.
Income Taxes
Future income tax liabilities result from the temporary differences between the carrying value and tax values of its Albanian assets and liabilities. As of September 30, 2008, the net book value of the Albania property, plant and equipment exceeded their tax value by $62.8 million, compared to $26.8 million on December 31, 2007. Applying a tax rate of 50%, the Company recorded a $31.4 million future income tax liability, compared to $13.4 million at the end of 2007. The Company recorded a future income tax expense of $4.2 million for the quarter compared to $9.0 million for the preceding quarter and $2.9 million for the same period in 2007. The reduction was mainly due to the prior period cost recovery adjustment and inclusion of 10% royalties as a component of cost recovery pool.
The cost recovery pool represents deductions for income taxes in Albania. Bankers is presently not paying cash taxes in any jurisdiction.
Net Income and Funds from Continuous Operations
The Company recorded net income of $4.9 million ($0.027 per share) during the quarter, $1.0 million ($0.006 per share) for the preceding quarter and net income of $572,000 ($0.004 per share) for the same period in 2007. For the nine months ended September 30, 2008, Bankers recorded net income of $6.2 million compared to $992,000 for the same period in 2007.
Bankers generated funds from operations of $14.8 million during the quarter compared to $16.8 million for the preceding quarter and $6.4 million for the same period in 2007. For the nine months ended September 30, 2008, $41.4 million of funds from operations were generated compared to $14.7 million in 2007. The increase in funds from operations is mainly due to production increases and higher commodity prices obtained during the period. Cash provided by continuing operating activities amounted to $13.1 million during the quarter compared to $16.1 million for the preceding quarter and $6.5 million in 2007.
OPERATIONS UPDATE
Albania
Patos Marinza Field -------------------
As outlined in the Addendum to the Plan of Development for the Patos Marinza oil field, the Company initiated its vertical infill drilling program on June 21, 2008 with the first of four new wells drilled off the first well pad. The wells encountered multiple producing horizons and have been cased and completed in different zones to test their potential.
As of September 30, 2008 seven wells have been drilled and cased with the latter three wells drilled off a second well pad. The initial production rates from these wells have been between 15 and 60 bopd from four different zones. All zones are producing sand at various concentrations of up to 30 percent, which is typical of initial production in heavy oil reservoirs and encouraging in that it demonstrates the initiation of the Cold Heavy Oil Production with Sand ("CHOPS") process. As the wells continue to clean up, it is expected that production rates from each individual well will continue to increase. Overall, the production levels from the new wells are in line with our forecasts.
Since the end of the quarter, the Company has continued drilling the eighth, ninth, tenth and eleventh wells in the program off a third well pad to target other infill spacing units and continue testing the production potential of the different producing horizons.
The well re-activation and re-completion program continued concurrently in the third quarter and into the fourth quarter with good results. The recent re-completion and workovers initiatives have demonstrated improved productivity from the wells and have contributed to the recent production increase.
Expansion of the second train of the 8,000 bopd Central Treating Facility with the construction of a second emulsion receiving and water tank was completed during the quarter. The tanks are aimed toward improving the water quality for disposal purposes and as potential source water for the upcoming waterflood program.
Initial waterflood formation and area selection, pattern layout and design have been finalized. Injectivity tests will commence this month on selected injection wells to determine expected rates and pressures. Initial pattern conversions are anticipated to commence before year end. Detailed third party reservoir simulation work has commenced to optimize waterflood performance and production rate predictions.
Export Capacity ---------------
Bankers has 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 metre 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 next year.
Kucova Field ------------
As of June 2008, Bankers has acquired 100% of Sherwood International Petroleum Ltd., which owns a 100% working interest in the Kucova oil field. As a result, Bankers holds the exclusive right to evaluate and redevelop the Kucova heavy oil field pursuant to a Petroleum Agreement with Albpetrol Sh.A., the state-owned petroleum company, and a License Agreement with the National Agency of National Resources (AKBN). The terms of the Petroleum Agreement are substantially the same as those governing Bankers' Petroleum Agreement for the Patos Marinza oil field in Albania.
An independent reserves evaluation to define the remaining reserves and production potential of the Kucova oil field, compliant with National Instrument 51-101, has been completed, with an effective date of September 30, 2008, and is summarized below:
----------------------------------------------------
Forecast Price and Costs
----------------------------------------------------
Before After
Before Tax Tax Disc. After Tax Tax Disc.
Oil Undiscounted At 10% Undiscounted At 10%
----------------------------------------------------
(Mbbl) ($000) ($000) ($000) ($000)
-------------------------------------------------------------------------
Proved Undeveloped 1,518 30,406 14,583 20,137 9,294
Probable 7,042 278,209 122,265 162,622 71,291
----------------------------------------------------
Total Proved Plus
Probable 8,560 308,615 136,848 182,759 80,585
Possible 25,067 1,122,460 337,416 652,337 164,163
----------------------------------------------------
Total Proved,
Probable & Possible 33,627 1,431,075 474,264 835,096 244,748
-------------------------------------------------------------------------
CAPITAL EXPENDITURES
Three months ended Nine months ended
September 30 September 30
-------------------------------------------------------------------------
($000) 2008 2007 2008 2007
-------------------------------------------------------------------------
Albania 25,497 13,010 56,266 37,216
Canada 5 56 101 237
---------------------------------------
Total capital expenditure 25,502 13,066 56,367 37,453
---------------------------------------
---------------------------------------
The Company incurred $25.5 million of capital expenditures in Albania during the quarter primarily on the well re-activation and drilling programs at $8.2 million and $8.3 million, respectively. In preparation for future drilling activities, Bankers invested $5.4 million in casing, tubing and capital equipment inventory. The remaining expenditures related to asset acquisitions and capitalized general and administrative expenses. The Company spent $13.0 million in capital expenditures in Albania for the same period in 2007, which were mainly incurred on well re-activation and construction of the central treatment facilities.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2008, Bankers had working capital of $17.5 million (including cash of $32.2 million) and a long-term bank loan of $7.8 million. At September 30, 2008, a total of $27.6 million was drawn on the facility; the revolving operating loan at $14.5 million, $1.5 million bridge facility and the four-year term loan at $11.6 million. Repayments of $3.4 million were made during the nine months ended September 30, 2008. Bankers is examining additional proposals for an expansion to its credit facility. The additional funds will be provided under a reserve-based facility that is more closely aligned with the $205 million 10%-discounted valuation of the proved reserves at December 31, 2007.
