Promising Woodford Shale Sections Encountered in Several Oklahoma Wells
Unless otherwise noted, all figures contained in this release are in U.S.
dollars.
CALGARY, Aug. 9 /CNW/ - Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) today announced strong results and improvements in all financial areas in its second quarter of 2007. Revenue for the quarter increased 74% to $12.9 million compared to $7.4 million in the second quarter of 2006. Net operating income grew to 1.4 million in the quarter from a loss of $0.7 million in the second quarter of 2006. Funds from operations were $4.8 million, compared to $3.2 million for the comparable period in 2006.
"Our ability to increase exports, capturing the discount relative to our domestic sales and higher international oil prices, have substantially contributed to increasing our netback to over $16 per barrel in the quarter," said Richard Wadsworth, President. "Our continuing efforts to improve operations on all fronts have resulted in gains in production, revenue, netback and funds from operations while decreasing operating costs in Albania."
Mr. Wadsworth continued, "In the U.S., we've advanced our exploration program substantially with the drilling of our first horizontal wells in Oklahoma and participation in numerous others. While we're still undergoing testing on the first horizontal well, preliminary flowback results have been positive, leading us closer to a development plan for the Ardmore basin. This basin represents a significant growth opportunity for the Company if production and reserve levels from our wells are similar to those of other operators in the area. In addition, we continue to work towards showing repeatability in our drilling activities for the Palo Duro basin, and are making continuous progress."
Second Quarter Highlights:
- Average production increased 49% to 4,746 bopd from 3,193 bopd for
the same period in 2006, and 8% compared to 4,380 bopd for the first
quarter of 2007.
- Exit production for June 2007 was approximately 5,000 bopd.
- Oil and gas revenue rose 74% to $12.9 million from $7.4 million in
the comparable period in 2006, and 21% from $10.7 million in the
first quarter of 2007.
- The netback in Albania improved to $16.14 per barrel from $11.42 in
the preceding quarter and $11.09 per barrel for the same period in
2006.
- Funds from operations increased to $4.8 million from $2.9 million and
$3.3 million for the first quarter of 2007 and the corresponding
period in 2006, respectively.
- All required equipment for the Company's cyclical steam pilot is in
country in order to commence testing operations in the second half
of 2007.
- Approximately 60% of the Company's crude oil was exported during the
second quarter at an average price of $36.15 per barrel.
- In Oklahoma, Bankers completed its first horizontal well,
Greenway (No.) 35-1H, which offsets the Nickel Hill (No.) 1-26
discovery well. Approximately 2,800 feet of horizontal section was
successfully fracture stimulated in the upper, middle and lower
Woodford intervals. The Greenway 35-1H well is currently flowing back
fracture fluid and undergoing testing.
- In Texas, Bankers drilled the Black 4 (No.) 1 well, which encountered
a 280 foot thick Bend Shale interval as well as numerous potentially
productive Granite Wash Sands intervals.
- A second horizontal well was spudded about 10 miles to the southeast
of the Greenway well, the W.L.C. 17-1H. The horizontal portion of
the well is now being drilled, which is projected to extend to a
length of 3,000 feet. The analysis of the vertical wellbore
indicates a 325 foot thick Woodford shale section that compares
favorably with the other wells drilled in the area.
Conference Call:
A conference call to discuss these results will be held Friday, August 10 at 9:00 a.m. MDT, 11:00 a.m. EDT, 4:00 p.m. BDT. To participate in the conference call, please dial 1-866-250-4910 or 1-416-915-5648 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 and six month periods ended June 30, 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 and six month periods ended June 30, 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 August 9, 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 June 30 Six months ended June 30
----------------------------- -----------------------------
Results at
a Glance 2007 2006 % 2007 2006 %
-------------------------------------------------------------------------
Financial
($000s, except
as noted)
Oil and gas
revenue 12,913 7,407 74 23,652 13,096 81
Net operating
income 6,332 3,205 98 10,842 5,101 125
Income (loss)
for the period 600 (253) 337 (450) (1,246) 64
Funds from
operations 4,792 3,251 47 7,644 3,975 92
Additions to
property,
plant and
equipment 23,257 29,106 (20) 37,271 42,500 (12)
Total assets 175,550 124,321 41
Shareholders'
equity 136,596 112,229 22
Operating
Average daily
production
(bopd) 4,746 3,193 49 4,564 2,888 58
Average sales
volume (bopd) 4,314 3,175 36 4,351 2,826 54
Average price
($/barrel) 32.89 25.64 28 30.03 25.60 17
Netback
($/barrel) 16.14 11.09 46 13.77 9.97 38
Bankers continued to increase production, revenues, netback and funds from
operations during the three month period ended June 30, 2007:
- Average production was 4,746 bopd compared to 4,380 bopd for the
first quarter of 2007 and 3,193 bopd for the same period in 2006,
increases of 8% and 49% respectively.
- Exit production for June 2007 was approximately 5,000 bopd.
- Higher production and average oil sales price resulted in increased
revenues of $12.9 million for the quarter compared to $10.7 million
in the preceding quarter and $7.4 million for the same period in
2006.
- Netback improved to $16.14 per barrel from $11.42 per barrel in the
preceding quarter and $11.09 per barrel for the same period in 2006,
increases of 41% and 46% respectively.
- Net income for the period was $600,000 compared to losses of
$1.1 million and $253,000 for the preceding quarter and the
corresponding period in 2006.
- Funds from operations increased to $4.8 million from $2.9 million and
$3.3 million for the three months ended March 31, 2007 and the
corresponding period in 2006, respectively.
