Success from U.S. Exploration Program While Expanding Scope to Capture
Additional Albanian Upside
Unless otherwise noted, all figures contained in this release are in U.S.
dollars.
CALGARY, May 10 /CNW/ - Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) today announced continued strong results in its first quarter of 2007. Revenue for the quarter almost doubled to $10.7 million compared to $5.7 million in the first quarter of 2006. Funds from operations were $2.9 million, compared to $0.7 million for the comparable period in 2006.
"We continue to see strong quarter over quarter growth in our results," said Richard Wadsworth, President. "Once again, we've achieved gains in production, revenue and netback through our various initiatives in Albania, and significantly advanced our work in the U.S."
Mr. Wadsworth continued, "In addition, we've taken important first steps in capturing additional upside value from our assets - both in Albania and the U.S. In the U.S. we've achieved successful drilling results in two of our shale gas basins - Oklahoma and Texas - leading to further drilling of horizontal and vertical wells in these areas in the second quarter. Our cyclical thermal pilot project and other EOR studies are progressing, and we're moving forward on further integration strategies in Albania. Step by step we're delivering on our promise to prove our resource portfolio and build returns for our shareholders over the long-term."
First Quarter Highlights:
- Average production increased 70% to 4,380 bopd from 2,579 bopd for
the same period in 2006, and 5% compared to 4,165 bopd for the fourth
quarter of 2006.
- Oil and gas revenue rose 89% to $10.7 million from $5.7 million in
the comparable period in 2006, and 15% from $9.3 million in the
fourth quarter of 2006.
- The netback in Albania improved to $11.42 per barrel from $9.75 in
the preceding quarter and $8.51 per barrel for the same period in
2006.
- Funds from operations increased to $2.9 million from $1.6 million and
$0.7 million for the three months ended December 31, 2006 and the
corresponding period in 2006, respectively.
- The majority of the equipment required for the Company's cyclical
steam pilot has been purchased and is either in country or on its way
for commencement in the third quarter of 2007.
- The first shipment to a second refinery in Italy was completed with a
short term contract to export additional volumes over the second
quarter. Approximately 39% of the Company's crude oil was exported
during the first quarter at an average price of $28.67 per barrel.
- In Texas, Bankers air drilled and completed the vertical Cogdell
No. 64-1 well in the Palo Duro Basin. The Granite Wash Sands were
successfully fracture stimulated and produced at an average rate of
325 Mcf/d with no condensate and about 24 bbls/d of fracture fluid on
the last 7 days of a 10-day flow test with approximately 20% of
fracture stimulation fluid yet to recover.
- In Oklahoma, Bankers spudded its first horizontal well, Greenway
No. 35-1H in April, which offsets the Nickel Hill No. 1-26 discovery
well.
- A pipeline connection and surface tie-in was negotiated for the
Nickel Hill No. 1-26 vertical well and the Greenway No. 35-1H
horizontal well. A facility to handle production is expected to be
completed for tie-ins this summer.
Conference Call:
A conference call to discuss these results will be held Friday, May 11 at 9:00 a.m. MDT, 11:00 a.m. EDT, 4:00 p.m. BST. To participate in the conference call, please dial 1-866-249-2157 or 1-416-644-3423 approximately 10 minutes prior to the call. A live and archived audio webcast of the conference call will also be available on Bankers' website at www.bankerspetroleum.com.
About Bankers Petroleum Ltd.
Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration and production company focused on opportunities in unconventional petroleum assets. Bankers holds interests in four prospects in the Northern and Central regions of the United States, where it is currently pursuing the exploration of shale and tight gas sand plays. It also operates in the Patos-Marinza oilfield in Albania pursuant to a license agreement, producing heavy oil. Bankers shares are traded on the Toronto Stock Exchange and the AIM Market in London, England under the ticker symbol BNK.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis (MD&A) of Bankers Petroleum Ltd's (Bankers or the Company) operating and financial results for the three month period ended March 31, 2007, compared to the preceding quarter and the corresponding period in the prior year, as well as information and expectations concerning the Company's outlook based on currently available information. The MD&A should be read in conjunction with the unaudited interim financial statements for the three month period ended March 31, 2007 and the audited financial statements and MD&A for the year ended December 31, 2006. 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.
This report is prepared as of May 10, 2007.
NON-GAAP MEASURES
Funds from operations are a non-GAAP measure that represents cash generated from (used in) operating activities before changes in non-cash working capital. The Company considers this a key measure as it demonstrates its ability to generate the cash flow necessary to fund future growth.
Netback per barrel and its components are calculated by dividing revenue, royalties, operating, sales and transportation expenses by the gross sales 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 and sales and transportation expenses. The Company believes that net operating income is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses.
The non-GAAP measures referred to above do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures used by other companies.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Certain information contained in this news release and MD&A respecting the Company and the Company's properties constitute forward-looking statements. The use of any of the words "target", "plans", "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. Such forward-looking information, including but not limited to statements as to production targets, timing of the Company's planned work program and management's belief as to the potential of certain properties, involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company and its operations to be materially different from estimated costs or results expressed or implied by such forward-looking statements.
Such factors include, among others general risks and uncertainties associated with exploration, petroleum operations and risks associated with equipment procurement and equipment failure as well as those described under "Risk Factors" in the Company's Annual Information Form and in each management discussion and analysis. Although the Company has attempted to take into account important factors that could cause actual costs or results to differ materially, there may be other factors that cause costs of the Company's program or results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information.
OVERVIEW
Three months ended March 31
-----------------------------
Results at a Glance 2007 2006 %
-------------------------------------------------------------------------
Financial ($000s, except as noted)
Oil and gas revenue 10,739 5,689 89
Net operating income 4,510 1,896 138
Loss for the period (1,050) (993) 16
Funds from operations 2,852 724 294
Additions to property, plant
and equipment 14,014 14,285 (2)
Total assets 166,175 98,930 68
Shareholders' equity 135,382 90,944 49
Operating
Average daily production (bopd) 4,380 2,579 70
Average sales volume (bopd) 4,388 2,474 77
Average price ($/barrel) 27.19 25.55 6
Netback ($/barrel) 11.42 8.51 34
Bankers continued to increase production, revenues and funds from
operations during the three months period ended March 31, 2007:
- Average production was 4,380 bopd compared to 4,165 bopd for the
fourth quarter of 2006 and 2,579 bopd for the same period in 2006,
increases of 5% and 70% respectively.