The Company's approach to managing liquidity is to ensure a balance between capital expenditure requirements and, funds from operations, available credit facilities and working capital. In recognition that significant changes in expected commodity prices could impact funds from operations, capital expenditures for the fourth quarter will be reduced accordingly.
In March 2008, the Company completed a non-brokered private placement, issuing an aggregate of 22,222,222 common shares at CAD$2.7 per share, resulting in net proceeds of $58.3 million. During the nine months ended September 30, 2008, Bankers received proceeds of $11.0 million from the exercise of an aggregate of 6,179,624 options and $8.9 million from the exercise of an aggregate of 3,301,838 warrants.
With the separation of the US operations into a new independent entity BNK Petroleum Inc. ("BKX") in July 2008, Bankers will no longer be funding any further capital expenditures for those assets. Bankers had provided a $23.0 million loan to BKX to be used as a guarantee to a U.S. bank as security for a new credit facility for BKX. The interest-bearing note from BKX is due in October 2012 and will be reduced from BKX's equity issues and reserve valuation increases. On August 10, 2008, $10.0 million was repaid to Bankers, reducing the note to $13.0 million at September 30, 2008.
As of September 30, 2007, the Company had a working capital deficiency of $3.9 million and a term loan of $11.3 million. Bankers had a working capital deficiency of $9.6 million and a term loan of $11.3 million at December 31, 2007.
On July 30, 2008, the Company completed the consolidation of its shares on the basis of one (1) new post-consolidation share for each three (3) pre-consolidation shares. The exercise price and number of stock options and common share purchase warrants were adjusted proportionately.
There were approximately 183 million of shares outstanding as at September 30, 2008 and November 13, 2008, on a post-consolidation basis. In addition, the Company had approximately 9 million and 9 million stock options and warrants outstanding as of the same dates.
Plan of Development
Bankers has provided an Addendum to the Plan of Development for the Patos Marinza oil field. The annual work program and budget has been submitted to Albpetrol and AKBM 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.
Commitments
The Company has long-term lease commitments in Canada and Albania. The minimum lease payments for the next five years are $664,000 and outlined as follows:
($000) Canada Albania Total
-------------------------------------------------------------------------
2008 41 44 85
2009 162 49 211
2010 162 37 199
2011 162 - 162
2012 7 - 7
------------------------
534 130 664
------------------------
------------------------
The Company has an $11.6 million term loan with a European financial
institution that is repayable in equal monthly instalments over a 48-month
period commencing January 1, 2008. Of the amount outstanding, $3.75 million
was classified as a current liability and $7.81 million as long-term debt.
Principal repayments of the term loan over the next four years are as follows:
($000)
-------------------------------------------------------------------------
2008 938
2009 3,750
2010 3,750
2011 3,125
--------
11,563
--------
--------
The Company has committed to contribute (euro)1,355,000 to a dedicated oil export terminal facility ((euro)855,000 by December 31, 2008 and (euro)500,000 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 risks described below:
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, many of which have 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 most recent AIF filed under the Company's profile on www.sedar.com.
RESTRUCTURING AND DISCONTINUED OPERATIONS
Pursuant to shareholders' approval at the Annual and Special General Meeting on June 27, 2008, the Company completed its plan of arrangement, effective at the beginning of July 2008, which resulted in all of the Company's US operations and assets being transferred into a new, independent company: BNK Petroleum Inc. ("BKX"). BKX commenced trading on the Toronto Stock Exchange (symbol: BKX) on July 10, 2008. This transaction will allow Bankers to focus on development of heavy oil properties in Albania, its core business. Accordingly the operations of BKX have now been classified as discontinued operations. This transaction is considered a distribution to shareholders, and no gain or loss has been realized. Restructuring costs of $2.8 million, pertaining to the completion of the above transaction, have been charged to retained earnings (deficit). Details were as follows:
- Shareholders of the Company received shares of BKX on a proportional
basis to their interest in Bankers, namely one (1) share in BKX for
every ten (10) common shares held in Bankers.
- The exercise price for Company's outstanding common share purchase
warrants and stock options were reduced by approximately 13% to
reflect the valuation impact of the BKX spinout.
RELATED PARTY TRANSACTIONS
The Company currently does not have any material related party
transactions that require to be reported.
NEW ACCOUNTING STANDARDS
The Canadian Institute of Chartered Accountants ("CICA") has released new
accounting standards for implementation effective January 1, 2008, as follows:
- Inventories (Section 3031): the new standard replaces the previous
inventories standard and prescribes certain methods for valuing
inventories. The adoption of this standard has had no material impact
on the Company's consolidated financial statements.
- Financial Instruments - Disclosures and Presentation (Section
3862/3): the new standard requires increased disclosure regarding the
Company's financial instruments, the risks associated with these
instruments and how the risks are managed. The required disclosures
are contained in Note 1 to the Company's interim unaudited
consolidated financial statements.
