Equatorial Energy Inc. Announces Second Quarter Results.Business Editors CALGARY Calgary (kăl`gərē), city (1991 pop. 710,677), S Alta., Canada, at the confluence of the Bow and Elbow rivers. The largest city in Alberta and the fastest-growing major city in Canada, Calgary is a corporate, transportation, and financial , Alberta--(BUSINESS WIRE)--Aug. 19, 2002 Equatorial equatorial /equa·to·ri·al/ (e?kwah-tor´e-al) 1. pertaining to an equator. 2. occurring at the same distance from each extremity of an axis. Energy Inc. ("Equatorial" or the "Company") (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :OZ) - is pleased to announce the financial and operational results for the second quarter of 2002. Management's discussion of financial conditions and results of operations ("MD&A") has been incorporated in this press release. Financial statements and the associated for the quarter ended June June: see month. 30, 2002 have been attached to this press release. Due to the accounting treatment for the acquisition of Resolute res·o·lute adj. Firm or determined; unwavering. [Middle English, dissolved, dissolute, from Latin resol Energy Corporation ("Resolute") as a purchase of Equatorial by Resolute, operating results for the three and six month periods comprise the period from the effective date of the transaction, June 14, to June 30 and provide limited information. Operating data for Equatorial is provided for the current and historical periods in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. MD&A. LETTER TO SHAREHOLDERS A New Company, new direction On June 14, with the written majority approval of Equatorial's shareholders, Equatorial was transformed into a new company with a new direction. The change resulted from the acquisition of Resolute, bringing substantial capital resources, a new, proven management team, a new Board of Directors and the enthusiasm and discipline to build a financially sound, growing company. Management and Board changes The new management of the Company consists of Brian The name Brian (sometimes spelled Bryan) comes from an Irish backround. It is of Celtic origin and its meaning may be "hill" or "strong, noble, and high"[1]. Lemke Lemke is a surname, and may refer to
This page or section lists people with the surname Lemke. (Executive Vice President), Louis Louis, titular duke of Burgundy Louis, 1682–1712, titular duke of Burgundy; grandson of King Louis XIV of France. He became heir to the throne on the death (1711) of his father, Louis the Great Dauphin. Girard Girard (jĭrärd`), city (1990 pop. 11,304), Trumbull co., NE Ohio, adjacent to Youngstown, on the Mahoning River; settled c.1800, inc. 1891. Its ironworks date from 1866. Chief manufactures include plastic and metal products and chemicals. (Vice President Exploration), Brian Cumming Cumming is the name of several places in the United States:
Mike Wilhelm is likely the greatest living unheralded guitarist of the 60s era. He started his career as the backup guitarist for the Chambers Brothers after having studied guitar with Brownie McGee. (Vice President Finance and CFO See Chief Financial Officer. ). Board additions include the other two founders of Resolute, Barry Barry, Welsh Barri, town (1991 pop. 45,053) and port, Vale of Glamorgan, S Wales, on the Bristol Channel. Once a major coal-exporting port, its more diversified export products include cement, flour, and steel products. Jackson Jackson. 1 City (1990 pop. 37,446), seat of Jackson co., S Mich., on the Grand River; inc. 1857. It is an industrial and commercial center in a farm region. , as Chairman, and Jeffrey Smith, as well as Douglas Douglas, city, Isle of Man Douglas, city (1991 pop. 19,950), capital of the Isle of Man, Great Britain. It is a popular resort, connected by rail to Ramsey and Port Erin, on the Irish Sea. Tourism is the chief industry. Baldwin Baldwin, cities, United States Baldwin. 1 Uninc. city (1990 pop. 22,719), Nassau co., SE N.Y., on the south shore of Long Island, on Baldwin Bay; settled 1640s. A fishing center and summer resort, it has varied manufactures. , Don Driscoll Driscoll is one derivation of the Irish surname "O'Driscoll". It originates from Cork in the Republic of Ireland. Most O'Driscolls and Driscolls live in Ireland, with many more living in the United States, Canada and Australia. , Paul McDermott Paul McDermott is the name of two famous Australian musicians.
American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. Rooney Rooney can refer to:
Strengthened Balance Sheet With over $55 million of cash, the financial resources from Resolute were substantial. This new capital allowed the Company to settle off-balance sheet hedge positions at the end of June at a cost of $13 million. Available cash flow will increase now that they have been eliminated. As a result, after settlement of the hedge positions and transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Resolute transaction, the net debt and working capital position of the Company at June 30 was $14.4 million, or approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. one-half of annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. cash flow for the second quarter. Subsequent to the quarter-end, the Company refinanced the balance sheet using Resolute's cash and a new revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility of $50 million. The previous credit facility was retired, together with promissory notes promissory note, unconditional written promise to pay a certain sum of money at a definite time to bearer or to a specified person on his order. Promissory notes are generally used as evidence of debt. amounting to $11.7 million, using a portion of the new facility. Growth Plans, Expanded Capital Programs 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 Our first priority following the transaction, the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). of Equatorial's balance sheet, is now complete. The Company is now very well positioned to execute our plans for growth. Our forward strategies for Western Canada
Western Canada, commonly referred to as the West are threefold: accelerated exploration and development of the existing lands and properties; land and property acquisitions in existing or new core areas (combined with periodic dispositions or swaps of non-core properties) to create greater concentration, lower costs and greater opportunities within the portfolio of properties; and new prospect generation initiated by our exploration team. We have increased the 2002 capital budget in Western Canada to $27 million (of which $8.7 million was expended ex·pend tr.v. ex·pend·ed, ex·pend·ing, ex·pends 1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend. 2. to June 30) and have a preliminary forecast for 2003 of a similar amount. The focus of these programs is natural gas development and land acquisitions in new and core areas. The results should begin to be seen in the fourth quarter. Potential property acquisitions have not been included in the budget. The Company drilled 14 wells to the end of June in Western Canada resulting in 10 (8.6 net) gas wells, 1 oil well (0.5 net) and 3 dry holes (2 net). During the month of July July: see month. , the Company drilled 4 (3.5 net) gas wells in Berry containing ova or spawn. See also: Berry . The expanded capital budget will result in an additional 60 wells being drilled during 2002. The biggest program is at Winnifred where up to 40 shallow gas wells are planned in the fourth quarter. More than 100 wells are included in the preliminary 2003 forecast. These initial plans will be primarily financed by cash flow, leaving significant balance sheet capacity for expanded programs and new opportunities. Indonesian Development on a Self-financing self-financing adj → autofinanziado self-financing self adj → selbstfinanzierend basis From its inception INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. , Indonesia Indonesia (ĭn'dənē`zhə), officially Republic of Indonesia, republic (2005 est. pop. 241,974,000), c.735,000 sq mi (1,903,650 sq km), SE Asia, in the Malay Archipelago. has been a dominant focus for Equatorial. While continuing to be an important asset with significant potential, our