NCE Petrofund Reports its Results for the First Quarter of 2003.Energy Editors/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)--May 26, 2003 NCE NCE Networks of Centres of Excellence NCE New Chemical Entity (pharmaceutical research) NCE Normal Curve Equivalent NCE New Civil Engineer (UK Journal) NCE Non-Commercial Educational NCE New Century Energies Petrofund (AMEX AMEX See: American Stock Exchange :NCN NCN National Council of Nurses. ) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :NCF See National Cristina Foundation. .UN) announces its first quarter 2003 results. Noteworthy points include: -- a 14% increase in production to 26,927 boepd -- a 215% increase in cash flow to $58.6 million or $1.08 per unit -- a 12% increase in distributions paid to $0.48 per unit (44% of cash flow) -- a total of $29.7 million in acquisition and development activities -- the announcement of internalization Internalization A decision by a brokerage to fill an order with the firm's own inventory of stock. Notes: When a brokerage receives an order they have numerous choices as to how it should be filled. of management (since completed) The Trust's results for the first quarter 2003 are as follows:
NCE Petrofund Highlights (unaudited)
(All dollar figures in thousands except per unit amounts)
Financial
Three months ended March 31,
2003 2002 Variance
Revenues $ 109,175 $ 50,519 116%
Cash flow from operating
activities(1) $ 58,619 $ 18,604 215%
Distributions accruing
during the period(2) $ 50,002 $ 17,926 179%
Cash flow available for
distribution per unit $ 0.92 $ 0.44 109%
Cash distributions paid
per unit $ 0.48 $ 0.43 12%
Net income $ 32,176 $ 903 3,463%
Net income per trust unit
-basic $ 0.59 $ 0.02 2,850%
-diluted $ 0.59 $ 0.02 2,850%
Units outstanding
Weighted average 54,130 42,121 29%
Diluted 54,270 42,121 29%
At period end 54,148 46,519 16%
(1)See special notes on Page 2.
(2)See Note 4 for details.
Operating
Three months ended March 31,
Daily production 2003 2002 Variance
Oil: barrels (bbls) 11,264 10,217 10%
Gas: thousand cubic feet (mcf) 81,999 70,695 16%
Liquids: barrels (bbls) 1,996 1,645 21%
Barrels of oil equivalent
(boe) (6:1) 26,927 23,645 14%
Prices
Oil (per bbl) $ 44.60 $ 29.51 51%
Gas: (per mcf) $ 7.66 $ 3.22 138%
Liquids: (per bbl) $ 41.20 $ 20.39 102%
BOE (6:1) $ 45.04 $ 23.80 89%
Operating netback (per boe) $ 26.97 $ 12.04 124%
SPECIAL NOTES The following discussion and analysis of financial results should be read in conjunction with the unaudited 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 for the three months ended March 31, 2003 included herein. Where amounts and volumes are expressed on a 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. basis, gas volumes have been converted to barrels of oil at 6,000 cubic feet per barrel (6 mcf/bbl). Management uses cash flow (before changes in non-cash working capital) to analyze operating performance and leverage. Cash flow as presented does not have any standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by 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. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). and therefore it may not be comparable with the calculation of similar measures for other entities. Cash flow as presented is not intended to represent 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. or operating profits Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated 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 GAAP. All references to cash flow throughout this report are based on cash flow before changes in non-cash working capital. 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. This discussion may include statements about expected future events 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. financial results that are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. in nature and subject to risks and uncertainties. For those statements, NCE Petrofund claims the protection of the safe harbour for forward-looking statements provisions contained in the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. NCE Petrofund cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Future events and results may vary substantially from what NCE Petrofund currently foresees. Discussion of the various factors that may affect future results is contained in NCE Petrofund's recent filings with the Securities and Exchange Commission and Canadian 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 . NCE Petrofund undertakes no obligation to update publicly or revise any forward-looking statements contained herein and such statements are expressly qualified by this cautionary statement. RESULTS SUMMARY We are pleased to present the results for NCE Petrofund for the three months ended March 31, 2003. Production increased 14% to 26,927 barrels of oil equivalent per day ("boe/d") in the first quarter of 2003 from 23,645 boe/d in 2002 due to a successful development program and a number of acquisitions in 2002, the most significant being NCE Energy Trust, which was acquired effective May 30, 2002. 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 increased 215% to $58.6 million in the first quarter of 2003 from $18.6 million in the first quarter of 2002. Prices on a boe basis increased 89% to $45.04 in 2003 from $23.80 in 2002. The West Texas Intermediate (WTI WTI West Texas Intermediate WTI Western Transportation Institute (Montana State University) WTI World Tribunal on Iraq WTI With The Idea (used in chess to point to the idea behind a specific move) ) crude oil price averaged US$33.86 in the first quarter of 2003 as compared to US$21.64 in the first quarter of 2002. This resulted in Canadian wellhead well·head n. 1. The source of a well or stream. 2. A principal source; a fountainhead. 3. The structure built over a well. wellhead Noun 1. prices of $44.60 per bbl in 2003 as compared to $29.51 per bbl in 2002. The average gas price increased 138% from $3.22 per mcf in 2002 to $7.66 per mcf in 2003. SIGNIFICANT FINANCIAL TRANSACTIONS Effective January January: see month. 