<<
Continued Momentum in U.S. Exploration Program While Expanding Scope
of Albanian Development
>>
Unless otherwise noted, all figures contained in this release are in
U.S. dollars.
CALGARY, Nov. 9 /CNW/ - Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) today
announced improved third quarter results. Revenue for the quarter more than
doubled to $9.2 million compared to $3.7 million in the third quarter of 2005.
Funds from operations were $3.0 million, compared to cash used in operations
of $94,000 for the comparable period in 2005.
"Our results in Albania continue to improve due to the activities of our
strong operational team," said Richard Wadsworth, President. "Once again,
production, revenue and netback improved over the quarter and we anticipate
closing the year in a strong position. In addition, our enhanced oil pilot
project study is progressing, which we believe can increase production and
resource recovery beyond the primary development plan in place for the Patos
Marinza oilfield. We anticipate concluding our study and obtaining approvals
to proceed by year-end with first drilling in the second half of 2007."
Mr. Wadsworth continued, "We've made significant steps in our U.S.
exploration program in a fairly short period of time. It's taken time to work
through the vast amount of data gained through the acquisition, but our
operational plans are coming together as expected. We're currently testing in
the Palo Duro basin in Texas, finished drilling our first well in Oklahoma and
are about to start our drilling program in New York. I'm pleased to report
that we are delivering on what we said we'd accomplish by year-end."
<<
Third Quarter Highlights:
- Average production increased 123% to 4,000 bopd from 1,793 bopd for
the same period in 2005, and 25% compared to 3,193 bopd for the
second quarter of 2006.
- Oil and gas revenue rose 149% to $9.2 million from $3.7 million in
the comparable period in 2005, and 24% from $7.4 million in the
second quarter of 2006.
- The netback in Albania improved to $12.44 per barrel from $11.09 in
the preceding quarter and $6.49 per barrel for the same period in
2005.
- Funds from operations decreased slightly to $3.0 million from
$3.3 million for the three months ended June 30, 2006, due to a large
foreign exchange gain recorded during the second quarter. The Company
used $94,000 of cash in operations for the third quarter of 2005.
- The $20.0 million debt financing was closed subsequent to the quarter
with Raiffeisen Bank Sh. A., an Austrian bank based in Albania. The
proceeds of this financing will be used in funding the on-going
capital program in the Patos Marinza oilfield.
- Approximately 43% of the Company's crude oil was exported during the
third quarter at an average of $30.81 per barrel.
- The Company expects its 2006 exit production rate will average
between 4,400 to 4,600 bopd.
- The Misener No. 1 well has been successfully fracture stimulated in
the upper 150 feet of the Bend Shale in Palo Duro, Texas, after a
second stimulation attempt. The well is currently being tested.
Bankers is currently isolating and testing individual zones in the
Cogdell No.1-1 well to gather additional data to be incorporated into
the fracture stimulation.
- In Oklahoma, the Nickel Hill No. 1-26 well reached its total target
depth of 9,979 feet on November 3, 2006. Electric logs and sidewall
cores are currently being analyzed so that a fracture stimulation
program can be designed for perforation and fracture stimulation in
December. The drilling rig is moving to Bankers' next well in Hughes
County.
- The Company's first Trenton-Black River and Utica shale well, the
Butler Creek No. 1, is expected to be spudded during the next week in
New York.
>>
Conference Call:
A conference call to discuss these results will be held Friday, November
10 at 9:00 a.m. Mountain time, 11:00 a.m. Eastern time. To participate in the
conference call, please dial 1-800-814-4860 or 1-416-644-3415 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 gas 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 and nine month periods ended September 30, 2006, 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, 2006 and the audited consolidated financial
statements and MD&A for the year ended December 31, 2005. 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 November 9, 2006.
NON-GAAP MEASURES
Funds from operations is a non-GAAP measure that represents cash provided
by (used in) operating activities, as per 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
for 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 expenses. The Company believes that net
operating income is a useful supplemental measure to analyze operating
performance and provides an indication of the results generated by the
Company's principal business activities prior to the consideration of other
income and expenses.
The non-GAAP measures referred to above do not have any standardized
meaning prescribed by GAAP and therefore may not be comparable to similar
measures used by other companies.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
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 Nine months ended
September 30 September 30
------------------------ ------------------------
Results at a Glance 2006 2005 % 2006 2005 %
-------------------------------------------------------------------------
Financial ($000s,
except as noted)
Oil and gas revenue 9,240 3,670 152 22,336 9,065 146
Net operating income 4,316 1,405 207 9,417 2,595 263
Loss for the period (208) (315) 34 (1,454) (2,743) 47
Funds from (used in)
operations 2,950 (94) 3,238 6,925 (821) 943
Additions to property,
plant and equipment 12,853 5,745 124 55,353 24,238 128
Total assets 127,106 53,083 139
Shareholders' equity 115,002 50,749 127
Operating
Average daily
production (bopd) 4,000 1,793 123 3,263 1,516 115
Average sales volume
(bopd) 3,776 1,791 111 3,149 1,490 111
Average price
($/barrel) 26.63 22.28 20 25.97 22.27 17
Netback ($/barrel) 12.44 6.49 92 10.95 5.72 91
Bankers continued to increase its production, revenues and funds from
operations during the third quarter of 2006:
- Average production during the quarter was 4,000 bopd compared to
3,193 bopd for the preceding quarter and 1,793 bopd for the same
period in 2005, increases of 25% and 123% respectively.