Albania
The Company exported 60% of its crude during the second quarter of 2007 at an average price of $36.15 per barrel. In comparison, exports made up 39% of the sales during the previous quarter at an average price of $28.67 per barrel. Domestic sale price averaged $28.10 per barrel compared to $26.26 per barrel for the preceding quarter and $23.58 per barrel for the same period in 2006.
The increased export volumes and prices helped Bankers to receive a substantially higher average oil price. The Company averaged $32.89 per barrel during the second quarter of 2007 compared to $27.19 per barrel for the previous quarter and $25.64 for the same period in 2006, increases of 21% and 28% respectively.
Of significance in the quarter was the arrival of equipment required for the steam pilot project. Bankers intends to commence testing operations on one or more wells during the second half of the year to test the equipment, injection parameters and assumptions in order to optimize operations for a steam pilot during 2008. The 2008 steam pilot would involve the drilling of new directional wells from a single pad location, including building the necessary production facilities for initial cyclic steam injection followed by steam flooding. Final approvals for this program are being sought from Albpetrol and the Albanian government.
United States
In Oklahoma, Bankers drilled and completed its first horizontal well, Greenway (No.) 35-1H, in the second quarter. The Greenway (No.) 35-1H well offsets the Nickel Hill (No.) 1-26 discovery well and is currently flowing back fracture fluid and undergoing testing. Other events in the quarter include:
- A production facility for the Nickel Hill and Greenway wells is
currently being constructed with an expected end of August completion
date.
- Bankers is in the process of drilling a second horizontal well about
10 miles to the southeast of the Greenway well, the W.L.C. 17-1H. The
vertical portion is complete, encountering a 325 foot thick Woodford
shale section.
- The Company has also participated in four vertical wells operated by
others; all wells encountered promising Woodford shale sections in
its Carter and Johnson County play.
- Bankers participated in another vertical well in Hughes County, which
encountered a Woodford shale section that was similar to those
encountered in the Lake Holdenville 35-1 well and other wells in the
area.
In Texas, Bankers air drilled and completed the vertical Cogdell (No.) 64-1 well in the Palo Duro Basin during the first quarter. The Granite Wash Sand was 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. In the second quarter, Bankers fracture stimulated the Bend shale interval, which is flowing back fracture fluid and undergoing testing. In addition:
- Bankers drilled the Black 4 (No.) 1 well, which encountered a more
thermally mature 280 foot thick Bend shale interval as well as
numerous potentially productive Granite Wash Sands intervals.
- A brief test of the sand is planned, which will be followed by
fracture stimulating the primary target, the Bend shale.
- Bankers intends to drill a horizontal test of the Granite Wash Sands
in an attempt to substantially increase the 325 Mcf/d flow rate
achieved from the vertical well in this interval.
DISCUSSION OF OPERATING RESULTS
Production and Revenue
During the quarter, production continued to increase as more wells were re-activated and worked over in Albania, bringing the active well count to 163 from 134 in the preceding quarter. As at June 30, 2007, the Company also had 37 wells waiting for servicing and reactivation. Average production increased to 4,746 bopd during the quarter from 4,380 bopd for the preceding quarter and from 3,193 bopd from the same period a year ago. The arrival of the third workover rig during March helped increase the quarterly production gains closer to forecasted levels. Planned accelerated well take-overs and work overs during the balance of the year are anticipated to enable Bankers to meet its previously announced production targets for 2007.
During the quarter, the Company exported approximately 60% of its crude oil to two refineries in Italy at an average price of $36.15 per barrel. By comparison, exports made up 39% of sales in the preceding quarter at an average price of $28.67 per barrel. Bankers intends to keep its exports at or above 50% during the balance of the year in order to continue to capture the significant difference between domestic and export prices.
The Company's average oil price for the quarter was $32.89 per barrel, up from $27.19 per barrel for the preceding quarter and $25.64 per barrel for the same period in 2006.
Oil and gas revenues for the quarter were $12.9 million up from $10.7 million for the quarter ended March 31, 2007, and $7.4 million for the corresponding quarter a year ago, increases of 20% and 74% 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 $4.28 per barrel from $3.65 per barrel in the preceding quarter and $2.98 per barrel for the corresponding period in 2006. The increase in royalties during the second quarter of 2007 was related to wells taken over from Albpetrol that increased pre-existing production without a corresponding increase in the Company's incremental production due to slower than anticipated growth. Increases in the domestic sale price from $23.58 per barrel in June 2006 to $26.26 per barrel in March 2007 and $28.10 per barrel in June 2007 also contributed to the unit increase in royalties.
Operating expenses per barrel declined moderately to $9.91 per barrel from $10.16 per barrel in the preceding quarter but were at the same level with the corresponding period in 2006. The operating expenses are typically lower during spring/summer months due to reduced energy costs.
Sales and transportation expenses increased to $2.56 per barrel from $1.96 per barrel in the preceding quarter and $1.66 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.
The Company's netback per barrel improved significantly to $16.14 per barrel from $11.42 per barrel in the preceding quarter and $11.09 per barrel for the same period in 2006. The increase resulted from higher oil prices.