1, 2003, NCE Petrofund Corp. ("NCEP NCEP National Cholesterol Education Program ") acquired 100% of the outstanding common shares of Solaris A multitasking, multiprocessing operating system from Sun that runs on SPARC and x86-based computers. In 2005, Sun made Solaris free and open source. Known for its robustness and scalability, Solaris provides an enterprise-wide Unix environment that can manage thousands of nodes from one Oil & Gas Inc. ("Solaris"), and on February February: see month. 7, 2003, amalgamated a·mal·ga·mate v. a·mal·ga·mat·ed, a·mal·ga·mat·ing, a·mal·ga·mates v.tr. 1. To combine into a unified or integrated whole; unite. See Synonyms at mix. 2. Solaris into NCEP. NCEP paid $7.4 million in cash, and assumed debt and negative working capital of $1.2 million, for a total cost of the oil and gas properties of $8.6 million. The acquisition added 720,000 boe of established reserves and approximately 200 boe/d of production. At the Annual and Special Meeting held on April 16, 2003, unitholders of the Trust voted over 90% in favour of the resolution authorizing the internalization of management, and on April 29, 2003, the transaction closed. As a result of the internalization, NCE Petrofund Management Corp. ("NCEP Management"), the Manager of the Trust, and NCE Management Services Inc. ("NMSI NMSI National Museum of Science and Industry (London, UK) NMSI National Mobile Station Identity NMSI National Math and Science Initiative, Inc. NMSI National Mobile Station Identification "), which employs all of the Calgary-based personnel who provide services to the Trust and NCEP, became wholly owned subsidiaries Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of NCEP. All management, acquisition and disposition fees payable to the Manager were eliminated retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a to January 1, 2003 and all the Trust's operations are in the process of being consolidated in NCEP's Calgary offices. To ensure an orderly orderly /or·der·ly/ (or´der-le) an attendant in a hospital who works under the direction of a nurse. or·der·ly n. An attendant in a hospital. transition of the services currently provided by NCEP Management through its office in 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 , NCEP entered into an agreement with Sentry Select Capital Corp. ("Sentry") to provide certain of these services to the Trust and NCEP until December December: see month. 31, 2003. The maximum cost is $2 million, decreasing from $1 million in the first quarter to $250,000 in the fourth quarter, after which Sentry will no longer provide such services. Sentry is a company in which John Driscoll John Edmund Driscoll (b. June 27, 1981 in Fort Belvoir, Virginia) is an American television and soap opera actor. Early Life Driscoll grew up in Virginia. He went to Woodbridge Senior High School in Woodbridge, Va and graduated in 1999. , the Chairman of NCEP, owns a controlling interest controlling interest The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail . The elimination of the management fees and the reduction in general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. expected from the streamlining and consolidation of the management functions in Calgary is expected to improve the 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. operating cost structure of the Trust. The internalization is accretive to Petrofund's net asset value, distributions and cash flow per unit. NCE Petrofund's governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. structure has been revised to reflect current "best practices", with shareholders having the right to designate des·ig·nate tr.v. des·ig·nat·ed, des·ig·nat·ing, des·ig·nates 1. To indicate or specify; point out. 2. To give a name or title to; characterize. 3. all of the nominees to be elected directors of NCEP. In addition, Audit, Human Resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. and Compensation, Governance and Reserve committees have been established consisting solely of directors that are unrelated to management. The elimination of the management fees and the increased management ownership in Trust units resulting from the internalization further aligns the interests of the unitholders and management. NCE Petrofund's competitiveness for acquisitions is expected to improve due to the elimination of the acquisition and disposition fees. The completion of the internalization is expected to enhance the attractiveness of the units to a wider range of potential investors, expand the investor base, and may result in a lower cost of capital. The cost to NCEP was approximately $31.0 million, consisting of the issue of 1,939,147 exchangeable shares of NCEP, 100,244 Trust units, and cash of approximately $8.2 million, including $3.4 million to repay indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. owing by NCEP Management. Initially, each exchangeable share will be exchangeable into one Trust unit. The exchange rate will be adjusted from time to time to reflect distributions paid on each Trust unit after the closing date. The purchase price was determined taking into account numerous factors, including a fairness opinion Fairness Opinion A report put together by qualified analysts or advisors providing to key decision makers an evaluation of and facts about a merger or acquisition. Notes: A fairness opinion serves as a document used for guidance in a merger, takeover, or acquisition. by CIBC World Markets CIBC World Markets is the investment banking division of the Canadian Imperial Bank of Commerce. It helps governments, large companies, and other large institutions obtain capital and credit and is a primary dealer in U.S. Treasury securities. , who were retained by a special committee of the Board of Directors formed to consider this transaction and negotiate the terms of the internalization. 