Caspian Energy Inc. Announces Third Quarter Results.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- Caspian Energy Inc. (the "Company" or "CEK CEK Content Encryption Key (digital rights management) CEK Chelyabinsk Airport, Russia (Airport Code) CEK Customized Education Kit ") (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CEK)(AIM:CEK), an oil exploration and development corporation operating in the Republic of Kazakhstan Kazakhstan or Kazakstan (kä'zäkstän`), officially Republic of Kazakhstan, republic (2005 est. pop. 15,186,000), c.1,050,000 sq mi (2,719,500 sq km), central Asia. , announced today its financial results for the three months ending October October: see month. 31, 2005 (3Q 06). Caspian's first exploration well, East Zhagabulak #301 has been drilled and the results of flow tests are expected before the end of December December: see month. 2005.For the three months and nine months ending October, 2005 (the Company' third quarter of fiscal 2006), CEK's net loss was $1,858,266 and $8,692,830 respectively. Large non-cash items equal to $673,354 and $3,589,794 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc stock-based compensation charges (value assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. using the Black-Scholes valuation model) and $1,071,839 and $4,319,033 pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to unrealized foreign exchange losses were major components of this figure. CEK's operations generated $164,214 for the three month period and used $230,804 for the nine month period. The Company's working capital was $15million at the close of the quarter. Oil and gas revenues before transportation costs for the reporting periods were $843,847 and $2,014,464. For the third quarter, operating costs operating costs npl → gastos mpl operacionales were $343,008 and transport costs were $2,384. Administrative expenses for the quarter were $565,679. Capital expenditures totalled $9,233,035 and $15,366,726 for the three and nine months. Capital expenditures are composed of advances to Aral Petroleum Capital joint venture and the Company's share of the expenditure of funds by Aral. The unaudited consolidated Q3 financial statements for the period have been filed with Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. securities regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities and are available for viewing at www.sedar.com. A full Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial document is available on the Company's website, www.caspianenergyinc.com, and on SEDAR, www.sedar.com The document can also be obtained on application from the Company. FORWARD-LOOKING STATEMENTS forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. & OTHER INFORMATION Certain statements contained in this release constitute forward-looking statements. Forward-looking statements are included under "Business Prospects and Outlook" and elsewhere in this results statement. These statements relate to future events or the Company's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements in this release include, but are not limited to, statements with respect to: the performance characteristics of the Company's oil and natural gas properties; drilling plans and the timing and location thereof; plans for the exploration and development of the North Block; plans for seismic acquisition and surveys; production capacity and levels, and the timing of achieving such capacity and levels; the level of expenditures for compliance with environmental regulations; the size of oil and natural gas reserves; projections of market prices and costs; supply and demand for oil and natural gas; expectations regarding the ability to raise capital and to continually con·tin·u·al adj. 1. Recurring regularly or frequently: the continual need to pay the mortgage. 2. add to reserves through acquisitions and development; and capital expenditure programs. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and readers are cautioned not to place undue reliance on forward-looking statements contained in this results statement. Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this release include, but are not limited to: volatility of oil and natural gas prices; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; geological ge·ol·o·gy n. pl. ge·ol·o·gies 1. The scientific study of the origin, history, and structure of the earth. 2. The structure of a specific region of the earth's crust. 3. A book on geology. , technical, drilling and processing problems; fluctuations in currency and interest rates; product supply and demand; risks inherent in the Company's foreign operations; changes in environmental and other regulations or the interpretation of such regulations; political and economic conditions in the Republic of Kazakhstan; and the other factors discussed in this results statement. Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this release are made as of the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" and the Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with applicable securities laws. The forward-looking statements contained in this release are expressly qualified by this cautionary statement. Finally, in the presentation of its financial results, Caspian uses two terms that are universally applied in analyzing corporate performance within the oil and gas industry but which regulators require that we provide disclaimers. Barrel of Oil Equivalent The barrel of oil equivalent (bboe, sometimes BOE) is a unit of energy based on the approximate energy released by burning one barrel of crude oil. The US Internal Revenue Service defines it as equal to 5.8 × 106 BTU [1]. 5. (BOE BOE Based on Experience BOE Board of Education BOE Boletín Oficial del Estado (Spanish) BOE Bank of England BOE Board of Equalization BOE Board of Elections BOE Barrel of Oil Equivalent BOE Bind on Equip ) - The oil and gas industry commonly expresses production volumes and reserves on a "barrel of oil equivalent" basis ("BOE") whereby natural gas volumes are converted at the ratio of six thousand cubic feet to one barrel of oil. The intention is to sum oil and natural gas measurement units into one basis for improved analysis of results and comparisons with other industry participants. Throughout its financial results, Caspian has used the 6:1 BOE measure which is the approximate energy equivalency equivalency the combining power of an electrolyte. See also equivalent. of the two commodities at the burner A drive that writes write-once optical discs such as CD-Rs and DVD-Rs. A "burner" implies a one-time recording, but the term is erroneously used to refer to drives that "write" to re-recordable CD-RW and DVD-RW/+RW media as well. See burn, CD-R and DVD-R. tip. BOE does not represent a value equivalency at the plant gate, which is where Caspian sells its production volumes, and therefore may be a misleading measure if used in isolation. Cash Flow from Operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses (cash flow) - This measure is considered critical within the oil and gas industry both in terms of measuring success in our historical operations and being an indicator of funding sources for on-going Adj. 1. on-going - currently happening; "an ongoing economic crisis" ongoing current - occurring in or belonging to the present time; "current events"; "the current topic"; "current negotiations"; "current psychoanalytic theories"; "the ship's current position" efforts to replace production volumes and increase reserve volumes. Canadian GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). requires that "cash flow from operating activities" be the measurement focus. This latter term is derived from "cash flow" as defined by Caspian adjusted for the change in non-cash working capital. Caspian believes "cash flow" and "cash flow per share" to be more meaningful measures of our performance and therefore have used these terms throughout this results statement. Accordingly, we are required to advise the reader that: (a) these are non-GAAP measure for purposes of Canadian accounting standards and (b) our determinations may not be comparable to those reported by other companies. Review of Operations East Zhagabulak (EZ) To date, the initial 3-D seismic program covering 406 square kilometres Square kilometre (U.S. spelling: square kilometer), symbol km², is a decimal multiple of the SI unit of surface area, the square metre, one of the SI derived units. 1 km² is equal to:
PSTM Photon Scanning Tunneling Microscopy ) of the Zhagabulak 3-D seismic data set was completed at the end of August 2005. The processing was performed by PGD-Dank (a division of Paradigm Geophysical ge·o·phys·ics n. (used with a sing. verb) The physics of the earth and its environment, including the physics of fields such as meteorology, oceanography, and seismology. ) in Almaty Almaty (əlmä`tē), formerly Alma-Ata (ăl'mə-ətä`), city (1993 pop. 1,176,000), capital of Almaty prov., Kazakhstan, in the foothills of the Trans-Ili Alatau. , Republic of Kazakhstan ("ROK"). Following processing, the data set was transferred to Halliburton's Landmark Geophysical office in Moscow Moscow, city, Russia Moscow (mŏs`kou, –kō), Rus. Moskva, city (1991 est. pop. 8,802,000), capital of Russia and of Moscow region and the administrative center of the Central district, W central European Russia, on the , Russia Russia, officially the Russian Federation, Rus. Rossiya, republic (2005 est. pop. 143,420,000), 6,591,100 sq mi (17,070,949 sq km). for interpretation. Processing through Pre-Stack Depth Migration (PSDM PSDM Pre Stack Depth Migration (seismic processing; oil industry) PSDM Problem Solving and Decision Making PsDM Pseudospectrum Descent Method ) continues at the end of the third quarter. The presence of a broad, extensive structure separating Zhagabulak from neighboring neigh·bor n. 1. One who lives near or next to another. 2. A person, place, or thing adjacent to or located near another. 3. A fellow human. 4. Used as a form of familiar address. v. producing fields has been noted and several potential drilling locations have been identified. The location for the first well on the block, EZ#301, was chosen from an earlier fast-track fast track n. Informal The quickest and most direct route to achievement of a goal, as in competing for professional advancement: "Making complaints against the public is hardly the fast track to elective office" interpretation of the data set, 1.1 km southwest of well EZ#213. A contract with Nabors Drilling International was concluded in April 2005 and the well spud on July July: see month. 