Pengrowth Energy Trust Announces First Quarter Results Stock
Symbol: PGF.UN, TSX; PGH, NYSE CALGARY, May 4
/PRNewswire-FirstCall/ -- Pengrowth Corporation ("Pengrowth"),
administrator of Pengrowth Energy Trust, announced the unaudited
results for the three months ended March 31, 2004. - Distributable
cash for the first quarter of 2004 decreased 14% over the first
quarter of 2003 to $83.6 million as a result of lower production
volumes and lower commodity prices. It should be noted that last
year's first quarter results reflected an exceptional period of
higher oil and gas production as well as above average oil and
natural gas prices. Pengrowth distributed $83.0 million or $0.63
per trust unit during the first quarter of 2004 compared to $82.2
million or $0.75 per trust unit in the comparable period in 2003.
Cash distributions per trust unit in the first quarter of 2004
decreased 16% over the same period last year due to lower
distributable cash and an increase in the number of trust units
outstanding. - Operating costs for the first quarter of 2004 were
$31.2 million ($7.50 per boe) compared to $39.5 million ($8.63 per
boe) in the first quarter of 2003. The lower operating costs are
mainly attributable to the purchase of the Sable Offshore Energy
Project ("SOEP") processing facilities in May and December of 2003.
These transactions eliminated the third party processing fees that
Pengrowth was previously paying to the owners of the facilities. -
Pengrowth realized an operating netback of $25.71 per boe in the
first quarter of 2004 with the decline in commodity prices
partially offset by a decrease in operating costs. - Total
production in the first quarter of 2004 averaged 45,668 boe per
day, a decrease of 10% over the first quarter of 2003. Production
volumes were lower than expected in the quarter by approximately
600 boe per day due to a delayed SOEP condensate shipment which was
expected in March and took place in April. Incremental development
volumes from our 2004 capital expenditures program are expected to
reduce declines over the remainder of 2004. - Subsequent to quarter
end, Pengrowth announced it had entered into an agreement with a
subsidiary of Murphy Oil Corporation ("Murphy") to acquire certain
oil and natural gas assets in Alberta and Saskatchewan for $550
million before adjustments. The acquisition will be effective April
1, 2004 and is expected to be completed in late May 2004. Pengrowth
anticipates it will finance the acquisition in the near term
through cash and term deposits on hand, and a committed bridge
credit facility. Pengrowth expects that the acquisition will be
accretive for unitholders of Pengrowth Energy Trust based on
production, reserves and distributable cash on a per unit basis
adding approximately 6.9% to reserves per unit on a proved plus
probable basis. - On March 23, 2004, Pengrowth successfully
completed a public offering of 10.9 million trust units for gross
proceeds of $200.6 million and net proceeds of $189.9 million. As a
result of this equity issue and additional cash remaining from the
July 2003, equity offering, Pengrowth had cash and term deposits of
$251.1 million at March 31, 2004. The cash and term deposits will
be used to partially fund the Murphy acquisition that was announced
on April 8, 2004. - At the Annual and Special Meeting of Trust
Unitholders on April 22, 2004, Pengrowth received Trust Unitholder
approval to reclassify the trust unit capital into Class A and
Class B units. The reclassification of trust units will enable
Pengrowth to ensure non- resident ownership requirements of the
Income Tax Act (Canada) are satisfied and that Pengrowth's mutual
fund status is maintained. The reclassification of trust units will
be implemented at a date to be determined and announced by the
Board of Directors. Summary of Financial and Operating Results
(thousands, except per unit amounts) % Quarter ended March 31 2004
2003 Change
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INCOME STATEMENT Oil and gas sales $ 164,323 $ 202,801 -19% Net
income $ 38,652 $ 62,920(x)(x) -39% Net income per unit $ 0.31 $
0.57(x)(x) -46% Funds generated from operations $ 91,798 $ 108,609
-15% Funds generated from operations per unit $ 0.73 $ 0.98 -26%
