Peyto Exploration & Development Corp. press release
Pine Cliff Energy Ltd. Announces Third Quarter Results
TSX - Toronto Stock Exchange · Natural Gas · Natural Gas Liquids · Oil · Canada
CALGARY, Nov. 28 /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 nine months ended September 30, 2008.
Highlights
For the periods ended
Three Months Ended Nine Months Ended September 30 September 30 2008 2007 2008 2007 Financial ($) Revenue - oil and gas 129,537 95,160 411,068 470,265 Funds Flow from Operations(1) (326,163) (287,764) (628,598) (706,085) Per Share Basic (0.01) (0.01) (0.01) (0.02) Per Share Diluted (0.01) (0.01) (0.01) (0.02) Loss (505,953) (383,510) (1,118,177) (999,893) Per Share Basic (0.01) (0.01) (0.02) (0.03) Per Share Diluted (0.01) (0.01) (0.02) (0.03) Capital Expenditures 1,511,745 174,289 4,309,347 2,604,413 Total Assets 11,621,915 4,173,333 Working Capital (Deficiency) 3,440,165 (314,684) Shareholders' Equity 11,400,311 3,371,089 OPERATIONS Oil and NGLs Barrels Per Day 1 1 1 4 Average Price ($ per barrel) 119.90 75.83 110.45 62.07 Natural Gas MCF Per Day 146 163 152 204 Average Price ($ per MCF) 8.74 5.83 9.18 7.14 Total Barrels of Oil Equivalent Per Day(2) 24 27 25 37
(1) Funds flow from operations is not a recognized measure under GAAP. Management believes that in addition to cash flow from operations, funds flow from operations is a useful supplemental measure as it demonstrates the Company's ability to generate the funds 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 excluding foreign exchange loss and asset retirement expenditures.
(2) BOEs 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
What a difference a few months can make. In the last three months the world has seen significant declines in many areas; including major reductions in oil and natural gas prices, recessions in most countries in the world, the failure of many banks and credit facilities and a substantial decrease in consumer spending.
Virtually all businesses have been impacted by these changes including Pine Cliff. As a result, the Board of Directors and management will be confronted with difficult decisions, both now and in the future, to ensure all expenditures are made with a great deal of analysis and caution.
The changing landscape is indeed challenging but also provides many opportunities. The Company will be aggressively pursuing such opportunities, especially from a domestic rather than a foreign perspective. This does not mean that Pine Cliff will no longer focus on completing its prospects in Argentina, but the environment in Canada has changed. The opportunities here may once again be more economic than in foreign jurisdictions. If oil and natural gas prices remain depressed, there may be numerous opportunities to acquire high quality producing and non-producing properties.
In regards to Argentina, the difficult operating and political conditions persist. However, the Company remains optimistic that it will be successful with its drill program that is presently being conducted. In addition, a shortage of most commodities still exists in Argentina and the Company is of the view that the Argentinean federal government will likely have to modify its energy policy to once again entice oil and natural gas companies to become more active.
During the latter part of 2008 and the first quarter of 2009, Pine Cliff expects to test the three wells that have been drilled in the Canadon Ramirez property and to drill an exploratory well in the Laguna de Piedra property. During the fourth quarter of 2008, Pine Cliff also participated in drilling a well (15 percent working interest) in the Sundance area of Alberta. This well has been completed as a natural gas well and it is anticipated that the well will be on production prior to the end of 2008.
Although circumstances are expected to continue to be challenging in 2009, the Company is optimistic about being able to take advantage of the many opportunities that will be available.
George F. Fink President, CEO and Director November 26, 2008
FORWARD-LOOKING INFORMATION
Certain statements contained in this press 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 press 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.
Production
Three months ended Nine months ended September June September September September 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Crude oil and NGLs (barrels per day) 1 - 1 1 4 Natural gas (MCF per day) 146 142 163 152 204 Total BOE per day(1) 24 24 27 25 37 (1) BOEs 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
Production volumes for natural gas decreased 25 percent in the first nine months of 2008 compared to the first nine months of 2007. During the third quarter of 2007, one of the Company's commingled gas wells with various production zones started to produce sand and production declined significantly. The operator of the well performed an unsuccessful workover in December of 2007 to attempt to optimize production from all zones. Production continued to decline and the well was eventually shut-in in June of 2008.
