NuVista Energy Ltd. Announces Results for the Period Ending September 30, 2003
CALGARY, ALBERTA--NuVista Energy Ltd. ("NuVista") is pleased to
provide the initial announcement today of its financial and
operating results for the period ended September 30, 2003 as
follows:
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Corporate Highlights
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Period ended
September 30,
2003 (1)
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Financial
($ thousands, except per share amounts)
Production revenue 12,399
Cash flow from operations 7,554
Per share - basic 0.21
Per share - diluted 0.20
Net income 2,768
Per share - basic 0.08
Per share - diluted 0.07
Total assets 78,935
Bank loan, net of working capital 7,586
Shareholders' equity 67,748
Net capital expenditures 7,523
Weighted average common shares outstanding
(thousands)
Basic 35,382
Diluted 37,846
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Operating
(boe conversion - 6:1 basis)
Production:
Natural gas (mmcf/day) 17.8
Crude oil (bbls/day) 983
Total oil equivalent (boe/day) 3,949
Product prices:
Natural gas ($/mcf) 6.02
Crude oil ($/bbl) 29.70
Operating expenses:
Natural gas ($/mcf) 0.56
Crude oil ($/bbl) 4.26
Total oil equivalent ($/boe) 3.58
General and administrative expenses ($/boe) 0.35
Cash costs ($/boe) 4.77
Cash flow netback ($/boe) 21.02
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(1) Period is from July 2, 2003 to September 30, 2003
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MESSAGE TO SHAREHOLDERS
NuVista Energy Ltd. ("NuVista") is pleased to submit its initial
report to shareholders and its financial and operating results
for the period from July 2, 2003 to September 30, 2003. NuVista
was formed as part of the Plan of Arrangement involving Bonavista
Petroleum Ltd. ("Bonavista"). As part of the reorganization,
Bonavista Energy Trust (the "Trust") retained approximately 90%
of the oil and natural gas properties, with the remainder
transferred to NuVista. The significant highlights from July 2 to
November 19 include:
- Increased production by 17% from the 3,500 boe per day
consisting of 15 mmcf per day of natural gas and 1,000 bbls per
day of crude oil on July 2 to the present level of 4,100 boe per
day consisting of 18.7 mmcf per day of natural gas and 975 bbls
per day of crude oil, maintaining focus on natural gas;
- Increased undeveloped land to over 200,000 net acres in
NuVista's Eastern Alberta Core Region from the 172,000 net acres
on commencement of operations, further enhancing the drilling
prospect inventory in this Core Region;
- Participated in 29 (18.4 net) wells with an overall success
rate of 84%;
- Shot 10 miles of 2D and 28 square miles of 3D seismic to
further enhance the prospectivity of NuVista's undeveloped land;
- On completion of the Plan of Arrangement, NuVista commenced
operations seamlessly and through the Technical Services
Agreement with the Trust was able to average general and
administrative costs of $0.35 per boe and overall cash costs
(operating, general and administrative, interest expenses and
capital taxes) of $4.77 per boe for the period, ranking in the
top decile of its industry peers; and
- Completed the issue of 2.5 million shares for gross proceeds of
$18.4 million, providing NuVista significant flexibility to
finance current and future capital programs.
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 financial statements for the
period from July 2, 2003 to September 30, 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.
Operating activities - NuVista's exploration and development
program for the period ended September 30, 2003 led to the
drilling of 19 (12.0 net) wells in its Eastern core region, with
an overall success rate of 75%. This program resulted in 8.0 net
natural gas wells, 1.0 net oil wells and 3.0 net dry holes.
NuVista operated 12 of the 19 wells, with an average working
interest of 91% in the operated wells. During the period, NuVista
also participated in seven non-operated wells with an average
working interest of 14.6% in these non-operated wells. NuVista
continues to actively drill, with 19 operated and two
non-operated wells, planned in the fourth quarter.
Production - NuVista's production results for the period ended
September 30, 2003 benefited from early success in NuVista's
Eastern Core Region natural gas drilling program. Although
natural gas volumes are ahead of forecast, crude oil volumes have
remained flat due to the delay in the drilling program at Amisk,
until the fourth quarter. NuVista has recently drilled two
horizontal and two vertical wells at Amisk with an additional
horizontal well and two vertical wells being drilled prior to
year-end. All of these wells will be on-stream by year-end.
