NuVista Energy Ltd. Announcing Third Quarter Results
CALGARY, ALBERTA--(CCNMatthews - Nov. 4, 2004) - NuVista Energy Ltd. is
pleased to announce its financial and operating results for the three
and nine months ended September 30, 2004 as follows:
/T/
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Corporate Highlights
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Three Nine
Months Period (1) Months
ended ended ended
September September September
30, 2004 30, 2003 % Change 30, 2004
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(restated)
Financial
($ thousands, except per share)
Production revenue 21,565 12,399 74 53,663
Cash flow from operations (2) 13,682 7,554 81 34,649
Per share - basic 0.35 0.21 67 0.91
Per share - diluted 0.34 0.20 70 0.88
Net income (3) 4,335 2,746 58 12,607
Per share - basic 0.11 0.08 38 0.33
Per share - diluted 0.11 0.07 57 0.32
Total assets 161,782 82,142 97 161,787
Bank loan,
net of working capital 34,517 7,586 355 34,517
Shareholders' equity 109,080 69,699 56 109,080
Net capital expenditures 57,746 7,523 668 75,862
Weighted average common shares
outstanding (thousands):
Basic 39,643 35,382 12 38,110
Diluted 40,699 37,846 8 39,250
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Operating
(boe conversion - 6:1 basis)
Production:
Natural gas (mmcf/day) 27.8 17.8 56 23.3
Oil and liquids (bbls/day) 1,475 983 50 1,280
Total oil equivalent (boe/day) 6,113 3,949 55 5,163
Product prices:
Natural gas ($/mcf) 6.40 6.02 6 6.51
Oil and liquids ($/bbl) 38.11 29.70 28 34.61
Operating expenses ($/boe):
Natural gas ($/mcf) 0.73 0.56 30 0.68
Oil and liquids ($/bbl) 4.08 4.26 (4) 3.99
Total oil equivalent ($/boe) 4.31 3.58 20 4.04
General & administrative
expenses ($/boe) 0.37 0.35 6 0.36
Cash costs ($/boe) 5.24 4.77 10 4.74
Cash flow netback ($/boe) (2) 24.33 21.02 16 24.50
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NOTES:
(1) Period is from July 2, 2003 to September 30, 2003.
(2) Cash flow from operations is used before changes in non-cash working
capital to analyze operating performance and leverage. Cash flow
does not have a standardized measure prescribed by Canadian
Generally Accepted Accounting Principles and therefore may not be
comparable with the calculations with similar measures for other
companies.
(3) Net income and net income per share for 2003 have been restated for
the adoption of new accounting standards for asset retirement
obligations and stockbased compensation. See Note 1 of the interim
consolidated financial statements for details of this restatement.
/T/
MESSAGE TO SHAREHOLDERS
NuVista Energy Ltd. ("NuVista") is pleased to report to shareholders its
financial and operating results for the three and nine months ended
September 30, 2004. NuVista has now completed fifteen months of
operations and the Board of Directors and management are very pleased
with the results, accomplishments and corresponding value created for
its shareholders. The results of the third quarter of 2004 represent the
fifth consecutive quarter of continuous profitable growth for NuVista,
since its creation on July 2, 2003 through the Plan of Arrangement
involving Bonavista Petroleum Ltd. and Bonavista Energy Trust
(collectively "Bonavista").
During the third quarter of 2004, NuVista was successful in the
completion of one major acquisition, a private company, for
approximately $47.4 million. This acquisition provides NuVista with a
significantly expanded land position and prospect inventory in two
areas, the Provost area (a northwest extension of NuVista's Eastern
Natural Gas Region) and a new core region in the Pembina area. With the
private company acquisition completed on July 29, 2004, NuVista
announced an increase of its base capital budget from $70 million to $95
million for 2004 and the increase in the drilling program to
approximately 90 wells. The expanded capital program for 2004 will
enable NuVista's 2004 forecasted exit production to increase 12% to
7,500 boe per day from the 6,700 boe per day originally forecasted.