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). incurred to March 31, 2003 have been expensed in this quarterly report. As the closing took place on April 29, 2003, the purchase price and the remaining costs will be expensed in the second quarter. On April 14, 2003, NCEP announced that it had entered into an agreement to purchase a diverse group of oil and gas properties for $66 million, subject to adjustment. A Purchase and Sale Agreement was signed on May 2, 2003. The purchase is accretive to distributable cash flow, production per unit and reserves per unit. The properties added net established reserves of 9.7 million boe as estimated by independent engineering firm, Gilbert Laustsen Jung Jung , Carl Gustav 1875-1961. Swiss psychiatrist who founded analytical psychology and came up with the concepts of extraversion and introversion and the notion of the collective unconscious. , resulting in an established reserves purchase price of $6.78 per boe. Current production from the properties is approximately 2,300 boe/d of which 42% is gas. The properties contain a large percentage of unit production, and have a reserve life index of 11.6 years. The purchase is effective March 1, 2003 and is expected to close mid-June n. 1. the middle part of June. Noun 1. mid-June - the middle part of June period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue period" . This purchase, along with the acquisitions completed in the first quarter, will replace over 100% of NCE Petrofund's 2002 annual production. On May 22, 2003, NCE Petrofund closed a "bought deal" financing of Trust units raising gross proceeds of $97.5 million. A total of 9.2 million units were issued at $10.60 per unit. The net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). were used to pay down debt and position NCE Petrofund to make additional acquisitions. OPERATIONAL HIGHLIGHTS NCE Petrofund continued its emphasis on field development activities during the first quarter of 2003. NCE Petrofund participated in the drilling of 65 gross wells during the quarter (11 net wells) with an overall 97% success rate. In southeastern Saskatchewan Saskatchewan, province, Canada Saskatchewan (səskăch`əwən, –wän', săs'–), province (2001 pop. 978,933), 251,700 sq mi (651,903 sq km), W Canada. , NCE Petrofund participated in the drilling of a highly successful horizontal oil well at Queensdale. This well is producing nearly 200 boe/d net to NCE Petrofund's 50% working interest. An additional 1 or 2 follow-up follow-up, n the process of monitoring the progress of a patient after a period of active treatment. follow-up subsequent. follow-up plan locations are being considered for this property, likely in the third and fourth quarters of this year. At Silverton Silverton has many uses:
At Alliance, in east-central adj. 1. of a region of the U. S. generally including Kentucky and West Virginia. Adj. 1. east-central - of a region of the United States generally including Kentucky, West Virginia Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. , NCE Petrofund successfully drilled a 100% working interest Dina gas well. Although not yet completed due to road bans, this well is expected to produce 500 mcf/d based on offsetting analogous analogous /anal·o·gous/ (ah-nal´ah-gus) resembling or similar in some respects, as in function or appearance, but not in origin or development. a·nal·o·gous adj. wells. At Three Hills Creek Hills Creek is a name found in several places in the United States. In Tioga County, Pennsylvania:
Central Alberta is the most densely populated rural area in the province. Agriculture and energy make up an important part of the economy. , NCE Petrofund completed a Belly belly /bel·ly/ (bel´e) 1. abdomen. 2. venter (1). bel·ly n. 1. See abdomen. 2. The stomach. 3. The womb; the uterus. River gas well which was drilled late in the prior quarter, and drilled and completed two follow-up Belly River wells early in this quarter, resulting in one successful gas well. By way of a previous farmout, five coalbed methane Coalbed methane is a form of natural gas extracted from coal beds. In recent decades it has become an important source of energy in United States, Canada, and other countries. gas wells were drilled on NCE Petrofund lands. Significant additional coalbed methane gas drilling is planned for this property after spring breakup breakup The division of a company into separate parts. The most famous breakup to date was the 1984 division of AT&T (formerly, American Telephone & Telegraph Company). This breakup was intended to increase competition in the communications industry. . These wells are drilled at no cost to NCE Petrofund. On its nearby Innisfail Innisfail may refer to the towns of
At Sylvan Lake Sylvan Lake can refer to: Communities:
At Strachan in west-central Alberta, NCE Petrofund operated the drilling of two high (50% average) working interest wells, each targeting multiple gas zones. Early completion results show each well to be highly commercial. Both wells will be brought on production in the next quarter. In addition to this drilling activity, NCE Petrofund continues to identify recompletion/workover candidates in this multi-zone area (two workovers are currently underway as of the end of this quarter). At Sunchild in west-central Alberta, NCE Petrofund continued to optimize optimize - optimisation its production from several new gas wells drilled late last year by installing additional field compression. These new drills are currently producing 2,000 mcf/d net to NCE Petrofund. NCE Petrofund also has an overriding (programming) overriding - Redefining in a child class a method or function member defined in a parent class. Not to be confused with "overloading". royalty in a successful Ostracod gas well drilled during the first quarter. This well is expected to be producing early in the second quarter. At Red Earth, in northern Alberta Norhern Alberta is a region located in the Canadian province of Alberta. Its primary industry is oil and gas, with large heavy oil reserves being exploited at the Athabasca Oil Sands and Wabasca Area in the east of the region. , a total of 9 gross wells (3 net wells) were drilled for Granite granite, coarse-grained igneous rock of even texture and light color, composed chiefly of quartz and feldspars. It usually contains small quantities of mica or hornblende, and