16, 2005. The well was still drilling at the end of the third quarter. A second location, EZ#302 was selected and a site prepared for the drilling rig. The location is 3.6 km. southwest of EZ#301 and appears structurally updip to that well. EZ#302 is expected to spud prior to December 31, 2005. Baktygaryn The Baktygaryn Area is located in the northwestern corner of the North Block. The Government of Kazakhstan The Government of Kazakhstan oversees a presidential republic. The President of Kazakhstan, currently Nursultan Nazarbayev, is head of state and nominates the head of government. Executive power is exercised by the government. has estimated that this Area contains 863 million barrels of oil in place with 259 million barrels classified as recoverable. These Kazakh estimates were based upon the results of Soviet era 2-D seismic data and stratigraphic stra·tig·ra·phy n. The study of rock strata, especially the distribution, deposition, and age of sedimentary rocks. strat test wells. Caspian neither accepts nor denies these estimates, but expects to validate To prove something to be sound or logical. Also to certify conformance to a standard. Contrast with "verify," which means to prove something to be correct. For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data this data through its exploration program. The tender for the acquisition of 235 square kilometres of 3-D seismic was released and responses were received. In September September: see month. 2005, Azimut Not to be confused with Azimuth. Azimut is a power-boat builder based in Avigliana, Italy, it also has ship yards in Savona and Viareggio In 1969, Paolo Vitelli started his yacht charter business in Turin, while taking his University degree. Energy Services began work in the Baktygaryn Area. The acquisition program was completed during November November: see month. 2005. The Baktygaryn Area is anticipated to contain drilling targets in both the below salt Carboniferous Car·bon·if·er·ous adj. 1. Of, belonging to, or denoting a geologic division of the Paleozoic Era following the Devonian and preceding the Permian, including the Mississippian Period and the Pennsylvanian Period and characterized, especially section and the above salt Mesozoic section and will provide a second tier of exploration to the Company's drilling portfolio. BUSINESS PROSPECTS AND OUTLOOK The Company has been successful in establishing itself as an operating entity in the ROK and expects to continue with future growth through continued work there. Subsequent to the end of the third quarter, EZ#301 was drilled to a total depth of 4,846 metres and logged. The Company ran production casing and is currently flow-testing the well. It will be completed with the drilling rig before the rig is moved to theEZ#302 location. EZ#301 will be tied-in tied-in a conformation defect in an animal in which a limb is perceptibly thinner at one point, e.g. tied-in below the knee, or below the hock. to the Zhagabulak production facility following the test period. A two week rig move from EZ#301 to EZ#302 is anticipated following completion of EZ#301, placing the scheduled spud date of EZ#302 in December 2005. Logging analyses have suggested that bypassed pay may exist in wells EZ#211 and EZ#213, which were drilled during the Soviet period. Caspian will investigate this opportunity during calendar 2006. Landmark's interpretation of the PSTM seismic data set at Zhagabulak was completed in early November 2005 and efforts for the remainder of the 2005 fiscal year will focus on completing the interpretation of the PSDM data set by year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. . Internal interpretation is also ongoing and expected to be completed by December. Logging, coring and well test data from EZ#301 will be incorporated into the understanding of the targeted Carboniferous reservoirs. Ongoing petrophysical analyses of all wells penetrating penetrating breaching the tissues of the body. the below salt reservoirs is expected to be partially completed by year-end and correlations of these wells will aid in the identification of future drilling locations in the North Block. Identification and acquisition of well data within the extended territory will also be evaluated for inclusion into this process. Reprocessing Reprocessing may refer to:
The Baktygaryn 3-D seismic program was completed in early November 2005. PGS-GIS, in Almaty, ROK was awarded the processing contract. Due to the presence of large salt bodies in the Baktygaryn Area, the 3-D data set will be processed through PSDM. Completion of processing and interpretation of this data will take place in early 2006. The company announced on the 1st December 2005 that it intends to change its fiscal year end date from January January: see month. 31 to December 31 commencing with the year starting February February: see month. 1, 2005. The Company is planning to release results for the eleven month period to the end of December 2005, and will then revert re·vert v. 1. To return to a former condition, practice, subject, or belief. 2. To undergo genetic reversion. to reporting for the twelve month period to 31 December 2006.
