CALGARY, Aug. 26 /CNW/ - Pine Cliff Energy Ltd. (www.pinecliffenergy.com) (TSX-V:PNE) is pleased to announce its financial and operational results for the three months and six months ended June 30, 2009.
Highlights
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
For the periods ended 2009 2008 2009 2008
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FINANCIAL ($)
Revenue - Oil and Gas 111,773 138,415 305,498 281,531
Cash Flow from Operations (294,455) (224,141) (523,762) (523,762)
Per Share Basic and
Diluted (0.01) (0.00) (0.01) (0.01)
Net Loss (325,010) (295,111) (823,542) (612,224)
Per Share Basic and
Diluted (0.01) (0.01) (0.02) (0.01)
Capital Expenditures and
Acquisitions 9,581 2,516,214 129,367 2,797,602
Total Assets 4,558,217 12,043,617
Working Capital 1,738,974 5,278,074
Shareholders' Equity 4,341,385 11,799,266
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OPERATIONS
Oil and NGLs
- Barrels Per Day 2 - 2 1
- Average Price
($ per barrel) 62.14 - 55.74 104.38
Natural Gas
- MCF Per Day 312 142 352 155
- Average Price
($ per MCF) 3.62 10.84 4.56 9.40
Total Barrels of Oil
Equivalent (BOE)
Per Day(1) 51 24 57 27
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(1) Barrels of oil equivalent (BOE) are calculated using a conversion
ratio of 6 MCF to 1 barrel of oil. The conversion is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead
and as such may be misleading if used in isolation.
Report to Shareholders
Pine Cliff Energy Ltd. ("Pine Cliff" or "the Company") is pleased to report its operating and financial results for the three months and six months ended June 30, 2009.
The Board of Directors and Management recognize that there is a need to evaluate the overall direction for the Company and are presently assessing various options and opportunities available to add value on behalf of shareholders.
As a result of its unsuccessful completion of the three-well drill program on the Canadon Ramirez Concession in Argentina and the country's difficult political and business environment, the Company is reviewing its involvement in that region. In addition, positive changes in the Canadian energy sector and an increased availability in assets for sale have provided the impetus for Pine Cliff to once again focus its efforts domestically rather than internationally. The Company intends to increase its activities in Canada by aggressively pursuing acquisition opportunities and to participate in more drilling.
Operations
During the fourth quarter of 2008, Pine Cliff participated in drilling one natural gas well (15 percent working interest) in the Sundance area of Alberta. Production for this well for the first six months of 2009 has averaged approximately 225 MCF per day net to the company and total company production for the first six months of 2009 averaged 57 BOE per day (352 MCF per day of natural gas and 2 barrels per day of crude oil and NGLs).
Pine Cliff is considering participating in one gross exploration well (0.25 net) in the Laguna de Piedra concession, a property in Argentina which the Company has deemed highly prospective. Drilling is expected to take place in late 2009 or early 2010. Should the Company elect to participate in the well, its share of the costs will be approximately $500,000.
Financial:
The Company is currently focused on decreasing general and administrative (G&A) expenses and has reduced its consulting services and other international expenses in the second quarter of 2009. G&A expenditures decreased by approximately 23 percent quarter over quarter due to reduced contractor fees for services provided to the Company's South American activities and reduced management fees.
As of June 30, 2009, Pine Cliff had positive working capital of $1,738,974. These funds may be used to cover the Company's budgeted 2009 capital expenditures of $900,000 in relation to the drilling of its Laguna de Piedra Concession ($500,000) as well as miscellaneous capital costs in respect to its Canadian oil and gas operations.
Outlook
The Board of Directors and management feel confident that there will be investment opportunities in Canada in the near term and are continuing to pursue the available options.
FORWARD-LOOKING INFORMATION
Certain statements contained in this release include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this release includes, but is not limited to: expected cash provided by continuing operations; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and outlook; expansion and growth of our business and operations; and maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; credit risks; and other such matters.
All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, and may include, without limitation: the risks of foreign operations; foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.
Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived therefrom. Except as required by law, Pine Cliff disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
The forward-looking information contained herein is expressly qualified by this cautionary statement.