plans for Indonesia call for disciplined growth on a self-financed basis. This means that capital programs for the Sembakung and Tanjung Lontar n. 1. A tall fan palm (Borassus flabellifer) of Africa and India and Malaysia yielding a hard wood and sweet sap that is a source of palm wine and sugar; the palmyra ltname>; - its leaves are used for thatching and weaving. Noun 1. fields will be funded from available production and cash flows. The Indonesian properties are in full commercial production and the Company has fully satisfied the original capital commitments under its Technical Assistance Contracts. As a result, the new management has adopted an alternative approach to the accounting for these contracts, treating them as a joint venture with PERTAMINA, the state oil company of Indonesia. We believe that this approach more appropriately reflects Equatorial's economic interest in the contracts by showing production, revenue and costs net of PERTAMINA's share. Most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , capital cost recoveries from PERTAMINA are no longer classified as revenue but rather as a reduction of capital expenditures. This method will allow investors to more easily evaluate Indonesia's contribution to the Company. During the first half of 2002, production from the main Sembakung field fell as a result of the initial rapid declines of infill in·fill n. 1. The use of vacant land and property within a built-up area for further construction or development, especially as part of a neighborhood preservation or limited growth program. 2. wells drilled in 2001. While the field continues to perform as expected, pressure declines and signs of well communication within the field offer clear support for the need to implement pressure maintenance. Accordingly, testing of a pressure maintenance system is a primary objective for the field over the next year. To the end of July this year, the Company drilled 4 wells in Sembakung resulting in two oil wells, and two dry holes, one of which is being tested as a water source for pressure maintenance. The 2002 program was focused on higher risk exploration wells to the south of the main field, with the objective of encountering oil accumulations separate from the main pool. The SBK SBK Superbike (racing motorbikes) SBK Snowboard Kids (gaming) SBK Svenska Brukshundklubben SBK Stichting Bouwkwaliteit (Dutch) SBK South Brooklyn Railway Company 29 came on-stream on-stream adv. & adj. In or into operation or production. in June at a rate of over 1,000 bbls/d (290 bbls/d net to the Company) and, while having lesser oil pay than wells in the main field, opens up new development in the area. The new production from the south field has replaced a significant portion of the declines in the main field over the first half of the year. An additional 14 wells will be drilled in Indonesia this year (11 in Tanjung Lontar and 3 in Sembakung). Outlook Third quarter, production in Canada is expected to be approximately 4,700 boe/d and in Indonesia (on a net basis) 2,000 bbls/d for a total of 6,700 boe/d. We expect production to grow 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. to more than 5,200 boe/d in Canada and 2,000 bbls/d in Indonesia and to establish sustained growth in 2003. Revenue and cash flow in the third quarter will be relatively weak due to the dramatic slump Slump A temporary fall in performance, often describing consistently falling security prices for several weeks or months. in natural gas prices during July and August, coupled with gas plant turnarounds for certain properties in August. However, we are well financed and confident of a price recovery upon the elimination of last winter's surplus inventories, which are declining. We are excited by opportunities and challenges we face in Equatorial and look forward to reporting our progress in the coming periods. On behalf of the Board of Directors, Randell B. Pardy, President and Chief Executive Officer 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 Management's discussion and analysis of financial condition and the results of operations ("MD&A") should be read in conjunction with the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: interim financial statements and related notes. This discussion should also be read in conjunction with the MD&A and 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 contained in the 2001 annual report. The calculations of barrels of oil equivalent (boe) and barrels equivalent per day (boepd) is based on a heating value The heating value or calorific value of a substance, usually a fuel or food, is the amount of heat released during the combustion of a specified amount of it. The calorific value is a characteristic for each substance. conversion rate of six thousand cubic feet of natural gas per barrel barrel: see English units of measurement. of oil. Overview The acquisition of Resolute Energy Corporation, effective June 14, 2002, resulted in a substantial change in the balance sheet and outlook for the Company. Resolute brought to Equatorial $55.3 million of cash, which was used to reduce debt and settle commodity hedging positions at the end of June. In consideration, Equatorial issued approximately 27 million common shares and 3.6 million common share purchase warrants. Concurrent At the same time. It implies that multiple processes are taking place simultaneously. See concurrent operation. with the Resolute transaction, Equatorial underwent a significant reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. of management and the Board of Directors, with former Resolute officers and directors occupying oc·cu·py tr.v. oc·cu·pied, oc·cu·py·ing, oc·cu·pies 1. To fill up (time or space): a lecture that occupied three hours. 2. To dwell or reside in. 3. the majority of positions. As a result, the transaction has been accounted for as an acquisition of Equatorial by Resolute, effective as of the closing date. While this accounting treatment creates a clear starting point Noun 1. starting point - earliest limiting point terminus a quo commencement, get-go, offset, outset, showtime, starting time, beginning, start, kickoff, first - the time at which something is supposed to begin; "they got an early start"; "she knew from the for the new Equatorial, the effect is that Resolute's historical results become those of Equatorial. Resolute was incorporated in June 2001 and had no operating assets Operating Assets Another term for working capital. prior to the acquisition. Operating results for the second quarter and year to date are necessarily reported for the period from June 14 to June 30 and provide limited information. Accordingly, the majority of this MD&A relates to the Resolute acquisition and consequential con·se·quen·tial adj. 1. Following as an effect, result, or conclusion; consequent. 2. Having important consequences; significant: changes to the financial position of the Company. To provide readers with an historical perspective on operating results, the latter part of the analysis provides comparative information on Equatorial's operating results for the 2002 and 2001 periods, before taking into account the transaction. The Resolute Acquisition Effective June 14, 2002, Equatorial acquired all of the shares of Resolute Energy Corporation, a private corporation, in consideration for common shares and common share purchase warrants. The exchange ratios for the transaction were 1.85 Equatorial shares and 0.25 warrants for each Resolute share. At the time of the transaction, Resolute had 14,580,350 outstanding shares. As a result, Equatorial issued 27.0 million shares and 3.6 million warrants. The warrants have an exercise price of $2.08 per common share and are exercisable for 42 months from the effective date of the transaction. In addition, as part of its initial capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. , performance warrants were issued to certain founding shareholders of Resolute that were exchanged for 3.3 million equivalent performance warrants of Equatorial at an average exercise price of $3.51 per common share. The performance warrants have a term of approximately six and one-half years. At closing, former Resolute shareholders held 46.9% of the outstanding common shares and 50.0% on a fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis after giving effect to the exercise of the warrants. Taking into consideration the relative ownership of Equatorial and the concurrent management and Board changes, the transaction has been accounted for as an acquisition of Equatorial by Resolute. The purchase price was determined using the net book value per share of Resolute at the date of closing, substantially all of which was cash, adjusted for the value of the warrants (using standard option valuation methods). The assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. values to Equatorial's net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. were as follows:
($ 000)
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Petroleum and natural gas interests 169,943
Working capital deficiency (1,806)
Long-term debt (57,572)
Market value of commodity hedges (13,300)
Future income taxes (35,134)
Site restoration and abandonment (2,369)
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Net purchase price 59,762
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Transaction costs were estimated at approximately $5 million before income taxes and were included in long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. . In conjunction with the acquisition, Equatorial also completed a private placement of approximately 0.5 million common shares at $2.08 per share and 69,810 warrants on the same terms as those issued to Resolute shareholders. In addition, in exchange for existing stock options of Resolute, 2.4 million Equatorial stock options, with an exercise price of $2.16 per share, were granted to Resolute officers, directors and employees who joined Equatorial as a result of the transaction. These options are subject to shareholder approval. After the transaction, outstanding common shares, warrants and options at June 30, 2002 were as follows:
Average
exercise
price Number
--------------------
Common shares - 58,102,950
Performance warrants 3.51 3,310,005
Share purchase warrants 2.08 3,714,901
Stock options 1.98 3,960,000
--------------------
Total 69,087,856
--------------------
Liquidity and Capital Resources The cash provided to Equatorial from Resolute effected a substantial improvement to the Company's financial position at June 30. Long-term debt, net of working capital of $0.2 million, was $14.4 million, compared to $51.2 million, net, at the end of the first quarter (as previously reported by Equatorial). In addition to the $37 million reduction of net debt, all of the previously outstanding natural gas and crude oil call options were settled at the end of June for $13.0 million. Equatorial's net debt at the end of the period was less than one-half of projected annualized cash flow after giving effect to the transaction. Subsequent to June 30, a new $50 million revolving bank credit facility was completed. A portion of this facility was used to repay the previous facility and outstanding promissory notes amounting to $11.7 million. Capital expenditures for the second half of 2002 are expected to be approximately $18 million in Canada and $3 million (net to the Corporation's interest) in Indonesia. Indonesian capital expenditures will be financed from Indonesian production. The majority of the Canadian capital Noun 1. Canadian capital - the capital of Canada (located in southeastern Ontario across the Ottawa river from Quebec) capital of Canada, Ottawa Ontario - a prosperous and industrialized province in central Canada expenditures will be funded from 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 , with the remainder provided from the revolving credit facility. Based on these estimates, the year-end debt level is anticipated to be at a multiple of approximately one times consolidated cash flow from operations. Accounting for Indonesian Technical Assistance Contracts The properties in Indonesia have reached a relatively mature stage of operations. The original mandatory capital commitments under the technical assistance contracts have been expended and subsequently recovered from commercial production. While the Company continues to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. capital expenditures to expand and develop the properties under contract, future expenditures are discretionary in nature. Capital expenditures, which effectively comprise the Company's net operating interest in the contracts plus a carried interest for PERTAMINA, the state oil company, are budgeted to be fully financed from available production and cash flows from the properties. The PERTAMINA carried interest in such expenditures is billed and recovered on a current basis under the cost recovery provisions of the contracts from its share of the production. Previously, Equatorial accounted for the revenues and costs associated with the contracts on a gross (100% interest) basis. PERTAMINA's net entitlement An individual's right to receive a value or benefit provided by law. Commonly recognized entitlements are benefits, such as those provided by Social Security or Workers' Compensation. under the contracts was deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. as part of governments take, along with certain other assessments. This approach is widely applied under 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 . Given the mature nature of operations and the discretionary nature of future capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. in Indonesia, management has modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. the accounting for the contracts, as of the date of the Resolute transaction, whereby the contracts will be booked as Equatorial'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. share of effective joint ventures with PERTAMINA. As a result, revenues, expenses and capital expenditures will all be reduced proportionately 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. from 100% of these joint ventures (with an offsetting adjustment for PERTAMINA's net share) to approximately 29% for the Sembakung contract and 26% for the Tanjung Lontar contract (without adjustment for PERTAMINA's net share). The foregoing percentages represent the Company's net share of the contracts after cost recoveries and are prior to the provision for non-recoverable administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. and Indonesian income taxes. We expect this approach to reduce net income going forward, since reductions to 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 expense will not fully offset the net reduction in revenue and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. . The net effect will also result in a reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of cash flows, whereby the cost recoveries from PERTAMINA for its share of capital expenditures will be changed from operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. to a reduction of capital expenditures. In management's opinion, accounting for the contracts as joint ventures and reflecting its proportionate interest is more consistent with conventional accounting for petroleum and natural gas interests in Canada and will provide investors a better understanding of the relative contributions of Indonesian operations to the Company as a whole. Results of Operations As a result of acquisition accounting, operating results reported for the second quarter and year to date were limited to the period from June 15 to June 30, combined with Resolute's income and expenses for the full period. Since Resolute had no material operating assets before the transaction, its income and expenses consisted of interest income and general and administrative expenses. Resolute was incorporated in June 2001 and did not commence business activities 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 2001. As a result, the consolidated financial statements provide no comparative information for the three and six month periods ended June 30, 2001. In order to provide meaningful historical data, the following tables provide analysis of Equatorial's operating results for the three and six month periods ended June 30, 2002 and 2001.