NuVista's average production of 3,949 boe per day for the period
represents an increase of 13% since July 2, 2003 when it
commenced operations. At September 30, 2003, production in the
Eastern Core Region has increased to 18.2 mmcf per day of natural
gas and 970 bbls per day of crude oil as a result of a very
successful drilling program.
Revenues - Revenues for the period from July 2, 2003 to September
30, 2003 were $12.4 million, comprised of $9.7 million of natural
gas revenues and $2.7 million of crude oil revenues. The average
natural gas price for the period was $6.02 per mcf and $29.70 per
bbl for crude oil.
Royalties - Royalties for the reporting period were $3.1 million,
an average rate of 25.4%. Natural gas royalties were $2.7
million, an average rate of 28% and crude oil royalties were
$405,000 for an average rate of 15%.
Operating expenses - Operating expenses for the period ended
September 30, 2003 were $1.3 million. Natural gas operating
expenses average $0.56 per mcf and crude oil expenses were $4.26
per bbl. On a boe basis, operating costs were $3.58 leaving
NuVista in the top decile for oil and natural gas companies in
its peer group.
General and administrative - General and administrative expenses,
net of overhead recoveries were $127,000 or $0.35 per boe for the
period from July 2, 2003 to September 30, 2003. Included in these
expenses is an allocation of $175,000 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 successful and active 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. In addition, NuVista recorded a stock
based non-cash compensation charge of $52,000 in connection with
the issue of the Class B Performance shares.
Interest expenses - Interest expenses for the reporting period
were $244,000 or $0.68 per boe. Currently, NuVista's average
borrowing rate is approximately 4%.
Depreciation, depletion and site restoration expenses -
Depreciation, depletion and site restoration expenses were $3.2
million for the period. The average unit cost was $8.92 per boe
and is based on the allocation of Bonavista's net book value to
NuVista, in accordance with the Plan of Arrangement.
Income and other taxes - The provision for income and other taxes
was $1.6 million. Included in income taxes for the period is a
provision of $58,000 for the Large Corporations Tax.
Capital expenditures - Capital expenditures were $7.5 million
during the period and consisted of only exploration and
development spending. These expenditures were considerably lower
than the planned amount of approximately $13 million for the
quarter because of the consolidation of the Amisk area drilling
program into November and December 2003. This however did not
prevent NuVista from achieving its production and cash flow
targets for the current reporting period.
Cash flow and net income - For the period from July 2, 2003 to
September 30, 2003, NuVista's cash flow was $7.6 million or $0.21
per share. Net income during the period was $2.8 million or $0.08
per share. This results in a strong net income to cash flow ratio
of almost 37% for the reporting period.
Liquidity and capital resources - As at September 30, 2003, total
bank debt (net of working capital) was $7.5 million, resulting in
a debt to cash flow ratio of approximately 0.3 to 1. This results
in NuVista having approximately $24.5 million of unused bank
borrowing capability and combined with the equity issue completed
in the quarter, NuVista has significant financial flexibility to
carry out the capital programs for the fourth quarter of 2003 and
fiscal 2004.
BUSINESS RISKS AND OUTLOOK
Six years ago, the management team of Bonavista embarked on a
program of growing a solid, profitable oil and natural gas
company by implementing a disciplined and managed approach to its
drilling and acquisition programs. NuVista's management remains
committed to the continuous application of this disciplined
growth strategy.
Over the remainder of 2003, NuVista plans to drill an additional
11 wells with an average working interest of almost 90%,
resulting in approximately 28 net wells for the second half of
2003. Our undeveloped land base has grown to over 200,000 net
acres as a result of land purchases at crown land sales and
farm-in opportunities. Our increased drilling inventory coupled
with our strong balance sheet position NuVista to continue
posting strong operational and financial results for the
remainder of 2003 and beyond.