Quarterly Financial and Operational Highlights
2009 2008
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2nd 1st 4th 3rd
Financial ($)
Revenue - Oil and Gas 111,773 193,725 295,944 129,537
Cash Flow from Operations (294,455) (229,307) (68,211) (305,368)
Per Share Basic and
Diluted (0.01) (0.01) 0.00 (0.01)
Net Loss (325,010) (498,532) (6,423,691) (505,953)
Per Share Basic and
Diluted (0.01) (0.01) (0.14) (0.01)
Capital Expenditures
and Acquisitions 9,581 119,786 1,067,843 1,511,745
Total Assets 4,558,217 4,966,907 5,570,015 11,621,915
Working Capital 1,738,974 1,903,038 2,316,982 3,440,165
Shareholders' Equity 4,341,385 4,644,004 5,044,701 11,400,311
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Operations
Oil and NGLs (barrels
per day) 2 1 2 1
Natural Gas (MCF per day) 312 392 453 146
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2008
-------------------------------------------------
2nd 1st
Financial ($)
Revenue - Oil and Gas 138,415 143,116
Cash Flow from Operations (224,141) (204,923)
Per Share Basic and
Diluted 0.00 0.00
Net Loss (295,111) (317,113)
Per Share Basic and
Diluted (0.01) (0.01)
Capital Expenditures
and Acquisitions 2,516,214 281,388
Total Assets 12,043,617 12,221,650
Working Capital 5,278,074 7,937,179
Shareholders' Equity 12,043,617 12,003,398
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Operations
Oil and NGLs (barrels
per day) - 4
Natural Gas (MCF per day) 142 168
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2007
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4th 3rd 2nd 1st
Financial ($)
Revenue - Oil and Gas 112,685 95,160 176,590 198,515
Cash Flow from Operations (234,653) (172,281) (262,144) (115,860)
Per Share Basic and
Diluted (0.01) (0.01) (0.01) 0.00
Net Loss (381,561) (383,540) (346,274) (270,109)
Per Share Basic and
Diluted (0.01) (0.01) (0.01) (0.01)
Capital Expenditures
and Acquisitions 193,350 174,289 233,648 2,196,476
Total Assets 12,445,994 4,173,333 3,946,888 4,211,984
Working Capital 8,378,110 (314,684) 182,319 602,650
Shareholders' Equity 12,205,066 3,371,089 3,749,025 4,008,304
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Operations
Oil and NGLs (barrels
per day) 2 1 5 7
Natural Gas (MCF per day) 182 163 226 226
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Production
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
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Crude oil and NGLs
(barrels per day) 2 1 - 2 1
Natural gas (MCF per day) 312 392 142 352 155
Total BOE per day(1) 51 64 24 57 27
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(1) Barrels of oil equivalent (BOE) are calculated using a conversion
ratio of 6 MCF to 1 barrel of oil. The conversion is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead
and as such may be misleading if used in isolation.
During the fourth quarter of 2008, a natural gas well that is not operated
by Pine Cliff was completed and placed on production (0.15 net) by the
operator. Production for the first six months of 2009 from this well is 225
MCF per day net to the Company. The Company has an expected annual decline
rate of approximately 20 percent on its overall production.
Revenue
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
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Revenue:
Oil and gas sales 111,773 193,725 138,415 305,498 281,531
Average Realized Prices
Crude oil and NGLs
(per barrel) 62.14 48.06 - 55.74 104.38
Natural gas (per MCF) 3.62 5.32 10.84 4.56 9.40
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Revenue from petroleum and natural gas sales for the first half of 2009 increased by $23,967 from the first half of 2008 due to increased production volumes, partially offsetting a 51 percent decrease in commodity prices for natural gas. A decrease in revenue from Q2 2009 to Q1 2009 was due to lower production volumes and reduced commodity prices for natural gas. The Company did not have hedging agreements in either 2009 or 2008 and presently does not have any future hedging agreements.
Royalties
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
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Crown royalties (49,052) 44,556 21,864 (4,496) 55,994
Gross overriding
royalties 2,533 4,796 10,049 7,329 12,787
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Total royalty expense (46,519) 49,352 31,913 2,833 68,781
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Crown royalties are lower in the first six months of 2009 compared to the first six months of 2008 due to a $58,000 crown royalty holiday adjustment received in the second quarter of 2009 related to 2008 crown royalty payments made on the new natural gas well. Gross overriding royalties were also lower due to the significant decrease in the commodity prices for natural gas. Crown and gross overriding royalties were lower for Q2 2009 compared to Q1 2009 for the same reasons.
Interest Income
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Interest income 284 5,781 26,162 6,065 94,330
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The Company maintains both Canadian and U.S. investment accounts that pay
interest at prime less various percentages as long as the Company maintains
certain minimum account balances. The Company was earning interest at higher
rates and on an increased cash balance throughout the first half of 2008.
Interest income for Q2 2009 and Q1 2009 decreased significantly due to the
lower cash balance on hand.
Production Costs
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
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Production costs 24,680 57,809 13,273 82,489 39,522
$ per BOE 5.30 10.08 7.25 7.94 8.51
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Production costs were higher in the first six months of 2009 versus the
first six months of 2008 due to higher production volumes. The decrease in
production costs in the second quarter of 2009 compared to the first quarter
of 2009 was due to decreased production volumes and adjustments to prior
period charges.
General and Administrative
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
G&A expense 249,238 324,997 359,043 574,235 641,172
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General and administrative (G&A) expenditures decreased by $66,937 from the first half of 2009 compared to the first half of 2008. The decrease in G&A expenses is due to reduced contractor fees for services provided to the Company's South American activities and reduced management fees. The decrease in G&A expenditures in Q2 2009 compared to Q1 2009 is for the same reasons. The majority of the G&A expenses pertain to the Company's operations in Argentina. With the unsuccessful completion of the three-well drill program on the Canadon Ramirez Concession, the Company's Board of Directors and management are reviewing the Company's involvement in Argentina and have reduced its consulting services and other international expenses in Q2 2009.