- Exit production for March 2007 was approximately 4,520 bopd.
- Higher production and average price resulted in increased revenues of
$10.7 million for the quarter compared to $9.3 million in the
preceding quarter and $5.7 million for the same period in 2006.
- Netback improved to $11.42 per barrel from $9.75 per barrel in the
preceding quarter and $8.51 per barrel for the same period in 2006,
increases of 17% and 34% respectively.
- Funds from operations increased to $2.9 million from $1.6 million and
$0.7 million for the three months ended December 31, 2006 and the
corresponding period in 2006, respectively.
- In March 2007, the Company issued an aggregate of 36,042,858 units at
a price of CDN$0.70 per unit on a bought-deal basis, resulting in net
proceeds of approximately $20.1 million after commissions and share
issue expenses.
Albania
The Company exported 39% of its crude during the first quarter of 2007 at
an average price of $28.67 per barrel. In comparison, exports made up 30% of
the sales during the previous quarter at an average price of $26.30 per
barrel. The increased exports helped Bankers receive higher overall oil
prices. As a result, the Company averaged $27.19 per barrel during the first
quarter of 2007 compared to $24.44 per barrel for the previous quarter and
$25.55 for the same period in 2006.
Other significant events during the quarter included:
- The Company is planning to commence a two well cyclical steam pilot
in the southern part of the Patos Marinza oilfield in the third
quarter of 2007. The majority of the equipment required has been
purchased and is either in country or on its way.
- The first shipment to a second refinery in Italy was completed with a
short term contract to export additional volumes over the second
quarter.
- An additional workover rig was mobilized to address the shortage of
well servicing experienced in the first quarter.
United States
- In Texas, Bankers air drilled and completed the vertical Cogdell
No. 64-1 well in the Palo Duro Basin. The Granite Wash Sands were
successfully fracture stimulated and produced at an average rate of
325 Mcf/d with no condensate and about 24 bbls/d of fracture fluid on
the last 7 days of a 10-day flow test with approximately 20% fracture
stimulation fluid yet to recover.
- Fracture stimulated the Cogdell 1-1 well in zones that had
initially produced at a reported 2.8 million cubic feet of
natural gas per day upon initial completion in 2003 before
being damaged by a mechanical failure; however the stimulation
was unable to regain any significant gas productivity.
- In Oklahoma, Bankers spudded its first horizontal well, Greenway
No. 35-1H in April. This well, offsetting the Nickel Hill No. 1-26
discovery well, will be drilled to a vertical depth of about 9,400
feet with a 3,000 foot horizontal section. The Greenway No. 35-1H
well is expected to be completed in the second quarter.
- A pipeline connection and surface tie-in was negotiated for the
Nickel Hill No. 1-26 vertical well and the Greenway horizontal
well. A facility to handle production from the Nickel Hill well
and Greenway well (dependent on its success), is expected to be
completed and tied in this summer.
- The Lake Holdenville No. 35-1 well was fracture stimulated with
disappointing results. Bankers believes that the treatment did
not effectively stimulate the shale and is currently comparing
results with another vertical Woodford Shale well,
approximately two and a half miles away. This well had an
initial production rate of 330 Mcf/d after stimulation,
providing the confirmation of gas productivity required to
justify a follow-up horizontal well.
- In New York, the South Mill Pond well was drilled to the intermediate
casing point of 2,178 feet, and surface pipe was set on the Legasse
Road well.
- Two existing New York wells were prepared for fracture
stimulations that are scheduled for the second quarter.
DISCUSSION OF OPERATING RESULTS
Production and Revenue
During the quarter, production continued to increase as more wells were
re-activated in Albania, bringing the active well count to 134 from 122 in the
preceding quarter. As at March 31, 2007, the Company also had 56 wells waiting
for servicing and reactivation. Average production increased 5% to 4,380 bopd
during the quarter from 4,165 bopd for the preceding quarter and 70% from
2,579 bopd from the same period a year ago. Production gains were less than
anticipated, but are expected to be made up over the next two quarters as the
Company has taken on the following activities:
- With the recent arrival of a third workover rig there is sufficient
capacity to address a growing inventory of wells requiring workovers
or servicing due to higher well failures than normal. Bankers has
also ordered a fourth workover rig to be delivered in September.
- The wells taken over this quarter were initially re-activated in the
Marinza zone, which has lower productivity than other zones, thus
resulting in slower growth. It is the Company's practice to first
test these zones prior to moving uphole to the higher productivity
Driza zone. With the additional workover rig capacity these
recompletions are now underway.
- The Company has addressed the fourth quarter 2006 takeover area
production difficulties by receiving and commencing with the
replacement of progressive cavity pumps that can more efficiently
handle deeper depths, higher viscosities and higher sand production.
- Further optimization and drawdown is underway now that operations are
comfortable with the well servicing capacity. This is critical to
initiating cold heavy oil production technology and foamy oil
behavior mechanisms.
Production was approximately 4,750 bopd as at the last week in April.
In January 2007, the Company renegotiated its domestic sale price with the Albanian Refining and Marketing Organization, ARMO Sh.a (ARMO). The new price for 2007 is established as 16,050 LEK (the Albanian currency) per ton which equated to $26.24 per barrel during the quarter based on an average exchange rate of 96 LEK per US dollar. In comparison, the sale price to ARMO during the preceding quarter and the corresponding period in 2006 were $23.65 and $23.70 respectively.
During the quarter, the Company exported approximately 39% of its crude oil to a refinery in Italy at an average price of $28.67 per barrel. Exports made up 30% of sales in the preceding quarter at an average price of $26.30 per barrel. Bankers intends to increase its exports during the balance of 2007 in order to capture the significantly better export pricing. Subsequent to the first quarter, the Company entered into an agreement and sold a test shipment to a second Italian refinery; it has since entered into a short term contract for additional shipments during the second and third quarters.
The Company's average oil price for the quarter was $27.19 per barrel, up from $24.44 per barrel for the preceding quarter and $25.55 per barrel for the same period in 2006.
Oil and gas revenues for the quarter were $10.7 million up from $9.3 million for the quarter ended December 31, 2006, and $5.7 million for the corresponding quarter a year ago, increases of 16% and 89% respectively.