Consolidated Balance Sheet
(Unaudited) October 31, January 31,
2005 $ 2005 $
Assets
Current assets
Cash and cash equivalents 20,796,409 43,066,470
Accounts receivable 650,495 181,387
Prepaids and other deposits 2,743,751 486,992
Other assets 11,731 11,731
------------------------------
24,202,386 43,746,580
------------------------------
Property, plant and equipment (note 3) 55,795,429 40,419,409
------------------------------
Less: Accumulated depletion and
depreciation (196,499) (76,139)
------------------------------
55,598,930 40,343,270
------------------------------
79,801,316 84,089,850
------------------------------
------------------------------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities 2,308,449 1,366,096
Loan payable (note 7) 6,921,372 7,336,841
------------------------------
9,229,821 8,702,937
Asset retirement obligation (note 4) 71,541 70,540
Future income taxes 1,086,509 644,376
------------------------------
10,387,871 9,417,853
------------------------------
Shareholders' Equity
Share capital (note 5) 75,220,762 75,376,278
Warrants to purchase common shares
(note 6) 667,738 667,738
Contributed surplus (note 6) 7,219,230 3,629,436
Deficit (13,694,285) (5,001,455)
------------------------------
69,413,445 74,671,997
------------------------------
79,801,316 84,089,850
------------------------------
------------------------------
Consolidated Statement of Loss and Deficit
(Unaudited)
Three Three Nine Period from
months months months April 13,
ended ended ended 2004 to
October 31, October 31, October 31, October 31,
2005 2004 2005 2004
$ $ $ $
Revenue
Oil and gas
revenue, net 843,847 640,781 2,014,464 891,521
Interest 231,438 42,782 935,824 43,902
-----------------------------------------------------
1,075,285 683,563 2,950,288 935,423
-----------------------------------------------------
Expenses
General and
administrative 565,679 705,818 2,070,902 1,542,058
Operating 343,008 184,854 1,098,557 257,188
Transportation 2,384 852 11,633 1,185
Stock-based
compensation
(note 6) 673,354 3,157,292 3,589,794 3,157,292
Unrealized foreign
exchange loss 1,071,839 1,185,222 4,319,033 1,185,222
Depletion,
depreciation and
accretion 37,173 22,046 111,066 30,672
-----------------------------------------------------
2,693,437 5,256,084 11,200,985 6,173,617
-----------------------------------------------------
Loss before
income taxes (1,618,152) (4,572,521) (8,250,697) (5,238,194)
Future income
taxes 240,114 - 442,133 -
-----------------------------------------------------
Net loss for
the period (1,858,266) (4,572,521) (8,692,830) (5,238,194)
Deficit -
Beginning of
period (11,836,019) (665,673) (5,001,455) -
-----------------------------------------------------
Deficit - End
of period (13,694,285) (5,238,194) (13,694,285) (5,238,194)
-----------------------------------------------------
-----------------------------------------------------
Basic and diluted
loss per share
(note 5) (0.02) (0.08) (0.10) (0.09)
-----------------------------------------------------
-----------------------------------------------------
Consolidated Statement of Cash Flow (unaudited)
Three Three Nine Period from
months months months April 13,
ended ended ended 2004 to
October 31, October 31, October 31, October 31,
2005 2004 2005 2004
$ $ $ $
Cash provided by
(used in)
Operating
activities
Net loss for the
period (1,858,266) (4,572,521) (8,692,830) (5,238,194)
Items not
affecting cash
Stock-based
compensation 673,354 3,157,292 3,589,794 3,157,292
Unrealized
foreign
exchange
loss 1,071,839 1,185,222 4,319,033 1,185,222
Depletion,
depreciation
and accretion 37,173 22,046 111,066 30,672
Future income
taxes 240,114 - 442,133 -
-----------------------------------------------------
164,214 (207,961) (230,804) (865,008)
Changes in
non-cash working
capital balances (215,986) - (469,108) -
-----------------------------------------------------
(51,772) (207,961) (699,912) (865,008)
-----------------------------------------------------
Financing
activities
Loan payable (340,755) - (415,469) -
Foreign exchange (1,071,839) (1,185,222) (4,319,033) (1,185,222)
Issuance of
common shares - 51,469,134 135,301 64,538,112
Share issue
expenses - (6,036,478) (290,817) (6,047,652)
-----------------------------------------------------
(1,412,594) 44,247,434 (4,890,018) 57,305,238
-----------------------------------------------------
Investing
activities
Acquisition
of property,
plant and
equipment (9,233,035) (4,412,109) (15,366,726) (17,197,854)
Business
acquisition - 2,301,250 - 2,301,250
Asset
retirement (228) - 1,001 -
Changes in
non-cash
working
capital
balances (432,168) 615,912 (1,314,406) 1,192,507
-----------------------------------------------------
(9,665,431) (1,494,947) (16,680,131) (13,704,097)
-----------------------------------------------------
(Decrease)
increase in
cash and
cash
equivalents (11,129,797) 42,544,526 (22,270,061) 42,736,133
Cash and cash
equivalents -
Beginning of
period 31,926,206 191,607 43,066,470 -
-----------------------------------------------------
Cash and cash
equivalents -
End of period 20,796,409 42,736,133 20,796,409 42,736,133
-----------------------------------------------------
-----------------------------------------------------