Other significant highlights for NuVista include:
- Since inception, production has increased by 94% to the current level
of 6,800 boe per day, consisting of 32 mmcf per day of natural gas and
1,420 bbls per day of oil and liquids;
- Increased undeveloped land by 77%, to over 305,000 net acres from the
172,000 net acres on commencement of operations, further enhancing the
drilling prospect inventory in its Core Regions. In addition, NuVista
has acquired options on, over 40,000 net acres of undeveloped land
through farm-in commitments to industry partners;
- Acquired 1,700 kilometers of 2D and 210 square kilometers of 3D
seismic to further enhance the prospectivity of NuVista's undeveloped
land thus far in 2004;
- Participated in 63 (49.6 net) wells year to date in 2004, with an
overall success rate of 89%;
- Evaluated and submitted proposals on a number of acquisition
opportunities in the third quarter of 2004, resulting in commitments for
four complimentary property acquisitions, two in the Eastern Alberta
Natural Gas Region and two in the Provost-Amisk Region;
- Continued focus on controllable cash costs has been a top priority,
with recorded cash costs of $5.24 per boe for the third quarter of 2004,
leaving NuVista in the top decile of its industry peers; and
- In October 2004, completed the expansion of the bank facility to $55
million, an increase of 72% since inception, leaving significant
financial flexibility to fund future opportunities as they arise.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis ("MD&A") of financial conditions
and results of operations should be read in conjunction with the
unaudited consolidated financial statements for the three and nine
months ended September 30, 2004 and NuVista's audited consolidated
financial statements and MD&A for the period from July 2, 2003 to
December 31, 2003. Barrels of oil equivalent ("boe") have been
calculated using a conversion rate of six thousand cubic feet of natural
gas to one barrel of oil.
Forward-Looking Statements - Certain information set forth in this
document, including management's assessment of NuVista's future plans
and operations, contains forward-looking statements. By their nature,
forward-looking statements are subject to numerous risks and
uncertainties, some of which are beyond NuVista's control, including the
impact of general economic conditions, industry conditions, volatility
of commodity prices, currency fluctuations, imprecision of reserve
estimates, environmental risks, competition from other industry
participants, the lack of availability of qualified personnel or
management, stock market volatility and ability to access sufficient
capital from internal and external sources. Readers are cautioned that
the assumptions used in the preparation of such information, although
considered reasonable at the time of preparation, may prove to be
imprecise and, as such, undue reliance should not be placed on
forward-looking statements. NuVista's actual results, performance or
achievement could differ materially from those expressed in, or implied
by, these forward-looking statements, or if any of them do so, what
benefits that NuVista will derive therefrom. NuVista disclaims any
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
New accounting policies - On January 1, 2004, NuVista adopted and
implemented new accounting policies pursuant to requirements of the
Canadian Institute of Chartered Accountants ("CICA") Handbook. The new
accounting policies adopted included: "Stock-based Compensation and
Other Stock-based Payments", "Asset Retirement Obligations" and "Hedge
Accounting" and are detailed further in Note 1 of the Notes to the
Consolidated Financial Statements.
Operating activities - The third quarter of 2004 was highlighted with
the private company acquisition whereby NuVista added 1,280 boe per day
of production, consisting of 7.1 mmcf per day of natural gas and 100
bbls per day of oil and liquids. This acquisition added two new core
areas at Provost and Pembina in Alberta. In the Provost area over 40
re-entry or drilling opportunities have been identified, as well as
numerous complementary acquisition opportunities. Two of these
acquisition opportunities have been completed to date. In general the
Provost area is expected to provide 20 to 25 drilling prospects per
year. In the Pembina area, NuVista has access to over 20,000 net acres
of highly prospective undeveloped land and has approved 10 re-entry and
drilling opportunities, targeting both low risk shallow and deeper
medium risk prospects. In the third quarter, NuVista also drilled 16
wells with an average working interest of 87%. The success rate of 94%
in this drilling program resulted in 15 natural gas wells. Of these 15
wells, 11 were medium depth natural gas prospects drilled in the Oyen
Natural Gas Region and four wells at the Provost area. As currently
being reported throughout the industry, NuVista also experienced minor
weather related delays resulting in drilling fewer natural gas tests and
oil prospects than originally planned and the delay of tie-ins and
compression projects until late in the third quarter. NuVista is
currently completing the successful third quarter wells and will drill
the remaining third quarter locations as part of the fourth quarter
program. NuVista operated all of the wells drilled in the third quarter,
with an average working interest of 87%. NuVista continues to actively
drill in its core regions, with 25 - 30 wells planned for the fourth
quarter. For the nine months ended September 30, 2004, NuVista drilled
54 (44.1 net) wells, operating 48, resulting in 39 natural gas wells,
eight oil wells and seven dry holes.