Pine Cliff does not have any employees at the present time but has engaged Bonterra Energy Corp. (Bonterra Corp) a related party (see Related Party section), to provide management services and engage the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. (CanAmericas) has also engaged the consulting services of an individual professional as senior management and officer of CanAmericas.
Foreign Exchange Loss (Gain)
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
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Foreign exchange loss
(gain) 16,432 7,043 (101,624) 23,475 (103,934)
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The Company maintains foreign denominated bank accounts to facilitate its
foreign operations. The loss on foreign exchange in the first half of 2009
relates to the appreciation of the Canadian dollar with the Argentine peso and
U.S. dollar versus a depreciation in 2008.
Stock-Based Compensation
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Stock-based compensation 22,392 97,834 90,979 120,226 206,424
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The Company has a stock-based compensation plan. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees of the management company (see section "Related Party Transactions"), directors and service providers in respect of the Company. The decrease in stock-based compensation in 2009 is due to the amortization in 2008 of most of the stock-based compensation, on the 1,108,000 options issued in the fourth quarter of 2007. The Company issued 40,000 stock options in Pine Cliff during the first six months of 2009. The Company estimated the 2009 stock options fair value at $3,350 ($0.08 per option) using the Black-Scholes option pricing model, assuming a weighted average risk free interest rate of 1.24 percent, weighted average expected volatility of 96.0 percent, weighted average expected life of 2.5 years and no annual dividend rate. Of the options outstanding as of June 30, 2009, $23,400 of stock-based compensation is remaining to be expensed in 2009 and 2010.
Depletion, Depreciation, and Accretion and Dry Hole Exploration Costs
During the first six months of 2009, the Company expensed $194,639 (2008 - $128,544) for depletion, depreciation and accretion of its property and equipment. The increase is related to increased production volumes in the first half of 2009. The second quarter of 2009 had a slightly lower depletion, depreciation and accretion amount of $88,099 compared to Q1 2009 of $106,540 due to slightly lower production. The Company incurred $60,036 of capital costs in the second quarter of 2009 related to the three wells drilled in the Canadon Ramirez Concession in Argentina. These costs were written off as dry hole costs as the 2008 three-well exploration program was unsuccessful. No amounts were expensed to dry hole costs in the first half of 2008.
Income Taxes
The Company follows the liability method of accounting for income taxes under which the income tax provision is based on the temporary differences in the accounts calculated using income tax rates expected to apply in the year in which the temporary differences will reverse. The Company has sufficient tax pools such that it is not liable for current income tax. However the Company is subject to a one percent Argentina capital tax on assets in Argentina. These amounts are deductible from future income earned in Argentina.
The Company has the following tax pools which can be used to reduce future taxable income:
Rate of
Utilization % Amount
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Undepreciated capital costs 25 $ 356,778
Foreign exploration expenditures 10 5,295,915
Share issue costs 20 58,320
Canadian exploration expenditures 100 392,110
Canadian development expenditures 30 499,820
Canadian oil and gas expenditures 10 560,482
Non-capital loss carry forward(x) 100 4,556,066
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$ 11,719,491
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(x) $620,121 expires 2026, $1,523,672 expires 2027, $1,684,143 expires
in 2028 and $728,130 expires in 2029
Non-Controlling Interest
A private foreign company (Foreign Corp.) owns seven percent of
CanAmericas Energy Ltd. (CanAmericas), a 93 percent owned subsidiary of Pine
Cliff. In 2008, losses in CanAmericas exceeded the non-controlling interest
investment and therefore none of CanAmericas' loss in 2009 was allocated to
the non-controlling interest.
Loss
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Loss (325,010) (498,532) (295,111) (823,542) (612,224)
Loss per share (0.01) (0.01) (0.01) (0.01) (0.01)
-------------------------------------------------------------------------
The increase in loss for the first six months of 2009 compared to the first six months of 2008 was predominantly due to decreased interest income, increased depletion and dry hole costs and a foreign exchange loss versus a foreign exchange gain in 2008 partially offset by reduced G&A costs in 2009. The decrease in the Q2 2009 loss compared to Q1 2009 loss was predominantly due to the crown royalty recovery, reduced G&A costs and lower stock-based compensation.
Cash Flow from Operations
Three months ended Six months ended
June 30, March 31, June 30, June 30, June 30,
($) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flow from
operations (294,455) (229,307) (224,141) (523,762) (429,064)
Cash flow from
operations per share (0.01) (0.01) (0.00) (0.01) (0.01)
-------------------------------------------------------------------------
Cash flow deficiency increased in the first half of 2009 compared to the first half of 2008 as the Company had decreased interest income, increased production costs and increased taxes and a decrease in non-cash working capital adjustments, which were partially offset by higher oil and gas sales, a crown royalty recovery and decreased G&A costs. The reduction in cash flow from Q2 2009 compared to Q1 2009 was primarily due to a decrease in non-cash working capital adjustments, which was partially offset by lower G&A and production costs.
