Petrofund Energy Trust Announces Results for the First Quarter of 2005.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 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. -- Petrofund Energy Trust (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :PTF PTF - Program Temporary Fix .UN) (AMEX AMEX See: American Stock Exchange :PTF) is pleased to provide its results for the first quarter of 2005. Key items from the quarter include: - Average production of 35,234 boe per day, a 32% increase over the first quarter of last year. - Cash flow increased 49% over the first quarter of 2004 to $73 million, due primarily to additional production from the Ultima acquisition, development drilling and higher commodity prices. - First quarter 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. remained at 67%, identical to the previous quarter, and a 6% change from 73% in the first quarter of 2004. - Operating costs operating costs npl → gastos mpl operacionales for the quarter, which include a prior period adjustment of $0.79 per boe, increased to $10.09 per boe due to increasing industry costs. This was a 23% increase over first quarter of last year. - 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. down 12% from last year to $1.15 per boe. - The Trust exited the quarter with a 1.0:1.0 debt to cash flow ratio based on 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. first quarter cash flow. - Invested $48 million in drilling and development activities resulting in 73 wells with a 97% success rate. Partially as a result of this success, the Trust is announcing a 33% increase in its 2005 development budget from $90 million to $120 million. Petrofund's first quarter report is presented below:
1st Quarter Report
for the three months ended March 31, 2005
FINANCIAL HIGHLIGHTS
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(thousands of Canadian dollars and units, except per unit amounts)
2005 2004 Variance
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INCOME STATEMENT
Oil and natural gas sales $ 154,768 $ 99,699 55 %
Cash flow (1) $ 72,959 $ 49,047 49 %
Per unit (2) $ 0.73 $ 0.67 9 %
Per boe $ 23.01 $ 20.26 14 %
Cash distributions paid per unit $ 0.48 $ 0.48 - %
Net income $ 19,243 $ 7,629 152 %
Net income per unit
Basic $ 0.19 $ 0.10 90 %
Diluted $ 0.19 $ 0.10 90 %
UNITS AND EXCHANGEABLE SHARES
OUTSTANDING (2)
Weighted average 100,603 73,674 37 %
Diluted 100,644 73,872 36 %
At period-end 100,746 73,682 37 %
BALANCE SHEET
Working capital (deficit) (3) $ (59,531) $ (56,093) (6)%
Property, plant and equipment,
net $ 1,259,248 $ 883,191 43 %
Long-term debt $ 239,237 $ 90,040 166 %
Unitholders' equity $ 992,882 $ 615,952 61 %
MARKET CAPITALIZATION, as at
March 31 $ 1,777,156 $ 1,278,390 39 %
TOTAL CAPITALIZATION, as at
March 31 (3),(4) $ 2,075,924 $ 1,424,523 46 %
TRUST UNIT TRADING (TSX: PTF.UN)
High $ 19.33 $ 19.24 - %
Low $ 15.50 $ 14.56 6 %
Close $ 17.64 $ 17.35 2 %
Average daily volumes 264 204 29 %
TRUST UNIT TRADING (AMEX: PTF)
High $ 16.05 $ 14.96 7 %
Low $ 12.66 $ 10.95 16 %
Close $ 14.62 $ 13.22 11 %
Average daily volumes 643 633 2 %
(1) Cash flow before net changes in non-cash operating working
capital balances (Non-GAAP measure, see special notes in the
Management Discussion and Analysis).
(2) See Note 2 to Interim Consolidated Financial Statements.
(3) Excludes net unrealized losses on commodity contracts.
(4) Total capitalization equals market capitalization plus net debt.
OPERATIONAL HIGHLIGHTS
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(thousands of Canadian dollars, except per unit amounts)
For the three months ended March 31, 2005 2004 Variance
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DAILY PRODUCTION
Oil (bbls) 18,238 11,579 58 %
Natural gas (mcf) 88,271 77,925 13 %
Natural gas liquids (bbls) 2,283 2,040 12 %
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BOE (6:1) 35,234 26,607 32 %
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Total production (mboe) 3,171 2,421 31 %
PRODUCTION PROFILE
Oil 52% 44%
Natural gas 42% 48%
Natural gas liquids 6% 8%
PRICES
Oil (per bbl) $ 54.74 $ 42.50 29 %
Natural gas (per mcf) $ 6.97 $ 6.76 3 %
Natural gas liquids (per bbl) $ 46.04 $ 37.06 24 %
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BOE (6:1) $ 48.79 $ 41.15 19 %
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Cash operating netback per BOE $ 25.45 $ 22.71 12 %
LEASE OPERATING COSTS $ 32,010 $ 19,829 (61)%
Cost per boe $ 10.09 $ 8.19 (23)%
GENERAL AND ADMINISTRATIVE COSTS $ 3,639 $ 3,138 (16)%
Cost per boe $ 1.15 $ 1.30 12 %
SPECIAL NOTES As discussed per the February February: see month. 2005 notice of the annual meeting, Peter N. Thomson did not stand for re-election re-election n → reelección f re-election n → réélection f re-election n → Wiederwahl f , as director, at the April 13, 2005 meeting of the Unitholders. As announced in March 2005, Mr. Edward Edward killed his father at his mother’s instigation. [Br. Balladry: Edward in Benét, 302] See : Patricide J. Brown joined on April 1, 2005 as Vice President, Finance. Mr. Brown was subsequently appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. Chief Financial Officer on May 1, 2005, upon the retirement of Vince P. Moyer Moyer is a surname, and may refer to:
Management Discussion & Analysis three months ended March 31, 2005 --------------------------------------------------------------------- The following Management Discussion and Analysis (MD&A) of financial results should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. 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 of Petrofund Energy Trust ("Petrofund" or the "Trust") for the three months ended March 31, 2005 and the December December: see month. 31, 2004 audited consolidated financial statements and 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 included in the Petrofund Energy Trust 2004 annual report. All the oil and natural gas properties are held by Petrofund Corp. ("PC") a wholly owned subsidiary 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 the Trust. This commentary is based on information available to May 10, 2005. Additional information (including Petrofund's annual information form) can be obtained on Sedar at www.sedar.com or on the Trust's website at www.petrofund.ca. All amounts are stated in Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents unless otherwise noted. 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. ("boe") basis, gas volumes have been converted to barrels of oil at 6,000 cubic feet per barrel barrel: see English units of measurement. (6 mcf/bbl). BOEs may be misleading, particularly if used in isolation. A BOE conversion of 6 mcf/1 bbl is based on an energy equivalency equivalency the combining power of an electrolyte. See also equivalent. conversion method primarily applicable at the burner A drive that writes write-once optical discs such as CD-Rs and DVD-Rs. A "burner" implies a one-time recording, but the term is erroneously used to refer to drives that "write" to re-recordable CD-RW and DVD-RW/+RW media as well. See burn, CD-R and DVD-R. tip and does not represent a value equivalency at the 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. . NON GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). MEASURES Management uses cash flow (before changes in non-cash working capital) to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. 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. 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 ("GAAP") and 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. Management uses certain key performance indicators Key Performance Indicators (KPI) are financial and non-financial metrics used to quantify objectives to reflect strategic performance of an organization. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. and industry benchmarks such as operating netbacks Operating Netback A measure of oil and gas sales net of royalties, production and transportation expenses. This is a non-GAAP measure used specifically in the oil and gas industry as a benchmark to compare performance between time periods, operations and competitors. ("netbacks"), finding, development and acquisition costs ("FD&A"), and total capitalization Total capitalization The total long-term debt and all types of equity of a company that constitutes its capital structure. total capitalization See capitalization. to analyze financial and operating performance. These performance indicators and benchmarks as presented do not have any standardized meaning prescribed by Canadian GAAP and, therefore, may not be comparable with the calculation of similar measures for other entities. 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 disclosure includes 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 substantial risks and uncertainties. For those statements, Petrofund claims the protection of the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. 