minor accessory minerals may be present. Wash-Slave Point oil on NCE Petrofund lands during the first quarter. Seven of these wells were completed as producing oil wells for a success rate of 78%. Petrofund has interests varying from 25% to 50%, as well as a convertible overriding royalty in these wells. In addition, NCE Petrofund completed and started producing a horizontal re-entry RE-ENTRY, estates. The resuming or retaking possession of land which the party lately had. 2. Ground rent deeds and leases frequently contain a clause authorizing the landlord to reenter on the non-payment of rent, or the breach of some covenant, when the well that had been drilled late in the fourth quarter of 2002. NCE Petrofund's net production from all new Red Earth wells totals about 225 boe/d. NCE Petrofund expanded two of its operated oil batteries to accommodate this new production At Border, in northeastern British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography , Petrofund participated for its 10% working interest in the drilling of 24 Bluesky-Gething-Montney gas wells during the first quarter, all of which were cased and completed. Of these, 19 wells have since been tied into existing NCE Petrofund-owned infrastructure, thereby adding roughly 1,000 mcf/d to NCE Petrofund's production base. CAPITAL EXPENDITURES As previously discussed, NCE Petrofund acquired the properties of Solaris for $8.6 million. In addition, $4.7 million was added to the cost to account for the difference between the book and tax basis of the assets acquired. During the three months ended March 31, 2003, $16.7 million was also incurred for development drilling and other production enhancement activity discussed above. These activities are very important in offsetting part of the decline on existing production. NCEP expects to invest approximately $50 million in this area in 2003. A summary of expenditures for the period appears below: ($000) Acquisitions $ 12,892 Dispositions (529) ----------------------------------------------- Net acquisitions 12,363 ----------------------------------------------- Finding and development cost: Land and seismic 730 Drilling and completions 10,735 Well equipping 2,387 Tie-ins 601 Facilities 1,852 Other 464 ----------------------------------------------- Total 16,769 ----------------------------------------------- Total net capital expenditures $ 29,132 ----------------------------------------------- ----------------------------------------------- CASH DISTRIBUTIONS Petrofund unitholders who held their units throughout the first quarter of 2003 received distributions of $0.48 in cash as compared to $0.43 in the first quarter of 2002. A cash distribution of $0.17 per unit was paid in April and $0.18 per unit has been announced for May. Petrofund generated cash flow available for distribution in the first quarter of $57.5 million, or $1.06 per unit before deducting $7.5 million or $0.14 per unit for reinvestment Reinvestment Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash. 1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares. in capital projects. Of the remaining $50.0 million available, $26.0 million was paid out in distributions representing a payout ratio Payout Ratio The percentage of earnings paid out in dividends. It is calculated by dividing dividends per share by earnings per share. Notes: The payout ratio indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend. of 45% (see Note 4). If the equity issue had taken place in early January, and distributions had been paid on the additional 9.2 million units for the entire quarter, the payout ratio would have been 53%. For the 12 months ended March 31, 2003, the Trust generated cash flow available for distribution of $152.7 million, withheld $17.5 million for re-investment in development drilling and other projects, and paid out distributions of $93.2 million, resulting in a payout ratio of 61%. The Trust is continuing its policy of stabilizing stabilizing, v to hold a limb motionless in order to ground its energy; a standard isometric resistance technique, it releases tension and lengthens muscle fibers. monthly distributions and re-investing a portion of its cash flow for the long-term health of the Trust. Petrofund expects to be able to sustain the current 18 cents per month distribution level for several months taking into account the recent equity issue. Over a twelve month period, Petrofund intends to distribute a majority of its cash flow. Actual distributions will depend on several factors, including future prices and capital expenditure needs. In higher price environments, a larger percentage of the Trust's cash flow will be retained for re-investment and to ensure more consistent monthly distributions. When prices are lower, less cash flow is required for capital expenditure as projects become less economic. PRODUCTION REVENUE Revenues increased 116% to $109.2 million in the first quarter of 2003 from $50.5 million in the first quarter of 2002, as production increased 14% and prices were up 89% on a boe basis. Crude oil sales increased 67% from $27.1 million in the first quarter of 2002 to $45.2 million in the first quarter of 2003. Oil production volumes increased 10% to 11,264 bbl/d in the first quarter of 2003 as compared to 10,217 in the first quarter of 2002. The average price was up 51% from $29.51 per bbl in the first quarter of 2002 to $44.60 in the corresponding period of 2003. These prices are net of negative oil hedging adjustments of $2.96 per bbl in 2003, and $0.12 per bbl in 2002. Natural gas sales increased 176% from $20.5 million in the first quarter of 2002 to $56.5 million in the first quarter of 2003. Gas production increased 16% from 70.7 mmcf/d to 82.0 mmcf/d, and the average gas price was up 138% from $3.22 per mcf to $7.66 per mcf. The AECO AECO Aeromedical Evacuation Control Officer AECO Advance Engineering Change Order AECO Architecture, Engineering, Construction and Owner-operated monthly spot gas prices increased from $3.72 per mcf in the first quarter of 2002 to $7.92 per mcf in the first quarter of 2003. Sales