- Capital Disclosures (Section 1535): the new standard requires the
Company to disclose its definition of capital and its objectives,
policies and processes for managing its capital structure. The
required disclosures are contained in Note 1 to the Company's interim
unaudited 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 and has engaged external advisors
to plan the IFRS initiative, including an assessment of transitional
requirements in the 2008 fourth quarter and to identify expected
impacts on the Company. Regular reports on the IFRS transition status
will be made to Management and the Audit Committee.
INTERNAL CONTROLS
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management, as appropriate, to allow timely decisions regarding required disclosure. The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of September 30, 2008 and advisory reports, that the Company's disclosure controls and procedures are effective to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made known to them by others within those entities. During the three months ended September 30, 2008, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
On April 18, 2008, the Canadian Securities Administrators published the notice and request for comments for the proposed repeal and replacement of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings. The proposed changes would include the requirement to provide certification of the effectiveness of internal controls over financial reporting for years ending after December 15, 2008. On July 11, 2008, the Canadian Securities Administrators issued Staff Notice 52-322 recommending securities commissions proceed with the December 15, 2008 effective date. The Company is developing plans to test the operating effectiveness of internal controls over financial reporting and provide the required certification.
OUTLOOK
Bankers' strategic objective is to remain focused on exploration and production activities in Albania. The three-year strategic plan for the Patos Marinza oil field provides significant potential for growth in production and reserves through primary, secondary and tertiary extraction techniques, such as infill vertical and horizontal drilling, waterflood and thermal recovery techniques. The various technologies will be focused to maximize the recoveries from each formation through disciplined and staged exposure of capital and an overall 'field to formation' development plan.
Now that the Company has completed an independent reserves evaluation to define the remaining reserves and production potential of the Kucova oil field. Bankers will create a plan of development for this field, incorporating many of the extraction techniques utilized in the Patos Marinza field.
With recent sharp declines in oil prices, Bankers has elected to slow down its capital expenditures program in 2009 with an objective to remain self funding from cash flow, cash on hand and available credit facilities. The 2009 budget is designed to prove additional recoverable reserves at Patos Marinza and Kucova oil fields and achieve an appropriate growth in production. The revised forecast exit production rate for 2009 is expected to be 9,000 bopd.
BANKERS PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS
September 30 December 31
2008 2007
-------------------------
Current assets
Cash and cash equivalents (Note 12) $ 32,168 $ 2,599
Restricted cash (Note 2) 1,500 -
Investments (Note 3) 824 1,120
Accounts receivable 20,187 15,378
Crude oil inventory 2,204 985
Deposits and prepaid expenses 3,948 850
Assets of discontinued operations (Note 13) - 7,462
-------------------------
60,831 28,394
Note receivable (Note 4) 13,000 -
Property, plant and equipment (Note 5) 143,147 94,107
Property, plant and equipment of discontinued
operations (Note 13) - 81,794
-------------------------
$216,978 $204,295
-------------------------
-------------------------
LIABILITIES
Current liabilities
Operating loans (Note 6) $ 16,020 $ 15,805
Accounts payable and accrued liabilities 23,518 11,104
Current portion of term loan (Note 6) 3,750 3,750
Accounts payable and accrued liabilities of
discontinued operations (Note 13) - 7,340
-------------------------
43,288 37,999
Term loan (Note 6) 7,813 11,250
Asset retirement obligations (Note 7) 3,187 2,177
Future income tax liability (Note 8) 31,428 13,400
Asset retirement obligations of discontinued
operations (Note 13) - 433
SHAREHOLDERS' EQUITY
Share capital (Note 9) 121,907 136,513
Warrants (Note 9) 2,088 2,539
Contributed surplus (Note 9) 10,055 8,308
Deficit (2,492) (8,324)
Accumulated other comprehensive loss (296) -
-------------------------
131,262 139,036
-------------------------
$216,978 $204,295
-------------------------
-------------------------
Commitments (Note 11)
Subsequent event (Note 14)
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT, COMPREHENSIVE INCOME
AND ACCUMULATED OTHER COMPREHENSIVE INCOME
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------------------------
2008 2007 2008 2007
Deficit
Balance, beginning of period $(9,404) $(6,432) $(8,324) $(5,982)
Net income (loss) for the period 4,876 264 6,232 (186)
Discontinued operations (Note 13) 2,396 - 2,396 -
Restructuring costs (Note 13) (360) - (2,796) -
------------------------------------
Balance, end of period $(2,492) $(6,168) $(2,492) $(6,168)
------------------------------------
------------------------------------
Comprehensive income (loss)
Net income (loss) for the period $ 4,876 $ 264 $ 6,232 $ (186)
Unrealized loss on investments
(Note 3) (1,454) (2,767) (296) (2,767)
------------------------------------
Comprehensive income (loss) $ 3,422 $(2,503) $ 5,936 $(2,953)
------------------------------------
------------------------------------
Accumulated other comprehensive
income
Balance, beginning of period $ 1,158 $ - $ - $ -
Unrealized loss on investments (1,454) (2,767) (296) (2,767)
------------------------------------
Balance, end of period $ (296) $(2,767) $ (296) $(2,767)
------------------------------------
------------------------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, expressed in Thousands of United
States dollars, except per share amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ -----------------
2008 2007 2008 2007
------------------ -----------------
Revenue
Oil revenue $33,543 $16,239 $92,377 $39,891
Royalties (7,790) (1,922) (18,689) (5,044)
Interest 541 91 1,141 331
------------------------------------
26,294 14,408 74,829 35,178
------------------------------------
Expenses
Operating 7,503 4,535 20,902 12,441
Sales and transportation 1,932 1,068 5,323 2,850
General and administrative 2,157 1,779 6,282 4,727
Interest and bank charges 361 242 897 553
Interest on term loan 184 338 812 876