- Exit production for September 2006 was approximately 4,210 bopd.
- The netback in Albania improved to $12.44 per barrel from $11.09 per
barrel in the preceding quarter and $6.49 per barrel for the same
period in 2005, increases of 12% and 91% respectively.
- Higher production and prices resulted in increased revenues of
$9.2 million for the quarter compared to $7.4 million in the
preceding quarter and $3.7 million for the same period in 2005.
- Funds from operations were $3.0 million during the quarter compared
to $3.3 million for the preceding quarter. The moderate decline in
funds flow from operations related to a large foreign exchange gain
recorded in the second quarter. The Company used $94,000 of its cash
resources in operations for the same period in 2005.
Albania
The Company exported 43% of its crude during the third quarter at an
average price of $30.81 per barrel. In comparison, export made up 26% of the
sales during the second quarter at an average price of $31.61 per barrel. The
increased exports helped Bankers to weather declining oil prices. As a result,
the Company averaged $26.63 per barrel during the third quarter compared to
$25.64 per barrel for the second quarter.
Other significant events during the quarter included:
- A scoping study for an Enhanced Oil Recovery (EOR) project was
initiated in the Patos Marinza field. The evaluation, economic
analysis and modeling of a thermal pilot project for the southern
part of the field is progressing with approvals required to proceed
with the project expected by year-end.
- Subsequent to the quarter, Bankers closed its $20.0 million debt
financing with Raiffeisen Bank Sh. A. in Albania. The proceeds of
this financing will be used in funding the on-going capital program
in the Patos Marinza oilfield.
United States
- In Palo Duro, Texas, the Misener No. 1 well has been successfully
fracture stimulated in the upper 150 feet of the Bend Shale after a
second stimulation attempt. The well is currently being tested as
most of the fracture fluid has been recovered. Production rates have
not been stable due to mechanical issues with the pumping unit;
therefore a long enough test to determine sustained rates has not yet
occurred.
- Previously, Bankers had initiated a small fracture stimulation in
a lower Granite Wash sand interval. The testing of this interval
resulted in the recovery of uneconomic quantities of oil.
- After an extended production test of the currently producing
shale interval, the Company will decide whether to perforate and
stimulate additional Bend Shale intervals in this well or whether
a follow up horizontal well is warranted.
- Bankers is currently isolating and testing individual zones in the
Cogdell No. 1-1 well to gather additional data. This data is being
incorporated into the fracture stimulation of the Cogdell No. 1-1
well along with information obtained from the Misener No. 1 well.
After the Cogdell work is completed, it is expected that the Jones
well will be perforated and a stimulation will be designed for the
Bend Shale interval in the next two months.
- In Oklahoma, the Nickel Hill No. 1-26 well was spudded in October and
reached its total target depth of 9,979 feet on November 3. While the
main target is the Woodford shale, the Caney shale as well as other
secondary target zones are also being evaluated. Electric logs and
sidewall cores are currently being analyzed so that a fracture
stimulation program can be designed. It is anticipated that the well
will be perforated and fracture stimulated in December.
- The drilling rig that Bankers has under contract is moving to
Hughes County to begin drilling the Lake Holdenville No. 35-1
well. This well is also primarily targeting the Woodford shale
and will have an expected total depth of 6,500 feet.
- The Company is about to spud its first Trenton-Black River and Utica
shale well, the Butler Creek No. 1, during the next week in upstate
New York. This well has an expected total depth of 3,700 feet.
- In addition, Bankers is currently waiting on equipment to be able
to fracture stimulate two existing wells in New York. One of the
wells had an initial unstimulated production rate of 300 mcf/d of
gas, which declined to a 30 day stabilized rate of about 15 mcf/d
after nine months of production.
>>
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 114 from 85 in the
preceding quarter. As at September 30, 2006, the Company also had 41 wells
waiting for servicing and reactivation. Average production increased 25% to
4,000 bopd from 3,193 bopd for the preceding quarter and 123% from 1,793 bopd
from the same period a year ago. The exit production rate was approximately
4,210 bopd at September 30, 2006, and further production increases are
continuing into the fourth quarter although at a lesser rate due to the impact
of more difficult seasonal weather conditions.
Bankers sells a portion of its crude oil to Armo Sh. A., an Albanian
state owned refining and marketing organization (ARMO) pursuant to an
agreement under which the price per barrel is determined by reference to Brent
crude oil with caps and collars adjusted for quality. The average price
received from ARMO during the quarter ended September 30, 2006 was $23.48 per
barrel compared to $23.58 per barrel for the preceding quarter and $22.28 per
barrel for the same period a year earlier.