Royalties, Direct Expenses and Netbacks
Royalties are calculated pursuant to the Petroleum Agreement with Albpetrol Sh. A (Albpetrol) in Albania, and consist of Albpetrol's pre-existing production and a 1% gross overriding royalty on production. Royalties increased to $3.65 per barrel from $3.04 per barrel in the preceding quarter. The royalties averaged $3.05 per barrel for the corresponding period in 2006. The increase in royalties during the first quarter of 2007 was related to the slower growth in production while wells continue to be taken over from Albpetrol increased pre-existing production without a corresponding increase in the Company's incremental production.
Operating expenses per barrel increased moderately to $10.16 per barrel from $9.88 per barrel in the preceding quarter but declined compared to $12.31 per barrel for the same period in 2006. The operating expenses are typically higher during winter months due to increased energy costs.
Sales and transportation expenses increased to $1.96 per barrel from $1.77 per barrel in the preceding quarter and $1.68 per barrel for the same period in 2006. This increase was directly related to incremental costs of additional transportation, inspection and port fees associated with the higher amount of crude oil exports. During the quarter ended March 31, 2007, the Company exported 39% of its crude compared to 30% for the preceding quarter and 27% for the corresponding period in 2006.
The Company's netback per barrel improved to $11.42 per barrel from $9.75 per barrel in the preceding quarter and $8.51 per barrel for the same period in 2006. The improvement in netback resulted from higher oil prices and lower unit operating expenses.
Three months ended March 31
-----------------------------
Netback ($/barrel) 2007 2006 %
-------------------------------------------------------------------------
Average price ($/barrel) 27.19 25.55 6
Royalties 3.65 3.05 20
Sales and transportation 1.96 1.68 17
Operating 10.16 12.31 (17)
-----------------------------
Netback ($/barrel) 11.42 8.51 34
-----------------------------
-----------------------------
General and Administrative Expenses
General and administrative expenses for the quarter were $1.7 million compared to $1.9 million for the preceding quarter and $1.0 million for the same period in 2006. The modest decline compared to the previous quarter was a result of lower traveling costs, reduction in certain consulting expenses and weakening of the Canadian dollar against U.S. dollar. The increase in general and administrative expenses compared to the same period in 2006 reflected higher personnel costs with the addition of new employees, higher consulting fees and travel expenses related to the Company's operating and financing activities.
During the quarter, the Company capitalized general and administrative expenses of $799,000 compared to $423,000 for the preceding quarter and $232,000 for the same period in 2006 for Albania and the United States. These expenses were directly related to acquisition, exploration and development activities.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expense for the quarter ended March 31, 2007 were $1.9 million compared to $1.8 million for the preceding quarter and $951,000 for the same period in 2006. The increase in depletion, depreciation and accretion expense reflects higher production and an increase in depletable assets. Depletion expense on a per barrel basis was $4.36 for the quarter compared to $4.35 and $3.90, respectively for the preceding quarter and the same period in 2006.
Future Income Tax Expense
The net book value of the Albanian assets exceeds their tax values by $8.4 million. The Company recorded a future income tax expense of $1.0 million for the quarter (2006 - $542,000) using a tax rate of 50% as a result of this temporary difference between the carrying and tax values of its assets and liabilities.
Bankers is presently not paying cash taxes in any jurisdiction.
Loss for the Period and Funds from Operations
The Company recorded a loss of $1.1 million ($0.00 per share) during the quarter compared to a loss of $107,000 ($0.00 per share) for the preceding period and $993,000 ($0.00 per share) for the same period in 2006.
Bankers generated funds from operations of $2.9 million during the quarter compared to $1.6 million for the preceding quarter and $723,000 for the same period in 2006. The increase in funds from operations reflects higher production and oil prices obtained during the period.
OPERATIONS UPDATE
Albania
Bankers is expected to commence its cyclic steaming pilot project in Albania in the third quarter of 2007. The majority of the required equipment is in country, and the Company is in the process of discussions with Albpetrol to take-over two well bores which meet the technical requirements for thermal steam injection. Bankers intends to undertake several cycles of steam, before expanding the pilot to include newly drilled wells on a pattern for steam flooding in 2008. The two well pilot project is expected to cost approximately $2.0 million with results expected during the fourth quarter of 2007.
Further studies and engineering to pursue potential integration, secondary waterflood development, horizontal wells and an expanded EOR pilot project that will be undertaken during 2008 is underway. Bankers is looking to these initiatives as a means of significantly increasing production and reservoir recovery in the Patos Marinza oilfield.
The Albanian government recently announced the privatization of ARMO, which is the state owned joint-stock company established in April 1999 upon separation of the former integrated state-owned monopoly. Headquartered in Fier, ARMO is the only refiner in Albania, a key wholesaler and one of the main retailers of refined products in the Albanian market. ARMO's market share in the retail sector is currently estimated at 20%.
Bankers continues to review possible integration aspects of ARMO. Integration would provide benefits as the Company increases heavy oil production and looks to integrate enhanced recovery techniques in the future.
United States
In the United States, Bankers is progressing with its exploration and evaluation programs in all four areas, moving towards first natural gas production and a commercial development program in 2007.
In Palo Duro, Texas, the fracture stimulation of the vertical Cogdell No. 64-1 well generated encouraging results of approximately 325 Mcf/d from a Granite Wash Sand. In the second quarter, the shale interval in this same well will be fracture stimulated and a second vertical well will be drilled. The second well will be drilled underbalanced, using air and will target both the Granite Wash Sands and the Bend shale formation to show repeatability over a larger area. Further evaluation of larger fracture stimulations in the Granite Wash Sands in vertical wells along with the planning of horizontal wells is underway.
In Oklahoma, the Company is currently drilling its first horizontal Woodford shale well in Carter County, the Greenway No. 35-1H well, which is an offset to the Nickel Hill No. 1-26 discovery well. Along with a partner, Bankers is also acquiring a 115 square mile, 3D seismic survey in Carter and Johnston Counties to aid in the development of its acreage there. Bankers is also planning on drilling its second horizontal Woodford shale well in this project in Johnston County approximately 10 miles from the first two wells. In Hughes County, Bankers is planning on drilling a horizontal well to test the Woodford shale by the end of the third quarter after finishing an updated geologic/engineering study on its results and that of other operators in the area.