Funds withheld to fund capital expenditures $ 9,289 $ 10,804 -14%
Distributable cash before withholding(x) $ 92,895 $ 108,025 -14%
Distributable cash before withholding per unit(x) $ 0.74 $ 0.98
-24% Distributable cash(x) $ 83,606 $ 97,221 -14% Actual
distributions paid or declared per unit $ 0.63 $ 0.75 -16% Weighted
average number of units outstanding 125,220 110,768 13% BALANCE
SHEET Working capital $ 194,650 $ (48,547) Property, plant and
equipment and other assets $1,507,905 $1,469,072(x)(x) 3% Long-term
debt $ 262,260 $ 307,226 -15% Unitholders' equity $1,315,025
$1,045,311(x)(x) 26% Unitholders' equity per unit $ 9.72 $ 9.42 3%
Number of units outstanding at period end 135,324 111,021 22% TRUST
UNIT TRADING (TSX) High $ 21.25 $ 15.90 Low $ 15.55 $ 13.39 Close $
17.98 $ 14.25 Value $ 567,785 $ 297,605 91% Volume (thousands of
units) 30,620 20,122 52% TRUST UNIT TRADING (NYSE) High $ 16.60 US
$ 10.67 US Low $ 12.10 US $ 9.07 US Close $ 13.70 US $ 9.71 US
Value $ 525,609 US $ 80,807 US 550% Volume (thousands of units)
36,899 8,168 352% DAILY PRODUCTION Crude oil (barrels) 21,516
24,807 -13% Natural gas (thousands of cubic feet) 117,348 120,402
-3% Natural gas liquids (barrels) 4,594 5,952 -23% Total production
(BOE) 6:1 45,668 50,827 -10% PRODUCTION INCREASE (6:1 boe) (year
over year) -10% 21% PRODUCTION PROFILE (6:1 conversion) Crude oil
47% 49% Natural gas 43% 39% Natural gas liquids 10% 12% AVERAGE
PRICES Crude oil (per barrel) $ 40.34 $ 44.75 -10% Natural gas (per
mcf) $ 6.72 $ 7.63 -12% Natural gas liquids (per barrel) $ 36.98 $
41.43 -11% Average price per BOE 6:1 $ 39.54 $ 44.33 -11% (x) See
Note 3 to the Financial Statements (x)(x) Restated for a
retroactive change in accounting policies - see Note 2 to the
financial statements. Note Regarding Forward-Looking Statements
This discussion and analysis contains forward-looking statements.
These statements relate to future events or our future performance.
In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "expect", "plan",
"anticipate", "believe", "estimate", "predict", "potential",
"continue", or the negative of these terms or other comparable
terminology. These statements are only predictions. A number of
factors, including the business risks discussed below, may cause
actual results to vary materially from these estimates. Actual
events or results may differ materially. In addition, this
discussion contains forward-looking statements attributed to third
party industry sources. Readers should not place undue reliance on
these forward-looking statements. When converting natural gas to
equivalent barrels of oil within this discussion, Pengrowth uses
the international standard of 6 thousand cubic feet (mcf) to one
barrel of oil equivalent (boe). Production volumes and revenues are
reported on a gross basis (before crown and freehold royalties) in
accordance with Canadian practice. All amounts are stated in
Canadian dollars unless otherwise specified. Distributable Cash
Distributable cash decreased 14% to $83.6 million for the first
quarter of 2004, compared to $97.2 million in the first quarter of
2003. A balance of $0.7 million earned in the first quarter of 2004
remained to be distributed to unitholders in future months,
compared to a balance of $15.0 million undistributed at the end of
the first quarter of 2003. An additional $9.3 million (2003 -$10.8
million) was withheld to fund capital expenditures. The lower
distributable cash in the first quarter of 2004 is attributable
mainly to lower production volumes and lower commodity prices,
offset in part by lower operating expenses and amortization of
injectants. Per unit cash distributions to unitholders decreased
16% to $0.63 per trust unit in the first quarter of 2004 compared
to $0.75 per trust unit in the first quarter of 2003. Lower per
unit cash distributions in 2004 first quarter reflected lower total
distributable cash as well as an increase in the number of trust
units outstanding. Trust units issued pursuant to the March 23,
2004 equity issue participated in the May 15 distribution, which
relates to the March production month, and hence impacts 2004 first
quarter distributable cash. Net Income Net income for the first
quarter of 2004 decreased to $38.7 million compared to $62.9