Production - For the third quarter of 2004 NuVista's average production
of 6,113 boe per day, which was comprised of 27.8 mmcf per day of
natural gas and 1,475 bbls per day of oil and liquids, represents a 55%
increase over the same period of 2003. A significant portion of
NuVista's third quarter natural gas drilling success will be brought
on-stream in the fourth quarter of 2004. NuVista's production results
for the nine months ended September 30, 2004 benefited from continued
success in its Eastern Alberta Core Region drilling program and
consisted of 23.3 mmcf per day of natural gas and 1,280 bbls per day of
oil and liquids.
Revenues - Revenues for the three months ended September 30, 2004 were
$21.6 million, a 74% increase from $12.4 million for the period from
July 2 to September 30, 2003. These revenues were comprised of $16.4
million of natural gas and $5.2 million of oil and liquids for the three
months ended September 30, 2004. The increase in revenues for the three
months ended September 30, 2004 versus the period from July 2 to
September 30, 2003 results from a 55% increase in production and an 11%
increase in commodity prices. The commodity price increase is made up of
a 6% increase in the natural gas price to $6.40 per mcf from $6.02 per
mcf and a 28% increase in the oil and liquids price to $38.11 per bbl
from $29.70 per bbl. Revenues for the nine months ended September 30,
2004 were $53.7 million.
Commodity hedging - As part of our financial management strategy,
NuVista has adopted a disciplined commodity-hedging program. The purpose
of the hedging program is to reduce volatility in the financial results,
protect acquisition economics and stabilize cash flow against the
unpredictable commodity price environment. At any given period of time
our hedging strategy is restricted to a maximum hedge of 40% of
forecasted production, net of royalties and primarily utilizes costless
collars in our hedging participation in commodity price increases. In
the third quarter of 2004, our hedging program resulted in a net loss of
$366,000 and for the nine months ended September 30, 2004 a net loss of
$730,000 was experienced due to the stronger than expected commodity
prices realized throughout the period. A summary of hedging contracts in
place as at September 30, 2004 is outlined in Note 6 of the Notes to the
Consolidated Financial Statements.
Royalties - Royalties of $4.9 million for the three months ended
September 30, 2004 were 58% higher than the $3.1 million for the period
from July 2 to September 30, 2003. The increase in royalties in the
third quarter resulted from higher revenues compared to the period from
July 2 to September 30, 2003, largely generated by higher production
volumes and oil and liquids prices. As a percentage of revenue, the
average royalty rate for the third quarter of 2004 was 23% compared to
25% for the comparative period of 2003. Royalties by product for the
third quarter of 2004 were 25% for natural gas and 17% for oil and
liquids versus 28% for natural gas and 15% for oil and liquids for the
similar period in 2003. The decrease in natural gas royalties results
from gas cost allowance credits received during the third quarter of
2004. Royalties for the nine months ended September 30, 2004 were $12.3
million or 23% of revenues, 25% for natural gas and 17% for oil and
liquids.
Operating expenses - Operating expenses were $2.4 million for the three
months ended September 30, 2004 versus $1.3 million for the period from
July 2 to September 30, 2003, an 85% increase. This increase resulted
primarily from the higher production volumes and higher per unit natural
gas operating costs associated with the private company acquisition. In
the third quarter of 2004, natural gas operating expenses averaged $0.73
per mcf and oil and liquids operating expenses were $4.08 per bbl as
compared to $0.56 per mcf and $4.26 per bbl respectively for the period
from July 2 to September 30, 2003. On a boe basis, operating costs
increased 20% to $4.31 per boe in the third quarter of 2004 as compared
to $3.58 per boe for the period from July 2 to September 30, 2003,
primarily due to higher costs of the newly acquired assets and cost
pressures facing the entire industry. Despite this increase, NuVista
still remains in the top decile for oil and natural gas companies in its
peer group. Operating expenses for the nine months ended September 30,
2004 were $5.7 million or $4.04 per boe. By commodity, natural gas
operating expenses were, $0.68 per mcf for natural gas and $3.99 per boe
for oil and liquids for the nine months ended September 30, 2004.