Three months ended June 30 Six months ended June 30
----------------------------- -----------------------------
Netback 2007 2006 % 2007 2006 %
-------------------------------------------------------------------------
Average price
($/barrel) 32.89 25.64 28 30.03 25.60 17
Royalties 4.28 2.98 44 3.96 3.01 32
Sales and
transportation 2.56 1.66 54 2.26 1.67 35
Operating 9.91 9.91 - 10.04 10.95 (8)
----------------------------- -----------------------------
Netback
($/barrel) 16.14 11.09 46 13.77 9.97 38
----------------------------- -----------------------------
----------------------------- -----------------------------
General and Administrative Expenses
General and administrative expenses (G&A) before capitalization were $2.4 million for the quarter compared to $2.5 million for the preceding quarter and $1.8 million for the same period in 2006. Despite the effect of strengthening Canadian dollar against its U.S. counterpart, the Company managed a modest reduction in G&A for the quarter. The increase in G&A compared to the same period in 2006 reflect 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 charged $1.8 million of G&A to operations and capitalized $592,000. During the preceding quarter the comparable figures were $1.7 million and $799,000. For the corresponding period in 2006, the Company charged $1.5 million of G&A to operations and capitalized $269,000. Capitalized G&A were directly related to acquisition, exploration and development activities in Albania and the United States.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion (DDA) expense for the quarter ended June 30, 2007 were $1.9 million, which was comparable to the preceding quarter. For the same period in 2006, DDA was $961,000. Depletion expense on a per barrel basis was $4.02 for the quarter compared to $4.36 and $3.07, 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 $11.8 million. The Company recorded a future income tax expense of $1.7 million for the quarter compared to $1.0 million for both the preceding quarter and the same period in 2006 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.
Net Income for the Period and Funds from Operations
The Company recorded a net income of $600,000 ($0.00 per share) during the quarter compared to a loss of $1.1 million ($0.00 per share) for the preceding period and a loss of $253,000 ($0.00 per share) for the same period in 2006.
Bankers generated funds from operations of $4.8 million during the quarter compared to $2.9 million for the preceding quarter and $3.3 million for the same period in 2006. The increase in funds from operations reflects higher production and oil prices obtained during the period as well as a foreign exchange gain of $773,000.
OPERATIONS UPDATE
Albania
Bankers continues to implement its work program for 2007 through well take-overs and re-activations. Production is currently over 5,000 bopd and is expected to continue to increase through the remainder of the year. While production growth continues, the current pace remains below forecast due to severe hot weather in Albania and constraints on the Company's water disposal system. Approximately 300 to 400 bopd of production is reduced in the short-term as a result of these circumstances. Bankers is in the process of implementing initiatives to remediate this.
The Company is currently in the process of accelerating well take-overs in order to increase production by year-end and help overcome the shortfall experienced in the first half of the year. The capital impact of the accelerated program is minimal as equipment will be re-deployed from unsuccessful wells.
Bankers is expected to commence the testing of steam generation equipment in Albania during the second half of 2007. The objective of these tests is twofold: to learn the reservoir response, and to implement the steaming techniques in field conditions. Following these tests the Company intends to undertake a pilot with newly drilled wells on a pattern for cyclic steam injection in 2008 and subsequent steam flooding.
Further studies and engineering are underway to pursue potential integration, secondary and other EOR technologies that will be undertaken during 2008. Bankers is looking to these initiatives as a means of significantly increasing production and reserve recovery in the Patos Marinza oilfield.
The Albanian government recently announced plans for the privatization of ARMO, the state owned refineries. 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 is interested in and intends to pursue this acquisition opportunity in order to seize the potential upstream/downstream synergies, which is expected to not only increase reservoir recovery and production but result in the Company extracting a higher value for its production.
United States
Bankers has advanced its potential development of its Oklahoma Woodford shale prospect in Carter and Johnston Counties with the following activities:
- Drilled 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. This well was drilled to a total vertical
depth of about 9,800 feet and the horizontal portion of the wellbore
was drilled through the upper, middle and lower Woodford intervals.
While 2,800 horizontal feet was successfully fracture stimulated in
five stages, early indications are that some intervals much more
effectively stimulated the entire Woodford section.
- Although the well is currently flowing natural gas, the total flow
rate isn't as high as management had anticipated. Further testing
is continuing as more fracture fluid is recovered. More
information will become available in the coming weeks. This data
has been incorporated in the drilling design of Bankers' second
horizontal well in the basin, the WLC 17-1H, which will be drilled
in one interval so that Bankers can more effectively stimulate the
entire 320 foot thick Woodford section throughout the entire
length of the wellbore.
- Negotiated a pipeline connection and surface tie-in for the Nickel
Hill (No.) 1-26 vertical well and the Greenway horizontal well. A
facility to handle production from both wells is currently being
constructed and is expected to be completed and tied in by the end
of August.
- In the process of acquiring a 115 square mile, 3D seismic survey in
Carter and Johnston Counties to aid in the development of its
acreage. Permitting for the entire survey is nearly complete and
acquisition of data has begun.
- Drilling a second horizontal Woodford shale well in Johnston County,
approximately 10 miles from the first two wells, near the far south
east corner of the Company's acreage. The WLC 17-1H well vertical
pilot hole has been drilled to 6,700 feet and logged. Bankers is
currently drilling the horizontal portion of the well, which is
projected to be drilled to a length of 3,000 feet. Analysis of the
vertical wellbore indicates a 325 foot thick Woodford shale section
that compares favorably with the other wells drilled in the area.
- Participated in four vertical wells in the Carter and Johnson
Counties operated by others. Bankers interest in these wells ranges
from six to 30 percent. Each of the wells has encountered a promising
Woodford shale section and two of them have in addition encountered a
prospectively productive Sycamore formation.
In Hughes County, Bankers plans to drill a horizontal well in the fourth quarter after having completed an updated geologic/engineering study on the Lake Holdenville (No.) 35-1H well and other operators' wells in the area. Results from another vertical Woodford shale well, approximately two and a half miles away from Bankers' well, had a reported initial production rate of 330 Mcf/d after stimulation, providing confirmation of gas productivity.