The Board of Directors of NuVista has approved a base capital
budget of $70 million for 2004, which will result in the drilling
of 70 to 80 wells. 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. With current
production levels at 4,100 boe per day and continued expectations
of exploration, development and acquisition success, NuVista is
in an excellent position to exit 2003 at 4,400 boe per day and
average between 5,400 and 5,800 boe per day in 2004.
Furthermore, our solid financial position with a 0.3:1 debt to
cash flow ratio will enable us to execute our 2004 capital
program and will remain positioned to pursue additional strategic
opportunities as they arise. Regardless of price volatility,
NuVista has positioned itself to deliver profitable growth now
and into the future. We remain unwavering in our commitment to
enhance shareholder value by utilizing the broad depth and
expertise of our dedicated team in a diligent and cost-effective
manner.
/T/
Balance Sheet
(thousands) September 30,
2003
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(unaudited)
Assets
Accounts receivable $ 2,488
Oil and natural gas properties and equipment 66,273
Future tax asset 10,174
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$ 78,935
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Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 6,087
Bank loan 3,987
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Total current liabilities 10,074
Site restoration provision 1,113
Shareholders' equity:
Share capital 64,980
Retained earnings 2,768
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67,748
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$ 78,935
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Statements of Operations and Retained Earnings
(thousands, except per share amounts) Period ended
September 30,
2003 (1)
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(unaudited)
Revenues:
Production $ 12,399
Royalties, net of Alberta Royalty Tax Credit (3,129)
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9,270
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Expenses:
Operating 1,287
General and administrative 127
Financing charges 244
Stock based compensation expense 52
Depreciation, depletion and site restoration 3,206
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4,916
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Income before income and other taxes 4,354
Income and other taxes 1,586
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Net income 2,768
Retained earnings, beginning of period -
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Retained earnings, end of period $ 2,768
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Net income per share - basic $ 0.08
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Net income per share - diluted $ 0.07
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(1) Period from July 2, 2003 to September 30, 2003
Statement of Cash Flows
(thousands) Period ended
September 30,
2003(1)
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(unaudited)
Cash provided by (used in):
Operating Activities:
Net income $ 2,768
Items not requiring cash from operations:
Depreciation, depletion and site restoration 3,206
Stock based compensation expense 52
Future income taxes 1,528
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Cash flow from operations 7,554
Decrease in non-cash working capital items 3,547
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11,101
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Financing Activities:
Issuance of share capital, net of share issue costs 17,526
Decrease in bank loan (21,103)
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(3,577)
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Investing Activities:
Oil and natural gas properties and equipment additions (7,523)
Site restoration expenditures (1)
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(7,524)
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Decrease in cash -
Cash, beginning of period -
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Cash, end of period $ -
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(1) Period from July 2, 2003 to September 30, 2003.
NOTES TO INTERIM FINANCIAL STATEMENTS
(unaudited)
Period from July 2, 2003 to September 30, 2003.
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1. Significant accounting policies:
As the determination of many assets, liabilities, revenues and
expenses is dependent upon future events, the preparation of
these financial statements requires the use of estimates and
assumptions, which have been made using careful judgement. In the
opinion of management, these financial statements have been
properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below.
NuVista Energy Ltd., ("NuVista") was established with an
effective date of July 2, 2003 under a Plan of Arrangement
entered into by Bonavista Energy Trust (the "Trust"), Bonavista
Petroleum Ltd. ("Bonavista") and NuVista. Under the Plan of
Arrangement various assets of Bonavista, comprising certain
producing and exploration assets were transferred to NuVista. As
NuVista is a new entity, these financial statements reflect the
results of operations for the period from July 2, 2003 to
September 30, 2003.
(a) Oil and natural gas operations:
NuVista follows the full cost method of accounting, whereby all
costs associated with the exploration for and development of oil
and natural gas reserves are capitalized in cost centres on a
country-by-country basis. Such costs include land acquisitions,
drilling, well equipment and geological and geophysical
activities. General and administrative costs are not capitalized.
Gains or losses are not recognized upon disposition of oil and
natural gas properties unless crediting the proceeds against
accumulated costs would result in a change in the rate of
depletion of 20 percent or more.
Costs capitalized in the cost centres, including well equipment,
together with estimated future capital costs associated with
proven reserves, are depreciated and depleted using the
unit-of-production method which is based on gross production and
estimated proven oil and natural gas reserves as determined by
independent engineers. The cost of significant unproven
properties is excluded from the depreciation and depletion base.
