NuVista Energy Ltd. Announcing Second Quarter Results
CALGARY, ALBERTA--(CCNMatthews - Aug. 4, 2004) - NuVista Energy
Ltd. is pleased to announce today its financial and operating
results for the three and six months ended June 30, 2004 as
follows:
/T/
---------------------------------------------------------------------
Corporate Highlights
---------------------------------------------------------------------
Three Months Six Months
ended ended
June 30, June 30,
2004 2004
---------------------------------------------------------------------
Financial
($ thousands, except per share)
Production revenue 16,642 32,098
Cash flow from operations (1) 11,368 20,967
Per share - basic 0.30 0.56
Per share - diluted 0.30 0.54
Net income (2) 4,540 8,272
Per share - basic 0.12 0.22
Per share - diluted 0.12 0.21
Total assets 101,051
Bank loan, net of working capital 10,275
Shareholders' equity 80,760
Net capital expenditures 10,946 18,120
Weighted average common shares
outstanding (thousands):
Basic 37,334 37,335
Diluted 38,519 38,517
---------------------------------------------------------------------
Operating
(boe conversion - 6:1 basis)
Production:
Natural gas (mmcf/day) 21.2 20.9
Crude oil (bbls/day) 1,187 1,181
Total oil equivalent (boe/day) 4,712 4,682
Product prices:
Natural gas ($/mcf) 6.80 6.58
Crude oil ($/bbl) 32.94 32.40
Operating expenses:
Natural gas ($/mcf) 0.65 0.64
Crude oil ($/bbl) 3.94 3.93
Total oil equivalent ($/boe) 3.91 3.86
General and administrative expenses ($/boe) 0.35 0.35
Cash costs ($/boe) 4.50 4.41
Cash flow netback ($/boe) (1) 26.51 24.61
---------------------------------------------------------------------
NOTES:
(1) 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.
(2) Net income and net income per share for 2003 have been restated
for the adoption of new accounting standards for asset retirement
obligations and stock based 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 six months ended June 30, 2004. NuVista has now completed its
first full year 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 second quarter of 2004 represents the fourth consecutive
quarter of continuous profitable growth for NuVista since its
creation through the Plan of Arrangement involving Bonavista
Petroleum Ltd. and Bonavista Energy Trust (collectively
"Bonavista") on July 2, 2003.
Subsequent to June 30, 2004, NuVista was also successful in the
completion of one major acquisition, a private company, for
approximately $47.4 million. Through a series of transactions,
NuVista acquired 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
natural gas liquids. 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. Concurrent with this acquisition, NuVista announced an
expansion in its 2004 capital program from $70 million to $95
million and an increase in its drilling program to 95 wells from
the 80 to 85 wells previously forecasted. This expanded capital
program will allow NuVista to focus on organic growth through
active land and seismic acquisitions and an increased number of
drilling prospects in these areas over the remainder of 2004 and
2005. The issue of 3 million shares in connection with the
acquisition and the expansion in NuVista's bank facility in June,
leaves NuVista with significant financial flexibility, with a
projected 2004 exit debt to cash flow ratio remaining unchanged
at 0.5:1.
Other significant highlights for NuVista include:
- Since inception, production has increased by 35% to average
4,712 boe per day for the second quarter of 2004, consisting of
21.2 mmcf per day of natural gas and 1,187 bbls per day of crude
oil from the 3,500 boe per day. This significant growth was
accomplished while capital expenditures were only 1.1 times cash
flow during this period. With the acquisition of the private
company, installation of additional natural gas compression and
recent tie-ins of second quarter wells, NuVista's current
production has increased to 6,350 boe per day, consisting of 29.7
mmcf per day of natural gas and 1,400 bbls per day of oil and
natural gas liquids;
- Increased undeveloped land by 72%, to over 295,000 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 optioned over 40,000 net acres of
undeveloped land through farm-in commitments with industry
partners;
- Acquired 700 kilometers of 2D and 90 square kilometers of 3D
seismic to further enhance the prospectivity of NuVista's
undeveloped land thus far in 2004;
- Participated in 38 (30.1 net) wells year to date in 2004, with
an overall success rate of 84%;
- Evaluated and submitted proposals on a number of acquisition
opportunities in the second quarter of 2004, resulting in
commitments for four complimentary property acquisitions, two in
the Eastern 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 $4.50 per boe for the
second quarter of 2004, maintaining NuVista in the top decile of
its industry peers; and
- In June 2004, completed the expansion of the bank facility from
$32 million to $43 million, leaving it with 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 six months ended June 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 retroactively, new accounting policies pursuant to
requirements of the Canadian Institute of Chartered Accountants
("CICA") Handbook. The new accounting policies adopted included:
"Asset Retirement Obligations", "Stock-based Compensation and
Other Stock-based Payments" and "Hedge Accounting" and are
detailed further in Note 1 of the Notes to the Consolidated
Financial Statements.