Related Party Transactions
Pine Cliff has a management agreement with Bonterra Corp, a wholly owned subsidiary of Bonterra Oil & Gas Ltd. (a company with common directors and management with Pine Cliff), to have Bonterra Corp provide executive services (President and CEO, CFO and COO), accounting services, oil and gas administration and office administration. The management fee consists of a monthly fee of $10,000 (2008 - $19,800), three percent of net earnings before income taxes plus minor general and administrative expenses incurred by Bonterra that were specifically attributable to Pine Cliff. Total fees for 2009 were $60,000 (2008 - $118,800). As at June 30, 2009, amounts owing to Bonterra Corp were $779 (December 31, 2008 - $592).
Commitments
The Company has a related party management agreement with Bonterra Corp that can be cancelled by giving 90 days notice.
Liquidity and Capital Resources
As of June 30, 2009, Pine Cliff had positive working capital of $1,738,974 (December 31, 2008 - $2,316,982). These funds may be used to cover the Company's budgeted 2009 capital expenditures of $900,000 in relation to the drilling of its Laguna de Piedra Concession if it is drilled in 2009 (see below) as well as miscellaneous capital costs in respect of its Canadian oil and gas operations. The Company is currently focusing on reducing general and administrative expenses related to its Argentina operations.
The following consolidated financial statements and notes
to the consolidated financial statements have been provided
for further details.
Consolidated Balance Sheets
As at June 30, 2009 and December 31, 2008
(unaudited)
2009 2008
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Assets
Current
Cash $1,718,511 $2,624,556
Accounts receivable 121,767 107,200
Prepaid expenditures 32,567 29,602
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1,872,845 2,761,358
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Property and Equipment (Note 6)
Property and equipment 3,947,881 3,878,550
Accumulated depletion and depreciation (1,262,509) (1,069,893)
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Net Property and Equipment 2,685,372 2,808,657
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$4,558,217 $5,570,015
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Liabilities
Current
Accounts payable and accrued liabilities $133,871 $444,376
Asset Retirement Obligations 82,961 80,938
Non-Controlling Interests (Note 5) - -
-------------------------------------------------------------------------
216,832 525,314
-------------------------------------------------------------------------
Commitments
Shareholders' Equity
Share capital (Note 8) 14,588,722 14,588,722
Contributed surplus 843,194 722,968
Deficit (11,090,531) (10,266,989)
Accumulated other comprehensive income - -
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4,341,385 5,044,701
-------------------------------------------------------------------------
$4,558,217 $5,570,015
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Consolidated Statements of Loss, Comprehensive Loss and Deficit
For the periods ended June 30 (unaudited)
Three Months Six Months
2009 2008 2009 2008
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Revenue
Oil and gas sales $111,773 $138,415 $305,498 $281,531
Royalties 46,519 (31,913) (2,833) (68,781)
Interest income 284 26,162 6,065 94,330
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158,576 132,664 308,730 307,080
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Expenses
Production costs 24,680 13,273 82,489 39,522
General and
administrative 249,238 359,043 574,235 641,172
Foreign exchange
loss (gain) 16,432 (101,624) 23,475 (103,934)
Stock-based
compensation 22,392 90,979 120,226 206,424
Dry hole costs
(Note 6) 60,036 - 60,036 -
Depletion,
depreciation
and accretion 88,099 63,075 194,639 128,544
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460,877 424,746 1,055,100 911,728
-------------------------------------------------------------------------
Loss Before Taxes
and Non-Controlling
Interests (302,301) (292,082) (746,370) (604,648)
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Taxes (Note 7)
Current 22,709 4,866 77,172 32,755
Future - - - -
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22,709 4,866 77,172 32,755
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Loss before
Non-Controlling
Interests (325,010) (296,948) (823,542) (637,403)
Loss applicable to
non-controlling
interests (Note 5) - 1,837 - 25,179
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Loss and Comprehensive
Income for the
Period (325,010) (295,111) (823,542) (612,224)
Deficit, Beginning
of Period (10,765,521) (3,042,234) (10,266,989) (2,725,121)
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Deficit, End of
Period ($11,090,531) ($3,337,345) ($11,090,531) ($3,337,345)
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Loss Per Share -
Basic and Diluted ($0.01) ($0.01) ($0.02) ($0.01)
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Weighted Average
Common Shares
Basic and
diluted 45,275,695 45,275,695 45,275,695 45,275,695
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Consolidated Statements of Cash Flow
For the periods ended June 30 (unaudited)
Three Months Six Months
2009 2008 2009 2008
-------------------------------------------------------------------------
Operating Activities
Loss for the
period ($325,010) ($295,111) ($823,542) ($612,224)
Items not
affecting cash
Stock-based
compensation 22,392 90,979 120,226 206,424
Dry hole costs 60,036 - 60,036 -
Depletion,
depreciation
and accretion 88,099 63,075 194,639 128,544
Unrealized foreign
exchange gain - (101,624) - (103,934)
Loss applicable to
non-controlling
interests - (1,837) - (25,179)