Three Months ended Three Months ended
June 30, 2002 June 30, 2001
Canada Indonesia Total Canada Indonesia Total
(Note 1) (Note 1)
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Production
Natural gas (mmcf/d) 19.3 19.3 20.5 - 20.5
Crude oil and liquids
(bbl/d) 1,735 1,597 3,332 2,189 1,858 4,047
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Total (boepd) 4,945 1,597 6,542 5,599 1,858 7,457
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Wellhead Prices
Natural gas ($/mcf) 4.08 - 4.08 6.52 - 6.52
Crude oil and liquids
($/bbl) 33.35 39.69 36.39 33.70 43.15 38.04
Operating income ($000s)
Revenue 12,414 5,769 18,183 18,853 7,297 26,150
Royalties and
governments take 2,326 1,223 3,549 3,548 1,106 4,654
Operating expenses 3,097 1,345 4,442 3,299 1,376 4,675
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Operating income
(note 2) 6,991 3,201 10,192 12,006 4,815 16,821
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Netback analysis ($/boe)
Revenue 27.59 39.69 30.54 37.00 43.15 38.53
Royalties and
governments take (5.17) (8.41) (5.96) (6.96) (6.54) (6.86)
Operating expenses (6.88) (9.25) (7.46) (6.48) (8.14) (6.89)
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Operating netback 15.54 22.03 17.12 23.56 28.47 24.78
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Capital expenditures
($000s) 3,179 2,834 6,013 6,299 2,231 8,530
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Six Months ended Six Months ended
June 30, 2002 June 30, 2001
Canada Indonesia Total Canada Indonesia Total
(Note 1) (Note 1)
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Production
Natural gas (mmcf/d) 19.8 - 19.8 20.2 - 20.2
Crude oil and liquids
(bbl/d) 1,779 1,678 3,457 2,196 1,610 3,806
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Total (boepd) 5,083 1,678 6,760 5,560 1,610 7,171
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Wellhead Prices
Natural gas ($/mcf) 3.78 - 3.78 7.94 - 7.94
Crude oil and liquids
($/bbl) 29.23 35.91 32.47 35.21 41.05 37.68
Operating income ($000s)
Revenue 22,977 10,904 33,881 43,004 11,964 54,968
Royalties and
governments take 4,978 2,090 7,068 9,662 2,253 11,915
Operating expenses 6,248 2,893 9,141 6,394 2,349 8,743
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Operating income
(note 2) 11,751 5,921 17,672 26,948 7,362 34,310
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Netback analysis ($/boe)
Revenue 24.98 35.91 27.69 42.73 41.05 42.35
Royalties and
governments take (5.41) (6.88) (5.78) (9.60) (7.73) (9.18)
Operating expenses (6.79) (9.53) (7.47) (6.35) (8.06) (6.74)
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Operating netback 12.77 19.50 14.44 26.78 25.26 26.43
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Capital expenditures
($000s) 8,714 5,177 13,891 12,419 4,547 16,966
----------------------------------------------------------------------
Notes:
1. Indonesian operations are reported proportionate to the Company's
net interest.
2. Operating income is before DD&A, G&A expense, interest and income
taxes.
3. Revenue does not reflect historical hedging losses.
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. Operations Production Canadian production for the second quarter was 4,945 boepd, comprised of 19.3 mmcf/d of natural gas and 1,735 bbl/d of crude oil and liquids. Production was down approximately 12% from the 2001 level of 5,599 boepd (20.5 mmcf/d of natural gas and 2,189 bbl/d of liquids). The lower production was in part as a result of the sale of approximately 300 boepd of production in the second half of 2001, with the remainder attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to declines due to low activity levels. For the twelve month period from June 2001 to June 2002, Equatorial's capital expenditures in Canada amounted to $13.6 million, approximately 60% of operating income for the same period, due to the constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. on cash flow imposed by hedging losses and debt levels. This amount of capital expenditures was insufficient to fully maintain production. For the six month period, production averaged 5,083 boepd, down from 5,560 boepd in 2001. Revenue and Expenses The following comparison of revenue and expenses for the second quarter and year to date does not include the effect of hedging losses in either or 2002 or 2001. Such losses for the three and six month periods in 2002 were $2.2 million and $2.7 million, respectively, compared to $5.2 million and $14.3 million in the 2001 periods. The Company's hedging positions have now been eliminated as a result of the Resolute transaction. Revenue for the second quarter was $12.4 million, compared to $18.9 million for the comparative 2001 period. $4.6 million of this variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial. In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality was due to lower natural gas prices, which averaged $4.08/mcf in 2002, compared to $6.52/mcf in 2001. The remainder of the variance was due to lower volumes and a minor $0.35/bbl drop in oil and liquids realizations compared to 2001. Royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. dropped by 34% to $2.3 million as a result of lower overall revenue and lower marginal royalty Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced. rates on natural gas. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , which have a significant fixed component of costs, were down 6%, mainly as a result of the sale of higher cost properties in the second half of 2001. For the six months period, revenue dropped 47% to $23.0 million, compared to $43.0 million in 2001. Large price variances The materials price variance (Vmp) is computed as follows: Vmp = (Actual Unit Cost - Standard Unit Cost) * Actual Quantity Purchased or Vmp = (Actual Quantity Purchased * Actual Unit Cost) - (Actual Quantity Purchased * Standard Unit Cost). for both natural gas and crude oil accounted for $17.9 million of this drop, with the remaining $2.1 million as a result of volume declines. During the period, natural gas prices averaged $3.78/mcf, down 52% from 2001, and oil and liquids realizations were $29.23/bbl, down 17%. Royalties fell by 48%, in line with revenues, to $5.0 million. Operating expenses were down modestly to $6.2 million. Capital Expenditures Over the first six months of 2002, capital expenditures in Canada amounted to $8.7 million, of which $3.2 million was incurred in the second quarter. Activities were mainly focused on lower risk exploration and development in eastern and southern Alberta Southern Alberta is a region located in the Canadian province of Alberta. As of the year 2004, the region's population was approximately 272,017[1][2]. . Indonesian Operations In order to provide meaningful comparative data, Indonesian operations in the accompanying table have been restated for 2002 and 2001 to show the results on a proportionate basis, consistent with the accounting approach adopted by the new management of the Company. Production Production, which averaged 1,597 bbl/d on a net basis for the second quarter of 2002, was down 15% compared to the 2001 period. This decline reflected the higher decline rates associated with infill wells completed during the 2001 drilling program. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. production averaged 1,678 bbl/d, up modestly from the comparative period. Late in the second quarter, new production from a well to the south of the main reservoir reservoir (rĕz`əvôr, -vwär), storage tank or wholly or partly artificial lake for storing water. Building an embankment or dam to preserve a supply of water for irrigation is an ancient practice; India and Egypt have many old and recovered a significant portion of the year on year decline in volumes. Pressure data indicates the well is separate from the main reservoir and should result in more sustained production. Historically, high drilling activity levels in Indonesia have resulted in production gains. More recent drilling has resulted in diminished di·min·ish v. di·min·ished, di·min·ish·ing, di·min·ish·es v.tr. 1. a. To make smaller or less or to cause to appear so. b. reserve and production additions from the main Sembakung field. Future capital programs will be focused on reducing decline rates for the main producing field through implementation of a pressure maintenance system and a more limited drilling program to develop new reservoirs to the south of the existing production base. Revenue and Expenses Indonesian revenue for the second quarter was $5.8 million, down 21% from 2001 as a result of lower production and oil prices. For the six month period, revenue was $10.9 million, down 9% from last year. Governments take, which under the new accounting methodology consists of non-shareable oil volumes and the cost of domestic market obligations of a portion of production in Indonesia, was $1.2 million and $2.1 million for the three and six month periods, down modestly from 2001 in line with revenues. Operating expenses, at $2.9 million for the six month period, were up 20% from 2001 and increased by a similar proportion on a cost per barrel of production. This increase was in part due to the expansion of operations in 2001 followed by the higher than expected decline rates on the new production. Other related costs for Indonesia not shown on the accompanying table were direct general and administrative expenses for the six month period of approximately $0.7 million and cash income taxes of approximately $1.0 million, which resulted in a net contribution to cash flow from operations of approximately $4.2 million for the six month period. Management is focused on creating more operating efficiency in the Indonesian operations by reducing absolute and per barrel costs. Capital Expenditures Capital expenditures were $5.2 million for the period and were focused on extension wells to the south of the main Sembakung field. Future capital expenditures will be budgeted to be fully funded from Indonesian production. Reported Results of Operations - June 14 to June 30, 2002 Operating income On a consolidated basis, after adjustment for acquisition accounting for Equatorial, operating revenue operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. was $2.9 million, royalties were $0.6 million and operating expenses were $0.8 million. These operating results reflect only the period from June 14 to June 30. General and Administrative expenses General and administrative expenses for the six month period were $1.1 million, which consisted of Resolute administrative expenses of $0.7 million and $0.4 million for Equatorial during the second half of June. Transaction costs amounting to $5.0 million have been estimated and were 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. as part acquisition costs. Depletion, Depreciation and Write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of Properties The effect of the accounting for the acquisition resulted in an upward valuation adjustment of petroleum and natural gas interests of approximately $41.5 million ($25 million, net of income taxes). Due to very low natural gas prices at the end of June, the Company determined that a ceiling test 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. had occurred and, accordingly, this impairment resulted in a write-down of the properties of $33.0 million ($19.0 million, net of income taxes). As a result of the write-down, depletion rates for the remainder of the year will be in the range of $9.50 per boe. The information contained herein contains forward looking statements and assumptions. The reader is cautioned that the assumptions used in the preparation of such information, which are considered to be reasonable by the Corporation at the time of preparation, may be proven to be incorrect. Actual results achieved in future periods will vary from the information provided herein and the variation may be material. There is no representation by the Corporation that future results will be the same, in whole or in part, as indicated by this information.
EQUATORIAL ENERGY INC.
Consolidated Balance Sheets
----------------------------------------------------------------------
June 30 December 31
2002 2001
------------ ------------
(unaudited) (audited)
$'000 $'000
Assets
Current
Cash 6,296 18,008
Accounts receivable 19,426 69
------------ ------------
25,722 18,077
Petroleum and natural gas interests
(notes 3 and 4) 134,654 40
------------ ------------
160,376 18,117
------------ ------------
------------ ------------
Liabilities
Current
Accounts payable and accrued liabilities 25,488 156
Long-term debt (note 5) 14,637 -
Future income taxes 20,360 -
Site restoration and abandonment 2,581 -
Shareholders' equity
Share capital (Notes 6 and 7) 116,824 18,013
Deficit (19,514) (52)
------------ ------------
97,310 17,961
------------ ------------
160,376 18,117
------------ ------------
------------ ------------
See accompanying notes
EQUATORIAL ENERGY INC.
Consolidated Statements of Operations and Deficit
(unaudited)
----------------------------------------------------------------------
3 Months 6 Months
Ended June 30 Ended June 30
------------- -------------
2002 2002
$'000 $'000
Revenue
Gross oil and natural gas revenue 2,819 2,819
Royalties and government share (555) (555)
------------- -------------
2,264 2,264
------------- -------------
Expenses
Operating 762 762
Administrative 788 1,099
Interest - long term debt 89 89
Depletion, depreciation and amortization 1,653 1,659
Write-down of petroleum and natural gas
interests 33,000 33,000
Foreign exchange (393) (483)
------------- -------------
35,899 36,126
------------- -------------
Loss before income taxes (33,635) (33,862)
Income taxes
Current income taxes 424 424
Future income taxes (14,824) (14,824)
------------- -------------
(14,400) (14,400)
------------- -------------
Net loss for the period (19,235) (19,462)
Deficit, beginning of period (279) (52)
------------- -------------
Deficit, end of period (19,514) (19,514)
------------- -------------
------------- -------------
Net loss per common share - basic (note 8) (0.33) (0.34)
------------- -------------
------------- -------------
Net loss per common share - diluted (note 8) (0.33) (0.34)
------------- -------------
------------- -------------
See accompanying notes
The acquisition of Resolute Energy Corporation by Equatorial Energy Inc. was accounted for as an acquisition of Equatorial by Resolute. Resolute was incorporated on June 6, 2001 and commenced operations on September September: see month. 1, 2001. Therefore, no comparative figures are available for the three and six month periods ended June 30, 2001.
EQUATORIAL ENERGY INC.