million for the first quarter of 2003. Most of this decrease is
attributable to lower production volumes and lower commodity prices
in 2004, as well as higher depletion and depreciation, offset in
part by lower expenses. Operating Netback Per boe of Production
(6:1) Three months ended March 31, 2004 2003
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Oil and gas sales $ 39.54 $ 44.33 Crown and freehold royalties
(5.90) (7.69) Other income 0.82 0.65 Operating costs (7.50) (8.63)
Amortization of injectants (1.25) (2.16)
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Operating netback $ 25.71 $ 26.50
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Production Total BOE production decreased 10% in the first quarter
of 2004, compared to the first quarter of 2003, reflecting
production declines over the period, mitigated in part by
development projects completed over the last year. Pengrowth has
not completed any significant reserve acquisitions since the first
quarter of 2003. The Murphy acquisition which is scheduled to close
in late May will favourably impact production going forward.
Volumes reported for the first quarter of 2004 are also lower due
to the timing of Sable condensate sales, as further discussed
below. Daily Production Three months ended March 31 % 2004 2003
Change
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Crude oil (bbls/d) 21,516 24,807 -13% Natural gas (mcf/d) 117,348
120,402 -3% Natural gas liquids (bbls/d) 4,594 5,952 -23%
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Total boe/d (6:1) 45,668 50,827 -10%
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Oil production volumes have decreased 13% due to production
declines, partially offset by incremental volumes from development
projects. Production declines at some of Pengrowth's B.C.
properties, including Rigel, Squirrel and Oak have been steeper
than anticipated. However, on the positive side, significant
production response has occurred at Oak during the first quarter as
a result of waterflood activity. Production at other oil producing
properties, including Judy Creek and Weyburn, has continued to
exceed production expectations. In the first quarter of 2004
natural gas production volumes decreased 3% compared to the first
quarter of 2003. Natural gas production declines have been
substantially offset by incremental development volumes from
natural gas properties including Sable, McLeod River, Tupper,
Dunvegan and Cessford. Natural gas liquids volumes decreased 23% in
the first quarter of 2004 compared to the first quarter of 2003.
The timing of Sable condensate shipments negatively impacted 2004
first quarter volumes as there was only one partial shipment of
11.0 mbbls, compared to one full and one partial shipment totaling
88.8 mbbls in the first quarter of 2003. Sable condensate is
normally sold every two to three months. Excluding the timing
effect of Sable condensate sales, natural gas liquids volumes would
have declined by approximately 9%, quarter over quarter. At this
time Pengrowth expects that second quarter production will include
two condensate shipments totalling approximately 125.0 mbbls.
Prices Pengrowth's average price per BOE of production fell 11% to
$39.54 per boe in the first quarter of 2004 compared to $44.33 per
boe in the first quarter of 2003. Average Prices C$ Three months
ended March 31 % 2004 2003 Change
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Crude oil (per bbl) 40.34 44.75 -10% Natural gas (per mcf) 6.72
7.63 -12% Natural gas liquids (per bbl) 36.98 41.43 -11%
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Total per boe (6:1) 39.54 44.33 -11%
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Pengrowth's average crude oil price was 10% lower in the first
quarter of 2004 compared to the first quarter of 2003. Although the
WTI benchmark price for crude oil increased 4% over the same
period, the decrease in the value of the U.S. dollar relative to
the Canadian dollar resulted in a lower Canadian crude oil price.
The impact of Pengrowth's hedging program reduced the crude oil
price by $3.64 per bbl in the first quarter of 2004 compared to a
reduction of $4.08 per bbl in the first quarter of 2003.