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(154,483) (244,518) (448,641) (406,369)
-------------------------------------------------------------------------
Change in non-cash
working capital
Accounts
receivable (28,788) (6,341) (14,567) (40,884)
Prepaid
expenditures 4,547 (4,494) (2,965) (9,553)
Accounts payable
and accrued
liabilities (115,731) 31,212 (57,589) 27,742
-------------------------------------------------------------------------
(139,972) 20,377 (75,121) (22,695)
-------------------------------------------------------------------------
Cash Used in
Operating Activities (294,455) (224,141) (523,762) (429,064)
-------------------------------------------------------------------------
Financing Activities - - - -
-------------------------------------------------------------------------
Cash Provided by
Financing Activities - - - -
-------------------------------------------------------------------------
Investing Activities
Property and
equipment
expenditures (9,581) (2,516,214) (129,367) (2,797,602)
Proceeds on
disposal of
restricted term
investments - - - 2,689,601
Change in non-cash
working capital
Accounts payable
and accrued
liabilities 8,649 (3,704) (252,916) -
-------------------------------------------------------------------------
Cash used in
Investing Activities (932) (2,519,918) (382,283) (108,001)
-------------------------------------------------------------------------
Unrealized Foreign
Exchange Gain on
Cash Held in
Foreign Currency - 101,624 - 103,934
-------------------------------------------------------------------------
Net Cash Outflow (295,387) (2,642,435) (906,045) (433,131)
Cash, Beginning
of Period 2,013,898 7,978,752 2,624,556 5,769,448
-------------------------------------------------------------------------
Cash, End of Period 1,718,511 5,336,317 1,718,511 5,336,317
-------------------------------------------------------------------------
Cash interest paid $ - $ - $ - $ -
Cash taxes paid $ 47,986 $ - $ 55,703 $ -
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Notes to the Consolidated Financial Statements
Periods ended June 30, 2009 and 2008 (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The interim consolidated financial statements for Pine Cliff Energy
Ltd. ("Pine Cliff" or the "Company") as at and for the three and six
months ended June 30, 2009 should be read in conjunction with the
audited consolidated financial statements as at and for the year
ended December 31, 2008. The notes to these interim consolidated
financial statements do not conform in all respects to the note
disclosure requirements of generally accepted accounting policies
("GAAP") for annual consolidated financial statements. These interim
consolidated financial statements are prepared using the same
accounting policies and methods of computation as disclosed in the
annual consolidated financial statements as at and for the year ended
December 31, 2008, except for those disclosed in Note 2 below. The
disclosures provided within are incremental to those included with
the annual financial statements.
2. CHANGE IN ACCOUNTING POLICIES
On January 1, 2009, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3064, "Goodwill and
Intangible Assets". The new section replaces the previous goodwill
and intangible asset standard and revises the requirement for
recognition, measurement, presentation and disclosure of intangible
assets. The adoption of this standard had no impact on the Company's
consolidated financial statements.
On January 1, 2009, the Company adopted the CICA's EIC-173, "Credit
Risk and the Fair Value of Financial Assets and Financial
Liabilities". The EIC provides guidance on how to take into account
credit risk of an entity and counterparty when determining the fair
value of financial assets and financial liabilities, including
derivative instruments. The adoption of this EIC had no impact on the
Company's consolidated financial statements.
Recent and Pending Accounting Pronouncements
In June 2009, the CICA issued amendments to CICA Handbook Section
3862, "Financial Instruments - Disclosures". The amendments include
enhanced disclosures related to the fair value of financial
instruments and the liquidity risk associated with financial
instruments. The amendments will be effective for annual financial
statements for fiscal years ending after September 30, 2009. The
amendments are consistent with recent amendments to financial
instrument disclosure standards in International Financial Reporting
Standards ("IFRS"). The Company will include these additional
disclosures in its annual consolidated financial statements for the
year ending December 31, 2009.
Effective January 1, 2009, the Company prospectively adopted the CICA
issued Section 1582, "Business Combinations", which will replace the
former guidance on business combinations. Under the new standard, the
purchase price used in a business combination is based on the fair
value of consideration exchanged at the date of exchange. Currently
the purchase price used is based on the fair value of the
consideration for a reasonable period before and after the date of
acquisition is agreed upon and announced. The new standard generally
requires all acquisition costs be expensed, which are currently
capitalized as part of the purchase price. In addition, the new
standard modified the accounting for contingent consideration and
negative goodwill.
Effective January 1, 2009, the Company prospectively adopted the CICA
issued Sections 1601, "Consolidated Financial Statements", and 1602,
"Non-controlling Interests", which replace existing guidance. Section
1601 establishes standards for the preparation of consolidated
financial statements and Section 1602 provides guidance on accounting
for a non-controlling interest in a subsidiary subsequent to a
business combination.