Foreign exchange loss (gain) 661 10 876 (944)
Stock-based compensation (Note 9) 1,137 780 5,922 2,019
Depletion, depreciation and
accretion 3,327 2,140 9,367 5,942
------------------------------------
17,262 10,892 50,381 28,464
------------------------------------
Income from continuing operations
before income tax 9,032 3,516 24,448 6,714
Future income tax expense (Note 8) (4,156) (2,944) (18,028) (5,722)
------------------------------------
Income from continuing operations 4,876 $ 572 $ 6,420 $ 992
Discontinued operations (Note 13) - (308) (188) (1,178)
------------------------------------
Net income (loss) for the period 4,876 264 6,232 (186)
------------------------------------
------------------------------------
Basic earnings per share - continuing
operations $ 0.027 $ 0.004 $ 0.037 $ 0.007
------------------------------------
Diluted earnings per share -
continuing operations $ 0.026 $ 0.004 $ 0.035 $ -
------------------------------------
------------------------------------
Basic loss per share - discontinued
operations - (0.002) (0.001) (0.008)
------------------------------------
------------------------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
------------------ -----------------
2008 2007 2008 2007
------------------------------------
Cash provided by (used in):
Continuing operations:
Net income from continuing
operations $ 4,876 $ 572 $ 6,420 $ 992
Items not involving cash:
Depletion, depreciation and
accretion 3,327 2,140 9,367 5,942
Future income tax expense 4,156 2,944 18,028 5,722
Stock-based compensation 1,137 780 5,922 2,019
Foreign exchange loss 1,299 - 1,637 -
------------------------------------
14,795 6,436 41,374 14,675
Change in non-cash working capital
(Note 12) (1,671) 113 (1,852) (2,060)
------------------------------------
13,124 6,549 39,522 12,615
------------------------------------
Cash provided by (used in) operating
activities of discontinued
operations - 10,682 10,470 (2,588)
------------------------------------
Investing activities
Additions to property, plant and
equipment (25,502) (13,066) (56,367) (37,453)
Additions to property, plant and
equipment of discontinued
operations - (13,053) (25,465) (25,937)
Proceeds from sale of property,
plant and equipment - - - 15,000
Increase in restricted cash - - (1,500) -
Change in non-cash working
capital (Note 12) 2,564 2,961 4,540 1,539
------------------------------------
(22,938) (23,158) (78,792) (46,851)
------------------------------------
Financing activities
Issue of shares for cash 6,852 - 79,914 21,535
Share issue costs (5) - (1,490) (1,407)
Note receivable (2,465) - (13,000) -
Restructuring costs (360) - (2,796) -
Increase (decrease) in operating
loans (484) 6,496 215 6,195
Decrease in term loan (937) - (3,437) -
Change in non-cash working
capital (Note 12) (1,836) - 600 -
------------------------------------
765 6,496 60,006 39,323
------------------------------------
Foreign exchange loss on cash and
cash equivalents held in foreign
currencies (1,299) - (1,637) -
------------------------------------
Increase (decrease) in cash and
cash equivalents (10,348) 569 29,569 2,499
Cash and cash equivalents,
beginning of period 42,516 7,762 2,599 5,832
------------------------------------
Cash and cash equivalents, end
of period (Note 12) $32,168 $ 8,331 $32,168 $ 8,331
------------------------------------
------------------------------------
See accompanying notes to consolidated financial statements.
Notes to the Consolidated Financial Statements
(Unaudited, Expressed in Thousands of 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, 2007. In the opinion of the Company, the 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:
On January 1, 2008, the Company adopted a new Canadian accounting
standard on inventories which establishes standards for the
measurement and disclosure of inventories including guidance on the
determination of cost. The adoption of this standard did not have a
significant impact on the Company's interim consolidated financial
statements.
Effective January 1, 2008, the Company adopted the new Canadian
accounting standards relating to financial instruments and capital
disclosures.
Financial risk management
Overview
The Company has exposure to credit, liquidity and market risk.
This note presents information about the Company's exposure to
each risk, the Company's objectives, policies and processes for
measuring and managing risk, and management of capital.
The Board of Directors of the Company has the overall
responsibility for the establishment and oversight of the
Company's risk management framework. The Board has implemented and
monitors compliance with risk management policies. The Company's
risk management policies are established to identify and analyze
the risks faced, to set appropriate risk limits and controls, and
to monitor risks and adherence to market conditions and the
Company's activities.
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 its petroleum refineries. As at
September 30, 2008, the Company's receivables consisted of $19,497
(December 31, 2007 - $15,018) of receivables from petroleum and
natural gas marketers and $690 (December 31, 2007 - $360) of other
trade receivables.
In Albania, domestic receivables from a petroleum refinery are
collected by the end of the month following production. Export
receivables are collected within 30 days from the date of the
shipment. The Company's revenues are derived from three
independent parties, all of which are solvent. The Company's
policy to mitigate credit risk associated with these balances is
to establish marketing relationships with large purchasers. The
Company historically has not experienced any collection issues
with sales to the petroleum refineries. As of September 30, 2008,
none of the receivables were considered past due.
Cash and cash equivalents consist of cash, bank balances and
short-term deposits with original maturities of less than 90 days.
The Company manages the credit exposure related to short-term
investments by selecting counter parties based on credit ratings
and monitors all investments to ensure a stable return, avoiding
complex investment vehicles with higher risk such as asset backed
commercial paper.
The carrying amount of accounts receivable represents the maximum
credit exposure. As of September 30, 2008 and December 31, 2007,
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, as no receivables were considered past
due or impaired.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they are due. The Company's
approach to managing liquidity is to plan that it will have
sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions without incurring unacceptable
losses or risking harm to the Company's reputation.