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. Petrofund cautions that actual performance will be affected by a number of factors, many of which are beyond its control. These include general economic conditions in Canada and the United States The United States and Canada share a unique legal relationship. U.S. law looks northward with a mixture of optimism and cooperation, viewing Canada as an integral part of U.S. economic and environmental policy. ; industry conditions including changes in laws and regulations; changes in income tax regulations; increased competition; and fluctuations in commodity prices, foreign exchange and interest rates. In addition, there are numerous risks and uncertainties associated with oil and natural gas operations and the evaluation of oil and natural gas reserves. As a result, future events and results may vary substantially from what Petrofund currently foresees. A more complete discussion of the various factors that may affect future results is contained in 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 . RESULT SUMMARY FIRST QUARTER 2005 VERSUS FOURTH QUARTER 2004 The Trust generated cash flow of $73.0 million or $0.73 per unit in the first quarter of 2005 compared to $72.3 million or $0.72 per unit in the fourth quarter of 2004. The Trust maintained monthly cash distributions of $0.16 per unit and a payout ratio of 67% in the first quarter of 2005. The first quarter of 2005 was one of the most active quarters in its history for Petrofund's drilling and development activities. Total expenditures for the quarter were $48.4 million. These activities will provide new production in the second and third quarters of 2005, as discussed further in the Operational Highlights. Daily production volumes in the first quarter of 2005 of 35,234 boe were slightly below fourth quarter volumes of 2004 of 36,025 boe. This decrease resulted from the natural production decline and the temporary shut in of production at one minor property, but was partially offset by production additions from development activities. Net income of $19.2 million in the first quarter of 2005 decreased from $50.9 million in the fourth quarter of 2004 mainly due to a change of $50.2 million in non-cash adjustments on commodity contracts. The Trust recognized an unrealized (non-cash) commodity adjustment of $23.8 million versus an unrealized (non-cash) commodity gain of $26.4 million in the fourth quarter of 2004. Both adjustments were a result of the accounting standard governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. price risk management activity. In addition, the future income tax recovery in the first quarter of 2005 was $12.7 million compared to $774,000 expense in the fourth quarter of 2004. The cash loss on commodity contracts during the first quarter of 2005 was $8.2 million compared to a $14.1 million loss in the fourth quarter of 2004. 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. were 20% of revenue in the first quarter of 2005, compared to 20% for the three months ended December 31, 2004. Lease operating costs increased to $10.09/boe in the first quarter of 2005 from $8.82/boe in the fourth quarter of 2004. The most significant contributor to the higher operating costs in the first quarter of 2005 versus 2004 was general industry increases for all types of services including surface and downhole well repair costs and facility maintenance work. Costs in the first quarter of 2005 included prior year adjustments from operators of $2.5 million or $0.79 per boe. HIGHLIGHTS OF THE THREE MONTHS ENDED MARCH 31, 2005 The Trust paid out cash distributions of $0.48 per unit in the first quarter of 2005 as compared to $0.48 per unit in the first quarter of 2004. The Trust's payout ratio for the three months ended March 31, 2005 was 67% remaining the same as the fourth quarter of 2004 and compared to 73% in the first quarter of 2004. Net income increased 152% to $19.2 million in the first quarter of 2005 versus $7.6 million in the first quarter of 2004. The Trust generated cash flow of $73.0 million, an increase of 49% over the first quarter of 2004. Average production on a boe basis increased 32% to 35,234 boe/d in the first quarter of 2005 from 26,607 boe/d in the first quarter of 2004. Average prices in the first quarter of 2005 were up 19% on a boe basis from the same period the prior year. Petrofund has a strong balance sheet with a net debt to cash flow ratio of 1.0:1.0 of annualized first quarter 2005 cash flow. The Trust has a balanced production profile which averaged 42% natural gas and 58% oil and liquids in the first quarter of 2005. The weighted average Trust units outstanding increased from 73.7 million in the first quarter of 2004 to 100.6 million in the first quarter of 2005. The Trust market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. as at March 31, 2005, was approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.8 billion ($1.3 billion March 31, 2004). OPERATIONAL HIGHLIGHTS Petrofund had an active drilling program in the first quarter of 2005, with 73 wells drilled. The program consisted of 70 working interest wells (23.2 net) and three farmout wells resulting in 50 gas wells, 20 oil wells, one service well and two dry and abandoned wells for an overall 97% success rate. Following is a summary of properties where significant activity occurred. July July: see month. Lake, 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 finished drilling four wells of a five well program in the shortened short·en v. short·ened, short·en·ing, short·ens v.tr. 1. To make short or shorter. 2. winter drilling season. The wells were all successful horizontal horizontal /hor·i·zon·tal/ (hor?i-zon´t'l) 1. parallel to the plane of the horizon. 2. occupying or confined to a single level in a hierarchy. horizontal parallel to the plane of the horizon. Jean Marie Jean Marie may refer to:
noun 1. separation, split, divorce, breakdown, ending, parting, breaking, splitting, wind-up, rift, disintegration, dissolution, termination noun 2. resulting in all four wells commencing production at quarter end. It is expected these wells will provide approximately 5.5 mmcf/d new production to Petrofund in the second quarter of 2005. Turin, Alberta Turin is a hamlet in the County of Lethbridge in southern Alberta, Canada. Its 2001 population was 123 and its geographical size was 250 m² (2,690 ft²). It is located 56 km (35 miles) from Lethbridge on highway 25. At the Turin Turin (t  r`ĭn, tyr`–, tyrĭn`), Ital. property in 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]. , Petrofund commenced a
10 well drilling Well drilling is the process of drilling a hole in the ground for the extraction of a natural resource such as ground water, natural gas, or petroleum. Drilling for the exploration of the nature of the material underground (for instance in search of metallic ore) is best described program in February. At quarter end, six wells had
been drilled (4.75 net) resulting in four oil wells, one gas well and
one unproductive well. The wells are currently being completed and new
production facilities are under construction to tie the wells into
existing treating facilities. The unproductive wellbore may be utilized
as a water injection well. Expected production increase from the five
wells is approximately 200 boe/d net to Petrofund and is scheduled to
come on stream in May 2005.Three Hills Creek Hills Creek is a name found in several places in the United States. In Tioga County, Pennsylvania:
Petrofund participated in the drilling of 26 wells (9.1 net) as part of the ongoing CBM CBM Commodore Business Machines CBM Coalbed Methane CBM Christoffel Blindenmission CBM Condition Based Maintenance CBM Confidence-Building Measures CBM Curriculum Based Measurement (education) CBM Cubic Meter (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. ) development in this area. Testing of the wells is underway and facilities are currently being installed to bring the production on stream in the third quarter of 2005. Petrofund's net share of this production is expected to be 750 mcf/d. Weyburn, Saskatchewan Weyburn is a city in southeastern Saskatchewan, Canada. It is located km ( mi) southeast of the provincial capital of Regina and is km ( mi) north of the border with the United States. Weyburn is the birthplace of acclaimed Canadian writers W. O. In the Weyburn Weyburn (wā`bərn), city (1991 pop. 9,673), SE Sask., Canada, SE of Regina. A trade center for a wheat-growing and oil-producing region, it has grain elevators and a feed mill. Unit, 11 horizontal 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 (2.3 net) were drilled in the first quarter of 2005. Eight of these 11 wells were re-entries, where additional horizontal legs are drilled from existing welbores. Petrofund's net production from these wells of 250 boe/d will be seen during the second quarter of 2005. Border, British Columbia Nine Bluesky-Gething gas wells (0.8 net) were drilled in the Border "B" Unit this winter. Production from the new wells will help offset the natural production decline from the 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 and maintain gas throughput The speed with which a computer processes data. It is a combination of internal processing speed, peripheral speeds (I/O) and the efficiency of the operating system and other system software all working together. 