- Bankers also participated in a non-operated vertical well in Hughes
County in which it has a 51 percent interest. This well encountered
a promising Woodford shale section as well as three other potentially
productive intervals. The Company has been told by the operator that
they intend to begin completion operations in the near future.
In Palo Duro, Texas, the Company believes it has narrowed down the area of
the basin that has the best potential productive Bend shale. This core area
will be where Bankers plans to focus its activities going forward. Some of the
key events in its progress include:
- Successfully drilled and fracture stimulated the Cogdell (No.) 64-1
well in the Granite Wash Sand with rates of approximately 325 Mcf/d.
In the second quarter, the shale interval in this same well was
fracture stimulated. It encountered a casing problem after the
fracture stimulation but is still able to flow back fracture fluid.
The well is still recovering fracture fluid and gas flow rates are
being tested. Bankers is planning to re-enter this well and drill a
horizontal lateral in the Granite Wash Sand in the third quarter in
an attempt to substantially increase the flow rate achieved from the
vertical wellbore. Horizontal drilling often substantially increases
flow rates over that of vertical wells in many established shale
basins.
- Drilled an additional vertical well, the Black 4 (No.) 1, which
reached total depth in July. The well was drilled underbalanced,
using nitrogen and encountered a prospective 280 foot thick Bend
shale interval and numerous potentially productive Granite Wash
Sands, which had good electric log responses as well as good mud
logging sample shows.
- The Black 4 (No.) 1 well targeted what was perceived to be a more
thermally mature portion of the basin; preliminary analysis
indicates that this was successful. The gas encountered in mud
logging shows while drilling the Bend shale in the Black well
indicates a much higher ratio of methane gas, with less heavier
ends than in Bankers' first three wells it drilled in the basin.
This supports the Company's opinion on the core area of the basin.
- Bankers is expecting to show repeatability over a larger area by
establishing productivity from the shale in vertical wells similar
to the results seen by Tyner Resources in their Stephens well,
which has produced at a stable 225 Mcf/d rate for over six months
from the Bend shale interval. Once this repeatability is
confirmed, Bankers can begin drilling horizontal wells in the
shale in an attempt to substantially increase the productivity of
the wells. Bankers anticipates being able to test the productivity
of drilling horizontal wells into the shale later this year.
In New York, Bankers reprocessed high quality aeromagnetic data covering
all of the Wayne County in the second quarter. The Company believes that its
own 19,000 acre block has more potential for a hydrothermal dolomite play than
the option acreage where most of its drilling and fracture stimulation work
has occurred so far.
- Bankers fracture stimulated two existing wells in New York with
disappointing results, indicating that, in the Company's opinion, the
original Trenton resource play concept would not work in this area.
As a result, Bankers did not exercise its option to acquire the
additional acreage in New York that was located around these wells.
The option exercise would have required Bankers to make a cash
payment of almost a million dollars and finish drilling three earning
wells. Management feels that its resources are better focused on its
19,000 existing acres by exploring for potential hydrothermal
dolomite plays.
- Bankers is currently planning the acquisition of 2D seismic on its
existing acreage to help evaluate the hydrothermal dolomite concept.
Regionally, over 125 million barrels of oil and 200 BCF of gas have
been produced from Trenton/Blackriver hydrothermal dolomite fields.
Recent field discoveries south of Bankers' acreage block have
extended the play into the Appalachian basin from south central
Michigan.
In Mississippi and Alabama, Bankers is continuing with Pottsville Tight
Gas Sands and Floyd shale prospect development through additional geologic and
geophysical work on the Black Warrior Basin project. In addition, Bankers is
monitoring the activity of a number of other operators that are drilling and
testing wells in the Floyd shale in this project area.
CAPITAL EXPENDITURES
Three months ended Six months ended
June 30 June 30
-------------------------------------------------------------------------
($000) 2007 2006 2007 2006
-------------------------------------------------------------------------
Albania 14,367 13,140 24,206 21,547
United States 8,861 15,952 12,884 20,913
Canada 29 14 181 40
---------------------------------------
23,257 29,106 37,271 42,500
---------------------------------------
The Company incurred $7.2 million in capital expenditures in Albania during the quarter for well re-activations and $2.4 million on central treatment facilities. The balance of the expenditures was related to miscellaneous asset acquisitions and capitalized G&A. The capital expenditures also included an increase in prepayments to suppliers of $1.8 million for equipment in transit to Albania. For the same period in 2006, the Company incurred $13.1 million in capital expenditures in Albania, $7.1 million of which was incurred in well re-activations and the balance was primarily related to increase in field inventory and miscellaneous asset acquisition.
In the United States, the Company incurred $2.5 million on the drilling and evaluation of wells drilled and tested in Texas and Oklahoma. Lease acquisition costs were $4.0 million. The balance of the capital expenditures was related to seismic reprocessing and capitalized G&A. The Company incurred $15.9 million in capital expenditure in United States for the same period in 2006 of which $10.0 million was incurred in lease acquisitions and the balance on drilling, testing and other asset acquisitions.
ASSET RETIREMENT OBLIGATIONS
Bankers estimated its undiscounted asset retirement obligations in Albania as $11.7 million based on the 259 wells taken over from Albpetrol to date. This amount will be settled at the end of the Company's 25-year license of which 24 years are remaining. The net present value of $1.5 million of asset retirement obligations was estimated based on a credit-adjusted risk free rate of 9%. Asset retirement obligations were increased to $1.6 million at June 30, 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 $780,000. 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 $506,000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2007, the Company had cash resources of approximately $19.4 million. Subsequent to quarter-end, Raiffeisen Bank in Albania increased Banker's operating line facility by $10.0 million to $30.0 million. The agreement is expected to be executed by mid-August.