Bankers has the right to export all of its production. The Company
exported approximately 43% of its crude oil to Italy during the quarter at an
average price of $30.81 per barrel. During the preceding quarter, the Company
exported 26% of its crude at an average price of $31.61 per barrel. The
Company intends to maintain the current level of exports however increasing
production will result in declines in the proportionate share of exports until
arrangements are made to further increase export capability.
The Company's average oil price for the quarter was $26.63 per barrel, up
from $25.64 per barrel for the preceding quarter. The increased exports helped
the Company to increase its average oil price at a time of declining oil
prices.
Oil and gas revenues for the quarter were $9.2 million up from
$7.4 million for the quarter ended June 30, 2006, and $3.7 million for the
corresponding quarter a year ago, increases of 24% and 149% respectively. The
revenues for the nine months ended September 30, 2006, were $22.3 million
compared to $9.1 million for the same period a year ago, an increase of 145%.
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 slightly to $3.04 per barrel from $2.98 per barrel in the
preceding quarter. The royalties averaged $2.59 per barrel for the
corresponding period in 2005. The increase in royalties over the last year was
related to the greater number of wells being taken over from Albpetrol which
resulted in higher pre-existing production.
Operating expenses per barrel declined moderately to $9.05 per barrel
from $9.91 per barrel in the preceding quarter and $12.23 per barrel for the
same period in 2005. The Company successfully reduced unit operating costs
from $15.68 per barrel in March 2005 to its current levels through operating
efficiencies and economies of scale. A significant portion of Bankers'
operating costs are well servicing related costs, which will fluctuate from
period to period. However, it is anticipated that economies of scale resulting
from higher production will continue to impact unit operating costs positively
into the future.
Sales and transportation expenses increased to $2.10 per barrel from
$1.66 per barrel in the preceding quarter and $0.97 per barrel for the same
period in 2005. This increase was directly related to incremental costs of
additional transportation, inspection and port fees associated with crude oil
exports. During the quarter ended September 30, 2006, the Company exported 43%
of its crude compared to 26% for the preceding quarter. Bankers had not yet
commenced exports during the corresponding period in 2005.
The Company's netback per barrel improved to $12.44 per barrel from
$11.09 per barrel in the preceding quarter and $6.49 per barrel for the same
period in 2005. The improvements in netbacks resulted from higher oil prices
received as a result of exports and the reduction in unit operating costs.
<<
Three months ended Nine months ended
September 30 September 30
------------------------ ------------------------
Netback ($/bopd) 2006 2005 % 2006 2005 %
-------------------------------------------------------------------------
Average price
($/barrel) 26.63 22.28 20 25.97 22.27 17
Royalties 3.04 2.59 17 3.02 2.29 32
Sales and
transportation 2.10 0.97 116 1.84 1.00 84
Operating 9.05 12.23 (26) 10.17 13.26 (23)
------------------------- -------------------------
Netback ($/barrel) 12.44 6.49 92 10.95 5.72 91
------------------------- -------------------------
------------------------- -------------------------
>>
General and Administrative Expenses
General and administrative expenses for the quarter were $1.4 million
compared to 1.5 million for the preceding quarter and $1.4 million for the
same period in 2005, which included non-recurring charges of approximately
$594,000 related to the listing of the Company's common shares on the AIM
Market. The increase in general and administrative expenses reflects higher
personnel costs with the addition of new employees and 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 $325,000 compared to $269,000 for the preceding quarter and
$143,000 for the same period in 2005 in Albania and the United States. These
expenses were directly related to acquisition, exploration and development
activities.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expenses for the quarter ended
September 30, 2006, were $1.2 million compared to $961,000 for the preceding
quarter and $649,000 for the same period in 2005. The increase in depletion,
depreciation and accretion expenses reflects higher production and increase in
depletable assets.
Future Income Tax Expense
The net book value of the Albanian assets exceed their tax values by
$6.1 million due to depletion and depreciation expenses not being deductible
for income tax purposes in Albania. Future income tax expense was calculated
at the rate of 50% on the incremental difference between the net book and tax
values of the Albanian assets.
Loss for the Period and Funds from Operations
The Company recorded a loss of $208,000 ($0.00 per share) during the
quarter compared to a loss of $253,000 ($0.00 per share) for the preceding
period and $315,000 ($0.00 per share) for the same period in 2005. The loss
for the nine month period was $1.5 million ($0.00 per share) compared to a
loss of $2.7 million ($0.01 per share) for the same period in 2005.
Bankers generated funds from operations of $3.0 million during the third
quarter compared to $3.3 million for the preceding quarter. The moderate
decline in funds flow from operations was related to a $1.3 million foreign
exchange gain recorded in the second quarter. The Company used $94,000 of its
cash resources in operations for the same period in 2005.
Funds from operations for the nine month period ended September 30, 2006
were $6.9 million compared to funds used in operations of $821,000 for the
same period a year ago, a turn around of $7.7 million.