1. at the Border gas plant. Petrofund's net production from these wells totals 1.0 mmcf/d. Fort Saskatchewan, Alberta Fort Saskatchewan is a city of 14,957 (2006 census) located km ( mi) northeast of downtown Edmonton, Alberta, Canada. The two city's boundaries touch across the North Saskatchewan River. History In 1875, under the command of Inspector W.D. A production optimization optimization Field of applied mathematics whose principles and methods are used to solve quantitative problems in disciplines including physics, biology, engineering, and economics. review of the low pressure gas gathering system for our Beaverhill Lake Beaverhill Lake (Cree: amisk-wa-chi-sakhahigan) is a large lake in central Alberta, Canada. It is located 70 km southeast of Edmonton, near the village of Tofield. Viking Viking Either of two unmanned U.S. spacecraft launched by NASA in 1975. After nearly yearlong journeys, Vikings 1 and 2 entered orbits around Mars and released landers that touched down on the planet and relayed measurements of properties of its atmosphere and soil, as well Gas Unit (95% WI) resulted in the installation of a 750 hp booster Booster - A data-parallel language. "The Booster Language", E. Paalvast, TR PL 89-ITI-B-18, Inst voor Toegepaste Informatica TNO, Delft, 1989. compressor giving an immediate gain of 400 mcf/d and allowing a significant further expected increase in ultimate recovery as the upgrade will be capable of taking the entire field to much lower pressures. The upgrade has also allowed the Lindbrook facility to handle new production from a 100% WI deep gas well that started production in March at 500 mcf/d and will also allow opportunities for custom processing. Cherhill Cherhill is a village in Wiltshire, England located on the A4 road between Calne and Marlborough and about 90 miles west of London. It is known for the white horse cut into the chalk hillside in 1780, the Landsdowne obelisk on the Cherhill Downs, and the crop circles that , Alberta The central oil treating facility at Cherhill was expanded in March to increase produced water handling capability. This expansion has allowed Petrofund to restart To resume computer operation after a planned or unplanned termination. See boot, warm boot and checkpoint/restart. several high water-cut oil wells that were shut in due to lack of capacity. Petrofund will also now be able to upsize up·size v. up·size, up·siz·ing, up·siz·es v.intr. To become greater or larger: "the chief executives ... saw the combined value of their share options upsize by $36. the pumps on several producing oil wells and expects to realize a total gain of 150 bbl/d of oil production during the second quarter of 2005. Ferrier Fer´ri`er n. 1. A ferryman. , Alberta Compression compression, external stress applied to an object or substance, tending to cause a decrease in volume (see pressure). Gases can be compressed easily, solids and liquids to a very small degree if at all. was installed to increase production capacity at the Ferrier gas plant. A workover and tie-in tie-in n. One thing that is related to or connected with another. Noun 1. tie-in - a fastener that serves to join or connect; "the walls are held together with metal links placed in the wet mortar during construction" of a standing well, along with continued optimization should increase production by approximately 1.5 mmcf/d. Armisie, Alberta The Armisie field was shut in for approximately eight weeks during the first quarter of 2005 due to restrictions at the gas processing plant that handles the Armisie solution gas and non associated gas. This restriction restriction - A bug or design error that limits a program's capabilities, and which is sufficiently egregious that nobody can quite work up enough nerve to describe it as a feature. is not likely to reoccur. Petrofund lost approximately 400 boe/d production during the shut-in shut-in n. A person confined indoors by illness or disability. adj. 1. Confined to a home or hospital, as by illness. 2. Disposed to avoid social contact; excessively withdrawn or introverted. . CASH DISTRIBUTIONS For the three months ended March 31, 2005 2004 --------------------------------------------------------------------- Distributions paid per unit $ 0.48 $ 0.48 --------------------------------------------------------------------- --------------------------------------------------------------------- Trust unitholders who held their units throughout first quarter of 2005 received cash distributions of $0.48 per unit as compared to $0.48 per unit in 2004. For 2005 the Trust distributed $0.16 per unit in April, has announced $0.16 per unit for May, and has indicated $0.16 per unit for June June: see month. . The Trust generated cash flow available for distribution before reserve for capital expenditures in the first quarter of 2005 of $71.7 million. The Trust paid out $47.9 million in distributions representing a payout ratio of 67%. For the 12 months ended March 31, 2005, the Trust generated cash flow available for distribution of $255.3 million, and allocated $87.4 million for investment in development drilling and other projects. Distributions of $182.5 million were paid out, representing a payout ratio of 71%. For a detailed analysis of cash flow available for distribution and distributions paid refer to Note 7 to the Interim Consolidated Financial Statements. RESULTS OF OPERATIONS PRODUCTION In accordance with Canadian practice, production volumes and reserves are reported on a working interest basis, before deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. of Crown and other royalties, unless otherwise indicated. Production volumes averaged 35,234 boe/d in the first quarter of 2005, an increase of 32% over average production volumes of 26,607 boe/d in the first quarter of 2004. The change in production reflects the acquisition of Ultima in June of 2004, PC's development drilling program and the Central Alberta Central Alberta (also named Alberta's Heartland) is a region located in the Canadian province of Alberta. Central Alberta is the most densely populated rural area in the province. Agriculture and energy make up an important part of the economy. acquisition in November November: see month. 2004. For the three months ended March 31, 2005 2004 --------------------------------------------------------------------- Daily Production Oil (bbls) 18,238 11,579 Natural gas (mcf) 88,271 77,925 Natural gas liquids (bbls) 2,283 2,040 --------------------------------------------------------------------- Total (boe 6:1) 35,234 26,607 --------------------------------------------------------------------- --------------------------------------------------------------------- PRICING & PRICE RISK MANAGEMENT Revenues from the sale of crude oil, natural gas, and natural gas liquids and sulphur Sulphur, city, United States Sulphur, city (1990 pop. 20,125), Calcasieu parish, SW La.; inc. 1914. It is a trade center for an area producing natural gas, oil, and timber as well as sorghum, soybeans, cattle, and crawfish. increased 55% to $154.8 million in the first quarter of 2005 from $99.7 million in the first quarter of 2004 due to a 31% increase in production and a 19% increase in prices on a boe basis. Crude oil sales increased to $89.9 million in the first quarter of 2005 from $44.8 million in the first quarter of 2004 due to a 58% increase in production from 11,579 bbl/d in the first quarter of 2004 to 18,238 bbl/d in the first quarter of 2005 and a 29% increase in the oil price. The average 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) oil price increased from $35.14 US/bbl in 2004 to $49.84 US/bbl in the first quarter of 2005 or 42%; however, the Canadian par price at Edmonton Edmonton (ĕd`məntən), city (1991 pop. 616,741), provincial capital, central Alta., Canada, on the North Saskatchewan River. The center of the largest metropolitan area in Alberta, Edmonton, known as the "Gateway to the North," is located increased only 35% from $45.60/bbl to $61.45/bbl due to the significant strengthening of the Canadian dollar relative to the U.S. dollar which averaged $0.82 in the first quarter of 2005 versus $0.76 in the first quarter of 2004. The average Canadian wellhead price received by Petrofund increased from $42.50/bbl in the first quarter of 2004 to $54.74/bbl in the first quarter of 2005. Petrofund's differential from Edmonton par was $3.10/bbl in the first quarter of 2004 versus $6.71/bbl in the first quarter of 2005 as quality differentials for medium crudes have increased. Natural gas sales increased to $55.4 million in the first quarter of 2005 from $48.0 million in the first quarter of 2004 due to a 13% increase in production and a 3% increase in the average prices received from $6.76/mcf in the first quarter of 2004 to $6.97/mcf in the first quarter of 2005. The monthly AECO AECO Aeromedical Evacuation Control Officer AECO Advance Engineering Change Order AECO Architecture, Engineering, Construction and Owner-operated price per mmbtu increased from $6.61 in the first quarter of 2004 to $6.69 in the first quarter of 2005. Production volumes averaged 88.3 mmcf/d in the first quarter of 2005 compared to 77.9 mmcf/d in the first quarter of 2004. Sales of natural gas liquids and sulphur increased to $9.5 million in the first quarter of 2005 from $6.9 million in the first quarter of 2004 as production increased to 2,283 bbl/d in the first quarter of 2005 from 2,040 bbl/d in the first quarter of 2004. The average price increased from $37.06/bbl in the first quarter of 2004 to $46.04/bbl in the first quarter of 2005.
Average prices received for the three months
ended March 31, 2005 2004
---------------------------------------------------------------------
Oil (per bbl) (1) $ 54.74 $ 42.50
Natural gas (per mcf) (1) 6.97 6.76
Natural gas liquids (per bbl) (1) 46.04 37.06
---------------------------------------------------------------------
Weighted average (6:1) $ 48.79 $ 41.15
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Prices are before realized gains/losses on commodity contracts
and before transportation costs.