Overall, NuVista's cash costs, which include operating, general and
administrative, interest expenses and Large Corporation Tax, were $5.24
per boe in the third quarter of 2004 compared to $4.77 per boe for the
period from July 2 to September 30, 2003 and $4.74 for the nine months
ended September 30, 2004. This too places us in the top decile in our
peer group in this performance criteria.
General and administrative - General and administrative expenses, net of
overhead recoveries for the third quarter of 2004, were $206,000 ($0.37
per boe), an increase of 62% over the $127,000 ($0.35 per boe),for the
three months ended September 30, 2003, and is directly attributable to
the higher production base in NuVista. General and administrative
expenses, net of overhead recoveries were $508,000 ($0.36 per boe) for
the nine months ended September 30, 2004. Included in these expenses is
an allocation of $320,000 for the three months ended and $840,000 for
the nine months ended September 30, 2004 from Bonavista, charged
pursuant to the Technical Services Agreement. For the period from July 2
to September 30, 2003, $175,000 was allocated to NuVista under the
Technical Services Agreement. The Technical Services Agreement, entered
into as part of the Plan of Arrangement, has allowed NuVista to initiate
and continue with its successful and active capital programs, through
the use of Bonavista's personnel in managing its operations and at the
same time take advantage of Bonavista's low overhead cost structure. As
a result of adopting the new accounting rules, NuVista recorded a
stock-based compensation charge of $255,000 for the three months and
$733,000 for the nine months ended September 30, 2004, in connection
with the issuance of both the Class B Performance Shares and stock
options. The stock based non-cash compensation charge to net income for
the period from July 2 to September 30, 2003 was $230,000.
Financing charges - Financing charges during the third quarter of 2004
were $201,000 ($0.36 per boe) versus $244,000 ($0.68 per boe) for the
period from July 2 to September 30, 2003 because of lower average debt
levels and higher production volumes in the third quarter of 2004. For
the nine months ended September 30, 2004, financing charges were
$330,000 ($0.23 per boe). Currently, NuVista's average borrowing rate is
approximately 3.6%.
Depreciation, depletion and accretion expenses - Depreciation, depletion
and accretion expenses were $6.7 million for the third quarter of 2004
compared to $3.0 million for the same period in 2003. The average cost
per unit was $11.86 per boe in the third quarter of 2004 versus $8.52
per boe for the period from July 2 to September 30, 2003, due to higher
costs of adding reserves, primarily from the acquisition of the private
company, in the current quarter as compared to historic levels.
Depreciation, depletion and accretion expenses were $13.4 million for
the nine month period ended September 30, 2004, or $9.47 per boe. The
cumulative depreciation, depletion and accretion rate has been reduced
as a result of the retroactive adoption of the new accounting rules
relating to asset retirement obligations.
Income and other taxes - For the third quarter of 2004, the provision
for income and other taxes was $2.5 million for an effective tax rate of
37%, as compared to $1.6 million with an effective tax rate of 37% for
the period from July 2 to September 30, 2003. For the nine months ended
September 30, 2004, the provision for income and other taxes was $8.1
million for an effective tax rate of 39%.
Capital expenditures - Capital expenditures were $57.7 million during
the third quarter of 2004 consisting of exploration and development
spending of $10.0 million and $47.7 million of net acquisitions, which
included the private company acquisition. For the nine months ended
September 30, 2004, capital expenditures were $75.9 million.