Consolidated Statements of Cash Flow
(unaudited)
----------------------------------------------------------------------
3 Months 6 Months
Ended June 30 Ended June 30
------------- -------------
2002 2002
$'000 $'000
Cash flows from the following:
Operating activities
Net income for the period (19,235) (19,462)
Items not affecting cash:
Write-down of petroleum and natural gas
interests 33,000 33,000
Depletion, depreciation and amortization 1,653 1,659
Future income taxes (14,824) (14,824)
Unrealized foreign exchange losses (gains) (39) (39)
------------- -------------
Cash flows from operations 555 334
Changes in non-cash working capital 5,989 5,860
------------- -------------
6,544 6,194
Financing activities
Issue of common shares (net of issue
expenses) 39,269 39,438
Repayment of long-term debt (37,900) (37,900)
------------- -------------
1,369 1,538
------------- -------------
Investing activities
Purchase of Equatorial Energy Inc. (note 3) (132,440) (132,440)
Items not affecting cash
Common shareholders' equity 59,762 59,762
Assumption of long-term debt and working
capital deficiency 54,382 54,382
------------- -------------
(18,296) (18,296)
Petroleum and natural gas expenditures (928) (1,148)
------------- -------------
(19,224) (19,444)
------------- -------------
Net (decrease) in cash (11,311) (11,712)
Cash, beginning of period 17,607 18,008
------------- -------------
Cash, end of period 6,296 6,296
------------- -------------
------------- -------------
See accompanying notes
The acquisition of Resolute Energy Corporation by Equatorial Energy Inc. was accounted for as an acquisition of Equatorial by Resolute. Resolute was incorporated on June 6, 2001 and commenced operations on September 1, 2001. Therefore, no comparative figures are available for the three and six month periods ended June 30, 2001.
EQUATORIAL ENERGY INC.
Segmented Information
(unaudited)
----------------------------------------------------------------------
Revenues and Expenses $'000
Canada Indonesia Total
Three Months Ended June 30, 2002
--------------------------------
Gross oil and natural gas revenue 1,893 926 2,819
Royalties and government share (392) (163) (555)
-------------------------
1,501 763 2,264
Operating 534 228 762
Write-down of petroleum and natural gas
interests 33,000 - 33,000
Depletion, depreciation and amortization 891 762 1,653
-------------------------
Segment operating income (loss) (32,924) (227) (33,151)
Interest - long-term debt 89
Administrative 788
Foreign exchange and other (393)
---------
Loss before income taxes (33,635)
Income taxes (14,400)
---------
Net loss for the period (19,235)
---------
---------
Six Months Ended June 30, 2002
------------------------------
Gross oil and natural gas revenue 1,893 926 2,819
Royalties and government share (392) (163) (555)
-------------------------
1,501 763 2,264
Operating 534 228 762
Write-down of petroleum and natural gas
interests 33,000 - 33,000
Depletion, depreciation and amortization 897 762 1,659
-------------------------
Segment operating income (loss) (32,930) (227) (33,157)
Interest - long-term debt 89
Administrative 1,099
Foreign exchange and other (483)
---------
Loss before income taxes (33,862)
Income taxes (14,400)
---------
Net loss for the period (19,462)
---------
---------
Additions to petroleum and natural gas interests
(three and six month periods ended June 30, 2002
Canada 592
Indonesia 556
---------
1,148
---------
---------
Petroleum and natural gas interests
(as at June 30, 2002)
Canada 98,824
Indonesia 35,830
---------
134,654
---------
---------
See accompanying notes
EQUATORIAL ENERGY INC. Notes to Consolidated Financial Statements - unaudited For the Three and Six Month Periods Ended June 30, 2002 and 2001 (thousands of dollars) 1. Description of business and basis of presentation Equatorial Energy Inc. and its subsidiaries ("Equatorial" or the "Corporation"), is in the business of exploration, development and production of petroleum and natural gas interests. On June 14, 2002, Equatorial acquired all of the shares of Resolute Energy Corporation ("Resolute"), a private corporation. Resolute was incorporated on June 6, 2001, and commenced operations on September 1, 2001. The transaction has been accounted for as an acquisition of Equatorial by Resolute. Accordingly, the results of operations include those of Equatorial for the sixteen-day period from the date of the acquisition of the shares of Resolute by Equatorial to June 30, 2002 and those of Resolute from the date of incorporation. All comparative figures are those of Resolute. The consolidated financial statements are presented 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 Canadian generally accepted accounting principles and are expressed 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 . 2. Significant accounting policies (a) Joint venture activities Substantially all of the Corporation's exploration, development and production activities are conducted jointly with others. These financial statements reflect only the Corporation's proportionate interest in such activities, including operations conducted jointly with the Indonesian national oil company ("PERTAMINA"). (b) Basis of consolidation The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, Resolute Energy Corporation, Equatorial Energy (International) Inc., Equatorial Energy Trading Corp., Pilona Petro Tanjung Lontar Ltd., Equatorial Energy (Indonesia) Inc.and Auckland Auckland (ôk`lənd), city (1996 pop. 345,768; urban agglomeration pop. 991,796), N North Island, New Zealand. It is situated on an isthmus and is the largest urban region and chief port of the country. Investments Pty. Ltd. The consolidated financial statements also include the accounts of its 80% owned subsidiary, Perkasa Equatorial Sembakung Ltd. All intercompany transactions Intercompany transaction Transaction carried out between two units of the same corporation. and accounts have been eliminated. (c) Cash Cash includes 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 a maturity of ninety days or less at the time of issue. (d) Petroleum and natural gas interests The Corporation follows the full cost method of accounting for petroleum and natural gas interests whereby all costs of exploring and developing petroleum and natural gas reserves, net of government grants, are capitalized by individual country cost centre. Such costs include land acquisition costs, 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. and 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. expenses, costs of drilling both productive and non-productive wells, tangible Possessing a physical form that can be touched or felt. Tangible refers to that which can be seen, weighed, measured, or apprehended by the senses. A tangible object is something that is real and substantial. An automobile is an example of tangible Personal Property. equipment and administrative costs directly related to acquisition, exploration and development activities. For each cost centre, the total 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 the Corporation's petroleum and natural gas interests, less accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. depletion and depreciation, is limited to the estimated future net revenue from production of 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. , based on unescalated prices and costs plus the lower of cost and net realizable value Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. of unproved properties, less estimated future development costs, site restoration and abandonment abandonment, in law, voluntary, intentional, and absolute relinquishment of rights or property without conveying them to any other person. Abandonment also means willfully leaving one's spouse or children, intending not to return (see desertion). costs, administrative expenses, financing costs and income taxes. The carrying value of unproved properties is reviewed periodically to ascertain whether impairment has occurred. If impairment occurs, the costs will be written down to their net realizable value. In Indonesia, proved reserves have been determined based on the Corporation's proportionate interest. For each cost centre, the costs associated with proved reserves 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 or depreciated Depreciated may refer to:
Future estimated site restoration costs are provided for using the unit-of-production method based on costs and regulations in effect at the end of the year. Office equipment is amortized on a straight-line straight-line adj. 1. Lying in a straight line. 2. Relating to a device whose linkage produces or copies motion in straight lines. 3. basis over five years. (e) Indonesian accounting The Corporation conducts its operations in Indonesia under contract with PERTAMINA. Such contracts require the Corporation to incur all costs and recover PERTAMINA's share of such costs from production. The properties are in full commercial production and all original capital commitments under these contracts have been met. Accordingly, the Corporation has treated its Indonesian operations as a joint venture and reflected its proportionate interest. (f) Foreign currency translation Transactions of the Corporation that are denominated in foreign currencies are recorded in Canadian dollars at exchange rates in effect at the related transaction dates. Monetary assets and liabilities Monetary assets and liabilities Assets and liabilities with contractual payoffs. denominated in foreign currencies are adjusted to reflect exchange rates at 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. date. Non-monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect when the assets were acquired or the liabilities assumed. Exchange gains and losses arising on the translation of monetary assets and liabilities are included in the determination of income for the period. (g) Stock-based compensation plans Compensation expense for stock options is only recognized in income if there is an intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. to options granted after January January: see month. 1, 2002. For options issued on or after January 1, 2002, the amount and effect of the fair value of such options is disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). as pro-forma information in the notes to the Consolidated Financial Statements. (h) Flow-through shares Under the terms of Canadian flow-through share legislation, the tax attributes of qualifying expenditures are renounced to subscribers. To recognize the foregone fore·gone v. Past participle of forego1. adj. Having gone before; previous. Usage Note: The word foregone has recently developed a new meaning as a truncation of the phrase tax benefits, share capital is reduced and a future income tax liability is recorded as the related expenditures are made. (j) Income taxes The Corporation accounts for income taxes on the liability method Effects of changes in tax laws and tax rates are recognized when substantially enacted. (k) Earnings per share The Corporation uses the treasury stock method to determine the dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of stock options and warrants. 3. Acquisition of Resolute Energy Corporation On June 14, 2001, Equatorial acquired all of the shares of Resolute, and has accounted for the transaction as an acquisition of Equatorial by Resolute.
Net assets acquired: $
---------
Petroleum and natural gas interests 169,943
Site restoration and abandonment (2,369)
Future income taxes (35,134)
---------
Net property and equipment 132,440
Working capital deficiency (1,806)
Mark to market value of obligation under commodity contract
(note 9) (13,300)
Long term debt (52,576)
Transaction costs (4,996)
---------
Purchase price - common share equity value 59,762
---------
4. Petroleum and natural gas interests
Accumulated
Depletion and Net Book
Cost Depreciation Value
-----------------------------------
$ $ $
June 30, 2002
-------------
Petroleum and natural gas interests 168,540 (34,442) 134,098
Other assets 562 (6) 556
-----------------------------------
169,102 (34,448) 134,654
-----------------------------------
-----------------------------------
December 31, 2001
-----------------
Other assets 41 (1) 40
-----------------------------------
As at June 30, 2002, unproved Canadian properties with capitalized
costs of $8,000,000 were not subject to depletion.
5. Long-term debt
June 30, 2002
$
-------------
Revolving $42 million term bank loan facility, due on
October 21, 2004, secured by a fixed and floating charge
debenture over the Corporation's Canadian oil and gas
properties and by a general security agreement. The
Corporation's banker has been granted priority over all
assets other than the Corporation's existing rights and
interests in Indonesia. 3,000
Promissory note due on the later of February 25, 2005 and
one day following the repayment by the Corporation of all
amounts owing under its existing bank agreements. Interest
accrues and is paid quarterly at 7.2% per annum. 9,666
Promissory note of US$1,300,000 due on January 1, 2004,
which accrues simple interest at 4% per annum. 1,971
-------------
14,637
-------------
-------------
On July 29, 2002 the Corporation repaid both promissory notes in full. and entered into a $50 million revolving demand loan facility with a syndicate Syndicate organized crime unit throughout major cities of the United States. [Am. Hist.: NCE, 2018] See : Gangsterism of Canadian chartered banks Chartered Bank A financial institution whose primary roles are to accept and safeguard monetary deposits from individuals and organizations, and to lend money out. The details vary from country to country, but usually a chartered bank in operation has obtained government permission . This facility allows for borrowings to be made by way of prime loans with interest at the banks' prime rate, or bankers' acceptances A bankers' acceptance, or BA, is a time draft drawn on and accepted by a bank. Before acceptance, the draft is not an obligation of the bank; it is merely an order by the drawer to the bank to pay a specified sum of money on a specified date to a named person or to the and LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). advances at money market rates plus a stamping stamp v. stamped, stamp·ing, stamps v.tr. 1. To bring down (the foot) forcibly. 2. To bring the foot down onto (an object or surface) forcibly. 3. fee. The bank loan facility is secured by a first floating charge debenture debenture (dəbĕn`chər), document acknowledging indebtedness. In Great Britain a debenture is practically the same as a bond, and debenture stock is similar to preferred stock. , general assignment of book debts and the Company's oil and natural gas properties and equipment and is subject to an annual review by the lenders. If not renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. , the facility is converted into a one year term facility.