Production Revenue ($ millions) 2005 2004
---------------------------------------------------------------------
Oil $ 89.9 $ 44.8
Natural gas 55.4 48.0
Natural gas liquids & sulphur 9.5 6.9
---------------------------------------------------------------------
Total $ 154.8 $ 99.7
---------------------------------------------------------------------
---------------------------------------------------------------------
The Trust has a formal risk management policy which permits the risk management committee to use specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. price risk management strategies for up to 40% of crude oil, natural gas and NGL NGL - A dialect of IGL. production including: fixed price contracts; costless collars; the purchase of floor price options; and other derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. financial instruments to reduce price 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 and ensure minimum prices for a maximum of eighteen months beyond the current date. The program is designed to provide price protection on a portion of the Trust's future production in the event of adverse commodity price movement, while retaining significant exposure to upside Upside The potential dollar amount by which the market or a stock could rise. Notes: This is basically an educated guess on how high a stock could go in the near future. See also: Bull, Downside price movements. By doing this, the Trust seeks to provide a measure of stability to cash distributions as well as ensure Petrofund realizes positive economic returns from its capital development and acquisition activities. As at March 31, 2005, Petrofund had 24.7 mmcf/d of natural gas and 5,000 bbl/d of crude oil hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. for remainder of 2005. A summary of the hedged volumes and prices by quarter is shown in the following table (see Note 8 to the Interim Consolidated Financial Statements for a detailed disclosure of all derivative financial instruments and their corresponding mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. values):
Average Volumes (mcf/d)
----------------------------------------------------
2005 2006
------------------------------------ --------------
Oil 2005 Q2 Q3 Q4 Q1 Q2
---------------------------------------------------------------------
Fixed 3,158 4,737 4,737 - - -
Collars 15,790 18,948 18,948 9,474 4,737 -
Three way collars 5,790 4,737 4,737 7,895 9,474 -
---------------------------------------------------------------------
Total mcf/d 24,738 28,422 28,422 17,369 14,211 -
---------------------------------------------------------------------
Average Prices ($/mcf)
----------------------------------------------------
Fixed price $ 7.06 $ 7.07 $ 7.06 $ - $ - $ -
Collar ceiling
price 9.81 8.73 8.73 11.98 13.61 -
Collar floor
price 6.54 6.33 6.33 6.96 7.28 -
Three way
ceiling price 8.78 7.92 7.92 10.49 11.77 -
Three way
floor price 5.96 5.80 5.80 6.28 6.52 -
Three way
floor short $ 4.91 $ 4.75 $ 4.75 $ 5.23 $ 5.47 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
Average Volumes (bbl/d)
----------------------------------------------------
2005 2006
------------------------------------ --------------
Natural Gas 2005 Q2 Q3 Q4 Q1 Q2
---------------------------------------------------------------------
Collared 1,000 1,000 1,000 1,000 2,000 -
Three way
collars 4,000 4,000 4,000 4,000 1,000 1,000
---------------------------------------------------------------------
Total bbl/d 5,000 5,000 5,000 5,000 3,000 1,000
---------------------------------------------------------------------
Average Price ($/bbl)
----------------------------------------------------
Collar ceiling
price $ 67.76 $ 66.53 $ 68.77 $ 67.98 $ 78.63 $ -
Collar floor
price 49.99 48.38 50.80 50.80 52.62 -
Three way
ceiling price 45.24 44.03 45.85 45.85 64.11 71.67
Three way
floor price 35.57 35.57 35.57 35.57 48.38 50.80
Three way
floor short $ 30.85 $ 30.85 $ 30.85 $ 30.85 $ 42.34 $44.76
---------------------------------------------------------------------
---------------------------------------------------------------------
2005 2006
------------------------------------ --------------
Alberta Power 2005 Q2 Q3 Q4 Q1 Q2
---------------------------------------------------------------------
Fixed MW/h 2.0 2.0 2.0 2.0 - -
Fixed price
($/MWh) $ 44.50 $ 44.50 $ 44.50 $ 44.50 - -
---------------------------------------------------------------------
---------------------------------------------------------------------
Three-way Collars A three-way collar Collar 1. A protective options strategy that is implemented after a long position in a stock has experienced substantial gains. It is created by purchasing an out of the money put option while simultaneously writing an out of the money call option. 2. is transacted by selling a call to create a ceiling, buying a put to create a floor, then selling a put below the floor to create a floor short. For example, a three-way collar of $35 - $40 - $50 would result in the following prices received. For market prices above the ceiling ($50), Petrofund receives $50. For market prices between the ceiling and the floor ($40-$50), Petrofund receives the market price. For market prices between the floor and the floor short ($35-$40), Petrofund receives $40. For market prices below the floor short ($35), Petrofund receives the market price plus $5. As at May 10th, 2005 Petrofund had entered into the following additional hedge Additional hedge A protection against fallout risk in the mortgage pipeline. (not included in the table above): 1) Collar for April 1, 2006-June 30, 2006 for 1,000 bbl/d of crude (WTI) between $57.45 and $84.67/bbl levels. Petrofund has no volumes hedged after June 30, 2006. All foreign exchange calculations in this section of the report incorporate the Bank of Canada Bank of Canada Canada's central bank, established under the Bank of Canada Act (1934). It was founded during the Great Depression to regulate credit and currency. The Bank acts as the Canadian government's fiscal agent and has the sole right to issue paper money. US dollar rate at the close on March 31, 2005 of CDN (Content Delivery Network) A system of distributed content on a large intranet or the public Internet in which copies of content are replicated and cached throughout the network. $1.2096:US$. For a complete listing of all hedge transaction details please see Note 8 to the Interim Consolidated Financial Statements. LOSS ON COMMODITY CONTRACTS (in $ thousands) For the three months ended March 31, 2005 2004 --------------------------------------------------------------------- --------------------------------------------------------------------- Realized losses $ (8,166) $ (4,900) --------------------------------------------------------------------- Change in fair value Fair value, beginning of period (11,318) (6,771) Less fair value, end of period (35,090) (16,901) --------------------------------------------------------------------- Change in fair value of financial instruments (23,772) (10,130) Amortization of deferred commodity contracts (59) (2,461) --------------------------------------------------------------------- Total non-cash adjustments (23,831) (12,591) --------------------------------------------------------------------- Total $ (31,997) $ (17,491) --------------------------------------------------------------------- --------------------------------------------------------------------- ROYALTIES For the three months ended March 31, 2005 2004 --------------------------------------------------------------------- --------------------------------------------------------------------- Royalties ($ millions) $ 31.8 $ 18.6 Average royalty rate (%) 20 19 $/boe $ 10.04 $ 7.67 --------------------------------------------------------------------- --------------------------------------------------------------------- Royalties, which include crown, freehold Freehold, borough, United States Freehold, borough (1990 pop. 10,742), seat of Monmouth co., E central N.J.; settled c.1650, called Monmouth Courthouse (1715–1801), inc. as a town 1869, as a borough 1919. and overrides paid on oil and natural gas production, increased to $31.8 million in the first quarter of 2005 from $18.6 million in the first quarter of 2004, net of the Alberta Royalty Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced. Credit ("ARC arc, in electricity arc, in electricity, highly luminous and intensely hot discharge of electricity between two electrodes. The arc was discovered early in the 19th cent. by the English scientist Sir Humphry Davy, who so named it because of its shape. "). Royalties, as a percentage of revenues before hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. losses, increased to 20% of revenues in the first quarter of 2005 from 19% of revenues in the first quarter of 2004. EXPENSES For the three months ended March 31, 2005 2004 --------------------------------------------------------------------- --------------------------------------------------------------------- Expenses ($ millions) Lease operating $ 32.0 $ 19.8 Transportation 2.0 1.4 General & administrative 3.6 3.1 Financing costs 2.1 0.9 --------------------------------------------------------------------- --------------------------------------------------------------------- Expenses per boe Lease operating $ 10.09 $ 8.19 Transportation 0.64 0.56 General & administrative 1.15 1.30 Financing costs 0.67 0.37 --------------------------------------------------------------------- --------------------------------------------------------------------- Lease Operating Oil and gas lease 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. increased to $32.0 million in the first quarter of 2005 from $19.8 million in the first quarter of 2004 due to the additional wells on production and the increase in costs on a boe basis. Operating costs on a boe basis increased to $10.09 in the first quarter of 2005 from $8.19 in the first quarter of 2004. The most significant contributor to the higher operating costs in the first quarter of 2005 versus 2004 was general industry increases for all types of services including surface and downhole well repair costs and facility maintenance work. In addition, costs in the first quarter of 2005 include prior year adjustments from operators of $2.5 million or $0.79 per boe. Transportation Costs Transportation costs on a boe basis were $0.64 in the first quarter of 2005 as compared to $0.56 in the first quarter of 2004, which reflects the higher transportation costs associated with the Ultima properties. General & Administrative ("G&A") G&A costs on a boe basis were $1.15 per boe in the first quarter 2005 as compared to $1.30 per boe in the same period 2004. General and administrative costs, net of overhead recoveries, increased to $3.6 million in 2005 from $3.1 million in 2004. G&A costs in the first quarter of 2005 included $74,000 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the external costs associated with compliance with Section 404 of the Sarbanes-Oxley Act See SOX. ("SOX (1) (Schema for Object-oriented XML) An XML schema developed by Veo Systems and Muzino Communications, which was submitted to the W3C. SOX is based on DTD, but adds data typing and reuse mechanisms. 404") and $74,000 for the 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 units, which equates to $ 0.05 per boe. Financing Costs Interest and other financing costs increased to $2.1 million in the first quarter of 2005 from $906,000 in the first quarter of 2004 due to the increase in the average loan balance outstanding, offset by a decrease in the average prime loan rate from 4.305% in first quarter of 2004 to 4.25% in the first quarter of 2005. The average loan outstanding in the first quarter of 2005 was $233.2 million versus $89.8 million in the first quarter of 2004. The bank loan outstanding at March 31, 2005, was $239.2 million as compared to $214.4 million at December 31, 2004. 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 , DEPRECIATION & ACCRETION The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the Depletion, depreciation and accretion expense In accounting, accretion expense is the expense created when updating the present value(PV) of a financial instrument. For example, if one originally recognizes the present value of a liability at $650, which has a future value (FV) of $1000, every year one must increase the increased to $43.7 million in the first quarter of 2005 from $29.5 million in first quarter of 2004 due to the increase in production and an increase in the depletion rate. The rate per boe increased to $13.78 in the first quarter of 2005 from $12.20 in the first quarter of 2004. The increase in the rate over 2004 reflects the increasing cost of acquisitions. Unproved properties are included in the depletion and depreciation expense calculation. INCOME TAXES Current taxes consist of the Federal Large Corporations Tax and some minor amounts relating to income taxes of corporate entities acquired. The Federal Large Corporations Tax is based primarily on the debt and equity balances of the Trust's 100% owned subsidiary, Petrofund Corp. as at March 31, 2005. The Federal Large Corporations Tax rate is being reduced in stages over a period of five years commencing in 2004, so that by 2008, the tax will be eliminated. Capital taxes of $787,000 in the first quarter of 2005 (2004 - $737,000) are primarily the Saskatchewan Saskatchewan, province, Canada Saskatchewan (səskăch`əwən, –wän', săs'–), province (2001 pop. 978,933), 251,700 sq mi (651,903 sq km), W Canada. Capital Tax and Resource Surcharge An overcharge or additional cost. A surcharge is an added liability imposed on something that is already due, such as a tax on tax. It also refers to the penalty a court can impose on a fiduciary for breaching a duty. , which is based upon gross revenues earned in Saskatchewan. Future income tax liabilities arise due to the differences between the tax basis of Petrofund Corp's assets and their respective accounting carrying cost Noun 1. carrying cost - the opportunity cost of unproductive assets; the expense incurred by ownership carrying charge opportunity cost - cost in terms of foregoing alternatives . The future income tax recovery in the first quarter of 2005 was $12.7 million compared to $443,000 expense in the first quarter of 2004 as a result of an increase in non-cash commodity contract losses. NET INCOME For the three months ended March 31, 2005 2004 --------------------------------------------------------------------- Net income ($000's) $ 19,243 $ 7,629 Net income per Trust unit Basic $ 0.19 $ 0.10 Diluted $ 0.19 $ 0.10 --------------------------------------------------------------------- --------------------------------------------------------------------- Net income before taxes decreased from $8.1 million in the first quarter of 2004 to $6.6 million in the first quarter of 2005 mainly due to a 61% increase in lease operating costs, a 48% increase in depletion offset by a 55% increase in revenues. Production was up 31% and prices increased 19% on a boe basis. The Trust recognized a net loss on commodity contracts of $32.0 million in the first quarter of 2005 compared to $17.5 million in the first quarter of 2004. The unrealized (non-cash) loss on commodity contracts was $23.8 million in the first quarter of 2005 compared to $12.6 million in the first quarter of 2004. The increase in depletion is due to increased production and the increase in the depletion rate reflecting the increasing cost of acquisitions. Total cash netbacks increased by $23.9 million. On a boe basis cash netbacks were up to $23.35 in the first quarter of 2005 from $20.72 in the first quarter of 2004. Total Cash Netbacks 2005 2004 --------------------------------------------------------------------- Operating netback $ 25.45 $ 22.71 Financing costs 0.67 0.37 General and administrative 1.15 1.30 Capital and current taxes 0.28 0.32 --------------------------------------------------------------------- Total cash netback per BOE $ 23.35 $ 20.72 --------------------------------------------------------------------- --------------------------------------------------------------------- As a result of the changes discussed above, net income increased to $11.6 million in the first quarter of 2005 from the $7.6 million reported in the first quarter of 2004.