The Canadian Accounting Standards Board has confirmed that IFRS will
replace Canadian GAAP effective January 1, 2011, including
comparatives for 2010, for Canadian publicly accountable enterprises.
The Company has completed its high-level IFRS impact study and
established a preliminary timeline for the execution and completion
of the conversion project. The impact of IFRS on the Company's
consolidated financial statements is not reasonably determinable at
this time.
3. BANKING AGREEMENT
The Company has a line of credit through its subsidiary CanAmericas
to the lower of its available amount of cash or U.S. $3,690,000,
which can be drawn by means of letters of guarantee and letters of
credit. The line of credit may be cancelled without notice. No
letters of guarantee or credit are currently outstanding.
4. RELATED PARTY TRANSACTIONS
Bonterra Oil & Gas Ltd. (Bonterra O&G) an oil and gas corporation
publicly traded on the Toronto Stock Exchange with common directors
and management with Pine Cliff and a former parent of the Company,
through its wholly owned subsidiary Bonterra Energy Corp. (Bonterra
Corp) provides management services and office administration to the
Company. Total fees for the six month period were $60,000 (2008 -
$118,800) plus minimal administrative costs. As of June 30, 2009 Pine
Cliff owed Bonterra Corp $779 (December 31, 2008 - $592).
These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
5. NON-CONTROLLING INTERESTS
The Company has incorporated a subsidiary company, CanAmericas Energy
Ltd. (CanAmericas) to explore and develop oil and gas properties
primarily in South America. CanAmericas is owned 93 percent by the
Company and seven percent by a foreign private corporation (Foreign
Corp.). CanAmericas was initially financed by investments of
$1,400,000 U.S. for 5,600,000 common shares from the Company and
$100,000 U.S. for 400,000 common shares from Foreign Corp.
Changes to non-controlling interest were as follows:
June 30, December 31,
2009 2008
---------------------------------------------------------------------
Non-controlling interest, January 1 $ - $ 25,179
Loss applicable to non-controlling
interest ($ -) (25,179)
---------------------------------------------------------------------
Non-controlling interest, end of period $ - $ -
---------------------------------------------------------------------
Foreign Corp. has been granted an option to acquire an additional
1,000,000 common shares of CanAmericas at U.S. $0.25 per common
share. Fifty percent of the options vested on January 13, 2007, and
the remaining 50 percent vested on January 13, 2008, and all of the
options will expire on January 13, 2011.
6. PROPERTY AND EQUIPMENT
June 30, 2009 December 31, 2008
---------------------------------------------------------------------
Accumulated Accumulated
Depletion Depletion
and and
Cost Depreciation Cost Depreciation
---------------------------------------------------------------------
Petroleum and
natural gas
properties
and related
equipment $3,894,369 $1,229,667 $3,825,038 $1,041,902
Furniture,
equipment
and other 53,512 32,842 53,512 27,991
---------------------------------------------------------------------
$3,947,881 $1,262,509 $3,878,550 $1,069,893
---------------------------------------------------------------------
In 2009, the exploration costs related to the Canadon Ramirez
Concession of $60,036 (2008 - $6,171,140) were written-off to dry
hole costs as the three-well program was unsuccessful. Exploration
costs of $1,426,639 included in petroleum and natural gas properties
and related equipment presently have been excluded from costs subject
to depletion and depreciation.
7. TAXES
The Company has expensed $77,172 current tax expense related to
Argentina capital tax. A one percent Argentina capital tax is payable
in respect of the exploration costs for the Canadon Ramirez and the
Laguna de Piedra Concessions.
The Company continues to record a full valuation allowance for its
future income tax assets as the recoverability is uncertain.
8. SHARE CAPITAL
Authorized
Unlimited number of Common Shares without nominal or par value.
Unlimited number of Class B Preferred Shares without nominal or par
value which may be issued in one or more series.
Issued Number Amount
---------------------------------------------------------------------
Common Shares
Balance, January 1, 2009 45,275,695 $14,588,722
---------------------------------------------------------------------
Balance, June 30, 2009 45,275,695 $14,588,722
---------------------------------------------------------------------
A summary of the changes to the Company's contributed surplus is
presented below:
Contributed surplus
($) 2009 2008
---------------------------------------------------------------------
Balance, January 1 722,968 341,465
Stock-based compensation expensed (non-cash) 120,226 206,424
---------------------------------------------------------------------
Balance, June 30 843,194 547,889
---------------------------------------------------------------------
The deficit balance is composed of accumulated earnings.