The Company prepares annual capital expenditure budgets, which are
regularly monitored and modified as considered necessary. Further,
the Company utilizes authorizations for expenditures on both
operated and non-operated projects to further manage capital
expenditures. To facilitate the capital expenditure program, the
Company has a revolving credit facility with a European financial
institution based in Albania, as outlined in note 6, which is
reviewed annually by the lender. The Company also attempts to
match its payment cycle with collection of petroleum revenues. The
Company maintains a close working relationship with the European
bank that provides its credit facility and has been advised that
the current economic turmoil is not impacting on the bank's
ability to fund any credit facilities. The renewal of and increase
in the existing credit facility has just been approved
(Note 14(a)).
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, commodity prices, and interest rates will
affect the Company's net income. The objective of market risk
management is to manage and control market risk exposures within
acceptable limits, while maximizing returns.
Foreign currency exchange rate risk
Foreign currency exchange rate risk is the risk that the fair
value of future cash flows will fluctuate as a result of changes
in foreign exchange rates. As at September 30, 2008, a 10% change
in the foreign exchange rate of the Canadian dollar against the
United States dollar, with all other variables held constant,
would affect after tax net income for the three and nine month
periods by $800 and $2,400 respectively (nil for the same periods
in 2007). The sensitivity is higher in 2008 as compared to 2007
because of an increase in Canadian dollar cash and cash
equivalents outstanding.
As at September 30, 2008, a 10% change in the foreign exchange
rate of the Albanian Lek against United States dollar, with all
other variables held constant, would affect after tax net income
for the three and nine month periods by $1 and $3 respectively
($21 and $63 respectively for the same periods in 2007). The
sensitivity is lower in 2008 compared to 2007 because of a
decrease in Albania Lek cash and cash equivalent outstanding.
The Company had no forward exchange rate contracts in place as at
or during the period ended September 30, 2008.
Commodity price risk
Commodity price risk is the risk that the value of future cash
flows will fluctuate as a result of changes in commodity prices.
Commodity prices for petroleum and natural gas are impacted by
world economic events that dictate the levels of supply and
demand. The Company's primary revenues are from heavy oil sales in
Albania, priced on a quality differentiated basis, to the Brent
oil price. As at September 30, 2008, a $1 per barrel change in the
Brent price, with all other variables held constant, would affect
after tax net income for the three and nine month periods ended
September 30, 2008 by $112 and $333 respectively ($104 and $290
respectively for the same periods in 2007).
The Company has not attempted to mitigate commodity price risk
through the use of various financial derivative and physical
delivery sales contracts.
Interest rate risk
Interest rate risk is the risk that future cash flows will
fluctuate as a result of changes in market interest rates. The
Company is exposed to interest rate fluctuations on its bank debt
which bears a floating rate of interest. As at September 30, 2008,
a 10% change in the interest rate, with all other variables held
constant, would affect after tax net income for the three and nine
month periods ending September 30, 2008 by $62 and $186
respectively ($58 and $175 respectively for the same periods in
2007).
The Company had no interest rate swap or financial contracts in
place as at September 30, 2008.
Capital management
The Company's policy is to maintain a strong capital base thereby
establishing investor, creditor and market confidence and to
sustain future business development. The Company manages its
capital structure and makes necessary adjustments in light of
changes in economic conditions and the risk characteristics of the
underlying petroleum and natural gas assets. The Company's capital
structure included shareholders' equity, bank debt and working
capital. In order to maintain the capital structure, the Company
may from time to time issue shares and adjust capital spending to
manage current and projected debt levels.
The Company monitors capital based on the ratio of debt to
annualized cash flow. This ratio is calculated as net debt
(outstanding bank debt plus or minus working capital) divided by
cash provided by operating activities before changes in non-cash
working capital for the most recent quarter, annualized. The
Company's strategy is to maintain a debt/cash flow ratio of no
more than 1.5 to 1. This ratio may increase at certain times as a
result of acquisitions. In order to monitor this ratio, the
Company prepares annual capital expenditure budgets, which are
updated as necessary depending on varying factors including
current and forecast prices, successful capital deployment and
general industry conditions. The annual and updated budgets are
approved by the Board of Directors.
As at September 30, 2008 and December 31, 2007, the Company's
ratio of net debt to annualized cash flow were (0.18) and 0.52 to
1, respectively, which were within the range established by the
Company. The Company's share capital is not subject to external
restrictions; however the bank debt facility is based on certain
covenants, all of which were met as at September 30, 2008. The
Company has not paid or declared any dividends since the date of
incorporation, nor are any contemplated in the foreseeable future.
The unaudited consolidated financial statements include the accounts
of the Company and its wholly-owned operating subsidiary - Bankers
Petroleum Albania Ltd. ("BPAL"). Effective July 1, 2008, the
operations of Bankers Petroleum (U.S.) Inc., a former wholly-owned
subsidiary of the Company, were transferred into a new, independent
company (Note 13). As a result, certain prior period figures have
been re-classified to conform to the current period's presentation.
Unless where otherwise noted, the unaudited interim consolidated
financial statements and their accompanying notes are presented in
thousands of United States dollars.
2. RESTRICTED CASH
As security for a letter of credit issued to secure certain capital
projects in Albania by November 2009, $1,500 (December 31, 2007 -
nil) is held on deposit with a Canadian bank. The funds are invested
in an interesting bearing revolving term deposit.