Cash flow and net income - In the third quarter of 2004, cash flow was
$13.7 million ($0.35 per share, basic), an 81% increase over the $7.6
million ($0.21 per share, basic) for the period from July 2 to September
30, 2003. For the nine months ended September 30, 2004, NuVista's cash
flow was $34.7 million ($0.91 per share, basic). Net income also
increased 58% during the third quarter of 2004 to $4.3 million ($0.11
per share, basic) from the $2.7 million ($0.08 per share, basic)
restated for the period from July 2 to September 30, 2003. For the nine
months ended September 30, 2004 net income was $12.6 million ($0.33 per
share, basic). All of these increases resulted from stronger commodity
prices and increased production rates as NuVista continues to maintain a
strong net income to cash flow ratio of 31% for the third quarter ending
September 30, 2004 and 36% for the nine months ended September 30, 2004.
Liquidity and capital resources - As at September 30, 2004, total bank
debt (net of working capital) was $34.5 million, resulting in a debt to
running cash flow ratio of approximately 0.6 to 1. NuVista has
approximately $20.5 million of unused bank borrowing capability based on
the current line of credit of $55 million, which provides substantial
flexibility to fund expanded capital programs into the future. As at
November 4, 2004, there were 40,558,824 common shares and 884,066 Class
B Performance Shares outstanding. In addition, there were 1,666,487
stock options outstanding, with an average exercise price of $6.72 per
share.
Quarterly financial information - The following table highlights
NuVista's performance for the quarterly reporting periods from September
30, 2003 to September 30, 2004. NuVista commenced operations on July 2,
2003 through the Plan of Arrangement involving Bonavista:
/T/
2004 2003
--------------------------- ------------------------
September June March December July 2 to
30 30 31 31 September 30
--------------------------- ------------------------
(thousands, except
per share amounts) (restated) (restated)
Production revenue $21,565 $16,642 $15,456 $12,735 $12,399
Net income 4,335 4,540 3,732 2,878 2,746
Net income per share:
Basic $ 0.11 $ 0.12 $ 0.10 $ 0.08 $ 0.08
Diluted 0.11 0.12 0.10 0.08 0.07
/T/
BUSINESS RISKS AND OUTLOOK
NuVista's management remains committed to the same principles and
disciplined growth strategy that led to the tremendous success of
Bonavista over its first six year period as a high growth exploration
and production company. With the undeveloped land base now exceeding
305,000 net acres, an increased drilling inventory, coupled with our
strong balance sheet, NuVista is well positioned to continue posting
strong operational and financial results for the remainder of 2004 and
beyond. NuVista will continue to focus on its core strategy of applying
technical expertise to its operating regions in a prudent and
disciplined manner, through both the drill bit and strategic
acquisitions. The execution of these strategies will enable NuVista to
continue to grow its production, cash flow and net income consistently
and profitability. The continued expectations of exploration,
development and acquisition success, leaves NuVista in an excellent
position to average approximately 5,600 boe per day and a cash flow
estimate of $1.30 per share in 2004. Furthermore, our solid financial
position will enable us to execute our 2004 capital program and remain
positioned to pursue additional strategic opportunities as they arise.
For 2005 NuVista's Board of Directors has approved an initial capital
program of $100 million, which is expected to average production of
between 8,200 and 8,600 boe per day for the year. Using the current
forward strip prices of $7.75 per gj at AECO for natural gas and US
$49.00 per bbl WTI for oil, this production forecast should result in
cash flow in the range of $88 million to $92 million ($2.15 per share to
$2.25 per share) for 2005.
We remain unwavering in our commitment to enhance shareholder value by
accessing the broad depth and expertise of the Bonavista team in a
diligent and prudent manner.