Pengrowth's average natural gas price decreased 12% from $7.63 per
mcf in the first quarter of 2003 to $6.72 per mcf in the first
quarter of 2004. The AECO monthly gas index price decreased 17% and
the NYMEX Henry Hub gas price index decreased 14% over the same
period. Hedging reduced Pengrowth's realized natural gas price by
$0.44 per mcf in the first quarter of 2004 compared to a reduction
of $1.06 per mcf in the first quarter of 2003. Price Risk
Management Program The details of Pengrowth's hedging contracts are
provided in Note 10 to the financial statements. Subsequent to
quarter-end, Pengrowth has hedged an additional 2,500 mmbtu per day
of 2005 SOEP natural gas production at a price of Cdn $8.57 mmbtu
(before transportation). For the remainder of 2004, Pengrowth has
approximately 14% of current natural gas production and 49% of
current crude oil production (based on first quarter production
volumes) hedged through financial swap contracts. In the first
quarter of 2004, Pengrowth realized a net hedging loss of $4.7
million related to natural gas swap contracts, compared to a
natural gas hedging loss of $11.5 million for the same period last
year. Net hedging losses realized on crude oil price swap
transactions were $7.1 million in the first quarter of 2004,
compared to a crude oil hedging loss of $9.1 million in the first
quarter of 2003. At March 31, 2004, the mark-to-market value of
these hedge positions was a negative $16.1 million related to
financial crude oil contracts and negative $10.0 million related to
financial natural gas contracts. Royalties Royalties decreased to
$24.5 million or 15% of oil and gas sales in the first quarter of
2004, compared to $35.2 million or 17% of oil and gas sales in the
first quarter of 2003. The lower royalty rate is due in part to
lower commodity prices and higher enhanced oil recovery and
injection credits in the current year as well as the result of a
greater hedging impact in the prior year (with no corresponding
reduction in royalties). Operating Costs For the first three months
of 2004, operating costs were $31.2 million ($7.50 per boe)
compared to $39.5 million ($8.63 per boe) for the first three
months of 2003. Most of the reduction in operating costs is
attributable to the purchase of the SOEP processing facilities in
May and December of 2003. These transactions eliminated the third
party processing fees that Pengrowth was previously paying to the
owners of the facilities, resulting in a decrease of $7.3 million
in SOEP operating costs in the first quarter of 2004 compared to
the first quarter of 2003. Lower electricity rates in Alberta in
the first quarter of 2004 relative to first quarter 2003 also
contributed to lower operating costs in 2004. Injectants for
Miscible Flood During the first three months of 2004, Pengrowth
purchased $7.3 million of injectants for miscible floods and
expensed a related $5.2 million against cash distributions to
unitholders. Pengrowth amortizes the cost of injectants purchased
from third parties against cash distributions to unitholders over
the period of expected future economic benefit, which is currently
30 months. At March 31, 2004, the balance of unamortized injectant
costs was $26.4 million. General and Administrative General and
Administrative expenses (G&A) were $5.8 million in the first
quarter of 2004 compared to $3.7 million for the same period last
year. Included in 2004 first quarter G&A is $1.1 million (2003
- $0.1 million) of non-cash compensation expense related to trust
unit rights granted during the period. Also included is $0.8
million of costs related to printing and mailing the Annual Report
and Information Circular compared to the prior year where most of
these costs were incurred in the second quarter. Increases in
salaries and benefits also contributed to higher G&A costs in
2004. On a per boe basis, G&A increased from $0.82 per boe in
2003 to $1.41 per boe in 2004 as a result of the increased costs
and the 10% decline in production in the first quarter of 2004
relative to the first quarter of 2003. In the absence of further
trust unit right grants, we would expect the non-cash compensation
to be significantly lower over the remainder of 2004 (approximately
$0.3 million per quarter). Management Fees Management fees were
$2.8 million or $0.66 per boe in the first quarter of 2004 compared
to $3.8 million or $0.82 per boe for the same period last year.