Interest paid
and received
Interest paid - - - -
Interest
received 293,737 39,199 941,223 39,199
Notes to the Consolidated Financial Statements
(Unaudited)
October 31, 2005
1 Nature of operations
The Company is engaged in the exploration for and development and production of oil and gas in the Republic of Kazakhstan. Its primary operating activities are carried out through its wholly-owned subsidiary, Caspian Energy Ltd. ("Caspian Ltd."). Caspian's principal assets are a 50% indirect interest in Aral Petroleum Capital LLP LLP - Lower Layer Protocol ("Aral"), held by Caspian Ltd., and a temporary 100% beneficial interest in the currently producing well of Aral. Through its interest in Aral, Caspian has the right to explore and develop certain oil and gas properties in Kazakhstan, known as the North Block, a 3,458 square kilometre area located in the vicinity of the Kazakh pre-Caspian basin. The Company also has minor resource interests in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Aral's exploration and development rights to the North Block were granted pursuant to the terms of an exploration contract between the government of Kazakhstan and Aral (the "Exploration Contract"). The initial three-year term of the Exploration Contract has been extended for a two-year period (expiring ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. in December 2007) and is subject to a further extension of two years thereafter, in accordance with the terms of the contract. Under the terms of the Exploration Contract, Aral is obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to spend at least US$20.8 million under a minimum work program in respect of the North Block during the initial three-year term of the contract. The expenditures include processing and reinterpretation re·in·ter·pret tr.v. re·in·ter·pret·ed, re·in·ter·pret·ing, re·in·ter·prets To interpret again or anew. re of geological and geophysical data of prior years, two dimensional and three dimensional seismic shoots and surveys, drilling exploration wells, well reactivations and well surveys and testing. As of October 31, 2005, Aral's financial obligation under the minimum work program has been discharged. Under terms of a shareholders' agreement shareholders' agreement n. an employment agreement among the shareholders of a small corporation permitting a shareholder to take a management position with the corporation without any claim of conflict of interest or self-dealing against the shareholder/manager. dated June June: see month. 25, 2004, among Caspian Ltd., Azden Management Limited ("Azden") and Aral, Caspian is committed to fund Aral's US$20.8 million obligation under the initial work program. This financial commitment has been satisfied, in full, by the Company. In addition, Caspian has undertaken, on a best efforts basis, to raise financing of US$84.0 million to fund Aral's operations pursuant to the Exploration Contract. Caspian was incorporated on April 13, 2004, accordingly, the comparative figures presented in these financial statements reflect the period from incorporation to October 31, 2004. 2 Significant accounting policies The consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge of Caspian are stated in Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents and have been prepared in accordance with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets Contingent Asset An asset in which the possibility of ownership depends solely upon future events uncontrollable by the company. Notes: An example might be a settlement from a lawsuit. See also: Asset, Balance Sheet, Contingent Liability, Liability and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Cash and cash equivalents Cash and cash equivalents are comprised of cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments with an initial maturity date of three months or less. Joint ventures The Company's oil and gas exploration and development activities are conducted mainly in Kazakhstan through its 50% indirect interest in Aral and, accordingly, these consolidated financial statements reflect only the Company's proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. interest in such activities. Property, plant and equipment a) Capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. costs The Company follows the full cost method of accounting for oil and natural gas operations, whereby all costs related to the acquisition, exploration and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition costs, geological and geophysical costs, carrying charges Payments made to satisfy expenses incurred as a result of ownership of property, such as land taxes and mortgage payments. Disbursements paid to creditors, in addition to interest, for extending credit. Consumer Protection laws require full disclosure of all carrying charges. on non-producing properties, costs of drilling both productive and non-productive wells, the cost of petroleum and natural gas production equipment and overhead charges directly related to exploration and development activities. Proceeds from the sale of oil and gas properties are applied against capital costs, with no gain or loss recognized, unless such a sale would change the rate of depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and depreciation by 20% or more, in which case, a gain or loss would be recorded. b) Depletion, depreciation and amortization The capitalized costs are depleted de·plete tr.v. de·plet·ed, de·plet·ing, de·pletes To decrease the fullness of; use up or empty out. [Latin d and depreciated Depreciated may refer to:
c) Ceiling test The Company follows the Canadian accounting guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. on full cost accounting. In applying this full cost guideline, Caspian calculates its ceiling test for each cost centre by comparing the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of oil and natural gas properties and production equipment to the sum of undiscounted cash flows expected to result from Caspian's proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. . If the carrying value is not fully recoverable, the amount of impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. is measured by comparing the carrying value of oil and gas properties and production and equipment to the estimated net present value of future cash flows from proved plus probable reserves using a risk-free interest rate Risk-Free Interest Rate Describes return available to an investor in a security somehow guaranteed to produce that return. The risk-free interest rate compensataes the investor for the temporary sacrifice of consumption. and expected future prices. Any excess carrying value above the net present value of the future cash flows is recorded as a permanent impairment. Costs of acquiring and evaluating unproven unproven Dubious, nonscientific, not proven, quack, questionable, unscientific adjective Relating to that which has not been validated by reproducible experiments or other scientific methods for determining effect or efficacy properties in Canada and costs of exploration and land in international cost centres are excluded initially from costs subject to depletion, until it is determined whether or not proved reserves are attributable to the properties or, in the case of major development projects, commercial production has commenced, or impairment has occurred. Impairment occurs whenever events or changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or indicate that the carrying amount may not be recoverable. When proven reserves are determined or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to the costs subject to depletion for the country's cost centre. Proceeds from disposal of properties will normally be applied as a reduction of the cost of the remaining assets unless the disposal represents a significant disposition of reserves, in which case a gain or loss will be recorded. d) Unproved property Costs of acquiring and evaluating unproven properties in Canada and costs of exploration and land in Kazakhstan are initially excluded from costs subject to depletion, until it is determined whether or not proved reserves are attributable to the properties or, in the case of major development projects, commercial production has commenced, or impairment has occurred. Impairment occurs whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When proven reserves are determined or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to the costs subject to depletion for that country's cost centre. e) Asset retirement obligation Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. The Company has adopted the Canadian accounting standard for asset retirement obligations. In accordance with the new standard, Caspian records the fair value of an asset retirement obligation ("ARO") as a liability in the period in which it incurs a legal obligation to restore an oil and gas property, typically when a well is drilled or other equipment is put in place. The associated asset retirement costs are capitalized as part of the carrying amount of the related asset and depleted using a unit-of-production method over the life of the proved reserves. Subsequent to initial measurement of the obligations, the obligations are adjusted at the end of each reporting period to reflect the passage of time and changes in estimated future cash flows underlying the obligation. Actual costs incurred on settlement of the ARO are charged against the ARO. Income taxes Income taxes are calculated using the liability method of tax accounting. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying value amount on the balance sheet are used to calculate future income tax assets and liabilities. Future income tax assets and liabilities are calculated using tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Stock-based compensation The Company grants options to purchase common shares to employees and directors under its stock option plan. The Company has adopted the new Canadian New Canadian Noun Canad a recent immigrant to Canada accounting standard relating to stock-based compensation and other stock-based payments as it applies to stock-based compensation granted to employees, officers and directors. Under this standard, future awards are accounted for using the fair value of accounting for stock-based compensation. Under the fair value method, an estimate of the value of the option