3. INVESTMENTS
September 30, December 31,
2008 2007
---------------------------------------------------------------------
Marketable securities $ 824 $ 1,120
------------------------
------------------------
As at September 30, 2008, the Company held certain marketable
securities which were designated as available-for-sale financial
instruments. The fair value of the investments at that date was $824
(2007 - $1,120). Accordingly, an unrealized loss of $296 (2007 - nil)
was recorded in other comprehensive income for the nine month period
ended September 30, 2008.
4. NOTE RECEIVABLE
The note receivable of $13,000 (December 31, 2007 - nil) represents
the residual amount due from BNK Petroleum Inc. ("BKX",). The note
matures in October 2012 and bears interest at one year LIBOR plus
3.5% and is secured by a floating charge debenture and a general
security agreement. There are no scheduled repayments of this note,
however, 50% of any future equity financing by BKX and 90% of any
increase in BKX's borrowing base by BKX will be directed towards the
repayment of this note. The Company has no further obligation to
increase the note.
5. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the Company's property, plant and
equipment as at September 30, 2008 and December 31, 2007:
2008 2007
-------------------------------- ----------
Accumu-
lated
Depletion
and
Deprecia- Net Book Net Book
Cost tion Value Value
-------------------------------- ----------
Oil and gas properties $ 164,561 $ 23,724 $ 140,837 $ 92,265
Equipment, furniture
and fixtures 3,377 1,067 2,310 1,842
-------------------------------- ----------
$ 167,938 $ 24,791 $ 143,147 $ 94,107
-------------------------------- ----------
-------------------------------- ----------
The depletion expense calculation for the three months ended
September 30, 2008, excluded $3,617 (2007 - nil) relating to unproved
and non-producing properties in Albania.
Depletable assets for the depletion calculation for the three months
ended September 30, 2008, included $143,000 (2007 - $101,000) for
estimated future development costs associated with proved undeveloped
reserves in Albania.
The Company capitalized general and administrative expenses and
stock-based compensation of $786 and $2,579 during the three and nine
months periods ended September 30, 2008, respectively ($583 and
$1,387 for the corresponding periods in 2007) that were directly
related to exploration and development activities in Albania.
6. TERM AND OPERATING LOAN FACILITY
The Company has established credit facilities with a European
financial institution based in Albania. The credit facility is
comprised of a $16,000 operating loan, a $1,500 ((euro)1 million)
bridge facility and an $11,563 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 September 30, 2008.
a) Operating Loans
Included in the operating loans is a one year loan bearing interest
at one year LIBOR plus 3.5%. The term of this 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 September
30, 2008, $14,546 (December 31, 2007 - $15,805) of this operating
loan was drawn down. In addition, the Company has established a
$1,500 bridge facility, of which $1,474 (December 31, 2007 - nil) was
drawn at September 30, 2008.
b) Term Loan
The term loan bears interest at one year LIBOR plus 4.5% and is
repayable in equal monthly instalments over a 48-month period. As at
September 30, 2008, the entire term loan was drawn down. Of the
amount outstanding, $3,750 was classified as a current liability and
$7,813 as long-term debt.
Principal repayments of the term loan over the four years are as
follows:
---------------------------------------------------------------------
2008 $ 938
2009 3,750
2010 3,750
2011 3,125
----------
$ 11,563
----------
----------
7. ASSET RETIREMENT OBLIGATIONS
In Albania, the Company estimated the total undiscounted amount
required to settle the asset retirement obligations at $19,808
(December 31, 2007 - $15,058). These obligations will be settled at
the end of the Company's 25-year license of which 23 years are
remaining. The liability has been discounted using a credit-adjusted
risk-free interest rate of 9% and an inflation rate of 2.5% to arrive
at asset retirement obligations of $3,187 as at September 30, 2008.
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2007 $ 2,177
Liabilities incurred during the period 826
Accretion 184
----------
Asset retirement obligations, September 30, 2008 $ 3,187
----------
----------
8. INCOME TAXES
Future income tax expense relates to the Albanian operations and
results from the following:
September 30 December 31
2008 2007
---------------------------------------------------------------------
Net book value of property, plant and
equipment, net of asset retirement
obligations $ 136,067 $ 91,600
Cost recovery pool (73,211) (64,800)
---------------------
Timing difference $ 62,856 $ 26,800
---------------------
---------------------
Future income tax liability at 50% $ 31,428 $ 13,400
---------------------
---------------------
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 income before income taxes due to the
following:
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------
Income before income taxes 9,032 3,516 24,448 6,714
Statutory tax rate 29.50% 32.12% 29.50% 32.12%
-------------------------------------------
2,664 1,129 7,212 2,156
Difference in tax rates
between Albania and Canada 2,440 908 6,937 1,759
Non-deductible expenses 335 230 1,902 649
Valuation allowance and
other (1,283) 677 1,977 1,158
-------------------------------------------
Future income tax expense 4,156 2,944 18,028 5,722
-------------------------------------------
-------------------------------------------
9. SHAREHOLDERS' EQUITY
(a) Share Capital
Authorized
Unlimited number of common shares with no par value.
Issued
Number of
Common Shares Amount
---------------------------------------------------------------------
Balance, December 31, 2006 412,066,634 $ 116,696
Prospectus offering 36,042,858 19,227
Private placement 4,400,000 1,703
Share issuance costs - (1,113)
--------------------------
Balance, December 31, 2007 452,509,492 136,513
Consolidation adjustment(x) (301,672,995) -
Discontinued operations (Note 13) - (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, September 30, 2008 182,540,181 $ 121,907
--------------------------
--------------------------
(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.
(b) Warrants
A summary of the changes in warrants is presented below:
Weighted
Average
Exercise
Number of Price
Warrants Amount (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, September 30, 2008(xx) 9,713,375 $ 2,088 2.46
----------------------------------------
----------------------------------------
The following table summarizes the outstanding and exercisable
warrants on a post consolidation basis, at September 30, 2008.