A summary of the status of the Company's stock option plan as of
June 30, 2009 and December 31, 2008, and changes during the three
month and twelve month periods ending on those dates is presented as
follows:
June 30, 2009 December 31, 2008
---------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
---------------------------------------------------------------------
Outstanding at
beginning of period 3,118,000 $0.63 3,053,000 $0.62
Options granted 40,000 0.15 65,000 1.15
Options exercised - - - -
Options cancelled (12,000) 1.15 - -
---------------------------------------------------------------------
Outstanding at end
of period 3,146,000 $0.62 3,118,000 $0.63
---------------------------------------------------------------------
Options exercisable
at end of period 2,838,000 $0.58 2,003,500 $0.33
---------------------------------------------------------------------
The following table summarizes information about stock options
outstanding at June 30, 2009:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 6/30/09 Life Price at 6/30/09 Price
-------------------------------------------------------------------------
$0.15 1,130,000 0.5 years $0.15 1,090,000 $0.15
0.50 - 0.60 825,000 0.5 years 0.51 825,000 0.51
0.70 - 0.75 80,000 0.5 years 0.72 80,000 0.72
1.10 - 1.20 1,071,000 0.9 years 1.18 823,000 1.18
1.40 - 1.50 40,000 1.5 years 1.49 20,000 1.49
-------------------------------------------------------------------------
$0.15 - $1.50 3,146,000 0.7 years $0.62 2,838,000 $0.58
-------------------------------------------------------------------------
The Company records a compensation expense over the vesting period
based on the fair value of options granted to employees, directors
and consultants. Unvested options as of June 30, 2009 vest 210,500 in
2009, 77,500 in 2010 and 20,000 in 2011.
The Company issued 40,000 (December 31, 2008 - 65,000) stock options
with an estimated fair value of $3,350 (December 31, 2008 - $33,761)
($0.08 per option (December 31, 2008 - $0.52 per option)) using the
Black-Scholes option pricing model with the following key
assumptions:
June 30, December 31,
2009 2008
---------------------------------------------------------------------
Weighted-average risk free interest rate (%) 1.24 2.89
Dividend yield (%) - -
Expected life (years) 2.5 2.5
Weighted-average volatility (%) 96.0 72.0
---------------------------------------------------------------------
9. SEGMENTED INFORMATION
The Company has operations in Canada and in South America. All
operating activities are related to exploration, development and
production of petroleum and natural gas:
South
($) Canada America Total
---------------------------------------------------------------------
Three Months Ended June 30, 2009
Revenue, gross 112,042 15 112,057
Loss before non-controlling
interest 62,662 262,348 325,010
Capital expenditures 68 9,513 9,581
Six Months Ended June 30, 2009
Revenue, gross 309,790 1,773 311,563
Loss before non-controlling
interest 245,542 578,000 823,542
Capital expenditures 1,516 127,851 129,367
Property and equipment 1,230,444 1,454,928 2,685,372
Total assets 2,977,890 1,580,328 4,558,218
Three Months Ended June 30, 2008
Revenue, gross 163,880 697 164,577
Loss before non-controlling
interest 149,674 147,274 296,948
Capital expenditures 2,796 2,513,418 2,516,214
Six Months Ended June 30, 2008
Revenue, gross 355,106 20,755 375,861
Loss before non-controlling
interest 303,876 333,527 637,403
Capital expenditures 10,222 2,787,380 2,797,602
December 31, 2008
Property and equipment 1,416,693 1,391,964 2,808,657
Total assets 3,884,908 1,685,107 5,570,015
---------------------------------------------------------------------
10. FINANCIAL AND CAPITAL RISK MANAGEMENT
Financial Risk Factors
----------------------
The Company undertakes transactions in a range of financial
instruments including:
- Cash deposits;
- Receivables;
- Payables;
The Company's activities result in exposure to a number of financial
risks including market risk (commodity price risk, interest rate
risk, foreign exchange risk, credit risk, and liquidity risk).
Financial risk management is carried out by senior management under
the direction of the Board of Directors.
The Company does not enter into risk management contracts. The
Company sells its oil and gas commodities at market prices at the
date of sale in accordance with the Board directive.
Capital Risk Management
-----------------------
The Company's objectives when managing capital are to safeguard the
Company's ability to continue as a going concern, to continue
providing returns to its Shareholders and benefits for other
stakeholders, and to maintain an optimal capital structure to reduce
the cost of capital. In order to maintain or adjust the capital
structure, the Company may issue debt or new shares.
The Company monitors capital on the basis of the ratio of budgeted
exploration capital requirements to current working capital. This
ratio is calculated using the projected cash requirements for a year
in advance and maintaining a working capital balance of at least six
months to satisfy this requirement on a continuous basis.
The Company believes that maintaining approximately a six month
current working capital balance to the exploration capital budget
requirement is an appropriate basis to allow it to continue its
future development of the Company's assets.
The following section (a) of this note provides a summary of our
underlying economic positions as represented by the carrying values,
fair values and contractual face values of our financial assets and
financial liabilities. The Company's working capital to capital
expenditure requirement ratio is also provided.
The following section (b) addresses in more detail the key financial
risk factors that arise from the Company's activities including its
policies for managing these risks.
a) Financial assets, financial liabilities
The carrying amounts, fair value and face values of the Company's
financial assets and liabilities other than cash are shown in
Table 1.