Oil Gas NGL Total
Operating Netbacks 2005 $/bbl $/mcf $/bbll $/boe
---------------------------------------------------------------------
Selling price $54.74 $ 6.97 $46.04 $48.79
Cash cost of hedging (5.02) - - (2.57)
---------------------------------------------------------------------
Net selling price 49.72 6.97 46.04 46.22
---------------------------------------------------------------------
Royalties, net of ARC 10.13 1.62 11.50 10.04
Operating 12.00 1.32 9.03 10.09
Transportation 0.58 0.13 0.50 0.64
---------------------------------------------------------------------
Operating netback $27.01 $ 3.90 $25.01 $25.45
---------------------------------------------------------------------
---------------------------------------------------------------------
Oil Gas NGL Total
Operating Netbacks 2004 $/bbl $/mcf $/bbll $/boe
---------------------------------------------------------------------
Selling price $42.50 $ 6.76 $37.06 $41.15
Cash cost of hedging (4.91) - - (2.02)
---------------------------------------------------------------------
Net selling price 37.59 6.76 37.06 39.13
---------------------------------------------------------------------
Royalties, net of ARC 6.43 1.37 11.11 7.67
Operating 11.94 0.84 6.79 8.19
Transportation 0.22 0.15 0.41 0.56
---------------------------------------------------------------------
Operating netback $19.00 $ 4.40 $18.75 $22.71
---------------------------------------------------------------------
---------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
Net Oil
and
Natural Net income
($millions, except Gas Net per Unit
per unit amounts) Sales (1) Income Basic Diluted
---------------------------------------------------------------------
2005
First quarter $122.9 $ 19.2 $ 0.19 $ 0.19
2004
First quarter $ 81.1 $ 7.6 $ 0.10 $ 0.10
Second quarter 89.9 0.8 0.01 0.01
Third quarter 119.9 15.1 0.15 0.15
Fourth quarter 125.9 50.9 0.51 0.51
2003
Second quarter $ 77.9 $ 15.3 $ 0.26 $ 0.26
Third quarter 75.4 15.1 0.23 0.23
Fourth quarter 76.8 24.3 0.35 0.35
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Net after royalties
CAPITAL EXPENDITURES Acquisitions During the three months ended March 31, 2005, PC spent $6.3 million to acquire minor property interests in the Turin area, as compared to $1.1 million in the first quarter of 2004. Development Activities During the three months ended March 31, 2005, PC incurred $48.4 million drilling and development activities as compared to $12.6 million in the three months ended March 31, 2004. A total of 73 wells were drilled, of which 50 were gas, 20 oil, 1 service well and 2 dry and abandoned for an overall success rate of 97%. A summary of capital expenditures for the period is as follows (in $ thousands):
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Property acquisitions (1) $ 6,251 $ 1,090
---------------------------------------------------------------------
Development expenditures:
Land & seismic 3,969 607
Drilling & completion 22,398 5,686
Well equipping 5,051 1,198
Tie-ins 4,351 1,081
Facilities 8,716 2,546
CO2 purchases 3,818 1,458
Other 87 40
---------------------------------------------------------------------
Total 48,390 12,616
---------------------------------------------------------------------
Total net capital expenditures $ 54,641 $ 13,706
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) The property acquisition totals exclude non-cash future income
tax adjustments for the difference between the cost and tax basis
is of assets acquired by way of corporate acquisitions.
ASSET RETIREMENT FUND As at March 31, 2005, PC had $7.5 million set aside in cash to fund future 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. This cash fund is in place to fund significant future 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. costs, such as the decommissioning Decommissioning is a general term for a formal process to remove something from operational status. Some specific instances include:
GOODWILL The goodwill balance of $180.3 million arose as a result of the Ultima and Central Alberta acquisitions in 2004. The goodwill balance was determined based on the excess of total consideration paid plus the future income tax liability less the fair value of the assets acquired in each transaction. Accounting standards require that the goodwill balance be assessed for 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. at least annually or more frequently if events or changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or indicate that the balance might be impaired See assistive technology. . If such an impairment exists, it would be charged to income in the period in which the impairment occurs. The Trust has determined that there was no goodwill impairment as of March 31, 2005. DEBT As at March 31, 2005, the amount outstanding on the credit facility was $239.2 million, with $85.8 million available to finance future activities prior to the increase in the borrowing base. On April 29, 2005, PC's borrowing base was increased to $415 million and the revolving period on the syndicated facility of $390 million was extended for a further 364 day period ending on April 28, 2006. In the event that the revolving bank line is not extended at the end of the 364 day revolving period, no payments are required to be made to non-extending lenders during the first year of the term period. However, Petrofund will be required to maintain certain minimum balances on deposit with the syndicate Syndicate organized crime unit throughout major cities of the United States. [Am. Hist.: NCE, 2018] See : Gangsterism agent. LIQUIDITY AND CAPITAL RESOURCES The working capital deficit was $59.5 million at March 31, 2005, an increase of $10.2 million from the $49.3 million deficit as at December 31, 2004. The March 31, 2005 and December 31, 2004 deficits excludes net unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on commodity contracts. Current assets Current Assets Appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. increased $7.4 million from $48.6 million at December 31, 2004 to $56.0 million at March 31, 2005. 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 $17.6 million from $97.9 million at December 31, 2004 to $115.5 million at March 31, 2005. This increase in liabilities reflects an increase in the capital expenditures in the quarter and an increase in distributions payable to Unitholders. During first quarter of 2005 the Trust generated cash flow of $73.0 million and paid out $47.9 million in distributions. The excess of $25.0 million was used to partially fund the Trust's capital expenditure program. Total 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. increased to $239.2 million at March 31, 2005, from $214.4 million at December 31, 2004, due to the cost of development activities. The banking syndicate reviewed the borrowing base in conjunction with its review of the independent engineering report as at December 31, 2004 and increased the limit on the facility to $415 million from $325 million effective April 29, 2005. The changes in total long- long- Adverb (in combination) for or lasting a long time: long-established, long-lasting term debt were due to:
For the three months ended March 31, ($thousands) 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Cash flow $ 72,959 $ 49,047
Proceeds received from issuance of Trust
units 4,190 907
Net change in non-cash working capital
balances (7,132) 25,846
Distributions paid (47,894) (34,910)
Expenditures on oil & natural properties, net (54,641) (13,706)
Asset retirement reserve (476) (363)
Redemption of exchangeable shares (387) (451)
Capital lease repayments (406) (86)
(Increase) decrease in cash 8,964 (6,415)
---------------------------------------------------------------------
$ (24,823) $ 19,869
---------------------------------------------------------------------
---------------------------------------------------------------------
In the absence of an equity issue, long-term debt will increase in 2005 due to the capital expenditure program which is expected to be in the $120 million range (excluding acquisitions) of which a significant portion is expected to be funded from cash flow. If the Trust is successful in completing one or more significant acquisitions in 2005 these would be financed by further utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be of the credit facility or a combination of additional bank borrowing and a possible equity issue of treasury units. Capitalization Analysis ($thousands, except per unit and percent amounts) 2005 2004 --------------------------------------------------------------------- --------------------------------------------------------------------- Working capital (deficiency) (1) $ (59,531) $ (56,093) Bank debt 239,237 89,838 Capital lease obligation - 202 --------------------------------------------------------------------- Net debt obligation $ 298,768 $ 146,133 --------------------------------------------------------------------- Units outstanding and issuable for Exchangeable Shares 100,746 73,682 Market Price at March 31, 17.64 17.35 Market capitalization $1,777,156 $1,278,390 --------------------------------------------------------------------- Total capitalization $2,075,924 $1,424,523 --------------------------------------------------------------------- Net debt as a percentage of total capitalization 14% 10% --------------------------------------------------------------------- --------------------------------------------------------------------- (1) Excludes net unrealized losses on commodity contracts. Based on annualized first quarter 2005 cash flow, Petrofund's net debt to cash flow ratio is 1.0:1.0. Total capitalization as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Total capitalization is not intended to represent the total funds from equity and debt received by the Trust. UNITHOLDERS' EQUITY