The remaining capital expenditures in Albania for 2007 are estimated to be $22.0 million which includes the capital expenditures associated with an accelerated well re-activation program for 30 additional wells. The Company expects to fund this capital program from cash flows estimated at $14.0 million and an available debt facility of $10.0 million.
In the U.S., the remaining capital expenditures are estimated at $24.0 million of which approximately half are contingent on drilling success. Available cash resources are sufficient to fund approximately $10.0 to $12.0 million of U.S. capital expenditures under the existing exploration program. The Company will review financing alternatives subject to commercial field success through debt, equity, or joint venture arrangements, as appropriate at the time.
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 June 30, 2007, the Company transacted $2.4 million of services compared to $2.0 million for the preceding quarter and $2.5 million for the corresponding period in 2006. The services can be terminated upon 60 days notice at the election of the Company.
During the second quarter, Bankers incurred legal fees of $91,000 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 $136,000 for the preceding quarter and $207,000 for the three months ended June 30, 2006.
Bankers also paid $13,000 (three months ended March 31, 2007 - $12,000; three months ended June 30, 2006 - $13,000) 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 Albanian National Agency of Natural Resources (AKBN). 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 AKBN that includes the nature and the amount of capital expenditures to be incurred during that year. Significant deviations in this annual program from the Plan of Development will be subject to AKBN approval. The Petroleum Agreement provides that disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retains and the future capital expenditures will be adjusted accordingly. 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 spent $24.2 million towards its 2007 commitment during the six months ended June 30, 2007.
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 152
2008 202
2009 162
2010 162
2011 162
Thereafter 7
---------------------
$ 847
---------------------
---------------------
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 June 30, 2007, the entire available term loan was drawn down, of
which $2.8 million was classified as a current liability and $12.2 million as
long-term debt.
Principal repayments of the term loan over the next five years are as
follows:
($000s, except as noted)
-------------------------------------------------------------------------
2007 940
2008 3,515
2009 3,515
2010 3,515
2011 3,515
---------------------
$ 15,000
---------------------
---------------------
QUARTERLY SUMMARY
Below is a summary of Bankers' performance over the last eight quarters.
($000s, except June 30, March 31, Dec 31, Sept 30, June 30,
as noted) 2007 2007 2006 2006 2006
-------------------------------------------------------------------------
Average daily production
(bopd) 4,746 4,380 4,165 4,000 3,193
Average sales volume
(bopd) 4,314 4,388 4,113 3,776 3,175
Average price ($/barrel) 32.89 27.19 24.44 26.63 25.64
Royalties 4.28 3.65 3.04 3.04 2.98
Sales and transportation 2.56 1.96 1.77 2.10 1.66
Operating 9.91 10.16 9.88 9.05 9.91
------------------------------------------------
Netback ($/barrel) 16.14 11.42 9.75 12.44 11.09
------------------------------------------------
------------------------------------------------
Oil and gas revenues 12,913 10,739 9,250 9,240 7,407
Royalties 1,682 1,440 1,149 1,055 860
Sales and transportation 1,007 775 670 728 480
Operating 3,892 4,014 3,737 3,141 2,862
------------------------------------------------
Net operating income 6,332 4,510 3,694 4,316 3,205
------------------------------------------------
------------------------------------------------
General and
administrative 1,824 1,659 1,916 1,422 1,450
Funds from operations 4,792 2,852 1,588 2,950 3,251
Income (loss) for the
period 600 (1,173) (107) (208) (253)
Basic and diluted loss
per share - - - - -
Total assets 175,550 168,005 138,030 127,106 124,321
Term loan (including
current portion) 15,000 12,268 2,000 - -
($000s, except March 31, Dec 31, Sept 30,
as noted) 2006 2005 2005
-----------------------------------------------------
Average daily
production (bopd) 2,579 2,173 1,793
Average sales volume
(bopd) 2,474 2,184 1,791
Average price ($/barrel) 25.55 23.13 22.28
Royalties 3.05 2.77 2.59
Sales and transportation 1.68 1.20 0.97
Operating 12.31 12.46 12.23
------------------------------
Netback ($/barrel) 8.51 6.69 6.49
------------------------------
------------------------------
Oil and gas revenues 5,689 4,644 3,670
Royalties 679 564 426
Sales and transportation 373 241 161
Operating 2,741 2,246 1,946
------------------------------
Net operating income 1,896 1,593 1,138
------------------------------
------------------------------
General and
administrative 972 904 1,415
Funds from (used in)
operations 723 650 (94)
Loss for the period (993) (755) (315)
Basic and diluted loss
per share - - -
Total assets 98,930 56,846 53,083
Term loan (including
current portion) - - -
OUTSTANDING SHARE DATA
There were approximately 448 million shares outstanding as at June 30, 2007 and August 9, 2007. In addition, the Company had approximately 63 and 67 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.
INTERNAL CONTROLS
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management, as appropriate, to allow timely decisions regarding required disclosure. The President and Chief Financial Officer have concluded, based on their evaluation as of June 30, 2007 that the Company's disclosure controls and procedures are effective to provide reasonable assurance that material information related to the Company, including its consolidated subsidiaries, is made known to them by others within those entities.
During the three months ended June 30, 2007, there have been no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect the Company's internal controls over financial reporting.