<<
CAPITAL EXPENDITURES
Three months ended Nine months ended
September 30 September 30
-------------------------------------------------------------------------
($000) 2006 2005 2006 2005
-------------------------------------------------------------------------
Albania 9,467 3,054 31,014 11,742
United States 2,948 2,297 23,861 12,102
Canada 438 394 478 394
---------------------------------------
12,853 5,745 55,353 24,238
---------------------------------------
---------------------------------------
>>
The Company incurred $7.9 million on well reactivations in Albania during
the quarter. The balance of the expenditures was incurred as follows:
construction of the pad facilities - $495,000; the central treatment
facilities - $609,000; and miscellaneous asset acquisitions and capitalized
G&A. The Company spent $3.0 million in capital expenditures in Albania for the
same period in 2005 which were primarily incurred on well re-activations.
In the United States, Bankers spent $2.1 million on the drilling and
evaluation costs of the Misener No. 1, Jones No. 1, Stansell No. 1 and Nickel
Hill No. 1-26 wells. Approximately $865,000 was related to lease acquisition
costs, including bonus and rental payments and other asset acquisitions. The
balance was capitalized general and administrative expenses. Bankers spent
$2.3 million on lease acquisitions in the United States for the same period in
2005.
ASSET RETIREMENT OBLIGATIONS
Bankers estimated its undiscounted asset retirement obligations in
Albania as $9.0 million based on the 195 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 $1.0 million of asset retirement obligations was
estimated based on a credit-adjusted risk free rate of 9%. Asset retirement
obligations were increased to 1.1 million at September 30, 2006, as a result
of accretion.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2006, Bankers had a working capital of $7.7 million and
no debt. In addition, the Company had $10.3 million in field inventory and
prepayments to suppliers of $2.4 million in Albania, which were reported as
part of the property, plant and equipment. The capital expenditures for the
balance of the year are estimated at $8.0 million for Albania and $6.0 million
for the U.S. The current field inventory levels and the outstanding prepaid
orders are expected to be more than sufficient for well reactivations in
Albania during the balance of 2006. The cash capital expenditures in Albania
will be payments to local contractors in Albania estimated at $3.0 to
$4.0 million, which will be largely financed by funds from operations.
In October 2006, Bankers completed its $20.0 million debt financing with
an Austrian financial institution based in Albania to fund the ongoing capital
expenditures in the country. The facility is comprised of a $15.0 million term
loan payable over five years bearing an interest rate of one year London
Interbank Overnight Rate (LIBOR) plus 4.5%; and a $5.0 million revolving line
of credit bearing an interest rate of LIBOR plus 3.5%. The facility is secured
by all of the assets of Bankers Petroleum Albania Ltd., the Company's wholly
owned subsidiary, assignment of proceeds from the domestic and export crude
oil sales contracts, a pledge of the common shares of Bankers Petroleum
Albania Ltd., and a guarantee by the Company.
The Company expects that the funds to be generated by operations in
Albania during 2007, the current levels of field inventory, and the available
debt facility will be sufficient to fund Albanian capital expenditures for
fiscal 2007.
The U.S. capital expenditures for the balance of the year will be funded
by the current working capital. The 2007 capital expenditure program will be
geared towards the results of current activities. The funding for these
activities may be generated from a combination of equity and debt financing or
joint venture arrangements. There is no assurance that Bankers will be able to
secure the necessary funds through these means.
RELATED PARTY TRANSACTIONS
Bankers contracts with Simmons Drilling (Overseas) Limited, (Simmons) 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 Simmons. During the quarter ended September 30, 2006, the Company
transacted $2.1 million of services with Simmons as compared to $2.5 million
for the preceding quarter and $1.3 million for the corresponding period in
2005. The services of Simmons can be terminated upon 60 days notice at the
election of the Company.
During the quarter ended September 30, 2006, Bankers incurred legal fees
of $33,000 in transactions with the firm of DuMoulin Black LLP, of which the
corporate secretary of the Company is a partner. The legal fees charged by
DuMoulin Black were $207,000 for the preceding quarter and $60,000 for the
three months ended September 30, 2005.
Bankers also paid $13,000 (three months ended June 30, 2006 - $13,000;
three months ended September 30, 2005 - $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, 2006 between $155.0 million to
$213.0 million during the life of the Patos Marinza project.
The estimated capital expenditures during the next five years are as
follows:
<<
($ millions) Low Case High Case
-------------------------------------------------------
2006 30.2 29.7
2007 38.3 42.2
2008 31.6 29.4
2009 9.5 41.6
2010 10.9 15.5
Remaining 34.5 54.6
-------------------------------------------------------
155.0 213.0
-------------------------------------------------------
-------------------------------------------------------
>>
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.
The Company has so far incurred $31.0 million in capital expenditures
towards the 2006 program.
The Company has no commitments under operating leases for office space
and equipment.
QUARTERLY SUMMARY
Below is a summary of Bankers' performance for the third quarter of 2006,
with comparative data for the preceding seven quarters.