The weighted average Trust units/exchangeable shares outstanding are
as follows:
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
Basic 100,602,757 73,673,782
Diluted 100,644,186 73,872,208
---------------------------------------------------------------------
---------------------------------------------------------------------
Trust units/exchangeable shares outstanding:
As at March 31, 2005 2004
---------------------------------------------------------------------
Trust units outstanding 100,206,640 72,743,253
Trust units issuable for exchangeable
shares (Note 3) 539,147 939,147
---------------------------------------------------------------------
100,745,787 73,682,400
---------------------------------------------------------------------
---------------------------------------------------------------------
The Trust had 100,206,640 Trust units outstanding at March 31, 2005 compared to 72,743,253 Trust units at the end of March 31, 2004. The weighted average number of Trust units outstanding including Exchangeable Shares, was 100,745,787 Trust units for the first quarter of 2005 as compared to 73,682,400 for 2004. During the first quarter of 2005, 316,251 Exchangeable Shares were converted into 400,000 Trust units and 17,747 were redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. for cash leaving 422,650 Exchangeable Shares outstanding at March 31, 2005 which are convertable into 539,147 Trust units. FINANCIAL INSTRUMENTS The net negative fair value of the commodity contracts at March 31, 2005 of $35.1 million has been recorded on the balance sheet as "commodity contracts" under assets or liabilities, as appropriate. The negative change in the fair value of the contracts, from January January: see month. 1, 2005 to March 31, 2005 of $23.8 million is recorded in the income statement on a separate line as "loss on commodity contracts". The line item also includes realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. on commodity contracts of $8.2 million for three months ended March 31, 2005 compared to $4.9 million for three months ended March 31, 2004.
Deferred Commodity Contracts ($000Eas)
Jan 1, Amortized Mar 31,
2005 to Expense 2005
---------------------------------------------------------------------
Current Asset
Deferred loss $ 517 $ (129) $ 388
Current Liability
Deferred gain (184) 70 (114)
---------------------------------------------------------------------
$ 333 $ (59) $ 274
---------------------------------------------------------------------
---------------------------------------------------------------------
Commodity Contracts ($000Eas)
Jan 1, Change in Mar 31,
2005 Fair Value 2005
---------------------------------------------------------------------
Current Asset
Commodity contracts $ 3,281 $ (3,093) $ 188
Current Liability
Commodity contracts (14,599) (20,679) (35,278)
---------------------------------------------------------------------
$(11,318) $(23,772) $(35,090)
---------------------------------------------------------------------
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NON-RESIDENT OWNERSHIP Based on information available to the Trust, Petrofund estimated that non-resident ownership was approximately 71% as of April 30, 2005. While there are, at present, no restrictions or deadlines on Petrofund pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to non-resident ownership levels, the Trust will continue to provide non-resident ownership level updates on a quarterly basis. Petrofund continues to monitor developments in this area. OFF-BALANCE SHEET ARRANGEMENTS The Trust has no off-balance sheet financing arrangements. OUTLOOK FOR 2005 The level of cash flow for 2005 will be affected by oil and gas prices, the Canadian - US dollar exchange rate and the Trust's ability to add reserves and production in a cost effective manner. Both product prices and the exchange rate showed significant volatility in 2004 and this trend is expected to continue in 2005. The acquisition market is expected to continue to be active. Nevertheless, competition for these assets is expected to be fierce due to increased demand resulting from the increasing number of oil and gas companies that have converted to a trust structure. The Trust expects prices for quality, long life assets to be at or near record levels. Petrofund expects to be an active participant Participant A party of a funding. It usually refers to the lowest rank or smallest level of funding. in this market but success will be tempered by a commitment to maintain historic discipline and bid only at levels consistent with the best long term interest of our unitholders. Acquisition activities will be complemented by an extensive drilling and farmout program that will be conducted on our existing land base. Although product prices have remained at high levels, the strengthening of the Canadian dollar in the first quarter of 2005 moderated the net effect of these prices on Petrofund's cash flow. The WTI U.S. price increased 42% to $49.84/bbl in 2005 from $35.14/bbl in the first quarter of 2004; however, as the (US/CDN) exchange rate averaged $0.82 in 2005 as compared to $0.76 in the first quarter of 2004 the par price at Edmonton was up only 35%. The Trust expects the Canadian dollar to remain strong throughout 2005. Petrofund pursues a well defined risk management program to help offset the effect of price fluctuations. This program utilizes collars as the main hedging tool but Petrofund also enters into fixed price transactions when commodity prices approach historic highs. To date, the Trust has not entered into any currency related transactions. A discussion of the risk management strategies and hedged positions appear elsewhere in this report. SENSITIVITY ANALYSIS Below is a table that shows sensitivities to pre-hedging cash flow as a result of product price and operational changes that can significantly affect cash flow and results of operations. The table is based on actual 2005 prices received for the first quarter of 2005 and production volumes of 35,000 boe/d. These sensitivities are approximations only and are not necessarily valid at other price and production levels. As well, hedging activities can significantly affect these sensitivities.
$/unit
Change $000's per year
---------------------------------------------------------------------
Price per barrel of oil(1) $ 1.00 US $7,607 $0.075
Price per mcf of natural gas(1) $0.25 CDN $6,143 $0.061
US/Cdn exchange rate $ 0.01 $4,681 $0.046
Interest rate on debt ($239 million) 1% $2,390 $0.024
Oil production volumes(1) 100 bbl/day $1,638 $0.016
Gas production volumes(1) 1 mmcf/day $1,946 $0.019
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(1) After adjustment for estimated royalties.
Consolidated Balance Sheet
(thousands of dollars) (unaudited)
As at March 31, 2005 and December 31, 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets
Current assets
Accounts receivable $ 40,027 $ 37,713
Deferred loss on commodity contracts 388 517
Commodity contracts (Note 8) 188 3,281
Prepaid expenses 15,985 10,847
---------------------------------------------------------------------
Total current assets 56,588 52,358
Asset retirement reserve fund (Note 6(b)) 7,529 7,053
Goodwill 180,307 180,307
Oil and natural gas royalty and property
interests, at cost less accumulated
depletion and depreciation of $675,757
(2004 - $632,668) 1,259,248 1,246,694
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$1,503,672 $1,486,412
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---------------------------------------------------------------------
Liabilities and Unitholders' Equity
Current liabilities
Bank overdraft $ 9,697 $ 733
Accounts payable and accrued liabilities 61,280 60,961
Current portion of capital lease obligations 202 608
Deferred gain on commodity contracts 114 184
Commodity contracts (Note 8) 35,278 14,599
Distributions payable to Unitholders (Note 7) 44,364 35,568
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Total current liabilities 150,935 112,653
Long-term debt (Note 5) 239,237 214,414
Future income taxes 68,705 81,411
Asset retirement obligations (Note 6(a)) 51,913 51,408
---------------------------------------------------------------------
Total liabilities 510,790 459,886
Unitholders' equity
Unitholders' capital (Note 2) 1,486,633 1,477,963
Exchangeable shares (Note 3) 6,038 10,518
Accumulated earnings 291,855 272,612
Accumulated cash distributions (Note 7) (791,644) (734,567)
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Total unitholders' equity 992,882 1,026,526
---------------------------------------------------------------------
$1,503,672 $1,486,412
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---------------------------------------------------------------------
The accompanying notes to the Interim Consolidated Financial
Statements are an integral part of this consolidated balance sheet.