In New York, Bankers is fracture stimulating and testing two existing wells in the Trenton formation in the second quarter, the K High and B Everhart wells. The B Everhart well initially produced at an unstimulated flow rate of 300 Mcf/d before declining to around 15 Mcf/d nine months later. Also in the second quarter, Bankers expects to secure a rig to complete the drilling of three wells to the targeted Trenton/Black River formations. Two of the wells have previously been drilled to an intermediate casing point above the targeted intervals.
Additional geologic and geophysical work is underway for the Black Warrior Basin Project in Mississippi and Alabama. This work will provide information to bring this project into the stage to potentially drill wells in 2008.
Further exploration and development activities in the United States will be influenced by the results of all of these wells.
CAPITAL EXPENDITURES
Three months ended March 31
-----------------------------
($000) 2007 2006
-------------------------------------------------------------------------
Oil and gas properties
Albania 9,684 9,298
United States 3,954 4,961
Equipment, furniture and fixtures 376 26
-----------------------------
14,014 14,285
-----------------------------
-----------------------------
The Company incurred $4.7 million in capital expenditures in Albania during the quarter for well re-activations and $1.8 million on central treatment facilities. The balance of the expenditures was related to miscellaneous asset acquisitions and capitalized general and administrative expenses. The capital expenditures also include an increase in prepayments to suppliers of $2.6 million for equipment in transit to Albania. The Company spent $9.3 million in capital expenditures in Albania for the same period in 2006, which were primarily incurred on well re-activation.
In the United States, the Company spent $1.9 million on drilling and evaluation costs of wells drilled and tested in Texas, Oklahoma and New York. Lease acquisition costs were $1.4 million. The balance of the capitalized expenditures was related to seismic reprocessing costs and capitalized general and administrative expenses. The Company spent $5.0 million in capital expenditure in United States for the same period in 2006 which included $4.0 million on drilling and evaluation costs.
ASSET RETIREMENT OBLIGATIONS
Bankers estimated its undiscounted asset retirement obligations in Albania as $11.0 million based on the 237 wells taken over from Albpetrol to date. This amount will be settled at the end of the Company's 25-year license. The net present value of $1.4 million of asset retirement obligations was estimated based on a credit-adjusted risk free rate of 9%. Asset retirement obligations were increased to $1.5 million at March 31, 2007 as a result of accretion.
In the United States, the Company estimated the total undiscounted amount required to settle the asset retirement obligations as $650,000. These obligations are expected to be settled in 15 years. The undiscounted liability has been discounted using a credit adjusted risk-free interest rate of 5.5% to arrive at asset retirement obligations of $422,000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2007, the Company had a working capital surplus of $16.9 million and long-term debt of $12.3 million (including current portion).
The remaining capital expenditures in Albania for 2007 are estimated at $25.0 million. The Company expects to fund this capital program through cash flows, which are estimated at $17.0 million; available debt facility of $4.0 million; and advances from Bankers of $4.0 million. It should be noted that these advances represent partial repayment of funds recently transferred from Albania to the Company for use in general working capital.
In the U.S., the remaining planned capital expenditures are estimated at $19.0 million. There are also additional capital expenditures of $27.0 million contingent on drilling success and initial development drilling.
In March 2007, the Company raised $20.1 million from an issue of units on a bought-deal basis. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one common share of the Company at a price of CDN$0.90 for a period of five years from closing of the offering.
In addition, Bankers entered into an agreement with the wholly owned U.S. subsidiary of a Canadian public company to sell a 27% working interest in its approximately 375,000 net acres in the Palo Duro basin, Texas for $19.5 million of which $15.0 million will be paid in cash and the balance will be paid through issuance of securities of the Canadian parent. This transaction is expected to close in May 2007.
The funds raised by the equity financing and the sale of the Palo Duro acreage are anticipated to be more than sufficient to fund the planned capital expenditures. The Company expects that should its planned capital program in the U.S. result in commercial discoveries, it will be able to raise the necessary funds for an expanded capital program through debt, equity, or joint venture arrangements. However there is no assurance that Bankers will be able to secure the necessary funds on terms acceptable to it, or at all, through debt, equity or other means.
RELATED PARTY TRANSACTIONS
Bankers contracts with a Canadian drilling company for the provision of rigs and other oil well services at industry competitive rates. Victor Redekop, a Director of Bankers, is a principal shareholder and officer of this company. During the quarter ended March 31, 2007, the Company transacted $2.0 million of services compared to $3.0 million for the preceding quarter and $1.8 million for the corresponding period in 2006. The services can be terminated upon 60 days' notice at the election of the Company.
During the first quarter, Bankers incurred legal fees of $136,000 in transactions with a legal firm of which the corporate secretary of the Company is a partner. The legal fees charged by this firm were $44,000 for the preceding quarter and $56,000 for the three months ended March 31, 2006.
Bankers also paid $12,000 (three months ended December 31, 2006 - $13,000; three months ended March 31, 2006 - $Nil) for rent and office services to a company related by way of common directors.
COMMITMENTS
In March 2006, the Company's Plan of Development for the Patos Marinza heavy oilfield in Albania was approved by the National Petroleum Agency of Albania (NPA). Under the Plan of Development, the Company estimated the remaining capital expenditures as at January 1, 2007 between $124.8 million to $183.3 million during the life of the Patos Marinza project.
The estimated capital expenditures during the next five years are as follows:
($ millions) Case I Case II
-------------------------------------------------------------------------
2007 38.3 42.2
2008 31.6 29.4
2009 9.5 41.6
2010 10.9 15.5
2011 9.5 10.7
Remaining 25.0 43.9
-------------------------------------------------------------------------
124.8 183.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The difference between Case I and Case II relates to maximum future
production levels.
Under the Petroleum Agreement, Bankers is required to submit an annual program to NPA 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 NPA approval. The Petroleum Agreement provides that disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retains and the future capital expenditures will be adjusted accordingly. In the event that Bankers is not able to generate sufficient capital resources, it may be required to renegotiate the Plan of Development or relinquish all or part of the contract area.