of natural gas liquids increased 145% to $7.4 million in the first quarter of 2003, from $3.0 million in the first quarter of 2002. Production was up 21% to 1,996 bbl/d from 1,645 bbl/d. The average price was $41.20/bbl in the first quarter of 2003, and compared to $20.39 in the same period in the prior year. ROYALTIES Royalties (net of the Alberta Royalty Credit) were 22% of revenues in the first quarter of 2003, as compared to 16% in the first quarter of 2002. The percentage increase was mainly due to the significant increase in the average gas price. The Crown royalty rate increases as the price increases. FIELD OPERATING COSTS operating costs npl → gastos mpl operacionales 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. were $19.6 million in the first quarter of 2003 compared to $17.0 million in the first quarter of 2002. Operating costs on a boe basis were relatively flat at $8.08 in 2003, compared to $8.04 for the same period in 2002. The 2003 expenses reflect significantly higher power Higher power is a term used in a 12-step program, such as Alcoholics Anonymous, to describe "a power greater than yourself." Although many participants equate their higher power with God, a belief in God or in formal religion is not mandatory; the higher power is intended as a costs. GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES General and administrative costs were $3.5 million in the first quarter of 2003, as compared to $3.9 million for the same period in 2002. Costs were down significantly on a boe basis to $1.43 in 2003 from $1.84/boe in 2002 due to reduced costs and an increase in production. Costs per boe are expected to further decrease throughout the year due to the consolidation of activities in Calgary, and a decrease in quarterly payments due under the transitional services agreement with Sentry. No management fees were payable in the first quarter of 2003 and no future fees will be paid, due to the internalization of management. Fees of $0.8 million were paid in the first quarter of 2002 to NCEP Management. PRICE RISK MANAGEMENT Petrofund took advantage of price volatility in energy markets during the first quarter and hedged significant volumes of oil and gas for the balance of 2003. A small amount of hedging was completed for the first half of 2004. The volume of crude oil hedged for the balance of 2003 was increased to 4,220 bbl/d up from 1,985 bbl/d at the end of 2002. Gas hedges rose from 23.25 mmcf/d to 38.5 mmcf/d over this time. The Trust does not expect to hedge significant additional volumes for the 2003 year. NCE Petrofund will continue to take advantage of market opportunities as they arise to secure cash flows for 2004. The Trust's portfolio of crude oil hedges consists of: 1) 1,560 bbl/d @ $42.46 per bbl; and 2) 2,660 bbl/d collared between $35.78 and $43.79 per bbl. NCE Petrofund will lose the floor protection on 75% of the collared volumes for any month WTI retreats below $29.91/bbl (US$20.38); however, in this event the Trust will still receive a premium of $5.87/bbl (US$4.00) over the actual price. The Trust has 2,000 bbl/d collared for the first half of 2004 under a wide collar and no crude hedged thereafter. The Trust's 2003 gas hedge portfolio comprises: 1) 4.8 mmcf/d fixed at $5.75/mcf; and 2) 33.7 mmcf/d with an average floor price of $5.32/mcf and an average ceiling price of $8.32/mcf. Volumes subject to a cap without a corresponding floor have been eliminated. NCE Petrofund has collared approximately 19 mmcf/d for the first quarter of 2004 between $5.80 and $10.93 per mcf. No gas has been hedged beyond the first quarter of 2004. For a complete listing of all hedge transaction details, please see Note 5 to the Interim Consolidated Financial Statements. 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 , RECLAMATION Reclamation A claim for the right to return or the right to demand the return of a security that has been previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process. AND ABANDONMENT The provision for depletion and reclamation costs increased from $24.5 million in the first quarter of 2002 to $27.8 million in the first quarter of 2003 due to the 14% increase in production and an increase in the depletion rate from $10.80 per boe in 2002 to $10.93 per boe in 2003. In the first quarter of 2003, NCEP set aside $182,000 in cash to fund future abandonment costs. NCEP has a cash abandonment reserve of $3.2 million at March 31, 2003. This cash fund is in place to fund significant future reclamation costs, such as the decommissioning Decommissioning is a general term for a formal process to remove something from operational status. Some specific instances include:
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. directly from distribution accruing to Unitholders. DEBT As at March 31, 2003, the amount outstanding on the credit facility was $206.4 million, as compared to the $245 million available. The revolving period on the syndicated facility ends on May 30, 2003. At that time, the syndicated facility will be increased by $20 million and extended for a further 364-day period. WORKING CAPITAL 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 decreased by $9.6 million as the amounts due on the sale of properties as at December 31, 2002 were received in the first quarter of 2003. Current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. increased by $16.8 million from December 31, 2002, mainly due to capital expenditures incurred in the first quarter. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 2003, the Trust generated cash flow from operating activities of $58.6 million. Of this amount, $26.0 million was paid out in distributions and $5.8 million was used to reduce the bank loan outstanding. Most of the remaining balance was used to fund acquisitions and the ongoing capital expenditure program. Subsequent to the end of the quarter, the Trust completed a "bought deal" financing of Trust units raising gross proceeds of $97.5 million. A total of 9.2 million units were issued at $10.60 per unit. The net proceeds were used to pay down debt.