is determined at the time of grant using a Black-Scholes option-pricing model Black-Scholes option-pricing model A model for pricing call options based on arbitrage arguments. Uses the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the expected standard deviation of the stock return. . The fair value of the option is recognized as an expense and contributed surplus over the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period of the option. Proceeds received on exercise of stock options, along with amounts previously included in contributed surplus, are credited to share capital. Revenue recognition Revenue from the sale of oil and natural gas is recognized based on volumes delivered to customers at contractual delivery points and rates. The costs associated with the delivery, including operating and maintenance costs, transportation, and production-based royalty expenses will be recognized in the same period in which the related revenue is earned and recorded. Measurement uncertainty The amounts recorded for depletion and depreciation of property, plant and equipment, the provision for asset retirement obligations and the amounts used for ceiling test calculations are based on estimates of reserves and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. future costs. The Company's reserve estimates are reviewed annually by an independent engineering firm. The amounts disclosed relating to fair values of stock options issued are based on estimates of future volatility of the Company's share price, expected lives of options, and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty. Earnings (loss) per share Basic per share amounts are calculated using the weighted average number of shares outstanding during the year. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. per share amounts are calculated based on the treasury stock method whereby the weighted average number of shares is adjusted for the dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of options. Foreign currency All operations are considered financially and operationally integrated. Results of operations are translated to Canadian dollars, using average rates for revenues and expenses, except depreciation which is translated at the rate of exchange applicable to the related assets. Monetary items denominated in foreign currency are translated to Canadian dollars at exchange rates in effect at the balance sheet date and non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Foreign exchange gains and losses are recorded in the statement of operations See Income statement. . 3 Property, plant and equipment All of the Company's property, plant and equipment at October 31, 2005, relates to petroleum and natural gas properties, the majority of which relates to the Exploration Contract. The majority of the Company's property, plant and equipment is under development, with $684,259 of costs being subject to depletion and depreciation for 2006. During the nine month period ended October 31, 2005, the Company capitalized $381,328 general and administrative expenses related directly to exploration and development activities. 4 Asset retirement obligation The Company records the fair value of asset retirement obligations as a liability in the period in which it incurs the legal obligation. The asset retirement obligation results from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations at October 31, 2005 is approximately US$100,000, which will be incurred between 2014 and 2019. A credit-adjusted risk-free rate Risk-free rate The rate earned on a riskless asset. was used to calculate the fair value of the asset retirement obligations. A reconciliation of the asset retirement obligation is provided below:
$
Balance - January 31, 2005 70,540
Expenditures (188)
-------------
Balance - April 30, 2005 70,352
Accretion 1,417
-------------
Balance - July 31, 2005 71,769
Expenditures (228)
-------------
Balance - October 31, 2005 71,541
-------------
-------------
Under the terms of the Exploration Contract (note 1), the Company is required to create a fund to finance actual future restoration costs, equal to 1% of the capital costs of exploration. At October 31, 2005, $89,645 has been placed in a restricted bank account related to the funding requirement. 5 Share capital Authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: Unlimited number of voting common shares, without stated par value Issued
Number of Amount
shares $
Issued and outstanding as at January 31, 2005 84,122,163 75,376,278
Exercise of warrants (i) 205,000 135,300
Share issue costs (ii) - (3,784)
-----------------------
Issued and outstanding as at April 30, 2005 84,327,163 75,507,794
Share issue costs (ii) - (287,032)
-----------------------
Issued and outstanding as at July 31, 2005
and October 31, 2005 84,327,163 75,220,762
-----------------------
-----------------------