OUTLOOK
In Albania, production growth from primary techniques continues to progress towards the Company's long-term goal of 10,000 to 15,000 bopd by 2010. Due to the effect of water disposal capacity constraints, the Company is revising its estimated 2007 average production target to between 4,900 and 5,100 bopd from 5,200 to 5,500 bopd for 2007. However, with remediation of capacity constraints and acceleration of well take-overs and re-activations, Bankers is still expected to meet its 2007 exit production target of between 6,000 and 6,500 bopd.
Bankers is now entering into the next stage of its long-term Albanian growth strategy, having proved its ability to execute on primary extraction methods to increase production. The next stages include several other initiatives that can add significant long-term value to the Company. The first step consists of the testing of the cyclical steaming equipment, scheduled to commence in the second half of the year. This will lead to a new enhanced oil recovery (EOR) cyclic steam project that will be undertaken during 2008. At the same time, further EOR techniques are being reviewed. As not one single technology will work effectively across the entire field due to the varying multiple zones and depths of the reservoir, Bankers will undertake appropriate projects in a step-by-step fashion. Over the long-term, EOR and secondary recovery techniques, expanded export opportunities and the possible acquisition of ARMO will provide significant upside for future growth.
In the United States, Bankers has established natural gas from successful discovery wells in two of its basins: the Ardmore in Oklahoma and Palo Duro in Texas. Preliminary positive results from the Company's first horizontal well indicate opportunity for a commercial development program in Oklahoma later in the year, and first natural gas production. A development program from this basin alone could provide significant benefit to the Company, providing funds while Bankers moves exploration and evaluation forward on other shale basins that are at varying stages of development.
In addition to providing strong production growth from current operations, Bankers' portfolio of assets offers substantial upside opportunities for its shareholders both in the near and over the long-term. The Company is focused on accessing this potential in a staged approach, increasing reservoir recovery, reserves, production and cash flow for the future.
BANKERS PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS
June 30 December 31
2007 2006
-------------------------
Current assets
Cash and cash equivalents $ 18,903 $ 6,329
Investment (Note 2) 4,500 -
Accounts receivable 11,592 7,214
Crude oil inventory 1,010 713
Deposits and prepaid expenses 2,127 1,121
-------------------------
38,132 15,377
Property, plant and equipment (Note 3) 137,418 122,653
-------------------------
$ 175,550 $ 138,030
-------------------------
-------------------------
LIABILITIES
Current liabilities
Operating loan (Note 4) $ 4,471 $ 4,772
Accounts payable and accrued liabilities 11,424 11,369
Current portion of term loan (Note 4) 2,813 125
-------------------------
18,708 16,266
Term loan (Note 4) 12,187 1,875
Asset retirement obligations (Note 5) 2,155 1,593
Future income tax liability 5,904 3,126
SHAREHOLDERS' EQUITY
Share capital (Note 6) 134,820 116,696
Warrants (Note 6) 2,004 -
Contributed surplus (Note 6) 6,204 4,456
Deficit (6,432) (5,982)
-------------------------
136,596 115,170
-------------------------
$ 175,550 $ 138,030
-------------------------
-------------------------
Commitments (Note 9)
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30
(Unaudited, expressed in Thousands of United States dollars,
Except PerShare Amounts)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------- -------------------
2007 2006 2007 2006
------------------- -------------------
Revenue
Oil and gas revenue $ 12,913 $ 7,407 $ 23,652 $ 13,096
Royalties (1,682) (860) (3,122) (1,539)
---------------------------------------
11,231 6,547 20,530 11,557
---------------------------------------
Expenses
Operating 4,048 2,862 8,062 5,603
Sales and transportation 1,007 480 1,782 853
General and administrative 1,824 1,450 3,483 2,422
Interest on term loan 519 - 849 -
Stock-based compensation (Note 6) 530 1,520 1,490 1,744
Depletion, depreciation and
accretion 1,925 961 3,826 1,912
---------------------------------------
9,853 7,273 19,492 12,534
---------------------------------------
1,378 (726) 1,038 (977)
---------------------------------------
Other income
Interest 186 247 336 394
Foreign exchange gain 773 1,249 954 902
---------------------------------------
959 1,496 1,290 1,296
---------------------------------------
Income before income taxes 2,337 770 2,328 319
Future income tax expense (1,737) (1,023) (2,778) (1,565)
---------------------------------------
Net income (loss) for the period 600 (253) (450) (1,246)
Deficit, beginning of period (7,032) (5,414) (5,982) (4,421)
---------------------------------------
Deficit, end of period $ (6,432) $ (5,667) $ (6,432) $ (5,667)
---------------------------------------
---------------------------------------
Basic and diluted earnings (loss)
per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
---------------------------------------
---------------------------------------
See accompanying notes to consolidated financial statements.
BANKERS PETROLEUM LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
------------------- -------------------
2007 2006 2007 2006
------------------- -------------------
Cash provided by (used in)
Operating activities
Net income (loss) for the period $ 600 $ (253) $ (450) $ (1,246)
Items not involving cash:
Depletion, depreciation and
accretion 1,925 961 3,826 1,912
Future income tax expense 1,737 1,023 2,778 1,565
Stock-based compensation 530 1,520 1,490 1,744
---------------------------------------
4,792 3,251 7,644 3,975
Change in non-cash working
capital (Note 10) (1,123) (4,008) (4,204) (4,829)
---------------------------------------
3,669 (757) 3,440 (854)
---------------------------------------
Investing activities
Additions to property, plant
and equipment (23,257) (29,106) (37,271) (42,500)
Proceeds from sale of property,
plant and equipment 15,000 - 15,000 -
Change in non-cash working
capital (Note 10) 132 5,716 (1,422) 4,824
---------------------------------------
(8,125) (23,390) (23,693) (37,676)
---------------------------------------
Financing activities
Issue of common shares and
warrants for cash, net of
issue costs 9 18 20,128 40,934
Operating loan 752 - (301) -
Term loan 2,732 - 13,000 -
---------------------------------------
3,493 18 32,827 40,934
---------------------------------------
Increase (decrease) in cash
and cash equivalents (963) (24,129) 12,574 2,404
Cash and cash equivalents,
beginning of period 19,866 40,062 6,329 13,529
---------------------------------------
Cash and cash equivalents,
end of period (Note 10) $ 18,903 $ 15,933 $ 18,903 $ 15,933
---------------------------------------
---------------------------------------
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 held-for-trading.