Operating activities - In the second quarter of 2004, NuVista
drilled 20 wells with an average working interest of 83%. The
success rate of 80% in this drilling program resulted in 13
natural gas wells and three oil wells. Of the 20 wells, 15 were
medium depth natural gas prospects drilled in the Eastern Alberta
Natural Gas Region. As currently being reported throughout the
industry, NuVista also experienced some weather related delays
resulting in drilling five fewer natural gas tests than
originally planned and the delay of tie-ins and compression
projects until late in the second quarter. NuVista is currently
completing and connecting the successful second quarter wells and
will drill the remaining second quarter locations as part of the
third quarter program. NuVista operated 17 of the 20 wells, with
an average working interest of 89% in the operated wells. During
the quarter, NuVista also participated in three non-operated
wells with an average working interest of 50% in these wells.
NuVista continues to actively drill in its core regions, with
approximately 55 wells planned for the remainder of the year. For
the six months ended June 30, 2004, NuVista drilled 38 (30.1 net)
wells, operating 32 of them, resulting in 24 natural gas wells,
eight oil wells and six dry holes.
Production - NuVista's production results for the six months
ended June 30, 2004 benefited from continued success in its
Eastern Alberta Core Region drilling program. Although NuVista's
average production of 4,712 boe per day, comprised of 21.2 mmcf
per day of natural gas and 1,187 bbls per day of crude oil, for
the second quarter of 2004 represents only a 1% increase over the
first quarter of 2004, a significant portion of NuVista's second
quarter natural gas drilling success will be brought on-stream in
July and August, 2004. NuVista has recently drilled four
horizontal and three vertical oil wells at Amisk, which were
brought on stream in late June. In addition, a facility expansion
was completed at Amisk in mid-July, which resulted in further
increased oil production due to increased water handling
capability.
Revenues - Revenues for the three months ended June 30, 2004 were
$16.6 million, an 8% increase from $15.5 million for the three
months ended March 31, 2004. Revenues for the six months ended
June 30, 2004 were $32.1 million, a 28% increase from $25.1
million for the six months ended December 31, 2003. These
revenues were comprised of $25.1 million of natural gas revenues
and $7.0 million of crude oil revenues for the six months ended
June 30, 2004. The increase in revenues for the six months ended
June 30, 2004 versus the six months ended December 31, 2003,
results from a 9% increase in production and a 13% increase in
the natural gas price to $6.58 per mcf from $5.81 per mcf and a
17% increase in the crude oil price to $32.94 per bbl from $28.08
per bbl, respectively. Revenues for the three and the six months
ended June 30, 2004 were slightly reduced by $240,000 as a result
of hedging activities.
Royalties - Royalties of $3.3 million for the three months ended
June 30, 2004 were 17% lower than $4.0 million for the three
months ended March 31, 2004. The reduction in royalties in the
second quarter resulted from lower actual natural gas crown
royalties than estimated for the first quarter. Royalties for the
reporting period were $7.4 million, an average rate of 23%
versus $6.1 million or 24% for the six months ended December 31,
2003. Natural gas royalties were $6.3 million, an average royalty
rate of 25% and crude oil royalties were $1.2 million, or an
average royalty rate of 16.7%.