i) During the nine months period, 205,000 warrants were exercised. The warrants had an exercise price of $0.66 per common share. ii) Share issue costs have not been tax-effected. Stock options The Company has a stock option plan (the "Plan") under which it may grant options to directors, officers and employees for the purchase of up to 15% of the number of common shares outstanding from time to time. Options are granted at the discretion of the board of directors. The exercise price, vesting period and expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created period are also fixed at the time of grant at the discretion of the Board of Directors and in accordance with the terms of the Plan. Changes to the Company's stock options are summarized as follows:
Weighted
average
Number of option price
options $
Balance - January 31, 2005 7,173,228 1.76
Granted 1,993,271 1.69
Exercised - -
Expired - -
----------------------------------
Balance - October 31, 2005 9,166,499 1.75
----------------------------------
----------------------------------
Exercisable - October 31, 2005 7,325,128 1.75
----------------------------------
----------------------------------
The following is a summary of stock options outstanding and exercisable as at October 31, 2005:
Options outstanding Options exercisable
-----------------------------------------------------------
Weighted
average
Range of remaining Weighted
exercise Options contractual average Options
price outstanding life in years exercise price exercisable
$0.75 2,079,090 4.2 $0.75 1,483,181
$1.61 843,271 4.7 $1.61 843,271
$1.75 1,150,000 4.7 $1.75 916,667
$2.00 1,050,000 4.4 $2.00 262,500
$2.15 4,044,138 4.2 $2.15 3,819,509
------------- --------------- ------------
9,166,499 $1.75 7,325,128
------------- --------------- ------------
------------- --------------- ------------
Per share amounts The weighted average number of common shares outstanding during the period ended October 31, 2005 of 84,327,163 was used to calculate earnings per share amounts. Warrants 205,000 share purchase warrants entitling the holder to purchase one common share at a price of $0.66 were exercised during the first quarter. No value was ascribed to the warrants at the date of grant. 1,368,000 broker warrants are outstanding at October 31, 2005. Each warrant entitles the holder to purchase one common share at a price of $2.00 until September Until September is a 1984 romantic drama set in France. It stars Karen Allen as an American tourist in Paris who falls in love with a married Frenchman (Thierry Lhermitte). External links 20, 2006. The fair value of the warrants using the Black-Scholes method was $667,738. 6 Stock-based compensation Options granted to both employees and non-employees are accounted for using the fair value method. The fair value of common share options amortized in the quarter ended October 31, 2005 was estimated to be $673,354 as at the grant date using a Black-Scholes option-pricing model and the following assumptions: Risk free interest rate 3% Expected life 5 year average Expected volatility 72% Expected dividend yield 0% The estimated fair value of the options is amortized to expense and credited to contributed surplus over the option vesting period on a straight-line basis. 7 Loan payable Aral is indebted in·debt·ed adj. Morally, socially, or legally obligated to another; beholden. [Middle English endetted, from Old French endette, past participle of endetter, to oblige to Azden, which holds the other 50% interest in Aral, in the amount of $6,921,372. The amount is non-interest bearing and was to be repaid prior to January 1, 2006. Caspian is obligated to fund Aral's operations, consequently $6,921,372 has been added to property, plant and equipment of Caspian and shown as a current liability. During November 2005, Aral agreed to defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. the repayment obligation of this loan to April 2006. 8 Financial instruments Caspian's financial instruments included in the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. are comprised of cash and cash equivalents, accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , other deposits, accounts payable and loan payable. The fair values of these financial instruments approximate their carrying amounts due to the short-term nature of the instruments. 9 Foreign exchange risk A substantial portion of Caspian's activities are settled in foreign currencies and consequently, the Company is subject to fluctuations in currency translation rates. 10 Segmented information The Company's activities are conducted in two geographic segments: Canada and Kazakhstan. All activities relate to exploration for and development of petroleum and natural gas.
Canada Kazakhstan Total
$ $ $
Revenue 973,286 1,977,002 2,950,288
Expenses 9,806,632 1,394,353 11,200,985
Income taxes - 442,133 442,133
Net loss (8,833,346) 140,516 (8,692,830)
Capital expenditures - 15,366,726 15,366,726
11 Reconciliation of International Financial Reporting Standards International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). The Company has evaluated and determined there are no significant differences between Canadian generally accepted accounting principles and International Financial Reporting Standards. Accordingly, no differences in the Company's reported financial position at October 31, 2005 or results of operations or cash flows for the period ended October 31, 2005 have been presented. Caspian Energy Inc. (TSX:CEK) (AIM:CEK) |
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