Consolidated Statement of Operations and Accumulated Earnings
(thousands of dollars, except per unit amounts) (unaudited)
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues
Oil and natural gas sales $ 154,768 $ 99,699
Royalties (31,844) (18,578)
Loss on commodity contracts (31,997) (17,491)
---------------------------------------------------------------------
90,927 63,630
---------------------------------------------------------------------
Expenses
Lease operating 32,010 19,829
Transportation costs 2,036 1,355
Financing costs 2,131 906
General and administrative 3,639 3,138
Capital taxes 787 737
Depletion, depreciation and accretion 43,702 29,546
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84,305 55,511
---------------------------------------------------------------------
Income before provision for income taxes 6,622 8,119
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Provision for (recovery of) income taxes
Current 85 47
Future (12,706) 443
---------------------------------------------------------------------
(12,621) 490
---------------------------------------------------------------------
Net income 19,243 7,629
---------------------------------------------------------------------
Accumulated earnings, beginning of period 272,612 198,253
Accumulated earnings, end of period $ 291,855 $ 205,882
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---------------------------------------------------------------------
Net income per Trust unit (Note 2)
Basic $ 0.19 $ 0.10
Diluted $ 0.19 $ 0.10
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---------------------------------------------------------------------
The accompanying notes to the Interim Consolidated Financial
Statements are an integral part of these consolidated statements.
Consolidated Statement of Cash Flows
(thousands of dollars) (unaudited)
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Cash provided by (used in):
Operating activities
Net income $ 19,243 $ 7,629
Add items not affecting cash:
Depletion, depreciation and accretion 43,702 29,546
Commodity contracts 23,831 12,591
Future income taxes (12,706) 443
Actual abandonment costs incurred (Note 6) (1,111) (1,162)
---------------------------------------------------------------------
72,959 49,047
Net change in non-cash operating working
capital balances (7,132) 25,846
---------------------------------------------------------------------
Cash provided by operating activities 65,827 74,893
---------------------------------------------------------------------
Financing activities
Bank loan 24,823 (19,869)
Distributions paid (Note 7) (47,894) (34,910)
Redemption of exchangeable shares (Note 3) (387) (451)
Capital lease repayments (406) (86)
Issuance of Trust units (Note 2) 4,190 907
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Cash used in financing activities (19,674) (54,409)
---------------------------------------------------------------------
Investing activities
Asset retirement reserve (Note 6(b)) (476) (363)
Property acquisitions (6,251) (1,090)
Development expenditures (48,390) (12,616)
---------------------------------------------------------------------
Cash used in investing activities (55,117) (14,069)
---------------------------------------------------------------------
Net change in cash (bank overdraft) (8,964) 6,415
Cash (bank overdraft), beginning of period (733) 2,182
---------------------------------------------------------------------
Cash (bank overdraft), end of period $ (9,697) $ 8,597
---------------------------------------------------------------------
---------------------------------------------------------------------
Interest paid during the period $ 2,148 $ 944
---------------------------------------------------------------------
Income taxes paid during the period $ 244 $ 55
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The accompanying notes to the Interim Consolidated Financial
Statements are an integral part of these consolidated statements.
Notes to Interim Consolidated Financial Statements
March 31, 2005 and 2004
(unaudited)
(tabular amounts in thousands of dollars, except per unit amounts)
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 financial statements provide additional disclosures to that required for interim financial statements. Accordingly, these interim financial statements should be read in conjunction with the audited consolidated financial statements of Petrofund Energy Trust ("Petrofund" or the "Trust") as at December 31, 2004 and 2003 and for each of the years in the three-year period ended December 31, 2004.
2. TRUST UNITS
Number
Authorized: unlimited number of Trust units of Units $000's
---------------------------------------------------------------------
Issued
December 31, 2004 99,511,576 $1,477,963
Exchangeable shares converted (Note 3) 400,000 4,480
Options exercised 270,324 3,799
Unit purchase plan 1,681 31
Unit incentive plan 23,059 360
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March 31, 2005 100,206,640 $1,486,633
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---------------------------------------------------------------------
The weighted average Trust units/exchangeable shares outstanding are
as follows:
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
Basic 100,602,757 73,673,783
Diluted 100,644,186 73,872,208
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---------------------------------------------------------------------
The diluted amounts include all dilutive instruments.
Trust units/exchangeable shares outstanding:
As at March 31, 2005 2004
---------------------------------------------------------------------
Trust units outstanding 100,206,640 72,743,253
Trust units issuable for exchangeable
shares (Note 3) 539,147 939,147
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100,745,787 73,682,400
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3. EXCHANGEABLE SHARES
Number
Issued and Outstanding of Shares $000's
---------------------------------------------------------------------
Balance, December 31, 2004 756,648 $ 10,518
Redemption of shares (17,747) -
Exchanged for Trust Units (1) (316,251) (4,480)
---------------------------------------------------------------------
Balance, March 31, 2005 422,650 6,038
Exchangeable ratio, end of period 1.27563 -
---------------------------------------------------------------------
Exchangeable for Trust units 539,147 $ 6,038
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(1) On March 7, 2005, 316,251 Exchangeable Shares were converted to
400,000 Trust units at an exchange rate of 1.26482.
4. RESTRICTED UNIT PLAN ("RUP (Rational Unified Process) Software from IBM that provides guidelines, templates and examples for each team member in the system development process. Supporting the Unified Modeling Language (UML), RUP can be used with other Rational tools to provide a uniform set of ") AND 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. INCENTIVE PLAN ("LTIP LTIP Long Term Incentive Plan LTIP Laughing Till I Puke LTIP Local Transportation Improvement Program LTIP Long Term Instrument Plan LTIP Long Term Infrastructure Program LTIP Long Term Independent Project ") On February 17, 2004, the Board of Directors approved the adoption of the RUP and LTIP which authorizes the Trust to issue units to directors, officers, employees, or consultants of the Trust or any of its subsidiaries. The units, plus 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. distributions, vest over time and upon vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: may be redeemed by the holder for cash or units under the RUP and for units only under the LTIP. The units are issued, or the cash paid out, on the vesting dates based upon the weighted average trading prices Trading price The price at which a security is currently selling. of the units for the last 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. prior to the vesting dates. The estimated value of the units to be issued, or the cash to be paid out, is charged to expense over the vesting periods of the grants. The number of units outstanding, excluding accrued distributions, is as follows: RUP LTIP --------------------------------------------------------------------- Balance, December 31, 2004 51,426 31,156 Units issued (18,760) (31,156) Granted 93,510 61,245 Forfeitures (752) - --------------------------------------------------------------------- Balance, March 31, 2005 125,424 61,245 --------------------------------------------------------------------- --------------------------------------------------------------------- The Trust recorded compensation expenses of $450,000 in the first quarter of 2005 (2004 - $267,000). The compensation expense was based on the March 31, 2005 unit price of $17.64, distributions of $0.48 per unit during the quarter and management's estimate of the number of RUP and LTIP units to be issued on maturity. 5. LONG-TERM DEBT Under the loan agreements, as at March 31, 2005, Petrofund Corp. ("PC"), a wholly-owned subsidiary of the Trust had a revolving working capital operating facility of $25 million and a syndicated facility of $300 million. On April 29, 2005, PC increased its syndicated facility to $390 million, bringing PC's borrowing base to $415 million. Interest on the working capital loan is at prime and interest on the syndicated facility varies with PC's debt to cash ratio from prime plus 80 basis points or, at the Trust's option, banker's acceptances Banker's Acceptance A short-term credit investment created by a non-financial firm and guaranteed by a bank. Notes: Acceptances are traded at a discount from face value on the secondary market. rates plus 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. fees. The prime rate at March 31, 2005 was 4.25%. As at March 31, 2005, there was no amount outstanding under the working capital facility and $239.2 million outstanding under the syndicated facility. The revolving period on the syndicated facility ends on April 28, 2006, unless extended for a further 364 day period. In the event that the revolving bank line is not extended at the end of the 364 day revolving period, no payments are required to be made to non-extending lenders during the first year of the term period. However, PC will be required to maintain certain minimum balances on deposit with the syndicate agent. The limit of the syndicated facility is subject to adjustment from time to time to reflect changes in PC's asset base. The credit facility is secured by a 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. of $600 million pursuant to which a Canadian chartered bank 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 , as principal and as agent for the other lenders, received a first ranking security interest on all of PC's assets. The loan is the legal obligation of PC. While principal and interest payments are allowable deductions in the calculation of royalty income, the Unitholders have no direct liability to the bank or to PC should the assets securing the loan generate insufficient in·suf·fi·cient adj. 1. Not sufficient. 