Table 1
As at June 30, 2009 As at December 31, 2008
---------------------------------------------------------------------
Carrying Fair Face Carrying Fair Face
($000) Value Value Value Value Value Value
---------------------------------------------------------------------
Financial assets
Accounts
receivable 122 122 184 107 107 142
Financial
liabilities
Accounts payable
and accrued
liabilities 134 134 134 444 444 444
---------------------------------------------------------------------
The budgeted capital expenditure to working capital base figures for
June 30, 2009 is presented below:
($000) June 30, 2009
---------------------------------------------------------------------
Budgeted capital expenditure(1) 900
---------------------------------------------------------------------
Current assets 1,873
Current liabilities (134)
---------------------------------------------------------------------
Working capital 1,739
---------------------------------------------------------------------
Working capital to budgeted capital expenditure
(in months) 23.2
---------------------------------------------------------------------
(1) Budgeted capital expenditure represents the Company's estimated
future twelve month capital expenditures.
b) Risks and mitigations
Market risk is the risk that the fair value or future cash flow of
the Company's financial instruments will fluctuate because of changes
in market prices. Components of market risk to which Pine Cliff is
exposed are discussed below.
Commodity price risk
--------------------
The Company's principal operation is the exploration and possible
development of its oil and gas properties. The Company also engages
in the exploration and development of oil and natural gas properties
in Canada. Fluctuations in prices of these commodities may directly
impact the Company's performance and ability to continue with its
operations.
The Company's management currently does not use risk management
contracts to set price parameters for its production.
Sensitivity Analysis
--------------------
The Company is still in the exploration stage of development of its
exploration properties and as such generates nominal cash flow or
earnings from these properties. In addition, the Company's petroleum
and natural gas operations provide only moderate cash flow and as
such changes in commodity would have no material impact on the
Company.
Interest rate risk
------------------
Interest rate risk refers to the risk that the value of a financial
instrument or cash flow associated with the instrument will fluctuate
due to changes in market interest rates. Interest rate risk arises
from interest bearing financial assets and liabilities that Pine
Cliff uses. The principal exposure to the Company is on its cash
balances which have a variable interest rate which gives rise to a
cash flow interest rate risk.
Pine Cliff's cash consists of Canadian dollar, U.S. dollar and
Argentinean peso investment chequing accounts. Since these funds need
to be accessible for the development of the Company's capital
projects, management does not reduce its exposure to interest rate
risk through entering into term contracts of various lengths. As
discussed above, the Company generally manages its capital such that
its budgeted capital requirements to current working capital ratio
are at least six months.
Foreign exchange risk
---------------------
The Company has foreign operations, but no revenue from production
from the foreign properties and currently sells all of its Canadian
product sales in Canadian currency. The Company has a U.S. cash and
Argentina peso cash balance and earns an insignificant amount of
interest on its U.S. and Argentinean peso bank accounts. Funds held
in foreign denominated accounts are generally held for short periods
of time, as the Company transfers and converts Canadian funds to
foreign currency as payments for foreign currency denominated
payables come due. As such, Pine Cliff does not mitigate exchange
rate risk by using risk management contracts.
Credit risk
-----------
Credit risk is the risk that a contracting party will not complete
its obligations under a financial instrument and cause the Company to
incur a financial loss. Pine Cliff is exposed to credit risk on all
financial assets included on the balance sheet. To help mitigate this
risk, the Company maintains the majority of its cash balances with a
major Canadian chartered bank and invests in secure financial
instruments.
Substantially all of the accounts receivable balance at June 30, 2009
($122,000) and December 31, 2008 ($107,000) relates to product sales
with Canadian oil and gas companies and crown royalty credits with
the province of Alberta, all of which have consistently been received
within 30 to 60 days. The Company through its subsidiary CanAmericas
also has a receivable of $62,000 for Argentina Value Added Tax on
non-capital expenditures. The Company has taken a full allowance on
the V.A.T., as the Company has no Argentina income subject to V.A.T.
to claim it against.
The Company assesses quarterly if there has been any impairment of
the financial assets of the Company. The Company does not have any
significant credit risk exposure to any single counterparty or any
group of counterparties having similar characteristics.
The carrying value of accounts receivable approximates their fair
value due to the relatively short periods to maturity on this
instrument. Currently no accounts receivable is greater than 90 days.
The maximum exposure to credit risk is represented by the carrying
amount on the balance sheet. There are no material financial assets
that the Company considers past due.
Liquidity risk
--------------
Liquidity risk includes the risk that, as a result of Pine Cliff's
operational liquidity requirements:
- The Company will not have sufficient funds to settle a
transaction on the due date,
- Pine Cliff will not have sufficient funds to continue with its
financing of its major exploration projects,
- The Company will be forced to sell assets at a value which is
less than what they are worth, or
- Pine Cliff may be unable to settle or recover a financial asset
at all.
To help reduce these liquidity risks, the Company:
- Has a general capital policy of maintaining at least six months
of budgeted capital requirements as its working capital base.
- Maintains a continuous evaluation approach as to the requirements
for its largest exploration programs; the Canadon Ramirez
Concession and Laguna de Piedra Concession.
The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this release.
%SEDAR: 00021536E