The Company has designated its investment in the units of Palo Duro
Energy Inc. as available-for-sale.
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. INVESTMENT
2007 2006
---------------------
15,152,142 units of Palo Duro Energy Inc. $ 4,500 $ -
---------------------
---------------------
In May 2007, the Company sold a 27% working interest in the Palo Duro
basin, Texas to a wholly owned U.S. subsidiary of a Canadian public
company. This transaction is satisfied by a payment of $15 million in
cash and the issue of 15,152,142 units of Palo Duro Energy Inc. Each
unit consists of one common share and one half of one common share
purchase warrant. Each warrant entitles the holder to acquire an
additional common share at a price of CAD $0.50 per share until
March 21, 2009. The units are subject to a four month hold period
expiring on September 25, 2007. As at June 30, 2007, the cost of the
units approximates the fair market value.
3. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the Company's property, plant and
equipment as at June 30, 2007 and December 31, 2006:
2007 2006
---------------------------------------
Accumu-
lated
depletion
and
deprec- Net Book Net Book
Cost iation Value Value
---------------------------------------------------------------------
Oil and gas properties -
Albania $ 85,970 $ 10,217 $ 75,753 $ 55,084
Oil and gas properties -
United States 60,118 - 60,118 66,520
Equipment, furniture and
fixtures 1,986 439 1,547 1,049
---------------------------------------
$148,074 $ 10,656 $137,418 $122,653
---------------------------------------
---------------------------------------
The Company capitalized general and administrative expenses of $592
and $1,391 during the three and six month periods ended June 30, 2007
($269 and $506 for the corresponding periods in 2006) in Albania and
the United States that were directly related to exploration and
development activities.
Depletable assets for the depletion calculation for the six months
ended June 30, 2007 included $113,000 (2006 - $99,000) for estimated
future development costs associated with proved undeveloped reserves
in Albania.
4. 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 June 30, 2007, $4,471 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 June 30, 2007, the entire term loan was drawn down
of which $2,813 was classified as a current liability and $12,187 as
long-term debt.
Principal repayments of the term loan over the five years are as
follows:
---------------------------------------------------------------------
2007 $ 940
2008 3,515
2009 3,515
2010 3,515
2011 3,515
$ 15,000
----------
----------
5. ASSET RETIREMENT OBLIGATIONS
In Albania, the Company estimated the total undiscounted amount
required to settle the asset retirement obligations at $11,712. 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 $1,649.
In the United States, the Company estimated the total undiscounted
amount required to settle the asset retirement obligations at $780.
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 $506.
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2006 $ 1,593
Liabilities incurred during the period 495
Accretion 67
----------
Asset retirement obligations, June 30, 2007 $ 2,155
----------
----------
6. 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
a 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
a public offering 36,042,858 19,227 -
Share issuance costs - (1,103) -
Stock-based compensation - - 1,748
----------------------------------------
Balance, June 30, 2007 448,109,492 $ 134,820 $ 6,204
----------------------------------------
----------------------------------------
Weighted average number of common shares used in the calculation of
basic earnings (loss) per share was 448,109,492 and 436,360,715 for
the three and six month periods ended June 30, 2007 (391,458,635 and
366,964,427 for the same periods in 2006).
The weighted average number of common shares used in the calculation
of diluted earnings per share was 451,854,037 for the three month
period ended June 30, 2007.
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, June 30, 2007 33,923,452 $ 2,004 0.92
---------------------------------------
---------------------------------------
The following table summarizes the outstanding and exercisable
warrants at June 30, 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 5,535,000 0.64
---------------------------------------
Balance, June 30, 2007 29,065,000 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 and six
month periods ended June 30, 2007 as $605 and $1,748 ($1,520 and
$1,744 for the same periods in 2006) for the stock options vested
and/or granted to officers, directors, employees and service
providers. Of these amounts, $530 and $1,490 ($1,520 and $1,744 for
the same periods in 2006) was charged to earnings and $75 and $258
(nil for the same periods in 2006) were capitalized. The Company
determined these amounts using the Black-Scholes option pricing model
assuming no dividends were paid. The weighted average fair market
value per option granted in the three and six month periods ended
June 30, 2007 and 2006 and the assumption used in their determination
were as follows:
Three months ended Six months ended
June 30 June 30
---------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------
Weighted average fair value
per option $0.33 $0.48 $0.37 $0.48
Risk-free interest rate (%) 4.05 3.66 4.06 3.66
Average volatility (%) 67 54 67 54
Expected life (years) 5 5 5 5
7. SEGMENTED INFORMATION
The Company defined its reportable segments based on geographic
locations.