<<
($000s, except Sept 30 June 30 March 31 Dec 31 Sept 30
as noted) 2006 2006 2006 2005 2005
-------------------------------------------------------------------------
Average daily
production (bopd) 4,000 3,193 2,579 2,173 1,793
Average sales
volume (bopd) 3,776 3,175 2,474 2,184 1,791
Average price
($/barrel) 26.63 25.64 25.55 23.13 22.28
Royalties 3.04 2.98 3.05 2.77 2.59
Sales and transportation 2.10 1.66 1.68 1.20 0.97
Operating 9.05 9.91 12.31 12.46 12.23
-------------------------------------------------
Netback ($/barrel) 12.44 11.09 8.51 6.69 6.49
-------------------------------------------------
-------------------------------------------------
Oil and gas revenues 9,240 7,407 5,689 4,644 3,670
Royalties 1,055 860 679 564 426
Sales and transportation 728 480 373 241 161
Operating 3,141 2,862 2,741 2,246 1,946
-------------------------------------------------
Net operating income 4,316 3,205 1,896 1,593 1,138
-------------------------------------------------
-------------------------------------------------
General and
administrative 1,422 1,450 972 904 1,415
Funds from (used in)
operations 2,950 3,251 723 650 (94)
Loss for the period (208) (253) (993) (755) (315)
Basic and diluted
loss per share - - - - -
Total assets 127,106 124,321 98,930 56,846 53,083
June 30 March 31 Dec 31
($000s, except as noted) 2005 2005 2004
-------------------------------------------------------------------------
Average daily production (bopd) 1,527 1,243 1,157
Average sales volume (bopd) 1,475 1,210 1,120
Average price ($/barrel) 22.23 22.15 22.29
Royalties 2.20 1.95 1.09
Sales and transportation 0.99 1.04 1.00
Operating 13.00 15.68 11.87
-----------------------------
Netback ($/barrel) 6.04 3.48 8.33
-----------------------------
-----------------------------
Oil and gas revenues 2,983 2,412 2,296
Royalties 295 213 112
Sales and transportation 132 113 103
Operating 1,744 1,707 1,223
-----------------------------
Net operating income 811 379 858
-----------------------------
-----------------------------
General and administrative 1,008 751 1,253
Funds from (used in) operations (200) (526) (611)
Loss for the period (1,355) (1,073) (1,355)
Basic and diluted loss per share - - ($0.01)
Total assets 52,533 52,340 23,072
>>
OUTSTANDING SHARE DATA
There were approximately 411 million shares outstanding on September 30,
2006 and November 8, 2006. In addition, the Company had approximately
39 million stock options, warrants and compensation options 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.
OUTLOOK
The continued success in well re-completions indicates that Bankers' exit
production for 2006 will exceed the previously revised target of 4,200 bopd
and will likely average between 4,400 to 4,600 bopd. Well activity tends to be
lower during the first and fourth quarters of the year due to winter weather
conditions in Albania. The recent decline in the crude oil prices since July
2006 will impact the Company's export price negatively. Export crude oil
prices are expected to average around $27.00 to $28.00 per barrel during the
fourth quarter as compared to the nearly $31.00 per barrel realized during the
third quarter. As a result, Bankers expects its net back to decline to
approximately $11.00 per barrel in the fourth quarter from $12.44 per barrel
in the current quarter. This decline in netback will be somewhat offset by
production increases. The overall decline in the Company's net operating
income in the fourth quarter as a result of lower oil prices is not expected
to be material.
In the United States, Bankers continues to explore its newly acquired
basins by drilling the first wells in Oklahoma and New York. No revenue is
currently estimated to be generated from the U.S. operations during the year.
The Company is projecting to be able to outline a comprehensive plan for its
U.S. properties in the first quarter of 2007. Future plans will be based on
the results of the exploration programs currently underway in Texas, Oklahoma
and New York.
<<
BANKERS PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited and Expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS
September 30 December 31
2006 2005
---------------------------
Current assets
Cash and cash equivalents $ 9,003 $ 13,529
Accounts receivable 4,847 3,846
Crude oil inventory 590 335
Deposits and prepaid expenses 1,212 1,016
---------------------------
15,652 18,726
Property, plant and equipment (Note 2) 111,454 38,120
---------------------------
$ 127,106 $ 56,846
---------------------------
---------------------------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 7,912 $ 5,766
Asset retirement obligations (Note 3) 1,119 -
Future income tax liability 3,073 282
SHAREHOLDERS' EQUITY
Share capital (Note 4) 116,413 53,205
Contributed surplus (Note 4) 4,464 2,014
Deficit (5,875) (4,421)
---------------------------
115,002 50,798
---------------------------
$ 127,106 $ 56,846
---------------------------
---------------------------
Commitment (Note 7)
Subsequent event (Note 9)
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
--------------------- ---------------------
2006 2005 2006 2005
--------------------- ---------------------
Revenue
Oil and gas revenue $ 9,240 $ 3,670 $ 22,336 $ 9,065
Royalties (1,055) (426) (2,594) (934)
-------------------------------------------
8,185 3,244 19,742 8,131
-------------------------------------------
Expenses
Operating 3,141 1,679 8,744 5,130
Sales and transportation 728 160 1,581 406
General and administrative 1,422 1,415 3,844 3,174
Stock-based compensation
(Note 4) 706 375 2,450 1,288
Depletion, depreciation
and accretion 1,226 649 3,138 1,163
-------------------------------------------
7,223 4,278 19,757 11,161
-------------------------------------------
962 (1,034) (15) (3,030)
-------------------------------------------