6. Share capital
(a) Authorized
Unlimited number of common shares
Unlimited number of preferred shares
(b) Issued
Number of Amount
Shares ($)
------------------------
Resolute - pre-acquisition common share equivalents
Balance, December 31, 2001 5,008,250 18,012
Issued for cash 9,572,100 38,176
------------------------
Balance, June 14, 2002 14,580,350 56,188
------------------------
Common shares of the Corporation:
Issued in exchange for Resolute shares 26,973,650 53,436
Common shares outstanding at June 14, 2002 30,496,275 59,762
------------------------
Balance, June 14, 2002 57,469,925 113,198
Issued for cash:
Private placement (net of warrants) 516,587 1,022
Exercise of common share purchase options 116,438 188
Tax benefits renounced and share issue costs (389)
------------------------
Balance June 30, 2002 58,102,950 114,019
------------------------
Share purchase warrants:
Number Amount
($)
------------------------
Issued in exchange for Resolute shares 3,645,091 2,752
Private placement 69,810 53
------------------------
Balance June 30, 2002 3,714,901 2,805
------------------------
Balance - common shares and warrants June 30, 2002 116,824
----------
----------
The share purchase warrants issued in connection with the Resolute acquisition have an exercise price of $2.08 per common share and expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. on December December: see month. 14, 2005. The warrants were valued using the 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. with 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. of 4.65%, a 42 month term, an expected volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the factor of 42.17%, and a 0% dividend yield. At December 31, 2001, a total of $3,000,000 of Canadian Exploration Expenses were renounced to shareholders. At June 30, 2002, approximately $2,200,000 of related expenditures had been incurred. (b) Performance warrants As part of the initial capitalization of Resolute, certain Resolute founding shareholders were issued an aggregate of 1,600,000 performance warrants on December 10, 2001. These warrants were to have expired 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. on December 10, 2008 at an average exercise price of $6.50 per common share equivalent. On the date of the Resolute acquisition, these performance warrants were exchanged for 3,310,005 equivalent performance warrants of the Corporation at an weighted average exercise price of $3.51 per common share. In the event that, before December 10, 2004, a founding shareholder is terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: for just cause or resigns for any reason other than as a result of death, long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. disability or change of control of the Corporation, the performance warrants issued to that individual will expire. The following table summarizes information about the Corporation's performance warrants outstanding at June 30, 2002.
Number of Exercise
Warrants Price
$
413,752 2.16
413,752 2.70
620,625 3.24
827,502 3.78
1,034,374 4.32
-----------
3,310,005 3.51
-----------
-----------
7. Stock options and share appreciation rights (a) Stock based compensation Compensation expense, if booked, and net losses would increase by $1,350,000 for the intrinsic value of options granted by Resolute during the year. This would increase basic and diluted loss per share by $0.02 per share. The fair value of these securities granted is estimated on the date of grant using the Black-Scholes option-pricing model with the assumption of a risk-free interest rate of 4.54%, an expected life of 5 years, an expected volatility factor of 42.17%, and a 0% dividend yield. (b) Stock option plan Under the Corporation's stock option plan, the Corporation may grant options to its directors, officers, employees and service providers to purchase common shares at a fixed price not less than the fair market value of the stock on the day preceding the grant date. All of the Corporations options, with the exception of those issued on the acquisition, became vested vested adj. referring to having an absolute right or title, when previously the holder of the right or title only had an expectation. Examples: after 20 years of employment Larry Loyal's pension rights are now vested. (See: vest, vested remainder) as a result of the Resolute acquisition. Prior to the Resolute acquisition, certain Resolute founding shareholders had been issued, in aggregate, 1,145,000 options under the Resolute stock option plan. At the date of the Resolute acquisition, these options were exchanged for 2,368,250 options of the Corporation at an exercise price of $2.16. These options vest over a three-year period. The following tables summarize sum·ma·rize intr. & tr.v. sum·ma·rized, sum·ma·riz·ing, sum·ma·riz·es To make a summary or make a summary of. sum information about the Corporation's stock options outstanding at June 30, 2002.
Weighted
Average
Number of Exercise
Options Price
$
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Outstanding at December 31, 2001 1,425,500 1.62
Granted: 223,000 2.10
370,000 1.65
20,000 1.75
Cancelled: (7,500) 1.40
(32,500) 1.76
(10,000) 2.05
(10,000) 2.30
Exercised: (286,250) 1.40
(35,000) 1.65
(20,000) 1.75
(32,500) 1.76
(10,000) 2.10
(3,000) 2.30
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1,591,750 1.62
Issued on Resolute acquisition 2,368,250 2.16
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Outstanding at June 30, 2002 3,960,000 1.98
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Exercisable at June 30, 2002 1,591,750 1.71
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Options Options
Outstanding Remaining Exercisable
Exercise Price At 06/30/02 Contractual Life At 06/30/02
$ $ (Years) $
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1.40 660,500 2.0 660,500
1.45 45,000 2.5 45,000
1.65 335,000 4.5 335,000
1.76 69,500 2.8 69,500
1.85 10,000 2.5 10,000
2.05 160,000 3.0 160,000
2.10 213,000 4.5 213,000
2.16 2,368,250 5.5 -
2.30 65,000 3.2 65,000
2.40 23,750 3.5 23,750
6.20 10,000 0.2 10,000
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1.40 - 6.20 3,960,000 4.52 1,591,750
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(c) Share Appreciation Rights Plan Under the Corporation's share appreciation rights plan, the Corporation may grant share appreciation rights to its directors, officers, employees or providers of services. Each right entitles the participant to receive from the Corporation an amount equal to the positive difference, if any, obtained by subtracting the assigned amount from the simple average of the closing trading price Trading price The price at which a security is currently selling. of the common shares on the TSE See Tokyo Stock Exchange. TSE 1. See Tokyo Stock Exchange (TSE). 2. See Toronto Stock Exchange (TSE). for up to 20 trading days In Business, the trading day is the time span that a particular stock exchange is open. For example, the New York Stock Exchange is, as of 2006, open from 09:30AM to 4:00PM. Trading days never take place on weekends. immediately preceding the date of exercise. As a result of the Resolute acquisition, all of the Corporation's share appreciation rights became vested. Accordingly, a total of $609,000 in share appreciation rights have been accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. and capitalized as part of the cost of the acquisition.
Remaining
Contractual Life
Base Value Number (Years) Terms
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1.40 - 1.45 226,250 3.6 25% exercisable immediately
with an additional 25% on the
next 3 anniversary dates
2.30 30,000 6.1 25% exercisable on each of
the first 4 anniversary dates
2.40 - 2.90 595,000 3.6 25% exercisable immediately
with an additional 25% on the
next 3 anniversary dates
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851,250 3.8
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8. Per common share amounts Net earnings and cash flow per common share Cash flow per common share Cash flow from operations minus preferred stock dividends, divided by the number of common shares outstanding. figures have been calculated using the treasury stock method. The following numbers of shares were used in the calculation:
2002
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Weighted average shares - basic 58,028,924
Weighted average shares - diluted 59,581,572
Diluted weighted average shares reflect the dilutive effect of stock options, and warrants. 9. Settlement of commodity hedging transactions Following the closing of the Resolute acquisition in June, all commodity hedging positions previously held by Equatorial were settled at a cost of $13.3 million. The settlement cost of these contracts was accrued as a liability, which was assumed in connection with the acquisition. As at June 30, 2002, no positions remained outstanding. |
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