/T/
Consolidated Balance Sheets
(thousands) September 30, December 31,
2004 2003
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(unaudited) (restated)
Assets
Accounts receivable $ 10,048 $ 6,251
Oil and natural gas properties and equipment 142,888 79,959
Goodwill 8,851 -
Future tax asset - 8,164
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$ 161,787 $ 94,374
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Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 11,261 $ 12,402
Bank loan - 6,928
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11,261 19,330
Bank loan 33,304 -
Asset retirement obligations 4,453 3,027
Future income taxes 3,689 -
Shareholders' equity:
Share capital 89,655 65,932
Contributed surplus 1,194 461
Retained earnings 18,231 5,624
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109,080 72,017
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$ 161,787 $ 94,374
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Consolidated Statement of Operations and Retained Earnings
Three Nine
Months Period (1) Months Period (1)
ended ended ended ended
(thousands, except September September September September
per share amounts) 30, 2004 30, 2003 30, 2004 30, 2003
-----------------------------------------------------------------------
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(unaudited) (restated) (restated)
Revenues:
Production $ 21,565 $ 12,399 $ 53,663 $ 12,399
Royalties, net (4,935) (3,129) (12,310) (3,129)
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16,630 9,270 41,353 9,270
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Expenses:
Operating 2,426 1,287 5,715 1,287
General and administrative 206 127 508 127
Financing charges 201 244 330 244
Stock-based compensation 255 230 733 230
Depreciation, depletion and
accretion 6,671 3,027 13,388 3,027
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9,759 4,915 20,674 4,915
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Income before income and
other taxes 6,871 4,355 20,679 4,355
Income and other taxes 2,536 1,609 8,072 1,609
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Net income 4,335 2,746 12,607 2,746
Retained earnings, beginning
of period 13,896 - 5,668 -
Retroactive application of
changes in accounting
policies (note 1) - - (44) -
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Retained earnings,
end of period $ 18,231 $ 2,746 $ 18,231 $ 2,746
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Net income per share -basic $ 0.11 $ 0.08 $ 0.33 $ 0.08
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Net income per share -diluted $ 0.11 $ 0.07 $ 0.32 $ 0.07
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(1) Period is from July 2, 2003 to September 30, 2003.
Consolidated Statement of Cash Flows
(thousands) Three Nine
Months Period (1) Months Period (1)
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
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(unaudited) (restated) (restated)
Cash provided by (used in):
Operating Activities:
Net income $ 4,335 $ 2,746 $ 12,607 $ 2,746
Items not requiring cash
from operations:
Depreciation, depletion
and accretion 6,671 3,027 13,388 3,027
Stock-based compensation 255 230 733 230
Future income taxes 2,421 1,551 7,921 1,551
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Funds flow from operations 13,682 7,554 34,649 7,554
Asset retirement expenditures 17 (1) (19) (1)
Decrease (Increase) in non-cash
working capital items (3,037) 3,547 (6,644) 3,547
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10,662 11,100 27,986 11,100
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Financing Activities:
Issue (Repurchase) of
share capital (30) 17,526 (37) 17,526
Increase (Decrease)
in bank loan 25,573 (21,103) 26,376 (21,103)
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25,543 (3,577) 26,339 (3,577)
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Investing Activities:
Business acquisition
(note 2) (22,882) - (22,882) -
Oil and natural gas
properties and equipment
additions (13,323) (7,523) (31,545) (7,523)
Proceeds on disposal of oil
and natural gas properties
and equipment - - 102 -
-----------------------------------------------------------------------
(36,205) (7,523) (54,325) (7,523)
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Decrease in cash - - - -
Cash, beginning of period - - - -
-----------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
-----------------------------------------------------------------------
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(1) Period is from July 2, 2003 to September 30, 2003.
Cash paid for interest was $194,000 for the three months and $312,000
for the nine months ended September 30, 2004.
/T/
SELECTED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Nine months ended September 30, 2004.
The interim consolidated financial statements have been prepared by
management in accordance with Canadian Generally Accepted Accounting
Principles (GAAP), using the same accounting policies as those set out
in note 1 to the consolidated financial statements for the period from
July 2, 2003 to December 31, 2003, except as noted below. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the period from July 2, 2003 to
December 31, 2003.
1. Changes in accounting policies:
a) Oil and natural gas properties and equipment:
Oil and natural gas properties and equipment are evaluated in each
reporting period to determine that the carrying amount in a cost centre
is recoverable and does not exceed the fair value of the properties in
the cost centre.