Revenue
Three months ended Nine months ended September June September September September (Cdn $) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Revenue: Oil and gas sales 129,537 138,415 95,160 411,068 470,265 Average Realized Prices Crude oil and NGLs (per barrel) 119.90 - 75.83 110.45 62.07 Natural gas (per MCF) 8.74 10.84 5.83 9.18 7.14
The decrease in revenue from oil and natural gas sales was due to a significant decline in production in the first nine months of 2008 compared to the first nine months of 2007, despite the higher commodity prices for natural gas in 2008. Revenue from the third quarter of 2008 compared to the second quarter of 2008 decreased slightly due to a decrease in commodity prices for natural gas.
Royalties
Three months ended Nine months ended September June September September September ($) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Crown royalties 31,888 21,864 13,791 87,882 86,166 Gross overriding royalties 5,568 10,049 7,338 18,355 19,186 Total royalty expense 37,456 31,913 21,129 106,237 105,352
Crown royalties were approximately the same in the first nine months of 2008 even with the decrease in oil and gas sales, as one of the wells in 2007 was on crown royalty holiday. Gross overriding royalties were slightly less for the same periods largely due to the increase in commodity prices for natural gas, which offset the decrease in production. The increase in Crown royalties quarter over quarter was mainly due to the increased production volumes on the wells subject to crown royalties and adjustments to prior quarter crown royalties paid in the third quarter. Gross overriding royalties decreased primarily as a result of the decrease in natural gas commodity prices.
Interest Income
Three months ended Nine months ended September June September September September ($) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Interest income 21,025 26,162 - 115,355 21,830
The Company maintains both Canadian and US investment accounts that pay interest at prime less various percentages as long as the Company maintains certain minimum account balances. The Company has increased its cash balance with regard to proceeds received from the rights offering done in the fourth quarter of 2007. The Company was therefore earning interest at higher rates and on an increased cash balance. Interest income for Q3 2008 decreased by $5,137 from Q2 2008 due to the lower cash balance on hand as $1.5 million was spent on capital projects in Argentina in the third quarter of 2008.
Production Costs
Three months ended Nine months ended September June September September September ($) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Production costs 27,187 13,273 32,057 66,709 99,363 $ per BOE 12.17 7.25 12.90 9.70 9.91
Production costs for the nine months of 2008 decreased by $32,654 compared to the first nine months of 2007 due to a decrease in production which results in a reduction of variable costs. The increase in production costs quarter over quarter was mainly due to the payment of annual rents related to surface and mineral leases in Q3.
General and Administrative (G&A) Expense
Three months ended Nine months ended September June September September September ($) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 G&A expense 358,105 359,043 315,257 999,277 959,336
General and administrative expenditures were similiar between the first nine months of 2008 and the first nine months of 2007 and between Q3 and Q2 of 2008.
Pine Cliff does not have any employees at the present time but engages the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. (CanAmericas) has also engaged the services of two individual professionals as senior management and officers of CanAmericas.
Foreign Exchange Loss (Gain)
Three months ended Nine months ended September June September September September ($) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Foreign exchange loss (gain) 26,816 101,624 14,481 (77,118) 34,129
The Company maintains foreign denominated bank accounts to facilitate its foreign operations. The gain on foreign exchange in the first three quarters of 2008 and the loss in the first three quarters of 2007 relates to the depreciation of the Canadian dollar with the US dollar in 2008. The majority of the foreign exchange gain in the first nine months of the year was recorded in the second quarter of 2008 as the Canadian dollar depreciated more over that period.
Stock Based Compensation
Stock based compensation for the first nine months of 2008 was $313,422 (2007 - $88,043). 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 Company issued 1,108,000 stock options in Pine Cliff during the fourth quarter of 2007 and only 65,000 in the first nine months of 2008, causing an increase in stock based compensation for 2008 over 2007. The Company estimated the 2008 stock options fair value at $33,761 ($0.52 per option) using the Black-Scholes option pricing model, assuming a weighted average risk free interest rate of 2.89 percent, weighted average expected volatility of 72.1 percent, weighted average expected life of 2.5 years and no annual dividend rate. As of September 30, 2008 approximately $215,000 of unamortized stock based compensation exists and will be amortized over two years, approximately $95,000 in 2008 and $120,000 in 2009.
Depletion, Depreciation and Accretion
During the nine months of 2008 the Company provided $201,336 (2007 - $223,260) for depletion, depreciation and accretion of its property and equipment. The decrease is related to lower production volumes in 2008. Depletion, depreciation and accretion increased modestly from the second quarter of 2008 due to higher production volumes.
