Pine Cliff Energy Ltd. Announces Third Quarter Results
TSX - Toronto Stock Exchange
CALGARY, Nov. 21 /CNW/ - Pine Cliff Energy Ltd. (www.pinecliffenergy.com) (TSX-V:PNE) is pleased to announce its financial and operational results for the three and nine months ended September 30, 2005.
Highlights << Three Months Nine Months Ended Ended(2) September 30 September 30 2005 2005 FINANCIAL Revenue - oil and gas $ 121,141 $ 261,558 Funds Flow from Operations(1) $ 68,119 $ 92,317 Per Share - Basic $ 0.00 $ 0.00 Per Share - Diluted $ 0.00 $ 0.00 Net Loss $ (37,092) $ (105,821) Per Share - Basic $ (0.00) $ (0.00) Per Share - Diluted $ (0.00) $ (0.00) Capital Expenditures and Acquisitions $ 321,206 $ 1,937,121 Total Assets $ 5,609,386 Shareholders' Equity $ 5,305,042
(1) Funds flow from operations is not a recognized measure under GAAP. Management believes that in addition to net loss, funds flow from operations is a useful supplemental measure as it demonstrates the Company's ability to generate the cash necessary to fund future growth through capital investment. Investors are cautioned, however, that this measure should not be construed as an indication of the Company's performance. The Company's method of calculating this measure may differ from other issuers and accordingly, it may not be comparable to that used by other issuers. For these purposes, the Company defines funds flow from operations as funds provided by operations before changes in non-cash operating working capital items.
(2) The Company was incorporated in the Province of Alberta on November 10, 2004 and commenced operations on April 8, 2005.
Management's Discussion and Analysis
The following report dated November 2, 2005 is a review of the operations and current financial position for the Company and should be read in conjunction with the unaudited financial statements for the three and nine months ended September 30, 2005, including the notes related thereto, and the audited financial statement for the period ended December 31, 2004, together with the notes related thereto. These documents are available on the Company's website at www.pinecliffenergy.com .
General
The Company is continuing to focus on expanding its operations in the following areas:
(a) Assessing various opportunities to purchase producing properties with exploitation potential and non producing properties. (b) Assessing international opportunities in various countries that provide sound technical prospects and are not high risk from a political and personal safety aspect. (c) Continuing to add technical people to assist in developing prospects domestically and on an international basis.
A lot of progress has been made in these areas during the past few months and the Company is optimistic with regard to the potential in these areas of focus.
Financial and Operational
Production
On April 8, 2005, with an effective date of January 1, 2005, the Company acquired interests in two natural gas properties for $1,000,000. The first property, the Sundance lands, located in West Central Alberta was the major property acquired. Pine Cliff now has a 14.4 percent working interest (subject to crown royalty) in 4,960 acres in this area. There are two wells (0.308 net) on these lands that have been producing for approximately two years. Two additional multi-zone wells were drilled in 2005 (net 15 and 3.8 percent). Production commenced in the second quarter at one well (net .038). It is anticipated that the other well (net .15) will commence production in the fourth quarter, 2005. Total production from this area is approximately 120 MCF of natural gas and five barrels of natural gas liquids per day. Pine Cliff also acquired a 100 percent interest in a Crown lease of 256 hectares in the Auburndale area of East Central Alberta. The Company drilled a Devonian well for sweet natural gas during the second quarter. The Company has tested this well and has concluded that the projected production volume is not sufficient to construct a five kilometer pipeline to tie it in and will not produce this well unless additional production is found in this area and pipeline infrastructure is completed.
Revenue
Revenue from petroleum and natural gas sales was $121,141 during the third quarter. This is a decline of $19,276 from the second quarter. Higher commodity prices partially offset the decline in production volumes. As mentioned the Company commenced its oil and gas operations on April 8. Average price received in 2005 for its natural gas was $8.77 per MCF and $60.96 per barrel for natural gas liquids.
Royalties
Royalties consist of Crown royalties ($29,386) paid to the Province of Alberta and gross overriding royalties ($8,038). The Company receives a partial rebate (currently 25%) on royalties paid to the Province of Alberta.
Interest Income
The Company maintains an investment account that pays interest at prime less 2.25 percent as long as the Company maintains a minimum balance of $1,500,000.
Production Costs
Production costs for the nine months ended September 30, 2005 were $31,424 or $6.51 per BOE (Q2 - $20,407 or $7.37 per BOE). BOE's 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. Lower production costs from the natural gas well that commenced production in the second quarter was the main reason for the decline in costs per BOE from Q2.
General and Administrative
Pine Cliff does not have any employees at the present time but has engaged the services of a geologist on a consulting basis during the third quarter of 2005. Effective February 1, 2005, Pine Cliff entered into a management agreement with Comstate Resources Ltd. (Comstate), a wholly owned subsidiary of Bonterra Energy Income Trust and a company with common directors and management, to have Comstate 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 $12,000, three percent of net earnings before income taxes, plus out of pocket costs. Total fees for the nine months ended September 30, 2005 were $96,000 plus minimal out of pocket costs. The majority of the remaining general and administrative expenses consist of general start up costs of $16,458 and accounting and legal costs of $18,636 associated with continuous disclosure requirements.
Stock Based Compensation
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, directors and consultants. In the second quarter the Company issued 1,732,000 stock options with the fair value estimated using the Black-Scholes option pricing model, assuming a weighted risk free interest rate of 3.6 percent, expected weighted average volatility of 88 percent, expected weighted average life of 3.5 years and no annual dividend rate. The total expense to be amortized over the vesting period of the options is $136,536 of which $29,806 was amortized during the third quarter (Q2 - $28,186).
Depletion, Depreciation and Amortization
The Company follows the successful efforts method of accounting for petroleum and natural gas properties and related equipment. Costs of acquiring unproved properties are capitalized. When petroleum and natural gas properties are found to contain proved reserves as determined by Company engineers, the related net book value is depleted on the unit-of-production basis, calculated by field. The costs of dry holes and abandoned properties are charged to operations. Geological costs, lease rentals and carrying costs are charged to income as incurred. Costs of drilling exploratory and development wells that result in additions to proved reserves are capitalized and depleted on the unit-of-production basis. Tangible equipment is depreciated on a straight-line basis over ten years.
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 and is not liable for current income tax.
The Company has the following tax pools which can be used to reduce future taxable income:
Rate of Utilization % Amount Undepreciated capital costs 25 $ 119,635 Share issue costs 20 141,922 Canadian exploration expenses 100 389,389 Canadian development expenses 30 400,213 Canadian oil and gas expenses 10 831,733 Non-capital loss carryforward 100 127,465 $ 2,010,357
Net Loss
Pine Cliff is in the start up phase and as such anticipates incurring a certain amount of losses during its first months of operations. The net loss in the third quarter of $37,092 declined by $7,461 from $44,553 in the second quarter. The Company is optimistic that current planned activity will result in improved results in the future.
Liquidity and Capital Resources
As of September 30, 2005, Pine Cliff had positive working capital of approximately $3,450,555. These funds will be used to fund future development of existing properties or to acquire additional oil and gas properties. The Company is authorized to issue an unlimited number of common shares without nominal or par value. Equity transactions during the past nine months are as follows:
Shares Amount Balance, December 31, 2004 10 $ 1 Issued pursuant to public offering 36,420,031 5,463,005 Share issue costs - (167,647) Future tax adjustment on share issue costs - 57,069 Balance, September 30, 2005 36,420,041 $ 5,352,428 %SEDAR: 00021536E