The carrying amounts are assessed to be recoverable when the sum of the
undiscounted cash flows expected from the production of proved reserves,
the lower of cost and market of unproved properties and the cost of
major development projects exceeds the carrying amount of the cost
centre. When the carrying amount is not assessed to be recoverable, an
impairment loss is recognized to the extent that the carrying amount of
the cost centre exceeds the sum of the discounted cash flows expected
from the production of proved and probable reserves, the lower of cost
and market of unproved properties and the cost of major development
projects of the cost centre. The cash flows are estimated using expected
future product prices and costs, and are discounted using a risk-free
interest rate.
Effective January 1, 2004, NuVista adopted the new accounting standard
relating to full cost accounting. The adoption of this new policy on
January 1, 2004 resulted in no write-down to the carrying value of oil
and natural gas assets. Prior to January 1, 2004 the ceiling test amount
was the sum of the undiscounted cash flows expected from the production
of proved reserves, the lower of cost or market of unproved properties
and the cost of major development projects less estimated future costs
for administration, financing, site restoration and income taxes. The
cash flows were estimated using period end prices and costs.
NuVista has performed the ceiling test under AcG-16 as of January 1,
2004. The impairment test was calculated using the benchmark reference
prices at January 1 for the years 2004 to 2008 and adjusted for
commodity differentials specific to NuVista:
/T/
Benchmark Reference Price Forecasts:
Year
-----------------------------------------------
2004 2005 2006 2007 2008
-----------------------------------------------
WTI ($U.S./bbl) 29.00 26.50 25.50 25.00 25.00
AECO ($Cdn/mcf) 5.80 5.47 5.14 4.94 4.78
-----------------------------------------------
/T/
b) Asset retirement obligations:
On January 1, 2004, NuVista adopted the Canadian Institute of Chartered
Accountants (the "CICA") Handbook Section 3110 "Asset Retirement
Obligations". This change in accounting policy has been applied
retroactively with the restatement of the prior period presented for
comparative purposes. Previously, NuVista recognized a provision for
future site reclamation and abandonment costs calculated on the
unit-of-production method over the life of the oil and natural gas
properties based on total estimated proved reserves and the estimated
future liability.
As a result of this change in accounting policy, net income increased by
$313,000 ($481,000 net of a future tax expense of $168,000) or $0.01 per
share on a basic and diluted basis for the period from inception on July
2, 2003 to December 31, 2003. The Asset Retirement Obligation increased
by $1.7 million, oil and natural gas properties and equipment, net of
accumulated depreciation and depletion increased by $3.2 million, future
tax asset decreased by $509,000, share capital increased by $642,000 and
retained earnings increased by $313,000 as at December 31, 2003.
c) Stock-based compensation:
NuVista has retroactively adopted the new accounting standard for
stock-based compensation, which requires the use of the fair value
method for valuing stock option grants on or after January 1, 2002.
Under this method, the compensation cost attributable to all share
options granted is measured at fair value at the grant date and expensed
over the vesting period with a corresponding increase to contributed
surplus. Upon the exercise of the stock options, consideration received
together with the amount previously recognized in contributed surplus is
recorded as an increase to share capital. NuVista has incorporated an
estimated forfeiture rate of 10% for stock options.
As a result of adopting the new accounting standard, net income
decreased by $357,000, or $0.01 per share on a basic and diluted basis
for the period from July 2, 2003 to December 31, 2003. The completion of
this change in accounting policy resulted in an increase of $357,000 to
a contributed surplus and a decrease of $357,000 to retained earnings as
at December 31, 2003.
d) Hedge relationships:
The CICA issued Accounting Guideline 13 - Hedging Relationships, which
deals with the identification, designation, documentation and
effectiveness of hedging relationships for the purpose of applying hedge
accounting. The guideline establishes conditions for applying hedge
accounting. The guideline is effective for fiscal years beginning on or
after July 1, 2003. Where hedge accounting does not apply, any changes
in the fair value of the financial derivative contracts relating to a
financial period can either reduce or increase net income and net income
per share for that period.