Office Premises
The Company has long-term lease commitments in Canada and Albania. The minimum lease payments for the next five years are as follow:
($000s, except as noted)
-------------------------------------------------------------------------
2007 228
2008 189
2009 149
2010 149
2011 149
Thereafter 6
------------
$ 870
------------
------------
Term Loan
The term loan has no scheduled repayments during the first twelve months after which it is repayable in equal monthly installments over a 48-month period. As at March 31, 2007, $12.3 million of the $15.0 million available term loan was drawn down, of which $1.6 million was classified as a current liability and $10.7 million as long-term debt.
Principal repayments of the term loan over the next five years are as follows:
($000s, except as noted)
-------------------------------------------------------------------------
2007 767
2008 3,067
2009 3,067
2010 3,067
2011 2,300
------------
$ 12,268
------------
------------
QUARTERLY SUMMARY
Below is a summary of Bankers' performance over the last eight quarters.
($000s, except March 31, Dec 31 Sept 30 June 30 March 31
as noted) 2007 2006 2006 2006 2006
-------------------------------------------------------------------------
Average daily
production (bopd) 4,380 4,165 4,000 3,193 2,579
Average sales volume
(bopd) 4,388 4,113 3,776 3,175 2,474
Average price ($/barrel) 27.19 24.44 26.63 25.64 25.55
Royalties 3.65 3.04 3.04 2.98 3.05
Sales and transportation 1.96 1.77 2.10 1.66 1.68
Operating 10.16 9.88 9.05 9.91 12.31
-------------------------------------------------
Netback ($/barrel) 11.42 9.75 12.44 11.09 8.51
-------------------------------------------------
-------------------------------------------------
Oil and gas revenues 10,739 9,250 9,240 7,407 5,689
Royalties 1,440 1,149 1,055 860 679
Sales and transportation 775 670 728 480 373
Operating 4,014 3,737 3,141 2,862 2,741
-------------------------------------------------
Net operating income 4,510 3,694 4,316 3,205 1,896
-------------------------------------------------
-------------------------------------------------
General and
administrative 1,659 1,916 1,422 1,450 972
Funds from (used in)
operations 2,852 1,588 2,950 3,251 723
Loss for the period (1,173) (107) (208) (253) (993)
Basic and diluted loss
per share - - - - -
Total assets 168,005 138,030 127,106 124,321 98,930
Term loan (including
current portion) 12,268 2,000 - - -
($000s, except
as noted) Dec 31 Sept 30 June 30
2005 2005 2005
-----------------------------------------------------
Average daily
production (bopd) 2,173 1,793 1,527
Average sales volume
(bopd) 2,184 1,791 1,475
Average price ($/barrel) 23.13 22.28 22.23
Royalties 2.77 2.59 2.20
Sales and transportation 1.20 0.97 0.99
Operating 12.46 12.23 13.00
----------------------------
Netback ($/barrel) 6.69 6.49 6.04
----------------------------
----------------------------
Oil and gas revenues 4,644 3,670 2,983
Royalties 564 426 295
Sales and transportation 241 161 132
Operating 2,246 1,946 1,744
----------------------------
Net operating income 1,593 1,138 811
----------------------------
----------------------------
General and
administrative 904 1,415 1,008
Funds from (used in)
operations 650 (94) (200)
Loss for the period (755) (315) (1,355)
Basic and diluted loss
per share - - -
Total assets 56,846 53,083 52,533
Term loan (including
current portion) - - -
OUTSTANDING SHARE DATA
There were approximately 448 million shares outstanding as at March 31, 2007 and May 10, 2007. In addition, the Company had approximately 63 million stock options and warrants outstanding as of the same dates.
PRINCIPAL BUSINESS RISKS
Bankers' business and results of operations are subject to a number of risks and uncertainties, including but not limited to the following:
Exploration, development, production and marketing of oil and natural gas involves a wide variety of risks which include but are not limited to the uncertainty of finding oil and gas in commercial quantities, securing markets for existing reserves, commodity price fluctuations, exchange and interest rate exposure and changes to government regulations, including regulations relating to prices, taxes, royalties and environmental protection. The oil and gas industry is intensely competitive and the Company competes with a large number of companies with greater resources.
Bankers' ability to increase its reserves in the future will depend not only on its ability to develop its current properties but also on its ability to acquire new prospects and producing properties. The acquisition, exploration and development of new properties also require that sufficient capital from outside sources will be available to the Company in a timely manner. The availability of equity or debt financing is affected by many factors many of which are beyond the control of the Company.
Bankers has a significant investment in Albania. There are a number of risks associated with conducting foreign operations over which the Company has no control, including political instability, potential and actual civil disturbances, ability to repatriate funds, changes in laws affecting foreign ownership and existing contracts, environmental regulations, oil and gas prices, production regulations, royalty rates, income tax law changes, potential expropriation of property without fair compensation and restriction on exports. Additional risks that may affect the Company and its operations are set out in its AIF filed under the Company's profile on www.sedar.com.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2007, the Company adopted the new Canadian accounting standards for financial instruments-recognition and measurement and financial instruments-presentation and disclosures. Prior periods have not been restated.
Financial Instruments - Recognition and Measurement
This new standard requires all financial instruments within its scope, including all derivatives, to be recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held-for-trading financial assets are measured at fair value with changes in fair value recognized in earnings. Available-for-sale financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired.
Embedded Derivatives
On adoption, the Company elected to recognize, as separate assets and liabilities, only for those embedded derivatives in hybrid instruments issued, acquired or substantively modified after January 1, 2003. The Company did not identify any material embedded derivatives which required separate recognition and measurement.
Two new Canadian accounting standards have been issued which will require additional disclosure in the Company's financial statements commencing January 1, 2008 about the Company's financial instruments as well as its capital and how it is managed.
OUTLOOK
In Albania, Bankers is expected to meet its average production target range of 5,200 to 5,500 bopd despite a slow start to the year, which was partially anticipated due to seasonality. Subject to continuing strong oil prices, the Company expects to exceed its average price estimate for the year due to increased exports at better than anticipated prices. As a result, netbacks are expected to increase during the balance of the year above $13.00 per barrel. Funds from operations will likewise reflect these positive trends.
In addition to continuing growth from primary recovery techniques, Bankers is moving forward with several other initiatives in Albania that can add significant long-term value to the Company. EOR and secondary recovery techniques, expanded export opportunities and the possible acquisition of ARMO provide significant upside for future growth.