Management fees decreased as a result of a revised management fee
structure that was effective July 1, 2003, and as a result of lower
net production revenue, as the fees are based in part on a sliding
scale percentage of net production revenue. Under the current
management fee structure, the manager will earn a 'performance fee'
if certain performance criteria are met, including exceeding a
three-year rolling average total return of 8%, as at year-end 2004.
The maximum performance fee that the manager may earn is limited to
an amount that would bring the total management fees to 80% of the
fees that would have been earned under the old management fee
agreement. Management fees of $2.8 million recorded in the first
quarter of 2004 include an accrual of $0.6 million for estimated
2004 performance fees. This is the maximum performance fee that the
manager could earn in relation to the first quarter of 2004. Second
quarter management fees are expected to increase due to the ability
to earn a performance fee as the 80% fee under the old management
agreement will be increased due to the acquisition of the Murphy
properties. Interest Expense Interest expense increased to $4.2
million for the first quarter of 2004 compared to $3.7 million in
the first quarter of 2003. Although the average long-term debt has
decreased compared to the first quarter of 2003, the average
interest rate has increased, mainly as a result of the fixed rate
term debt which was issued in April 2003 which has a slightly
higher average interest rate at 5.07% than the floating rate bank
debt outstanding during the first quarter of 2003. First quarter
2004 interest expense also includes $0.5 million of fees related to
the amortization of U.S. debt issue costs and imputed interest on
the note payable to Emera Offshore Incorporated. Depletion and
Depreciation Depletion and depreciation increased to $50.5 million
or $12.15 per boe in the first quarter of 2004 compared to $44.4
million or $9.69 per boe for the first quarter of 2003. An increase
in the depreciable asset base resulting from the purchase of the
Sable facilities in 2003 for $122 million, combined with a higher
depletion rate, resulted in the increase in depletion and
depreciation in 2004. The increase in depletion and depreciation
resulting from the purchase of the Sable facilities is largely
offset by a reduction in Sable operating costs. Liquidity and
Capital Resources Pengrowth's long-term debt at March 31, 2004 was
$262.3 million, compared to $259.3 million at December 31, 2003 and
$307.2 million at March 31, 2003. All of Pengrowth's debt
outstanding at the end of the first quarter 2004 is U.S. dollar
denominated fixed rate term debt, details of which are provided in
Note 4 to the financial statements. Due to the increase in the
value of the Canadian dollar relative to the U.S. dollar, an
unrealized gain of $28.0 million has been recorded since the debt
issuance in April 2003. On March 23, 2004, Pengrowth successfully
completed a public equity offering of 10.9 million trust units for
gross proceeds of $200.6 million ($189.9 million net). As a result
of this equity offering, and additional cash remaining from the
previous equity offering in July 2003, at March 31, 2004 Pengrowth
had cash and term deposits of $251.1 million. This cash will be
used to partially fund the $550 million acquisition of properties
from Murphy Oil Corporation, which is discussed further below under
"Subsequent Events". The balance of the Murphy acquisition will be
funded in the near term through a committed bridge credit facility.