Consolidated Balance Sheet
(thousands of dollars) (Unaudited)
As at March 31, 2003 and at December 31, 2002
2003 2002
-------------------------------------------------------------------
Assets
Current assets
Cash $ 21,911 $ -
Accounts receivable 30,972 41,953
Due from affiliates 952 164
Prepaid expenses 11,487 10,090
-------------------------------------------------------------------
Total current assets 65,322 52,207
Reclamation and abandonment reserve 3,183 3,001
Oil and gas royalty and property
interests, at cost less accumulated
depletion and depreciation
of $380,800 (2002 - $354,309) 838,008 835,366
-------------------------------------------------------------------
$ 906,513 $ 890,574
-------------------------------------------------------------------
Liabilities and unitholders' equity
Current liabilities
Bank overdraft $ - $ 1,572
Accounts payable and accrued
liabilities 38,824 22,007
Payable to affiliates - 2,168
Current portion of capital lease
obligations 2,455 3,304
Distributions payable to unitholders 54,080 30,065
-------------------------------------------------------------------
Total current liabilities 95,359 59,116
Long-term debt 206,450 212,253
Capital lease obligations 6,878 6,965
Future income taxes 118,593 116,845
Accrued reclamation and
abandonment costs 16,531 15,298
-------------------------------------------------------------------
Total liabilities 443,811 410,477
Unitholders' equity 462,702 480,097
-------------------------------------------------------------------
$ 906,513 $ 890,574
-------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an
integral part of this consolidated balance sheet.
Consolidated Statement of Operations
(thousands of dollars except per unit amounts) (Unaudited)
For the three months ended March 31,
2003 2002
-------------------------------------------------------------------
Revenues
Oil and gas sales $ 109,175 $ 50,519
Royalties, net of incentives (24,227) (7,788)
-------------------------------------------------------------------
84,948 42,731
-------------------------------------------------------------------
Expenses
Lease operating 19,588 17,112
Management fee - 833
Interest on long-term debt 2,129 1,466
General and administrative 3,455 3,916
Capital taxes 639 377
Depletion and depreciation 26,491 22,989
Provision for reclamation
and abandonment 1,355 1,496
Internalization of management
contract (Note 6) 1,647 -
-------------------------------------------------------------------
55,304 48,189
-------------------------------------------------------------------
Net income (loss) before provision
for income taxes 29,644 (5,458)
-------------------------------------------------------------------
Provision for (recovery of) income taxes
Current 395 212
Future (2,927) (6,573)
-------------------------------------------------------------------
(2,532) (6,361)
-------------------------------------------------------------------
Net income $ 32,176 $ 903
-------------------------------------------------------------------
Net income per Trust unit
Basic $ 0.59 $ 0.02
Diluted $ 0.59 $ 0.02
Consolidated Statement Of Unitholders' Equity
(thousands of dollars) (Unaudited)
For the three months ended March 31,
2003 2002
-------------------------------------------------------------------
Balance, beginning of year $ 480,097 $ 398,702
Units issued, net of issue costs 431 56,271
Net income 32,176 903
Distributions accruing to unitholders (50,002) (17,926)
-------------------------------------------------------------------
Balance, end of period $ 462,702 $ 437,950
-------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
Consolidated Statement of Cash Flows
(thousands of dollars except per unit amounts) (Unaudited)
For the three months ended March 31,
2003 2002
-------------------------------------------------------------------
Cash provided by (used in):
Operating activities
Net income $ 32,176 $ 903
Add items not affecting cash:
Depletion and depreciation 26,491 22,989
Provision for reclamation
and abandonment 1,355 1,496
Future income taxes (2,927) (6,573)
Actual abandonment costs incurred (123) (211)
Internalization of management
contract (Note 6) 1,647 -
-------------------------------------------------------------------
Cash flow from operating activities 58,619 18,604
Net change in non-cash operating
working capital balances 23,443 26,376
-------------------------------------------------------------------
Cash provided by operating activities 82,062 44,980
-------------------------------------------------------------------
Financing activities
Bank loan (5,803) 23,190
Distributions paid (25,987) (18,025)
Capital lease repayments (935) (1,464)
Issuance of Trust units 431 56,272
-------------------------------------------------------------------
Cash provided by (used in) financing
activities (32,294) 59,973
-------------------------------------------------------------------
Investing activities
Reclamation and abandonment reserve (182) (159)
Acquisition of property interests (24,985) (49,989)
Proceeds on disposition of properties 529 3,131
Internalization of management
contract (Note 6) (1,647) -
-------------------------------------------------------------------
Cash used in investing activities (26,285) (47,017)
-------------------------------------------------------------------
Net change in cash 23,483 57,936
Cash (bank overdraft), beginning
of year (1,572) 1,917
-------------------------------------------------------------------
Cash, end of period $ 21,911 $ 59,853
-------------------------------------------------------------------