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 so that it 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 $ 387,967 Foreign exploration expenditures 10 5,242,229 Share issue costs 20 96,713 Canadian exploration expenditures 100 392,110 Canadian development expenditures 30 383,290 Canadian oil and gas expenditures 10 606,369 Non-capital loss carry forward(x) 100 2,854,950 $9,963,628 (x) $750,298 expires 2026, $1,523,672 expires 2027 and $580,980 expires in 2028
Non-Controlling Interest
A private foreign company (Foreign Corp.) owns seven percent of CanAmericas. The loss applicable to non-controlling interest for the 2008 nine month period was $25,179 (2007 - $28,495). In Q3, 2008 there were no gains or losses recorded with regard to non-controlling interest as the cumulative losses recorded for previous periods equated to investments made by the non-controlling interests. Until CanAmericas is producing a cumulative net income above its original investment or there are additional investments by the non-controlling interests there will be no further gains or losses allocated to the non-controlling interest.
Loss
Three months ended Nine months ended September June September September September ($) 30, 2008 30, 2008 30, 2007 30, 2008 30, 2007 Loss 505,953 295,111 383,510 1,118,177 999,893 Loss per share (0.01) (0.01) (0.01) (0.02) (0.03)
The loss incurred in the first nine months of 2008 remained at similar levels to the loss incurred in the first nine months of 2007 as the decrease in oil and gas revenue was offset by lower production costs, increased interest income and a foreign exchange gain as the Canadian dollar depreciated against the US dollar. The increase in loss from Q3 2008 over Q2 2008 is primarily due to a foreign exchange loss in Q3 compared to a foreign exchange gain in Q2.
Funds Flow from Operations
Funds flow from operations decreased to negative $628,598 in the first nine months of 2008 from negative $706,085 in the first nine months of 2007. The decrease from 2007 was due to the foreign exchange gain, increased interest income and decreased production costs, which was offset by lower oil and gas revenue. The third quarter 2008 negative funds flow of ($326,163) increased from the second quarter of 2008 of ($142,894) due to lower oil and gas sales, increased production costs and a foreign exchange loss in Q3 compared to a foreign exchange gain in Q2.
The following reconciliation compares funds flow for the first nine months of 2008 and the corresponding 2007 period to the Company's cash flow from operating activities as calculated according to Canadian generally accepted accounting principles:
2008 2007 Cash flow from operating activities ($734,432) ($550,285) Items not affecting funds flow Accounts receivable 26,351 (111,059) Prepaid expenses 6,929 20,444 Accounts payable and accrued liabilities (4,564) (31,056) Foreign exchange gain (loss) 77,118 (34,129) Funds flow for the period ($628,598) ($706,085)
Related Party Transactions
Pine Cliff has a management agreement with Bonterra Energy Corp. (Bonterra Corp.), a wholly owned subsidiary of Bonterra Energy Income Trust which is a wholly owned trust of Bonterra Oil & Gas Ltd. and a company with common directors and management, 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 $19,800, three percent of net earnings before income taxes, $250 per month per operated producing well and $150 per month per water injector well plus out of pocket costs. Total fees for the nine months ended September 30, 2008 were $178,200 (2007 - $162,000) plus minimal out of pocket costs. This agreement can be cancelled by either party by giving 90 days notice.
Commitments
The Company has two farm-in agreements and one pending farm-in agreement in South America which require future expenditure commitments as outlined in Note 9 to the financial statements.
Liquidity and Capital Resources
As of September 30, 2008, Pine Cliff had positive working capital of $3,440,165 (December 31, 2007 - $8,378,110). These funds will be used to fund future exploration and development of Canadian and international properties and for general corporate expenditures. As of September 30, 2008, the Company estimated a capital budget over the next twelve months of $1,450,000. Of this capital budget, $400,000 has been incurred to the date of this report.
The TSX Venture Exchange does not accept responsibility for the adequacy or the accuracy of this release.
PINE CLIFF ENERGY LTD. CONSOLIDATED BALANCE SHEETS As at September 30, 2008 (unaudited) and December 31, 2007
2008 2007 Assets Current Cash $3,492,388 $5,769,448 Restricted term investment (Note 2) - 2,689,601 Accounts receivable 98,255 71,904 Prepaid expenditures 35,397 28,468 3,626,040 8,559,421 Property and Equipment (Note 5) Property and equipment 8,948,184 4,638,837 Accumulated depletion and depreciation (952,309) (752,264) Net Property and Equipment 7,995,875 3,886,573 $11,621,915 $12,445,994 Liabilities Current Accounts payable and accrued liabilities (Note 3) $185,875 $181,311