In the United States, Bankers is moving forward with exploration and evaluation on several fronts, anticipating first natural gas production and a commercial development program in 2007. The benefit of the diversity among the Company's shale basins is that they are at varying stages of development, providing a quicker development time frame on some, which will assist in continuing exploration in others. The Company expects revenue in the later part of the year from its activities in the U.S. but actual plans will be based on results from the exploration programs currently underway.
Bankers' portfolio of assets in these two regions provides substantial growth opportunities both in the near-term and over the long-term. The Company is focused on managing the various projects in an effective manner to provide sustained benefit and value to its shareholders.
BANKERS PETROLEUM LTD
CONSOLIDATED BALANCE SHEETS
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS
March 31 December 31
2007 2006
--------------------------
Current assets
Cash and cash equivalents $ 19,866 $ 6,329
Accounts receivable 9,343 7,214
Crude oil inventory 633 713
Deposits and prepaid expenses 1,068 1,121
--------------------------
30,910 15,377
Property, plant and equipment (Note 2) 135,265 122,653
--------------------------
$ 166,175 $ 138,030
--------------------------
--------------------------
LIABILITIES
Current liabilities
Operating loan (Note 3) $ 3,719 $ 4,772
Accounts payable and accrued liabilities 8,730 11,369
Current portion of term loan (Note 3) 1,534 125
--------------------------
13,983 16,266
Term loan (Note 3) 10,734 1,875
Asset retirement obligations (Note 4) 1,909 1,593
Future income tax liability 4,167 3,126
SHAREHOLDERS' EQUITY
Share capital (Note 5) 134,811 116,696
Warrants (Note 5) 2,004 -
Contributed surplus (Note 5) 5,599 4,456
Deficit (7,032) (5,982)
--------------------------
135,382 115,170
--------------------------
$ 166,175 $ 138,030
--------------------------
--------------------------
Commitments (Note 8)
Subsequent event (Note 10)
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited, expressed in Thousands of United States dollars,
Except Per Share Amounts)
-------------------------------------------------------------------------
2007 2006
--------------------------
Revenue
Oil and gas revenue $ 10,739 $ 5,689
Royalties (1,440) (679)
--------------------------
9,299 5,010
--------------------------
Expenses
Operating 4,014 2,741
Sales and transportation 775 373
General and administrative 1,659 971
Interest on term loan 330 -
Stock-based compensation (Note 5) 960 224
Depletion, depreciation and accretion 1,901 951
--------------------------
9,639 5,260
--------------------------
(340) (250)
--------------------------
Other income (expenses)
Interest 150 146
Foreign exchange gain (loss) 181 (347)
--------------------------
331 (201)
--------------------------
Loss before income taxes (9) (451)
Future income tax expense (1,041) (542)
--------------------------
Loss for the period (1,050) (993)
Deficit, beginning of period (5,982) (4,421)
--------------------------
Deficit, end of period $ (7,032) (5,414)
--------------------------
--------------------------
Basic and diluted loss per share $ (0.00) $ (0.00)
--------------------------
--------------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Cash provided by (used in) 2007 2006
--------------------------
Operating activities
Loss for the period $ (1,050) $ (993)
Items not involving cash:
Stock-based compensation 960 224
Depletion, depreciation and accretion 1,901 951
Future income tax expense 1,041 542
--------------------------
2,852 724
Change in non-cash working capital (Note 9) (3,081) (1,713)
--------------------------
(229) (989)
--------------------------
Investing activities
Additions to property, plant and equipment (14,014) (14,285)
Change in non-cash working capital (Note 9) (1,554) 891
--------------------------
(15,568) (13,394)
--------------------------
Financing activities
Issue of common shares and warrants for
cash, net of issue costs 20,119 40,916
Operating loan (1,053) -
Term loan 10,268 -
--------------------------
29,334 40,916
--------------------------
Increase in cash and cash equivalents 13,537 26,533
Cash and cash equivalents, beginning of period 6,329 13,529
--------------------------
Cash and cash equivalents, end of period
(Note 9) $ 19,866 $ 40,062
--------------------------
--------------------------
See accompanying notes to consolidated financial statements.
Notes to the Consolidated Financial Statements
(unaudited, expressed in U.S. dollars)
-------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
(GAAP). Certain information and note disclosures normally included in
financial statements prepared in accordance with Canadian GAAP have
been condensed or omitted. These interim consolidated financial
statements should be read together with the audited consolidated
financial statements and the accompanying notes for the year ended
December 31, 2006. In the opinion of the Company, its unaudited
interim consolidated financial statements contain all adjustments
necessary in order to present a fair statement of the results of the
interim periods presented. The preparation of interim financial
statements is based on accounting principles and practices consistent
with those used in the preparation of annual financial statements,
except for the following changes in accounting policies:
On January 1, 2007, the Company adopted the new Canadian accounting
standards for financial instruments-recognition and measurement and
financial instruments-presentation and disclosures. Prior periods
have not been restated.
Financial instruments-recognition and measurement
This new standard requires all financial instruments within its
scope, including all derivatives, to be recognized on the balance
sheet initially at fair value. Subsequent measurement of all
financial assets and liabilities except those held-for-trading and
available for sale are measured at amortized cost determined using
the effective interest rate method. Held-for-trading financial assets
are measured at fair value with changes in fair value recognized in
earnings. Available-for-sale financial assets are measured at fair
value with changes in fair value recognized in comprehensive income
and reclassified to earnings when impaired.
Cash and cash equivalents are held-to-maturity investments and the
fair values approximate their carrying value due to their short-term
nature. Accounts receivable, operating loan, accounts payable and
accrued liabilities are classified as loans and receivables and the
fair value approximates their carrying value due to the short-term
nature of these instruments. The term loan is classified as a loan
and its fair value approximates its carrying value as it bears
interest at market rates. The Company has not designated any
financial instruments as available-for-sale or held-for-trading.
Embedded derivatives
On adoption, the Company elected to recognize, as separate assets and
liabilities, only those embedded derivatives in hybrid instruments
issued, acquired or substantively modified after January 1, 2003. The
Company did not identify any material embedded derivatives which
required separate recognition and measurement.
Two new Canadian accounting standards have been issued which will
require additional disclosure, in the Company's financial statements
commencing January 1, 2008, about the Company's financial instruments
as well as its capital and how it is managed.
The unaudited consolidated financial statements include the accounts
of the Company and its wholly-owned operating subsidiaries, Bankers
Petroleum Albania Ltd. and Bankers Petroleum (U.S.) Inc.