Other income (Expenses)
Interest 88 164 482 396
Foreign exchange gain (loss) (32) 259 870 (638)
Gain on sale of investment - 557 - 689
-------------------------------------------
56 980 1,352 447
-------------------------------------------
Earnings (loss) before
income taxes 1,018 (54) 1,337 (2,583)
Future income tax expense 1,226 261 2,791 160
-------------------------------------------
Loss for the period (208) (315) (1,454) (2,743)
Deficit, beginning of period (5,667) (3,351) (4,421) (923)
-------------------------------------------
Deficit, end of period $ (5,875) $ (3,666) $ (5,875) $ (3,666)
-------------------------------------------
-------------------------------------------
Basic and diluted loss
per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
-------------------------------------------
-------------------------------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
--------------------- ---------------------
Cash provided by (used in) 2006 2005 2006 2005
--------------------- ---------------------
Operating activities
Loss for the period $ (208) $ (315) $ (1,454) $ (2,743)
Items not involving cash:
Depletion, depreciation
and accretion 1,226 649 3,138 1,163
Foreign exchange gain - (507) - -
Future income tax expense 1,226 261 2,791 160
Stock-based compensation
(Note 4) 706 375 2,450 1,288
Gain on sale of investment - (557) - (689)
-------------------------------------------
Funds from operations 2,950 (94) 6,925 (821)
Change in non-cash working
capital (Note 8) 2,038 206 (2,791) (123)
-------------------------------------------
4,988 112 4,134 (944)
-------------------------------------------
Investing activities
Additions to property,
plant and equipment (12,853) (5,745) (55,353) (24,238)
Proceeds from sale of
investment - 1,070 - 2,033
Purchase of investments - (513) - (513)
Restricted cash - - - 1,144
Change in non-cash working
capital (Note 8) (1,339) - 3,485 -
-------------------------------------------
(14,192) (5,188) (51,868) (21,574)
-------------------------------------------
Financing activities
Issue of common shares,
net of share issue costs
(Note 4) 2,274 990 43,208 31,577
-------------------------------------------
Increase (decrease) in cash
and cash equivalents (6,930) (4,086) (4,526) 9,059
Cash and cash equivalents,
beginning of period 15,933 27,666 13,529 14,521
-------------------------------------------
Cash and cash equivalents,
end of period (Note 8) $ 9,003 $ 23,580 $ 9,003 $ 23,580
-------------------------------------------
-------------------------------------------
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). The preparation of interim financial statements is based on
accounting principles and practices consistent with those used in the
preparation of annual financial statements. 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, 2005. 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 unaudited consolidated financial statements include the accounts
of the Company, Bankers Petroleum Albania Ltd. (formerly Bankers
International Energy Ltd), and Bankers Petroleum (U.S.) Inc., its
wholly-owned subsidiaries.
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 tables summarize the Company's property, plant and
equipment as at September 30, 2006 and December 31, 2005:
2006 2005
--------------------------------------------
Accumulated
Depletion
and Net Book Net Book
Cost depreciation Value Value
---------------------------------------------------------------------
Oil and gas properties -
Albania $ 55,615 $ 4,952 $ 50,663 $ 21,543
Oil and gas properties -
United States 59,923 - 59,923 16,062
Equipment, furniture and
fixtures 1,080 212 868 515
--------------------------------------------
$ 116,618 $ 5,164 $ 111,454 $ 38,120
--------------------------------------------
--------------------------------------------
In March 2006, the Company's Plan of Development in Albania for the
Patos Marinza field was approved by the National Petroleum Agency
(NPA). This approval allows Bankers to take-over the remaining wells
in the field on a basis consistent with the Plan of Development and
produce and sell oil under the existing license agreement for a
period of 25 years with an option to extend at the Company's election
for further five year increments.
In May 2006, the Company closed an acquisition of oil and gas
properties in the United States. The purchase price for the assets
was $30 million of which $20 million was satisfied by the issuance of
25,971,715 common shares of the Company with a fair market value of
CAD $0.877 per share. The balance was paid in cash. As part of the
transaction an additional $1 million cash payment was made to third
parties to settle competing claims in respect of some of the acquired
acreage.
The Company capitalized general and administrative expenses of
$325,000 and $825,000 during the three and nine months period ended
September 30, 2006 ($143,000 and $418,000 for the corresponding
periods in 2005) in Albania and the United States that were directly
related to exploration and development activities.
Depletion for the three months ended September 30, 2006 included
$81 million (2005- $123 million) for estimated future development
costs associated with proved undeveloped reserves in Albania.
3. ASSET RETIREMENT OBLIGATIONS
Prior to the approval of its Plan of Development, the Company did not
make a provision for asset retirement obligations in Albania as there
was no legal obligation during the evaluation period. Subsequent to
approval in March 2006, the Company estimated the total undiscounted
amount required to settle the asset retirement obligations at
$9,038,000. These obligations will be settled at the end of the
Company's 25-year license. The undiscounted liability has been
discounted using a credit-adjusted risk-free interest rate of 9%.