Operating expenses - Operating expenses of $1.7 million for the
three months ended June 30, 2004 were comparable to the $1.6
million for the three months ended March 31, 2004. Operating
expenses for the six months ended June 30, 2004 were $3.3
million, a 17.8% increase from $2.8 million for the six months
ended December 31, 2003. This increase resulted primarily from
the higher production volumes in the six months ended June 30,
2004, from the six months ended December 31, 2003. In the first
half of 2004, natural gas operating expenses averaged $0.64 per
mcf and crude oil expenses were $3.93 per bbl as compared to
$0.58 per mcf and $4.32 per bbl respectively for the six months
ended December 31, 2003. On a boe basis, operating costs
increased 5% to $3.86 per boe in the first half of 2004 as
compared to $3.69 per boe for the six months ended December 31,
2003, primarily due to 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. Overall,
NuVista's cash costs, which include operating, general and
administrative, interest expenses and Large Corporation Tax, have
remained consistent at $4.50 per boe in the second quarter of
2004. This too places us in the top decile in our peer group in
this performance criteria.
General and administrative - General and administrative expenses
of $153,000 net of overhead recoveries, were comparable with the
charge of $149,000 for the three months March 31, 2004. General
and administrative expenses, net of overhead recoveries were
$302,000 or $0.35 per boe for the six months ended June 30, 2004.
Included in these expenses is an allocation of $520,000 from
Bonavista, pursuant to the Technical Services Agreement entered
into as part of the Plan of Arrangement. The Technical Services
Agreement allowed NuVista to initiate and continue with a
successful and active program, 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. In
addition, as a result of adopting the new accounting rules,
NuVista recorded a stock based non-cash compensation charge of
$478,000 for the six months ended June 30, 2004, in connection
with both of the Class B Performance shares and stock options.
Interest expenses - For the three months ended June 30, 2004,
interest expense was $78,000, up from $51,000 in the first
quarter of 2004, due to higher average debt levels in the second
quarter. Interest expense during the first half of 2004 was
$129,000 or $0.15 per boe versus $282,000 or $0.37 per boe for
the six months ended December 31, 2003 because of lower average
debt levels in the first half of 2004. Currently, NuVista's
average borrowing rate is approximately 3.1%.
Depreciation, depletion and accretion expenses - Depreciation,
depletion and accretion expenses were $3.5 million for the
second quarter of 2004. The average cost per unit was $8.13 per
boe in the second quarter of 2004 versus $7.63 per boe for the
three months ended March 31, 2004 due to higher costs of adding
reserves in the current quarter as compared to historic levels.
The overall 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 second quarter of 2004, the
provision for income and other taxes was $3.1 million for an
effective tax rate of 40.7%, as compared to $2.4 million with an
effective tax rate of 39.3% for the first quarter of 2004. For
the six months ended June 30, 2004, the provision for income and
other taxes was $5.5 million for an effective tax rate of 40.1%
as compared to the restated provision of $3.7 million, with an
effective tax rate of 39.5% for the period from July 2 to
December 31, 2003.
Capital expenditures - Capital expenditures were $10.9 million
during the second quarter of 2004 and consisted primarily of
exploration and development spending. These expenditures were 17%
lower than the planned amount of approximately $13.2 million for
the quarter, as poor weather conditions delayed NuVista's field
activities. In addition, only a small portion of the acquisition
budget was spent in the quarter. In spite of these factors,
NuVista still exceeded its production and cash flow targets for
the current reporting period. For the six months ended June 30,
2004, capital expenditures were $18.1 million, which represents
approximately 86% of the cash flow for the period.
Cash flow and net income - In the second quarter of 2004, cash
flow was $11.4 million ($0.30 per share, basic), an 18% increase
over $9.6 million ($0.26 per share, basic) for the first quarter
of 2004. For the six months ended June 30, 2004, NuVista's cash
flow was $21.0 million ($0.56 per share, basic), a 34.6% increase
from $15.6 million ($0.43 per share, basic) for the six months
ended December 31, 2003. Net income also increased 45.6% during
the first half of 2004 to $8.3 million ($0.22 per share, basic)
from $5.6 million ($0.15 per share, basic), restated for the six
months ended December 31, 2003. These increases resulted from
stronger commodity prices and increased production rates for the
reporting period in 2004 and allowed NuVista to maintain a strong
net income to cash flow ratio of almost 40%.