Unless where otherwise noted, the unaudited interim consolidated
financial statements and their accompanying notes are presented in
thousands of United States dollars.
Certain prior period figures have been re-classified to conform to
the current period's presentation.
2. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the Company's property, plant and
equipment as at March 31, 2007 and December 31, 2006:
2007 2006
---------------------------------------------------
Accumulated
depletion
and depre- Net Book Net Book
Cost ciation Value Value
---------------------------------------------------------------------
Oil and gas
properties -
Albania $ 71,656 $ 8,335 $ 63,321 $ 55,084
Oil and gas
properties
- United States 70,672 - 70,672 66,520
Equipment, furniture
and fixtures 1,705 433 1,272 1,049
---------------------------------------------------
$ 144,033 $ 8,768 $ 135,265 $ 122,653
---------------------------------------------------
---------------------------------------------------
The Company capitalized general and administrative expenses of $799
during the period (2006 - $232) in Albania and the United States that
were directly related to exploration and development activities.
Depletable assets for the depletion calculation for the three months
ended March 31, 2007 included $127,000 (2006 - $139,000) for
estimated future development costs associated with proved undeveloped
reserves in Albania.
3. TERM AND OPERATING LOAN FACILITY
The term and operating loan facility is comprised of a $5 million
operating loan and a $15 million five-year term loan. The facility is
secured by all of the assets of Bankers Petroleum Albania Ltd.,
assignment of proceeds from the Albanian domestic and export crude
oil sales contracts, a pledge of the common shares of Bankers
Petroleum Albania Ltd., and a guarantee by the Company.
(a) Operating Loan
The operating loan has a one year term and bears interest at one year
LIBOR plus 3.5%. The term of the operating loan may be extended for
further twelve month periods up to four times upon request by the
Company and acceptance by the lender. As at March 31, 2007, $3,719 of
the operating loan was drawn down.
(b) Term Loan
The term loan has no scheduled repayments during the first twelve
months after which it is repayable in equal monthly instalments over
a 48-month period. The term loan bears interest at one year LIBOR
plus 4.5%. As at March 31, 2007, $12,268 of the $15 million available
term loan was drawn down of which $1,534 was classified as a current
liability and $10,734 as long-term debt.
Principal repayments of the term loan over the five years are as
follows:
---------------------------------------------------------------------
2007 $ 767
2008 3,067
2009 3,067
2010 3,067
2011 2,300
------------
$ 12,268
------------
------------
4. ASSET RETIREMENT OBLIGATIONS
In Albania, the Company estimated the total undiscounted amount
required to settle the asset retirement obligations at $10,717. These
obligations will be settled at the end of the Company's 25-year
license of which 24 years are remaining. The undiscounted liability
has been discounted using a credit-adjusted risk-free interest rate
of 9% to arrive at asset retirement obligations of $1,487.
In the United States, the Company estimated the total undiscounted
amount required to settle the asset retirement obligations as $650.
These obligations are expected to be settled in 15 years. The
undiscounted liability has been discounted using a credit-adjusted
risk-free interest rate of 5.5% to arrive at asset retirement
obligations of $422.
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2006 $ 1,593
Liabilities incurred during the period 285
Accretion 31
------------
Asset retirement obligations, March 31, 2007 $ 1,909
------------
------------
5. SHAREHOLDERS' EQUITY
(a) Share Capital and Contributed Surplus
Authorized
Unlimited number of common shares with no par value.
Issued
Number of Contributed
Common Shares Amount Surplus
---------------------------------------------------------------------
Balance, December 31, 2005 327,986,533 $ 53,205 $ 2,014
Shares issued pursuant to
private placement 50,000,000 43,200 -
Issue of common shares for
oil and gas properties 25,971,715 20,000
Exercise of compensation
options 784,636 381
Shares issued on exercise
of warrants 7,323,750 2,608 -
Share issuance costs - (2,698) -
Stock-based compensation - - 2,442
----------------------------------------
Balance, December 31, 2006 412,066,634 116,696 4,456
Shares issued pursuant to
public offering 36,042,858 19,227 -
Share issuance costs - (1,112) -
Stock-based compensation - - 1,143
----------------------------------------
Balance, March 31, 2007 448,109,492 $ 134,811 $ 5,599
----------------------------------------
----------------------------------------
Weighted average number of common shares used in the calculation of
basic and diluted loss per share was 424,481,396 in 2007 (2006 -
342,470,218).
In March 2007, the Company issued an aggregate of 36,042,858 units at
a price of CDN$0.70 per unit on a bought-deal basis, resulting in net
proceeds of approximately $20,119 after commissions and share issue
expenses. Each unit consists of one common share and one-half of one
common share purchase warrant. The Company determined the fair value
of warrants as CDN$0.15 using the Black-Scholes option pricing
model. As a result, $2,307 of the proceeds were allocated to
warrants. Each whole warrant will entitle the holder to purchase one
common share of the Company at a price of CDN$0.90 for a period of
five years from the closing of the offering.
(b) Warrants
A summary of the changes in warrants is presented below.
Weighted
Average
Exercise
Number of Price
Warrants Amount (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2006 15,902,023 $ - 0.95
Warrants issued pursuant to
a public offering 18,021,429 2,307 0.90
Issue costs (303)
----------------------------------------
Balance, March 31, 2007 33,923,452 $ 2,004 0.92
----------------------------------------
----------------------------------------
The following table summarizes the outstanding and exercisable
warrants at March 31, 2007.
Weighted Average
Number of Warrants Expiry Date Exercise Price (CAD $)
---------------------------------------------------------------------
15,902,023 November 10, 2009 0.95
18,021,429 January 14, 2012 0.90
------------------
33,923,452
------------------
------------------
(c) Stock Options
A summary of the changes in stock options is presented below:
Number of Weighted Average
Options Exercise Price (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2006 23,530,000 0.83
Options granted 5,500,000 0.64
----------------------------------------
Balance, March 31, 2007 29,030,000 0.79
----------------------------------------
----------------------------------------
(d) Stock-based Compensation
Using the fair value method for stock-based compensation, the Company
calculated stock based compensation expense for the three months
ended March 31, 2007 as $1,143 (2006 - $224) for the stock options
vested and/or granted to officers, directors, employees and service
providers. Of this amount $960 (2006 - $224) was charged to earnings
and $183 (2006 - nil) was capitalized. The Company determined these
amounts using the Black-Scholes option pricing model assuming a risk
free interest rate range of 4.04% - 4.08% (2006 - 3.62%), a dividend
yield of 0% (2006 - 0%), an expected volatility range of 66% to 67%
(2006 - 28%) and expected lives of the stock options of five years
(2006 - five) from the date of grant.