2. Incapable of proper functioning. cash flow to repay the obligation. Substantially all of the credit facility is financed with Banker's Acceptances, resulting in a reduction in the stated bank loan interest rates. 6. ASSET RETIREMENT OBLIGATIONS Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. AND RESERVE FUND (a) Asset Retirement Obligations ("ARO") The total future asset retirement obligation was estimated by management based on the Trust's net ownership interest in wells and facilities and the estimated timing of the costs to be incurred in future periods. The following reconciles the Trust's outstanding ARO for the periods indicated: For the three months ended March 31, ($000's) 2005 2004 --------------------------------------------------------------------- Balance, at beginning of period $ 51,408 $ 34,363 Increase in liabilities during the period 1,003 215 Accretion expense during period 613 554 Actual costs incurred during the period (1,111) (1,162) --------------------------------------------------------------------- Balance, at end of period $ 51,913 $ 33,970 --------------------------------------------------------------------- --------------------------------------------------------------------- (b) Asset Retirement Reserve Fund PC maintains a cash reserve to finance large and unusual oil and natural gas property reclamation and abandonment costs by withholding Withholding Any tax that is taken directly out of an individual's wages or other income before he or she receives the funds. Notes: In other words, these funds are "withheld" from your wages. distributions accruing to Unitholders. At March 31, 2005, the cash reserve was $7.5 million (2004 - $4.1 million). In first quarter of 2005 PC increased the cash reserve by withholding $476,000 from distributions accruing to Unitholders. In addition, routine ongoing reclamation and abandonment costs of $1.1 million in the first quarter of 2005 (2004 - $1.2 million) were incurred and 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. from distributions accruing to Unitholders. 7. 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 income and debt repayments from PC. An overall analysis is as follows:
For the period ended Cash Distribution Date 2005 2004
---------------------------------------------------------------------
November 30 January 31 $0.16 $0.16
December 31 February 28 0.16 0.16
January 31 March 31 0.16 0.16
---------------------------------------------------------------------
Cash Distributions per
Trust unit $0.48 $0.48
---------------------------------------------------------------------
---------------------------------------------------------------------
Reconciliation of Distributions Accruing to Unitholders
(thousands of dollars)
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
Distributions payable, beginning of period $ 35,568 $ 53,452
---------------------------------------------------------------------
Distributions accruing during the period
Cash flow provided by operating activities 65,827 74,893
Net change in non-cash operating working
capital balance 7,132 (25,846)
Amortization of the cost of commodity contracts - (221)
Redemption of exchangeable shares (387) (451)
Asset retirement reserve (476) (363)
Capital lease repayment (406) (86)
---------------------------------------------------------------------
Cash flow before capital reinvestment 71,690 47,926
Reserve for capital expenditures (15,000) (7,500)
---------------------------------------------------------------------
Total distributions accruing during the period 56,690 40,426
Distributions paid (47,894) (34,910)
---------------------------------------------------------------------
Distributions payable, end of period (1) $ 44,364 $ 58,968
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) It is expected that a portion of this amount will be used to fund
capital expenditures in the future.
Accumulated Cash Distributions
(thousands of dollars)
For the three months ended March 31, 2005 2004
---------------------------------------------------------------------
Accumulated cash distributions,
beginning of year $734,567 $581,155
Distributions accruing during the period 56,690 40,426
Redemption of exchangeable shares 387 451
---------------------------------------------------------------------
Accumulated cash distributions, end of period $791,644 $622,032
---------------------------------------------------------------------
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8. DERIVATIVE FINANCIAL INSTRUMENTS AND PHYSICAL CONTRACTS The Trust enters into various pricing mechanisms to reduce price volatility and establish minimum 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, all of which constitute effective economic 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 since 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. of the contracts at March 31, 2005, are summarized separately below:
Unrealized
Gain
Natural Volume Delivery (Loss)
Gas Term mcf/d Price $/mcf Point $000's
---------------------------------------------------------------------
Fixed April 1, 2005 to
June 30, 2005 4,737 $7.07 AECO $ (398)
---------------------------------------------------------------------
Collar April 1, 2005 to
October 31, 2005 4,737 $6.33-$8.44 AECO (418)
---------------------------------------------------------------------
Collar April 1, 2005 to
October 31, 2005 4,737 $6.33-$9.60 AECO (128)
---------------------------------------------------------------------
Collar April 1, 2005 to
October 31, 2005 4,737 $6.33-$8.44 AECO (418)
---------------------------------------------------------------------
Collar April 1, 2005 to
October 31, 2005 4,737 $6.33-$8.44 AECO (418)
---------------------------------------------------------------------
Three
way April 1, 2005 to $4.75-$5.80
collar October 31, 2005 4,737 -$7.92 AECO (652)
---------------------------------------------------------------------
Fixed July 1, 2005 to
September 30, 2005 4,737 $7.06 AECO (607)
---------------------------------------------------------------------
Three
way November 1, 2005 to $5.68-$6.70
collar March 31, 2006 4,737 -$10.55 AECO (467)
---------------------------------------------------------------------
Three
way November 1, 2005 to $5.28-$6.33
collar March 31, 2006 4,737 -$12.98 AECO (233)
---------------------------------------------------------------------
Collar November 1, 2005 to
March 31, 2006 4,737 $7.28-$13.61 AECO 40
---------------------------------------------------------------------
Total $ (3,699)
---------------------------------------------------------------------
---------------------------------------------------------------------
Unrealized
Volume Delivery Loss
Oil Term bbl/d Price $/bbl Point $000's
---------------------------------------------------------------------
Three
way January 1, 2005 to $24.19-$29.03
collar December 31, 2005 1,000 -$35.08 Edmonton $(10,025)
---------------------------------------------------------------------
Three
way January 1, 2005 to $29.03-$32.43
collar December 31, 2005 1,000 -$40.90 Edmonton (8,214)
---------------------------------------------------------------------
Three
way January 1, 2005 to $27.82-$32.42
collar December 31, 2005 1,000 -$39.67 Edmonton (8,570)
---------------------------------------------------------------------
Three
way April 1, 2005 to $42.34-$48.38
collar June 30, 2005 1,000 -$60.48 Edmonton (760)
---------------------------------------------------------------------
Collar April 1, 2005 to
June 30, 2005 1,000 $48.38-$66.53 Edmonton (364)
---------------------------------------------------------------------
Three
way July 1, 2005 to $42.34-$48.38
collar December 31, 2005 1,000 -$67.74 Edmonton (1,126)
---------------------------------------------------------------------
Collar July 1, 2005 to
September 30, 2005 1,000 $50.80-$68.77 Edmonton (476)
---------------------------------------------------------------------
Collar October 1, 2005 to
December 31, 2005 1,000 $50.80-$67.98 Edmonton (529)
---------------------------------------------------------------------
Three
way January 1, 2006 to $42.34-$48.38
collar March 31, 2006 1,000 -$64.11 Edmonton (725)
---------------------------------------------------------------------
Collar January 1, 2006 to
March 31, 2006 1,000 $50.80-$72.58 Edmonton (325)
---------------------------------------------------------------------
Collar January 1, 2006 to
March 31, 2006 1,000 $54.43-$84.67 Edmonton (4)
---------------------------------------------------------------------
Three
way April 1, 2006 to $44.76-$50.80
collar June 30, 2006 1,000 -$71.67 Edmonton (421)
---------------------------------------------------------------------
Total $(31,539)
---------------------------------------------------------------------
---------------------------------------------------------------------
Unrealized
Volume Price Delivery Gain
Electricity Term MW/h $/MWh Point $000's
---------------------------------------------------------------------
February 1,
2004 to Alberta
Fixed December 31, Power
Price 2005 2.0 $44.50 Pool $ 148
---------------------------------------------------------------------
---------------------------------------------------------------------
Derivative financial instruments and related 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. . The gains or losses incurred are recognized on a monthly basis over the terms of the hedge contracts. All foreign exchange calculations in this section of the report incorporate the Bank of Canada US dollar rate at the close on March 31, 2005 of CDN $1.2096:US$. Petrofund Energy Trust is a Calgary based 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 pays its Unitholders monthly cash distributions, which are derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from the Trust's cash flow from these properties. Petrofund Energy Trust was founded in 1988 and was one of the first oil and gas royalty trusts 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 . This news release may include statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements provisions contained in the U.S. Private Securities Litigation Reform Act of 1995. Petrofund Energy Trust 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 Petrofund Energy Trust currently foresees. Discussion of the various factors that may affect future results is contained in Petrofund Energy Trust's recent filings with the Securities and Exchange Commission and Canadian securities regulatory authorities. In regards to barrels of oil equivalent (boe), boes may be misleading, particularly if used in isolation. A BOE conversion of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. PETROFUND ENERGY TRUST Jeffery E. Errico President and Chief Executive Officer Petrofund Energy Trust (TSX:PTF.UN) (AMEX:PTF) |
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