Depending on prevailing market conditions and other considerations,
Pengrowth will consider a number of options for permanent financing
of the bridge facilities including the possible issuance of further
trust units under an equity offering, a possible increase in term
debt outstanding, a potential increase in its bank borrowing lines,
other possible options or a combination of any or all of these in
order to reduce debt and to increase financial flexibility with
respect to potential future acquisition opportunities. Capital
Spending During the first three months of 2004, Pengrowth spent
$24.9 million (2003 - $18.5 million) on development activities. The
majority of these costs were spent on development programs at Judy
Creek ($8.9 million), Sable ($3.4 million), McLeod River ($2.3
million), Weyburn ($1.7 million), and various B.C. properties ($4.7
million). Subsequent Events Acquisition of Oil and Gas Properties
On April 8, 2004, Pengrowth announced it had entered into an
agreement with a subsidiary of Murphy Oil Corporation ("Murphy") to
acquire certain oil and natural gas assets in Alberta and
Saskatchewan for $550 million before adjustments. Pengrowth's
independent engineering evaluator, Gilbert Laustsen Jung Associates
Ltd. ("GLJ") has prepared an evaluation with an effective date of
April 1, 2004. The reserves that will be booked based on this
report include total proved reserves of 40.1 million boe and proved
plus probable reserves of 49.3 million boe per day. The acquisition
will be effective April 1, 2004 and is expected to be completed in
late May 2004. Pengrowth anticipates it will finance the
acquisition on closing through cash and term deposits on hand, and
a committed bridge credit facility. Reclassification of Trust Units
Pengrowth received Trust Unitholder approval to reclassify the
trust unit capital into Class A and Class B units at the Annual and
Special Meeting of Trust Unitholders on April 22, 2004. The
reclassification of trust units will enable Pengrowth to ensure
that non-resident ownership requirements of the Income Tax Act
(Canada) are satisfied, and that Pengrowth's mutual fund status is
maintained. The reclassification will be implemented at a date to
be determined and announced by the Board of Directors upon receipt
of regulatory approval and satisfaction of other conditions as
described in the Information Circular and Proxy Statement and the
related Supplemental Information in Respect of the Information
Circular and Proxy Statement. OPERATIONS REVIEW REVIEW OF
DEVELOPMENT ACTIVITIES (All volumes stated below are net to
Pengrowth unless otherwise stated) OPERATED PROPERTIES: Bulrush: -
Drilled and tied in one natural gas well (Pengrowth's working
interest is 78.75%) in the first quarter with production commencing
March 27, 2004 at 390 mcf per day. There are two potential
follow-up locations for the fourth quarter of 2004. Elm: - Drilled
and tied-in one well (Pengrowth's working interest is 100% before
payout) in the first quarter of 2004 with production commencing at
50 bbls of oil per day. - One well drilled (Pengrowth's working
interest is 100% before payout) in the first quarter of 2004 with
completion and tie-in expected in the fourth quarter of 2004. Judy
Creek: - Drilled 2 horizontal miscible flood injectors in the first
quarter with both currently on water injection. These wells are
scheduled to begin solvent injection in the second quarter of 2004.
- Drilled 3 vertical oil producers; all will be tied-in in the
second quarter of 2004. - One oil producer was tied-in that was rig
released in the fourth quarter of 2003. This well is currently
producing 70 bbls of oil per day. - Completed solvent injection at
three miscible flood patterns in the first quarter of 2004. - Two
new miscible patterns will start solvent injection in the second
quarter of 2004. Lapp: - A natural gas well (Pengrowth's working
interest is 100%) was tied-in and placed on production on April 2,
2004 at 700 mcf per day. Laprise: - Drilled and tied-in a natural
gas well (Pengrowth's working interest is 100%) with production
commencing April 5, 2004 at 750 mcf per day. McLeod: - Completed
and tied-in one natural gas well (Pengrowth's working interest is
100%) drilled in the fourth quarter of 2003 at 500 mcf per day.