6. SEGMENTED INFORMATION
The Company defined its reportable segments based on geographic
locations.
Three months ended United
March 31, 2007 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas
revenue, net of
royalties $ 9,299 $ - $ - $ 9,299
Expenses
Operating 4,014 - - 4,014
Sales and
transportation 775 - - 775
General and
administrative 558 410 691 1,659
Interest on term
loan 330 - - 330
Stock-based
compensation 247 169 544 960
Depletion,
depreciation and
accretion 1,876 9 16 1,901
---------------------------------------------------
7,800 588 1,251 9,639
---------------------------------------------------
Segment earnings
(loss) 1,499 (588) (1,251) (340)
--------------------------------------
Other income 331
Future income tax
expense (1,041)
---------------------------------------------------
Loss for the period $ (1,050)
---------------------------------------------------
---------------------------------------------------
Assets, March 31,
2007 $ 74,777 $ 71,435 $ 19,963 $ 166,175
---------------------------------------------------
---------------------------------------------------
Additions to
property, plant
and equipment $ 9,839 $ 4,023 $ 152 $ 14,014
---------------------------------------------------
---------------------------------------------------
Three months ended United
March 31, 2006 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas
revenue, net of
royalties $ 5,010 $ - $ - $ 5,010
Expenses
Operating 2,741 - - 2,741
Sales and
transportation 373 - - 373
General and
administrative 440 78 453 971
Stock-based
compensation 22 86 116 224
Depletion,
depreciation and
accretion 942 1 8 951
----------------------------------------------------
4,518 165 577 5,260
----------------------------------------------------
Segment earnings
(loss) 492 (165) (577) (250)
---------------------------------------
Other expenses (201)
Future income tax
expense (542)
----------------------------------------------------
Loss for the
period $ (993)
----------------------------------------------------
----------------------------------------------------
Assets,
March 31, 2006 $ 36,463 $ 22,913 $ 39,554 $ 98,930
----------------------------------------------------
----------------------------------------------------
Additions to
property, plant
and equipment $ 9,298 $ 4,972 $ 15 $ 14,285
----------------------------------------------------
----------------------------------------------------
7. RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2007 and 2006, the Company
incurred the following expenses with companies related by way of
directors and/or officers in common:
2007 2006
---------------------------------------------------------------------
Legal fees $ 136 $ 56
Rent and office services 12 16
Oil well servicing 1,999 1,776
At March 31, 2007 and 2006, included in accounts payable and accrued
liabilities are the following amounts which are payable to companies
related by way of directors and/or officers in common:
2007 2006
---------------------------------------------------------------------
Legal fees $ 22 $ 26
Oil well servicing 1,125 -
These transactions, occurring in the normal course of operations, are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
8. COMMITMENTS
a) Capital expenditures
In March 2006, the Company's Plan of Development for the Patos
Marinza heavy oilfield in Albania was approved by the NPA. Under the
Plan of Development submitted to NPA, the Company estimated the
remaining capital expenditures as at January 1, 2007 between $125
million to $183 million during the life of the Patos Marinza project.
The estimated capital expenditures during the next five years are as
follows:
($ millions) Case I Case II
---------------------------------------------------------------------
2007 38.3 42.2
2008 31.6 29.4
2009 9.5 41.6
2010 10.9 15.5
2011 9.5 10.7
Remaining 25.0 43.9
---------------------------------------------------------------------
124.8 183.3
---------------------------------------------------------------------
---------------------------------------------------------------------
The difference between Case I and Case II relates to maximum future
production levels.
The Petroleum Agreement stipulates that the Company submit to NPA
each year an annual program which includes the nature and the amount
of capital expenditures to be incurred in that year. Significant
deviations in this annual program from the Plan of Development will
be subject to NPA approval. Disagreements between the parties will be
referred to an independent expert whose decision will be binding.
The Company has the right to relinquish a portion or all of the
contract area. Any relinquishment will reduce the associated capital
expenditure commitments. If only a portion of the contract area is
relinquished then the Company will continue to conduct petroleum
operations on the portion retained and the future capital
expenditures will be adjusted accordingly.
The Company spent $9.8 million towards its 2007 commitment during the
three months period ended March 31, 2007.
b) Office Premises
The Company leases office premises. The minimum lease payments for
the next five years are as follows:
($000s)
---------------------------------------------------------------------
2007 $ 228
2008 189
2009 149
2010 149
2011 149
Thereafter 6
------------
$ 870
------------
------------
9. SUPPLEMENTAL CASH FLOW INFORMATION
March 31 March 31
2007 2006
---------------------------------------------------------------------
Operating activities
Decrease (increase) in current assets
Accounts receivable $ (2,129) $ (2,407)
Crude oil inventory 80 (76)
Deposit and prepaid expenses 53 106
Increase in current liabilities
Accounts payable and accrued liabilities (1,085) 664
-------------------------
$ (3,081) $ (1,713)
-------------------------
-------------------------
Investing activities
(Decrease) increase in current liabilities
Accounts payable and accrued liabilities $ (1,554) $ 891
-------------------------
-------------------------
Cash and cash equivalents
Cash $ 4,011 $ 7,406
Fixed income investments 15,855 32,656
-------------------------
$ 19,866 $ 40,062
-------------------------
-------------------------
Interest paid $ 239 $ -
-------------------------
-------------------------
10. SUBSEQUENT EVENT
On March 7, 2007, the Company entered into an agreement with the
wholly owned U.S. subsidiary of a Canadian public company to sell a
27% working interest in its approximately 375,000 net acres in the
Palo Duro basin, Texas. The total consideration to be paid for the
acreage is $19.5 million, of which $15.0 million will be in cash and
the balance of $4.5 million will be paid through issuance of
securities of the Canadian parent. This transaction is expected to
close in May 2007. The proceeds of disposal will be credited to
property, plant and equipment with no gains or losses recognized.