Six months ended United
June 30, 2007 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 20,530 $ - $ - $ 20,530
----------------------------------------
Expenses
Operating 7,906 156 - 8,062
Sales and transportation 1,782 - - 1,782
General and administrative 1,141 535 1,807 3,483
Interest on term loan 849 - - 849
Stock-based compensation 384 251 855 1,490
Depletion, depreciation
and accretion 3,762 24 40 3,826
----------------------------------------
15,824 966 2,702 19,492
----------------------------------------
Segment income (loss) 4,706 (966) (2,702) 1,038
------------------------------
Other income 1,290
Future income tax expense (2,778)
----------------------------------------
Loss for the period $ (450)
----------------------------------------
----------------------------------------
Assets, June 30, 2007 $ 88,307 $ 73,656 $ 13,587 $175,550
----------------------------------------
----------------------------------------
Additions to property,
plant and equipment $ 24,206 $ 12,884 $ 181 $ 37,271
----------------------------------------
----------------------------------------
Cash proceeds from sale
of property, plant and
equipment $ - $ 15,000 $ - $ 15,000
----------------------------------------
----------------------------------------
Six months ended United
June 30, 2006 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 11,557 $ - $ - $ 11,557
----------------------------------------
Expenses
Operating 5,603 - - 5,603
Sales and transportation 853 - - 853
General and administrative 967 215 1,240 2,422
Stock-based compensation 263 431 1,050 1,744
Depletion, depreciation
and accretion 1,889 5 18 1,912
----------------------------------------
9,575 651 2,308 12,534
----------------------------------------
Segment income (loss) 1,982 (651) (2,308) (977)
------------------------------
Other income 1,296
Future income tax expense (1,565)
----------------------------------------
Loss for the period $ (1,246)
----------------------------------------
----------------------------------------
Assets, June 30, 2006 $ 51,848 $ 58,517 $ 13,956 $124,321
----------------------------------------
----------------------------------------
Additions to property,
plant and equipment $ 21,547 $ 20,913 $ 40 $ 42,500
----------------------------------------
----------------------------------------
Three months ended United
June 30, 2007 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 11,231 $ - $ - $ 11,231
----------------------------------------
Expenses
Operating 3,892 156 - 4,048
Sales and transportation 1,007 - - 1,007
General and administrative 583 125 1,116 1,824
Interest on term loan 519 - - 519
Stock-based compensation 137 82 311 530
Depletion, depreciation
and accretion 1,886 15 24 1,925
----------------------------------------
8,024 378 1,451 9,853
----------------------------------------
Segment income (loss) 3,207 (378) (1,451) 1,378
------------------------------
Other income 959
Future income tax expense (1,737)
----------------------------------------
Income for the period $ 600
----------------------------------------
----------------------------------------
Additions to property,
plant and equipment $ 14,367 $ 8,861 $ 29 $ 23,257
----------------------------------------
----------------------------------------
Cash proceeds from sale of
property, plant and
equipment $ - $ 15,000 $ - $ 15,000
----------------------------------------
----------------------------------------
Three months ended United
June 30, 2006 Albania States Canada Total
---------------------------------------------------------------------
Revenue
Oil and gas revenue, net
of royalties $ 6,547 $ - $ - $ 6,547
----------------------------------------
Expenses
Operating 2,862 - - 2,862
Sales and transportation 480 - - 480
General and administrative 527 137 786 1,450
Stock-based compensation 241 345 934 1,520
Depletion, depreciation
and accretion 947 4 10 961
----------------------------------------
5,057 486 1,730 7,273
----------------------------------------
Segment income (loss) 1,490 (486) (1,730) (726)
------------------------------
Other income 1,496
Future income tax expense (1,023)
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Loss for the period $ (253)
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Additions to property,
plant and equipment $ 13,140 $ 15,952 $ 14 $ 29,106
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8. RELATED PARTY TRANSACTIONS
During the three and six month periods ended June 30, 2007 and 2006,
the Company incurred the following expenses with companies related by
way of common directors and/or officers:
Three months ended Six months ended
June 30 June 30
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2007 2006 2007 2006
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Legal fees $91 $207 $227 $263
Rent and office services 13 13 25 29
Oil well servicing 2,397 2,522 4,396 4,298
At June 30, 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 $ 24 $ 22
Oil well servicing 1,424 1,121
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.
9. COMMITMENTS
a) Capital expenditures
In March 2006, the Company's Plan of Development for the Patos
Marinza heavy oilfield in Albania was approved by Albanian National
Agency of Natural Resources (AKBN). Under the Plan of Development
submitted to AKBN, 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
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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
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124.8 183.3
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The difference between Case I and Case II relates to maximum future
production levels.
The Petroleum Agreement stipulates that the Company submit to AKBN
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 AKBN 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 $24.2 million towards its 2007 commitment during
the six months period ended June 30, 2007.
b) Office Premises
The Company leases office premises. The minimum lease payments for
the next five years are as follows:
($000s)
---------------------------------------------------------------------
2007 $ 152
2008 202
2009 162
2010 162
2011 162
Thereafter 7
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$ 847
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10. SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended Six months ended
June 30 June 30
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2007 2006 2007 2006
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Operating activities
Increase in current assets
Accounts receivable $ (2,249) (826) $ (4,378) (3,233)
Crude oil inventory (377) 77 (297) -
Deposit and prepaid expenses (1,059) (408) (1,006) (301)
Increase in (decrease) in
current liabilities
Accounts payable and accrued
liabilities 2,562 (2,851) 1,477 (1,295)
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$ (1,123) (4,008) $ (4,204) (4,829)
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Investing activities
(Decrease) increase in current
liabilities
Accounts payable and accrued
liabilities $ 132 5,716 $ (1,422) 4,824
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Cash and cash equivalents
Cash $ 10,672 5,500 $ 10,672 5,500
Fixed income investments 8,231 10,433 8,231 10,433
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$ 18,903 15,933 $ 18,903 15,933
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Interest paid $ 610 - $ 849 -
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