---------------------------------------------------------------------
Weighted
Number of Average
Warrants Exercise
Outstanding Price
Expiry Date and 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:
Number of Weighted Average
Options Exercise Price (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2007 37,155,000 -
Consolidation adjustment(x) (24,770,000) -
------------
12,385,000 1.92
Granted 3,766,667 3.60
Exercised (6,179,624) 1.81
Forfeited (587,000) 2.43
-----------------------------------
Balance, September 30, 2008 (xx) 9,385,043 2.81
-----------------------------------
-----------------------------------
(xx) Reflects post consolidation options outstanding at September 30,
2008.
(d) Stock-based Compensation
Using the fair value method for stock-based compensation, the Company
calculated stock-based compensation expense for the three and nine
month periods ended September 30, 2008 as $1,389 and $6,952,
respectively ($816 and $2,131 for the same periods in 2007) for the
stock options vested and/or granted to officers, directors, employees
and service providers. Of these amounts, $1,137 and $5,922 ($780 and
$2,019 for the same periods in 2007) was charged to earnings and $252
and $1,030 ($36 and $112 for the same periods in 2007) were
capitalized. The Company determined these amounts using the Black-
Scholes option pricing model assuming no dividends were paid. The
weighted average fair market value per option granted in the three
and nine month periods ended September 30, 2008 and 2007 and the
assumptions used in their determination were as follows:
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------
Weighted average fair value
per option ($) 2.24 0.93 2.49 1.05
Risk-free interest rate (%) 3.09 4.51 3.28 4.22
Average volatility (%) 74 66 72 67
Expected life (years) 5 5 5 5
(e) Contributed Surplus
The following table summarizes the change in contributed surplus as
of September 30, 2008 and December 31, 2007:
2008 2007
---------------------------------------------------------------------
Balance, beginning of period $ 8,308 $ 4,456
Stock-based compensation 7,329 3,852
Discontinued operations (Note 13) (1,591) -
Transferred to share capital on exercise (3,991) -
-------------------
Balance, end of period $ 10,055 $ 8,308
-------------------
-------------------
10. SEGMENT INFORMATION
The Company defined its reportable segments based on geographic
locations.
Nine months ended
September 30, 2008 Albania Canada Total
---------------------------------------------------------------------
Revenue
Oil revenue, net of royalties $ 73,688 $ - $ 73,688
Interest - 1,141 1,141
--------------------------------
73,688 1,141 74,829
--------------------------------
Expenses
Operating 20,902 - 20,902
Sales and transportation 5,323 - 5,323
General and administrative 2,468 3,814 6,282
Interest and bank charges 897 - 897
Interest on term loan 812 - 812
Foreign exchange (gain) loss (412) 1,288 876
Stock-based compensation 611 5,311 5,922
Depletion, depreciation and
accretion 9,248 119 9,367
--------------------------------
39,849 10,532 50,381
--------------------------------
Income (loss) from continuing
operations before income taxes 33,839 (9,391) 24,448
Future income tax expense (18,028) - (18,028)
--------------------------------
Income (loss) from continuing
operations $ 15,811 $ (9,391) 6,420
---------------------
---------------------
Discontinued operations (188)
----------
Net income for the period $ 6,232
----------
----------
Assets, September 30, 2008 $ 166,257 $ 50,721 $ 216,978
--------------------------------
--------------------------------
Additions to property, plant and
equipment $ 56,304 $ 63 $ 56,367
--------------------------------
--------------------------------
Nine months ended
September 30, 2007 Albania Canada Total
---------------------------------------------------------------------
Revenue
Oil revenue, net of royalties $ 34,847 $ - $ 34,847
Interest 2 329 331
--------------------------------
34,849 329 35,178
--------------------------------
Expenses
Operating 12,441 - 12,441
Sales and transportation 2,850 - 2,850
General and administrative 1,898 2,829 4,727
Interest and bank charges 553 - 553
Interest on term loan 876 - 876
Foreign exchange gain (50) (894) (944)
Stock-based compensation 567 1,452 2,019
Depletion, depreciation and
accretion 5,875 67 5,942
--------------------------------
25,010 3,454 28,464
--------------------------------
Income from continuing operations
before income tax 9,839 (3,125) 6,714
Future income tax expense (5,722) - (5,722)
--------------------------------
Income (loss) from continuing
operations $ 4,117 $ (3,125) 992
---------------------
---------------------
Discontinued operations (1,178)
----------
Net loss for the period $ (186)
----------
----------
Assets, September 30, 2007 $ 99,297 $ 10,468 $ 109,765
--------------------------------
--------------------------------
Additions to property, plant and
equipment $ 37,216 $ 237 $ 37,453
--------------------------------
--------------------------------
Three months ended
September 30, 2008 Albania Canada Total
---------------------------------------------------------------------
Revenue
Oil revenue, net of royalties $ 25,753 $ - $ 25,753
Interest - 541 541
--------------------------------
25,753 541 26,294
--------------------------------
Expenses
Operating 7,503 - 7,503
Sales and transportation 1,932 - 1,932
General and administrative 851 1,306 2,157
Interest and bank charges 361 - 361
Interest on term loan 184 - 184
Foreign exchange (gain) loss (387) 1,048 661
Stock-based compensation 118 1,019 1,137
Depletion, depreciation and
accretion 3,286 41 3,327
--------------------------------
13,848 3,414 17,262
--------------------------------
Income (loss) from continuing
operations before income tax 11,905 (2,873) 9,032
Future income tax expense (4,156) - (4,156)
--------------------------------
Net income (loss) for the period $ 7,749 $ (2,873) $ 4,876
--------------------------------
--------------------------------
Additions to property, plant and
equipment $ 25,493 $ 9 $ 25,502
--------------------------------
--------------------------------
Three months ended
September 30, 2007 Albania Canada Total