Interest paid during the year $ 2,276 $ 1,000
-------------------------------------------------------------------
Income taxes paid during the year $ 139 $ 1,446
-------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
NCE Petrofund Notes to
Consolidated Interim Financial Statements
(unaudited)
(thousands of dollars except per unit amounts unless otherwise stated)
1. INTERIM FINANCIAL STATEMENTS These unaudited interim consolidated financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements. The note disclosure requirements for annual statements provide additional disclosures to that required for interim statements. Accordingly, these statements should be read in conjunction with the audited consolidated financial statements of NCE Petrofund (the "Trust") as at December 31, 2002 and 2001 and for each of the years in the three-year period then ended. 2. ACQUISITION On February 7, 2003, NCE Petrofund Corp. ("NCEP") acquired 100% of the outstanding common shares of Solaris Oil & Gas Inc. for $7.4 million in cash and the assumption of $1.2 million of debt including negative working capital and an outstanding bank loan. The acquisition was accounted for using the purchase method of accounting. A summary of the 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. acquired is as follows:
Working capital $ (813)
Oil and gas properties 13,219
Bank loan (370)
Future income taxes (4,676)
---------------------------------------------------
$ 7,360
---------------------------------------------------
3. TRUST UNITS
Authorized: unlimited number of Trust units
Number of units Amount
-------------------------------------------------------------------
Issued
December 31, 2002 54,107,764 $ 794,352
Options exercised 39,166 421
Commissions and issue costs - (3)
Unit purchase plan 1,073 13
-------------------------------------------------------------------
March 31, 2003 54,148,003 $ 794,783
-------------------------------------------------------------------
The weighted average units outstanding are as follows:
For the three months ended March 31, 2003 2002
-------------------------------------------------------------------
Basic 54,129,971 42,121,449
Diluted 54,270,294 42,121,449
-------------------------------------------------------------------
4. DISTRIBUTIONS ACCRUING TO UNITHOLDERS Under the terms of the Trust Indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. , the Trust makes monthly distributions within a specified period following the end of each month ("Cash Distribution Date"). Distributions are equal to amounts received by the Trust on the Cash Distribution Date less permitted expenses. Distributions to Unitholders coincide with cash receipts of royalty and other income from NCEP. An overall analysis is as follows: For the period ended Cash Distribution date 2003 2002 ----------------------------------------------------------------- November 30 January 31 $ 0.15 $ 0.15 December 31 February 28 0.16 0.15 January 31 March 31 0.17 0.13 ----------------------------------------------------------------- Cash distributions per Trust unit $ 0.48 $ 0.43 ----------------------------------------------------------------- Reconciliation of Distributions Accruing to Unitholders For the three months ended March 31, 2003 2002 ------------------------------------------------------------------- Distributions payable, beginning of period $ 30,065 $ 12,188 ------------------------------------------------------------------- Distributions accruing during the period Cash flow from operating activities 58,619 18,604 Proceeds on disposition of property interests - 946 Reclamation and abandonment reserve (182) (159) Less capital lease repayment (935) (1,465) Capital expenditures (7,500) - ------------------------------------------------------------------- Total distributions accruing during the period 50,002 17,926 Distributions paid (25,987) (18,025) ------------------------------------------------------------------- Distributions payable, end of period $ 54,080 $ 12,089 ------------------------------------------------------------------- Distributions accruing to unitholder per Trust unit Basic $ 0.92 $ 0.44 Diluted $ 0.92 $ 0.44 ------------------------------------------------------------------- 5. DERIVATIVE derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. FINANCIAL INSTRUMENTS AND PHYSICAL CONTRACTS The Trust enters into various pricing mechanisms to reduce price volatility and exposure to low prices for a portion of its oil and gas production. These include fixed price contracts and the use of derivative financial instruments. The outstanding derivative financial instruments and physical contracts as at March 31, 2003, all of which constitute effective hedges, and the related unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. or losses, are summarized separately below:
Financial Gas Hedges
Natural Volume Price Delivery Unrealized
Gas Term mcf/d $/mcf point gain (loss)
----------------------------------------------------------------------
Fixed March 1, 2003 to
October 31, 2003 6,159 $5.75 AECO $ (1,164)
Collar April 1, 2003 to
October 31, 2003 9,475 $4.65-$6.23 AECO (1,187)
Collar April 1, 2003 to
October 31, 2003 4,737 $4.64-$6.23 AECO (676)
Collar April 1, 2003 to
October 31, 2003 4,737 $4.64-$6.24 AECO (685)
Collar April 1, 2003 to
October 31, 2003 14,212 $5.86-$9.60 AECO 533
Collar April 1, 2003 to
October 31, 2003 4,737 $5.86-$9.82 AECO 167
Collar November 1, 2003 to
March 31, 2004 9,475 $5.80-$10.87 AECO 302
Collar November 1, 2003 to
March 31, 2004 9,475 $5.80-$10.98 AECO 380
----------------------------------------------------------------------