Liquidity and capital resources - As at June 30, 2004, total bank
debt (net of working capital) was $10.3 million, resulting in a
debt to cash flow ratio of approximately 0.3 to 1. NuVista has
approximately $32.7 million of unused bank borrowing capability
based on the current line of credit of $43 million, which
provides substantial flexibility to fund expanded capital
programs into the future.
Quarterly financial information - The following table highlights
NuVista's performance for the quarterly periods from July 2, 2003
to June 30, 2004. NuVista commenced operations on July 2, 2003
through the Plan of Arrangement involving Bonavista:
/T/
2004 2003
---------------------------------------------------------------------
July 2 to
June 30 March 31 December 31 September 30
---------------------------------------------------------------------
(thousands, except
per share amounts) (restated) (restated)
Production revenue $ 16,642 $ 15,456 $ 12,735 $ 12,399
Net income 4,540 3,732 2,878 2,746
Net income per
share:
Basic $ 0.12 $ 0.10 $ 0.08 $ 0.08
Diluted 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 has led to the tremendous
success of Bonavista. The undeveloped land base now exceeding
295,000 net acres, an increased drilling inventory, coupled with
our strong balance sheet, leaves NuVista positioned to continue
posting strong operational and financial results for the
remainder of 2004 and beyond. With the $47.4 million 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 by 10 to 15 wells to 95
wells. The expanded capital program for 2004 will enable
NuVista's 2004 forecasted exit production to increase 12% to
7,500 boe per day as opposed to the 6,700 boe per day originally
forecasted. 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. The
increase in the 2004 base capital program positions NuVista to
deliver profitable long term growth. 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
June 30, December 31,
(thousands) 2004 2003
--------------------------------------------------------------------
(unaudited) (restated)
Assets
Accounts receivable $ 6,784 $ 6,251
Oil and natural gas properties and equipment 91,603 79,959
Future tax asset 2,664 8,164
--------------------------------------------------------------------
$101,051 $ 94,374
--------------------------------------------------------------------
--------------------------------------------------------------------
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 9,328 $ 12,402
Bank loan - 6,928
--------------------------------------------------------------------
9,328 19,330
Bank loan 7,731 -
Asset retirement obligation 3,232 3,027
Shareholders' equity:
Share capital 65,925 65,932
Contributed surplus 939 461
Retained earnings 13,896 5,624
--------------------------------------------------------------------
80,760 72,017
--------------------------------------------------------------------
$101,051 $ 94,374
--------------------------------------------------------------------
--------------------------------------------------------------------
Consolidated Statement of Operations and Retained Earnings
(thousands, except per share amounts) Three Months Six Months
ended ended
June 30, 2004 June 30, 2004
--------------------------------------------------------------------
(unaudited)
Revenues:
Production $ 16,642 $ 32,098
Royalties, net of Alberta Royalty
Tax Credit (3,342) (7,375)
--------------------------------------------------------------------
13,300 24,723
--------------------------------------------------------------------
Expenses:
Operating 1,676 3,289
General and administrative 153 302
Financing charges 78 129
Stock based compensation expense 246 478
Depreciation, depletion and accretion 3,487 6,717
--------------------------------------------------------------------
5,640 10,915
--------------------------------------------------------------------
Income before income and other taxes 7,660 13,808
Income and other taxes 3,120 5,536
--------------------------------------------------------------------
Net income 4,540 8,272
Retained earnings, beginning of period 9,356 5,668
Retroactive application of changes in
accounting policies (Note 1) - (44)
--------------------------------------------------------------------
Retained earnings, end of period $ 13,896 $ 13,896
--------------------------------------------------------------------
--------------------------------------------------------------------
Net income per share - basic $ 0.12 $ 0.22
--------------------------------------------------------------------
--------------------------------------------------------------------
Net income per share - diluted $ 0.12 $ 0.21
--------------------------------------------------------------------
--------------------------------------------------------------------
Consolidated Statement of Cash Flows
(thousands) Three Months Six Months
ended ended
June 30, 2004 June 30, 2004
--------------------------------------------------------------------