---------------------------------------------------------------------
Revenue
Oil revenue, net of royalties $ 14,317 $ - $ 14,317
Interest - 91 91
--------------------------------
14,317 91 14,408
--------------------------------
Expenses
Operating 4,535 - 4,535
Sales and transportation 1,068 - 1,068
General and administrative 757 1,022 1,779
Interest and bank charges 242 - 242
Interest on term loan 338 - 338
Foreign exchange loss - 10 10
Stock-based compensation 183 597 780
Depletion, depreciation and
accretion 2,113 27 2,140
--------------------------------
9,236 1,656 10,892
--------------------------------
Income (loss) from continuing
operations before income tax 5,081 (1,565) 3,516
Future income tax expense (2,944) - (2,944)
--------------------------------
Income (loss) from continuing
operations $ 2,137 $ (1,565) 572
---------------------
---------------------
Discontinued operations (308)
----------
Net income for the period $ 264
----------
----------
Additions to property, plant and
equipment $ 13,010 $ 56 $ 13,066
--------------------------------
--------------------------------
11. COMMITMENTS
The Company leases office premises, of which the minimum lease
payments for the next five years are:
Canada Albania Total
---------------------------------------------------------------------
2008 $ 41 $ 44 $ 85
2009 162 49 211
2010 162 37 199
2011 162 - 162
2012 7 - 7
--------------------------------
$ 534 $ 130 $ 664
--------------------------------
--------------------------------
The Company has 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 metre Company-dedicated oil tank. Pursuant to this
agreement, the Company has committed to contribute (euro)1,355,000 to
the dedicated facility ((euro) 855,000 by December 31, 2008 and the
balance on service commencement in 2009), and will pay a throughput
rate when the facility is operational.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------
Operating activities
(Increase) decrease in
current assets
Accounts receivable $ 971 $ 1,387 $ (4,809) $ (1,915)
Crude oil inventory (750) (209) (1,219) (507)
Deposit and prepaid
expenses (2,738) 48 (3,098) (2)
Increase (decrease) in
current liabilities
Accounts payable and
accrued liabilities 846 (1,113) 7,274 364
---------------------------------------
$ (1,671) $ 113 $ (1,852) $ (2,060)
---------------------------------------
---------------------------------------
Investing activities
Increase in current
liabilities
Accounts payable and
accrued liabilities $ 2,564 $ 2,961 $ 4,540 $ 1,539
---------------------------------------
---------------------------------------
Financing activities
(Decrease) increase in
current liabilities
Accounts payable and
accrued liabilities $ (1,836) $ - $ 600 $ -
---------------------------------------
---------------------------------------
Interest paid $ 454 $ 573 $ 1,709 $ 1,422
---------------------------------------
---------------------------------------
---------------------------------------------------------------------
September 30, December 31,
2008 2007
---------------------------------------------------------------------
Cash and cash equivalents
Cash $ 380 $ 1,099
Deposit certificates with Canadian
chartered banks 31,788 1,500
-----------------------
$ 32,168 $ 2,599
-----------------------
-----------------------
13. DISCONTINUED OPERATIONS
Pursuant to shareholders' approval at the Annual and Special General
Meeting on June 27, 2008, the Company completed its plan of
arrangement effective at the beginning of July 2008, which resulted
in all of the Company's US operations and assets being transferred
into a new, independent company: BNK Petroleum Inc. ("BKX").
Accordingly, the operations of BKX have been classified as
discontinued operations. The Company incurred restructuring costs of
$360 and $2,796, for the three and nine months periods ended
September 30, 2008, respectively.
The following table provides additional information with respect to
amounts included in the results of discontinued operations:
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------
Revenue $ - $ 213 $ 3,144 $ 309
Expenses - 521 3,332 1,487
---------------------------------------
Discontinued operations $ - $ (308) $ (188) $ (1,178)
---------------------------------------
---------------------------------------
The following table provides additional information with respect to
amounts included in the balance sheet of discontinued operations:
---------------------------------------------------------------------
September 30, December 31,
2008 2007
---------------------------------------------------------------------
Cash and cash equivalents $ - $ 961
Accounts receivable - 5,750
Deposits and prepaid expenses - 751
-----------------------
$ - $ 7,462
-----------------------
-----------------------
Property, plant and equipment $ - $ 81,794
-----------------------
-----------------------
Accounts payable and accrued liabilities $ - $ 7,340
-----------------------
-----------------------
Asset retirement obligations $ - $ 433
-----------------------
-----------------------
The following table summarizes the assets, liabilities and
shareholders' equity that has been transferred to BKX effective
July 1, 2008 as a result of the discontinued operations:
ASSETS
Current assets
Cash and cash equivalents $ 351
Accounts receivable 16,451
Deposits and prepaid expenses 2,441
----------
19,243
Property, plant and equipment 105,830
----------
$ 125,073
----------
----------
LIABILITIES
Current liabilities
Notes payable $ 10,535
Accounts payable and accrued liabilities 17,262
----------
27,797
Asset retirement obligations 609
SHAREHOLDERS' EQUITY
Share capital 97,472
Contributed surplus 1,591
Deficit (2,396)
----------
96,667
----------
$ 125,073
----------
----------
14. SUBSEQUENT EVENT
On October 31, 2008, the Company terminated a contract for drilling
services of which $2,000 was paid and included in deposits and
prepaid expenses as at September 30, 2008. The financial costs
associated with the termination of this contract will be represented
by the actual amount spent by the contractor for mobilization of the
equipment and are currently being assessed. The total amount is
unknown at this time.