Currently the Company has no significant asset retirement obligations
for its oil and gas properties in the United States.
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2005 $ -
Liabilities incurred during the period 1,048
Accretion 71
-----------
Asset retirement obligations, September 30, 2006 $ 1,119
-----------
-----------
4. 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, 2004 286,295,739 $ 20,956 $ 593
Shares issued pursuant to
private placement 31,000,000 29,588 -
Share issuance costs - (1,557) -
Exercise of warrants
and options 9,219,248 3,282 (247)
Exercise of compensation
options 1,071,546 679 (155)
Finder's fee 400,000 256 -
Stock-based compensation - - 1,823
----------------------------------------
Balance, December 31, 2005 327,986,533 53,204 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
Share issuance costs - (2,698) -
Shares issued on exercise
of warrants 7,523,750 2,707 -
Stock-based compensation - - 2,450
----------------------------------------
Balance, September 30, 2006 411,481,998 $ 116,413 $ 4,464
----------------------------------------
----------------------------------------
The weighted average number of common shares used in the calculation
of basic and diluted loss per share was 408,909,069 and 381,048,029
for the three and nine month periods ended September 30, 2006
(326,141,372 and 315,435,916 for the same periods in 2005).
In March 2006, the Company completed a financing with a syndicate on
a bought-deal basis pursuant to which the Underwriters purchased for
resale to the public, an aggregate of 50,000,000 common shares of the
Company at a price of CAD$1.00 per common share. The net proceeds of
the offering were $40,783,000.
In May 2006, the Company issued 25,971,715 common shares at a fair
market value of CAD $0.877 per share, valued at $20,000,000 as
partial consideration for the acquisition of oil and gas properties
in the United States (Note 2).
(b) Warrants
Weighted
Average
Number of Exercise
Warrants Price (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2005 23,554,705 0.76
Warrants exercised 7,323,750 0.40
Warrants expired 721,250 0.40
---------------------------
Balance, September 30, 2006 15,509,705 0.95
---------------------------
---------------------------
The following table summarizes the outstanding and exercisable
warrants at September 30, 2006.
Weighted Average
Exercise
Number of Warrants Expiry Date Price (CAD $)
---------------------------------------------------------------------
15,509,705 November 10, 2009 0.95
(c) Stock Options
Weighted
Average
Number of Exercise
Options Price (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2005 14,605,000 0.70
Options granted 8,800,000 1.05
---------------------------
Balance, September 30, 2006 23,405,000 0.83
---------------------------
---------------------------
(d) Compensation Options
In connection with the November 2004 private placement, the brokers
were issued 1,856,182 compensation options exercisable to purchase
units of the Company at a price of $0.55 per unit. Each unit consists
of one common share and one-half of one common share purchase
warrant. Each whole warrant entitles the holder to purchase one
common share at $0.95 until November 10, 2009. As at September 30,
2006, 584,636 of the compensation options issued were outstanding.
(e) Stock-based Compensation
Using the fair value method for stock-based compensation, the Company
recorded a charge to earnings of $706,000 and $2,450,000 for the
three and nine month periods ended September 30, 2006 ($375,000 and
$1,288,000 for the same periods in 2005) for the stock options vested
and/or granted to officers, directors, employees and service
providers. 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, 2006 and 2005 and the
assumption used in their determination were as follows:
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
Weighted average fair
value per option $0.42 $0.47 $0.46 $0.23
Risk-free interest rate (%) 3.66 3.65 3.63 3.65
Average volatility (%) 63 28 54 28
Expected life (years) 5 5 5 5
5. SEGMENTED INFORMATION
The Company defined its reportable segments based on geographic
locations.