2. Acquisition of Grid Resources Ltd.:
On July 29, 2004, NuVista acquired all of the issued and outstanding
shares of Grid Resources Ltd. ("Grid"). NuVista purchased Grid through a
series of transactions, which included the disposition of certain
non-core assets to a private company and the residual assets being
acquired in an existing partnership, owned approximately 76% by NuVista
and 24% by Bonavista Petroleum. The acquisition has been accounted for
using the purchase method, with results of operations included from the
date of acquisition. The purchase equation, which reflects the NuVista
portion of the acquisition, is as follows:
/T/
Amount
------------------------------------------------------------------------
Net assets acquired: (thousands)
Oil and natural gas properties $ 44,420
Goodwill 8,851
Natural gas hedge liability (915)
Asset retirement obligations (991)
Future income taxes (3,931)
------------------------------------------------------------------------
Net assets acquired $ 47,434
------------------------------------------------------------------------
------------------------------------------------------------------------
Purchase consideration:
Issue of common shares $ 23,760
Cash and assumption of bank loan 22,882
Assumption of working capital deficiency 792
------------------------------------------------------------------------
Total purchase consideration $ 47,434
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
3. Asset retirement obligations:
NuVista's asset retirement obligations result from net ownership
interests in oil and natural gas assets including well sites, gathering
systems and processing facilities. NuVista estimates the total
undiscounted amount of cash flows required to settle its asset
retirement obligations is approximately $15.8 million, which will be
incurred over the next 51 years. The majority of the costs will be
incurred between 2018 and 2034. A credit-adjusted risk-free rate of 8%
was used to calculate the fair value of the asset retirement obligations.
A reconciliation of the asset retirement obligations is provided below:
/T/
------------------------------------------------------------------------
Nine months ended Period from July 2
September 30, 2004 to December 31, 2003
------------------------------------------------------------------------
(thousands)
Balance, beginning of period $ 3,027 $ 2,846
Accretion expense 184 85
Liabilities incurred 270 206
Liabilities acquired 991 -
Liabilities settled (19) (110)
------------------------------------------------------------------------
Balance, end of period $ 4,453 $ 3,027
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
4. Bank loan:
In June 2004, NuVista and its lenders agreed to amend the Company's
revolving bank loan facility to increase the maximum borrowing to $43
million. Subsequent to September 30, 2004, NuVista and its lenders
agreed to a further increase in the maximum borrowing to $55 million.
The facility is subject to an annual review by the lenders, at which
time a lender can request conversion to a term loan for one year. Under
the term period, no principal payments would be required until June 30,
2006 or later, after the annual review. As such, this loan facility is
classified as a long term liability.
5. Share capital:
As at September 30, 2004 there were 40,557,324 common shares and 885,566
Class B Performance Shares outstanding. In addition, there were
1,667,987 stock options outstanding, with an average exercise price of
$6.72 per share as at September 30, 2004.
6. Hedging activities:
As at September 30, 2004, NuVista has entered into physical purchase
contracts to sell natural gas as follows:
/T/
------------------------------------------------------------------------
At AECO Price Term
------------------------------------------------------------------------
3,000 gj's/day $6.93 October 1, 2004
- October 31, 2004
------------------------------------------------------------------------
4,500 gj's/day (costless collars) $4.92-$6.78 October 1, 2004
- October 31, 2004
------------------------------------------------------------------------
8,600 gj's/day (costless collars) $5.74-$9.68 November 1, 2004
- March 31, 2005
------------------------------------------------------------------------
/T/
INVESTOR INFORMATION
NuVista is an independent Canadian oil and natural gas exploration,
development and production company with its common shares trading on the
Toronto Stock Exchange under the symbol "NVA".
Corporate information provided herein contains forward-looking
information. The reader is cautioned that assumptions used in the
preparation of such information, which are considered reasonable by
NuVista at the time of preparation, may be proven to be incorrect.
Actual results achieved during the forecast period will vary from the
information provided herein and the variations may be material. There is
no representation by NuVista that actual results achieved during the
forecast period will be the same in whole or in part as those forecast.
-30-NuVista Energy Ltd.
Keith A. MacPhail
Chairman
(403) 213-4315
or
NuVista Energy Ltd.
Alex G. Verge
President and Chief Executive Officer
(403) 213-4306
or
NuVista Energy Ltd.
Glenn A. Hamilton
Vice President and Chief Financial Officer
(403) 213-4302