For purposes of the depreciation and depletion calculations, oil
and natural gas reserves are converted to a common unit of
measure on the basis of their relative energy content. Facilities
are depreciated using the declining balance method over their
useful lives, which range from 12 to 15 years.
The provision for future site restoration costs are calculated
using the unit-of-production method and is included within the
provision for depreciation, depletion and site restoration. Costs
are estimated each year by management based upon current
regulations, costs, technology and industry standards. Actual
costs as incurred are charged against the accumulated liability.
In applying the full cost method, NuVista calculates a ceiling
test which restricts the capitalized costs less accumulated
depreciation and depletion from exceeding an amount equal to the
estimated undiscounted value of future net revenues from proven
oil and natural gas reserves, based on year end prices and costs,
plus the cost, net of impairments, of unproved properties and
after deducting estimated future site restoration costs, general
and administrative expenses, financing costs and income taxes.
(b) Joint venture accounting:
A portion of NuVista's oil and natural gas operations is
conducted jointly with others. Accordingly, the financial
statements reflect only NuVista's proportionate interest in such
activities.
(c) Financial instruments:
From time to time, NuVista may use swap agreements or other
financial instruments to hedge its exposure to fluctuations in
oil and natural gas prices. Gains and losses arising from these
swap arrangements are reported as adjustments to the related
revenue account over the term of the financial instrument.
Financial instruments are not used for speculative purposes. The
carrying values of NuVista's monetary assets and liabilities
approximate their fair values.
(d) Income taxes:
NuVista follows the liability method of accounting for future
income taxes.
(e) Per share amounts:
Diluted per share amounts reflect the potential dilution that
could occur if securities or other contracts to issue common
shares were exercised or converted to common shares. The treasury
stock method is used to determine the dilutive effect of stock
options and other dilutive instruments.
2. Transfer of assets and commencement of operations:
Under the Plan of Arrangement, Bonavista transferred to NuVista
certain assets, being certain producing and exploratory oil and
natural gas properties in Bonavista's Eastern Core Region, and an
allocation of bank loan. As this was a related party transaction,
assets and liabilities were transferred at book value. Details
are as follows:
/T/
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Amount
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(thousands)
Oil and natural gas assets and equipment $ 61,825
Future income tax asset 11,408
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Total assets transferred 73,233
Bank loan (29,103)
Provision for site restoration and abandonment (983)
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Net assets received and common shares issued $ 43,147
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The above amounts are estimates, which were made by management at
the time of the Plan of Arrangement based on information
available at the time. Amendments may be made to these amounts as
values subject to estimates are finalized. Under the Plan of
Arrangement, NuVista entered into a Technical Services Agreement
with the Trust. Under this agreement, the Trust receives payment
for certain technical and administrative services provided to
NuVista on a cost recovery basis.
3. Oil and natural gas properties and equipment:
/T/
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Accumulated
depreciation and Net book
September 30, 2003 Cost depletion value
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(thousands)
Oil and natural gas
properties $ 52,937 $ 2,823 $ 50,114
Facilities and well
equipment 16,411 252 16,159
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$ 69,348 $ 3,075 $ 66,273
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Unproved property costs of $9,837,000 as at September 30, 2003
were excluded from the depreciation and depletion calculation.
During the period ended September 30, 2003, NuVista recorded a
provision of $131,000 for site restoration in the financial
statements.
4. Bank loan:
NuVista has a $32 million revolving production loan facility with
a syndicate of Canadian chartered banks, which provides that
borrowings may be made by way of prime loans, bankers'
acceptances and/or US dollar LIBOR advances. These advances bear
interest at the banks' prime rate and/or at money market rates
plus a stamping fee. The bank loan facility is secured by a first
floating charge debenture, general assignment of book debts and
NuVista's oil and natural gas properties and equipment. The
facility is subject to an annual review by the lenders.
5. Share capital:
(a) Authorized:
Unlimited number of voting Common Shares, Preferred Shares and
1,200,000 Class B Performance Shares.