Total $ (2,330)
----------------------------------------------------------------------
Financial Oil Hedges
Volume Price Delivery Unrealized
Oil Term bbl/d $/bbl point gain (loss)
----------------------------------------------------------------------
Fixed Price
July 1, 2003 to
December 31, 2003 2,000 $42.46 Edmonton $ 810
Fixed Price
April, 2003 1,000 $48.44 Edmonton 109
Fixed Price
May, 2003 1,000 $48.44 Edmonton 188
Collar January 1, 2003 to
June 30, 2003 2,000 $34.48-$42.18 Edmonton (745)
Three-way collar
March 1, 2003 to
June 30, 2003 1,000 (x)(1) Edmonton (204)
Three-way collar
March 1, 2003 to
June 30, 2003 1,000 (x)(2) Edmonton (414)
Three-way collar
July 1, 2003 to
December 31, 2003 2,000 (x)(3) Edmonton 17
----------------------------------------------------------------------
Total $ (239)
----------------------------------------------------------------------
(x)(1) At prices above $42.79, NCE Petrofund receives $42.79 per bbl
At prices between $35.96 and $42.79 per bbl, NCE Petrofund
receives the market price
At prices below $29.35, NCE Petrofund receives a premium of
$6.61 per bbl
(x)(2) At prices above $42.57, NCE Petrofund receives $42.57 per bbl
At prices between $35.96 and $42.57 per bbl, NCE Petrofund
receives the market price
At prices below $30.82, NCE Petrofund receives a premium of
$5.14 per bbl
(x)(3) At prices above $45.13, NCE Petrofund receives $45.13 per bbl
At prices between $36.33 and $45.13 per bbl, NCE Petrofund
receives the market price
At prices below $30.45, NCE Petrofund receives a premium of
$5.87 per bbl
The gains or losses are recognized on a monthly basis over the terms of the contracts and adjust the prices received. Derivative financial instruments and physical hedge contracts involve a degree of credit risk, which the Trust controls through the use of financially sound counterparties Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. . Market risk relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc changes in value or settlement cost of the Trust's derivative financial instruments is essentially offset by gains or losses on the underlying physical sales. 6. SUBSEQUENT EVENTS a) Internalization of Management The unitholders of the Trust approved the internalization of management at an Annual and Special Meeting held on April 16, 2003, and the transaction closed on April 29, 2003. As a result, NCE Petrofund Management Corp. and NCE Management Services Inc. became wholly owned subsidiaries of NCEP and all management, acquisition and disposition fees were eliminated retroactive to January 1, 2003. All the Trust's operations will be consolidated and managed from its offices in Calgary. The cost to NCEP will be approximately $31.0 million, consisting of 2.04 million exchangeable shares and Trust units valued at $11.20 per unit, based on the trading price Trading price The price at which a security is currently selling. of the units at closing, or $22.7 million, and cash of approximately $8.2 million, including transaction costs and distributions on the exchangeable shares and Trust units from January 1, 2003 to closing. Costs of $1.6 million incurred on this transaction to March 31, 2003 have been expensed. The purchase price and the remaining costs will be expensed in the second quarter. b) Acquisition of Properties On May 2, 2003, NCEP signed a Purchase and Sale Agreement to acquire a diverse group of properties for $66 million, subject to adjustments. The transaction is effective March 1, 2003 and is expected to close in June 2003. c) Financing Activities On May 22, 2003, NCE Petrofund closed a "bought deal" financing of Trust units raising gross proceeds of $97.5 million. A total of 9.2 million units were issued at $10.60 per unit. The net proceeds were used to pay down debt. NCE Petrofund NCE Petrofund is a royalty trust royalty trust An ownership interest in certain assets, generally crude oil or gas production and real estate. Unlike the usual corporate organization, a trust arrangement permits income and tax benefits to flow through to the individual owners. that acquires and manages producing oil and gas properties in Western Canada
Western Canada, commonly referred to as the West . The Trust derives its income from these properties and distributes the resulting cash flow monthly to unitholders. NCE Petrofund is one of the oldest and most experienced oil and gas royalty trusts in Canada. The Trust began its first full year of operations in 1989. It trades on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. under the symbol NCF.UN. It trades on the American Stock Exchange American Stock Exchange (AMEX) Stock exchange in the U.S. Originally known as “the Curb,” it began as an outdoor marketplace in New York City c. 1850. It moved indoors to its present location in the Wall Street area in 1921. under the symbol NCN. Disclaimer (networking) disclaimer - Statement ritually appended to many Usenet postings (sometimes automatically, by the posting software) reiterating the fact (which should be obvious, but is easily forgotten) that the article reflects its author's opinions and not necessarily those of the This news release shall not constitute an offer to sell, or the solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual of an offer to buy NCE Petrofund trust units in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , or any province or territory of Canada, nor shall there be any sale of NCE Petrofund trust units in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. |
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