(unaudited)
Cash provided by (used in):
Operating Activities:
Net income $ 4,540 $ 8,272
Items not requiring cash from operations:
Depreciation, depletion and accretion 3,487 6,717
Stock based compensation expense 246 478
Future income taxes 3,095 5,500
--------------------------------------------------------------------
Funds flow from operations 11,368 20,967
Asset retirement expenditures (13) (36)
Increase in non-cash working capital items (1,681) (3,607)
--------------------------------------------------------------------
9,674 17,324
--------------------------------------------------------------------
Financing Activities:
Repurchase of share capital - (7)
Increase in bank loan 1,272 803
--------------------------------------------------------------------
1,272 796
--------------------------------------------------------------------
Investing Activities:
Oil and natural gas properties and
equipment additions (11,048) (18,222)
Proceeds on disposal of oil and natural
gas properties and equipment 102 102
--------------------------------------------------------------------
(10,946) (18,120)
--------------------------------------------------------------------
Decrease in cash - -
Cash, beginning of period - -
--------------------------------------------------------------------
Cash, end of period $ - $ -
--------------------------------------------------------------------
--------------------------------------------------------------------
/T/
SELECTED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The unaudited 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 assets:
Oil and natural gas assets 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 as at January 1, 2004 for the years 2004 to 2008
and adjusted for commodity price differentials specific to
NuVista:
/T/
Benchmark Reference Price Forecast: Year
---------------------------------
2004 2005 2006 2007 2008
--------------------------------------------------------------------
WTI ($U.S./bbl) 29.00 26.50 25.50 25.00 25.00
--------------------------------------------------------------------
AECO ($Cdn/mmbtu) 5.80 5.47 5.14 4.94 4.78
--------------------------------------------------------------------
/T/
b) Asset retirement obligations:
On January 1, 2004, NuVista adopted 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 contributed surplus and a decrease of
$357,000 to retained earnings as at December 31, 2003.
d) Hedge relationships:
The Canadian Institute of Chartered Accountants ("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. 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 $11.6 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 8.0% was used to calculate the
fair value of the asset retirement obligations.
/T/
A reconciliation of the asset retirement obligation is provided below:
Six months Period from
ended July 2 to
June 30, 2004 December 31, 2003
--------------------------------------------------------------------
(thousands)
Balance, beginning of period $ 3,027 $ 2,846
Accretion expense 103 85
Liabilities incurred 138 206
Liabilities settled (36) (110)
--------------------------------------------------------------------
Balance, end of period $ 3,232 $ 3,027
--------------------------------------------------------------------
--------------------------------------------------------------------
/T/
3. Bank loan:
In June 2004, the Company and its lenders agreed to amend the
Company's revolving bank loan facility to increase the maximum
borrowing to $43 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 29, 2006 or later
after the annual review. As such, this loan facility is now
classified as a long-term liability.
4. Share capital:
As at June 30, 2004 there were 37,334,487 common shares and
1,193,750 Class B Performance Shares outstanding. In addition,
there were 1,436,950 stock options outstanding, with an average
exercise price of $6.44 per share as at June 30, 2004.
5. Hedging activities:
As at June 30, 2004, NuVista has entered into physical purchase
contracts to sell 200 bbls per day for the period from April 1,
2004 to September 30, 2004 at prices ranging from US $27.50 per
bbl to US $28.50 per bbl. In addition, NuVista has sold 3,000
gj's per day for the period from April 1, 2004 to October 31,
2004 by way of costless collars with an average floor price of
$5.00 per gj and an average ceiling price of $6.62 per gj at AECO
and 3,000 gj's per day for the period from November 1, 2004 to
March 31, 2005 by way of costless collars with an average floor
price of $6.63 per gj and an average ceiling price of $10.48 per
gj.
6. Subsequent event:
On July 29, 2004, the Company completed the acquisition of all of
the outstanding shares of a private company. The consideration
for this acquisition consisted of three million common shares of
NuVista plus $23.7 million of cash and assumption of debt, for a
total purchase price of approximately $47.4 million.
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