Nine months ended United
September 30, 2006 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 19,742 $ - $ - $ 19,742
---------------------------------------
Expenses
Operating 8,744 - - 8,744
Sales and transportation 1,581 - - 1,581
General and administrative 1,534 410 1,900 3,844
Stock-based compensation 576 560 1,314 2,450
Depletion, depreciation and
accretion 3,099 10 29 3,138
---------------------------------------
15,534 980 3,243 19,757
---------------------------------------
Segment earnings (loss) 4,208 (980) (3,243) (15)
-----------------------------
Other income 1,352
Future income tax expense (2,791)
---------------------------------------
Loss for the period $ (1,454)
---------------------------------------
---------------------------------------
Assets, September 30, 2006 $ 57,415 $ 61,352 $ 8,339 $127,106
---------------------------------------
---------------------------------------
Additions to property, plant
and equipment $ 31,386 $ 23,905 $ 62 $ 55,353
---------------------------------------
---------------------------------------
Nine months ended United
September 30, 2005 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 8,131 $ - $ - $ 8,131
Expenses
Operating 5,130 - - 5,130
Sales and transportation 406 - - 406
General and administrative 1,116 - 2,058 3,174
Stock-based compensation 162 442 684 1,288
Depletion, depreciation
and accretion 1,152 - 11 1,163
---------------------------------------
7,966 442 2,753 11,161
---------------------------------------
Segment earnings (loss) 165 (442) (2,753) (3,030)
-----------------------------
Other income 447
Future income tax expense (160)
---------------------------------------
Loss for the period $ (2,743)
---------------------------------------
---------------------------------------
Assets, September 30, 2005 $ 18,725 $ 13,352 $ 21,006 $ 53,083
---------------------------------------
---------------------------------------
Additions to property, plant
and equipment $ 12,139 $ 12,099 $ - $ 24,238
---------------------------------------
---------------------------------------
Three months ended United
September 30, 2006 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 8,185 $ - $ - $ 8,185
---------------------------------------------------------------------
Expenses
Operating 3,141 - - 3,141
Sales and transportation 728 - - 728
General and administrative 567 195 660 1,422
Stock-based compensation 313 129 264 706
Depletion, depreciation
and accretion 1,210 5 11 1,226
---------------------------------------
5,959 329 935 7,223
---------------------------------------
Segment earnings (loss) 2,226 (329) (935) 962
-----------------------------
Other income 56
Future income tax expense (1,226)
---------------------------------------
Loss for the period $ (208)
---------------------------------------
---------------------------------------
Additions to property, plant
and equipment $ 9,839 $ 2,992 $ 22 $ 12,853
---------------------------------------
---------------------------------------
Three months ended United
September 30, 2005 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 3,244 $ - $ - $ 3,244
---------------------------------------
Expenses
Operating 1,679 - - 1,679
Sales and transportation 160 - - 160
General and administrative 396 - 1,019 1,415
Stock-based compensation 56 155 164 375
Depletion, depreciation
and accretion 645 - 4 649
---------------------------------------
2,936 155 1,187 4,278
---------------------------------------
Segment earnings (loss) 308 (155) (1,187) (1,034)
-----------------------------
Other income 980
Future income tax expense (261)
---------------------------------------
Loss for the period $ (315)
---------------------------------------
---------------------------------------
Additions to property,
plant and equipment $ 3,451 $ 2,294 $ - $ 5,745
---------------------------------------
---------------------------------------
6. RELATED PARTY TRANSACTIONS
During the three and nine month periods ended September 30, 2006 and
2005, the Company incurred the following expenses with companies
related by way of common directors and/or officers:
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
Legal fees $33,000 $60,000 $296,000 $147,000
Rent and office services 13,000 - 43,000 -
Oil well servicing 2,123,000 1,227,000 6,421,000 3,059,000
At September 30, 2006 and 2005, the following amounts payable to
companies related by way of common directors and/or officers were
included in accounts payable and accrued liabilities. These balances
bear no interest and have no fixed terms of repayment:
($) 2006 2005
---------------------------------------------------------------------
Legal fees $ 56,000 $ 26,000
Oil well servicing 1,145,000 732,000
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.
7. COMMITMENT
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, 2006 between
$155 million to $213 million during the life of the Patos Marinza
project. The estimated capital expenditures during the next five
years are as follows:
($ millions) Case I Case II
---------------------------------------------------------------------
2006 30.2 29.7
2007 38.3 42.2
2008 31.6 29.4
2009 9.5 41.6
2010 10.9 15.5
Remaining 34.5 54.6
---------------------------------------------------------------------
155.0 213.0
---------------------------------------------------------------------
---------------------------------------------------------------------
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. If only a portion of the contract area is relinquished
then the Company will continue to conduct petroleum operations on the
portion it retained and the future capital expenditures will be
adjusted accordingly.
The Company spent $31 million towards its 2006 commitment during the
nine month period ended September 30, 2006.
8. SUPPLEMENTAL CASH FLOW INFORMATION
September 30 September 30
Nine months ended 2006 2005
---------------------------------------------------------------------
Operating activities
Decrease (increase) in current assets
Accounts receivable $ (1,001) $ 343
Inventory (255) (336)
Deposits and prepaid expenses (196) 141
Increase (decrease) in current liabilities
Accounts payable and accrued liabilities (1,339) (271)
---------------------------
$ (2,791) $ (123)
---------------------------
---------------------------
Investing activities
Increase in current liabilities
Accounts payable and accrued liabilities $ 3,485 $ -
---------------------------
---------------------------
Cash and cash equivalents
Cash $ 3,365 $ 13,579
Fixed income investments 5,638 10,001
---------------------------
$ 9,003 $ 23,580
---------------------------
---------------------------
9. SUBSEQUENT EVENT
Subsequent to September 30, 2006, the Company closed a $20 million
debt financing with a European financial institution based in
Albania. The facility is comprised of a $15 million 5 year term loan
bearing interest at one year LIBOR plus 4.5% and a $5 million
revolving line of credit bearing interest at one year LIBOR plus
3.5%. The facility is secured by all of the assets of Bankers
Petroleum Albania Ltd., the Company's wholly owned subsidiary,
assignment of proceeds from the domestic and export crude oil sales
contracts, a pledge of the common shares of Bankers Petroleum Albania
Ltd., and a guarantee by the Company.
>>