(b) Issued:
(i) Common Shares
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Number Amount
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(thousands)
Outstanding as at July 2, 2003 2,000 $ 4,000
Issued pursuant to the Plan of Arrangement 32,839 43,147
Issued for cash 2,500 18,375
Costs associated with shares issued, net of
future tax benefit - (554)
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Outstanding as at September 30, 2003 37,339 $ 64,968
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/T/
(ii) Class B Performance Shares
Each Class B Performance Share was sold for a price of $0.01 per
share and is convertible into the fraction of a Common Share
equal to the closing trading price of the Common Shares on the
Toronto Stock Exchange on the day prior to such conversion less
$2.00, if positive, divided by the Common Share closing price.
The Class B Performance Shares will automatically convert into
Common Shares as to 25% of the Class B Performance Shares
outstanding on a pro-rata basis from holders on each of July 1,
2004, 2005, 2006 and 2007. If the NuVista Closing Price less
$2.00 is not positive on any conversion date, NuVista will,
subject to applicable law, redeem the Class B Performance Shares
that would have otherwise been converted at the redemption price
of $0.01 per share. The fair value of each Class B Performance
Share was determined, at date of issuance, using the
Black-Scholes model with the variables described in Note 5(e).
This amount is amortized over the life of the Class B Performance
Share and included in stock based compensation expense.
/T/
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Number Amount
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(thousands)
Outstanding as at July 2, 2003 1,200 $12
Redeemed (4) -
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Outstanding as at September 30, 2003 1,196 $12
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(c) Per share amounts:
During the period from July 2, 2003 to September 30, 2003, there
were 35,382,395 weighted average shares outstanding. On a diluted
basis, there were 37,846,319 weighted average shares outstanding
after giving effect for dilutive stock options.
(d) Stock Options:
NuVista has established a stock option plan whereby officers,
directors, employees and service providers may be granted options
to purchase Common Shares. Options granted vest at the rate of 25
percent per year and expire two years after the date of vesting
to a maximum term of six years. The total stock options
outstanding plus the Class B Performance Shares cannot exceed 10%
of the outstanding Common Shares.
Stock option summary of transactions for the period from July 2,
2003 to September 30, 2003 are as follows:
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Weighted average
Number exercise price
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Outstanding as at July 2, 2003
Granted 1,354,000 $ 6.34
Exercised - -
Cancelled (4,500) 6.30
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Outstanding, September 30, 2003 1,349,500 $ 6.34
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Exercisable, September 30, 2003 - -
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(e) Stock-based compensation:
NuVista uses the intrinsic value method to account for
stock-based compensation costs. Under this method, no
compensation costs are recorded in the financial statements for
stock options granted. If the fair value based method had been
used, the stock-based compensation costs, pro forma net income
and pro forma net income per share would be as follows:
/T/
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Period from July 2, 2003 to September 30, 2003 Amount
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($ thousands, except per share amounts)
Net income
As reported 2,768
Pro forma 2,607
Net income per common share
Basic
As reported 0.08
Pro forma 0.07
Diluted
As reported 0.07
Pro forma 0.07
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/T/
The pro forma amounts include the compensation costs associated
with stock options granted subsequent to July 2, 2003. The fair
value of each option granted was estimated on the date of grant
using the Modified Black-Scholes option pricing model. In the
pricing model the fair value of stock options granted was $2.41
per share; risk free interest rate was 3.5%; volatility of 40%;
and an expected life of 4.5 years.
6. Income taxes:
The provision for income tax differs from the result of which
would have been obtained by applying the combined Federal and
Provincial income tax rate to the income before taxes. This
difference results from the following items:
/T/
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Period from July 2, 2003 to September 30, 2003 Amount
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(thousands)
Expected tax expense at 34.6% $ 1,506
Other 22
Capital taxes 58
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Provision for income taxes $ 1,586
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The provision for income taxes consists of:
Current $ 58
Future 1,528
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Provision for income taxes $ 1,586
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The significant components of future tax assets as at September 30,
2003 are:
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Amount
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(thousands)
Oil and natural gas properties $ 9,495
Facilities and well equipment 386
Share issue costs 293
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Future tax asset $ 10,174
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/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