Drilled, completed, and tied-in another natural gas well
(Pengrowth's working interest is 100%) at 320 mcf per day. Drilled
a second well in the first quarter of 2004 which is currently
waiting to be completed. Oak: - There was a significant production
increase as a result of the Oak 'C' waterflood in the first quarter
of 2004. - Obtained Oak 'B' waterflood approval from the Oil and
Gas Commission. Waterflood operations are expected to commence in
the second quarter of 2004. Weasel: - A natural gas well
(Pengrowth's working interest is 100%) was re- completed and placed
on production at 700 mcf per day. - Drilled and tied-in a natural
gas well (Pengrowth's working interest is 100%) and placed on
production at 700 mcf per day. Woodrush: - A non-operated natural
gas well (Pengrowth's working interest is 46.25%) was placed on
production at 700 mcf per day. NON-OPERATED PROPERTIES: Sable
Offshore Energy Project (SOEP): (8.4% working interest) Tier II
Status - Construction of the facilities for the second Tier II
field, South Venture, is continuing. The jacket being built is
nearing completion and the topsides are expected to be ready by the
fourth quarter of 2004. Start up is expected in late 2004, early
2005. - Engineering and design for the SOEP compression project is
underway along with requests for proposals for various pieces of
equipment being issued. This project is scheduled for completion in
mid-2006. Monogram Gas Unit: (53.8% working interest) - During the
first quarter of 2004, 154 wells were surveyed, 148 licenses were
issued and 24 well sites were constructed. Drilling commenced in
late April 2004 with 36 wells drilled to date and production
expected to begin in the third and fourth quarters of 2004. Weyburn
Unit: (9.75% working interest) - The CO2 flood continues to perform
above expectations and current oil production rates are
approximately 2,263 boepd net to Pengrowth. CO2 injection rates are
averaging 11.3 mmcf per day comprised of 9.0 mmcf per day from the
pipeline supply and 2.3 mmcf per day of recycled CO2. The 2004
drilling program commenced with the spud of an injection
replacement well followed by horizontal production wells with first
production anticipated in the second quarter of 2004. 2004 Tax
Estimate Update Pengrowth forecasts that in the current commodity
price environment, approximately 60-65% of distributions paid in
2004 will be taxable to unitholders, with the remainder of
distributions treated as return of capital and thus tax deferred.
The taxability may increase if we see higher commodity prices over
the remainder of the year, or may be reduced if Pengrowth makes
additional acquisitions and issues new equity during the balance of
the year. Conference Call and Webcast Pengrowth will be conducting
a conference call and webcast for analysts, brokers, investors and
media representatives regarding its first quarter results at 9:00
A.M. Mountain Daylight Time (11:00 A.M. Eastern Daylight Time) on
Wednesday, May 5, 2004. Callers may dial 1-800-814-4941 or Toronto
local (416) 640-4127 a few minutes prior to start and request the
Pengrowth conference call. The call will also be available for
replay by dialing 1-877-289-8525 or Toronto local (416) 640-1917
and entering passcode number 21049003 followed by the pound key.
Interested users of the internet are invited to go to:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal
sign)803000 or http://www.pengrowth.com/ for replay. PENGROWTH
CORPORATION James S. Kinnear, President PENGROWTH ENERGY TRUST
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004
PENGROWTH ENERGY TRUST CONSOLIDATED BALANCE SHEETS (Stated in
thousands of dollars)
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As at As at March December 31, 2004 31, 2003
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ASSETS (unaudited) (audited) CURRENT ASSETS Cash and term deposits
$ 251,077 $ 64,154 Accounts receivable 65,369 65,570 Inventory
1,057 699
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317,503 130,423 REMEDIATION TRUST FUNDS 7,690 7,392 DEFERRED
CHARGES (Note 7) 5,070 5,544 PROPERTY, PLANT AND EQUIPMENT AND
OTHER ASSETS 1,507,905 1,530,359
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$1,838,168 $1,673,718
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LIABILITIES AND UNITHOLDERS' EQUITY CURRENT LIABILITIES Accounts
payable and accrued liabilities $ 54,072 $ 54,196 Distributions
payable to unitholders 57,526 52,139 Due to Pengrowth Management
Limited 1,255 1,122 Note payable 10,000 10,000
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122,853 117,457 NOTE PAYABLE 35,000 35,000 LONG-TERM DEBT (Note 4)
262,260 259,300 ASSET RETIREMENT OBLIGATIONS (Note 6) 103,030
102,528 TRUST UNITHOLDERS' EQUITY 1,315,025 1,159,433
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SUBSEQUENT EVENTS (Note 11) $1,838,168 $1,673,718
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See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST CONSOLIDATED STATEMENTS OF INCOME (Stated in
thousands of dollars) (Unaudited)
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Three Months Ended March 31, 2004 2003
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(restated see Note 2) REVENUES Oil and gas sales $ 164,323 $
202,801 Processing and other income 2,985 2,855 Crown royalties,
net of incentives (23,021) (32,691) Freehold royalties and mineral
taxes (1,495) (2,494)
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142,792 170,471 Interest and other income 425 82
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NET REVENUE 143,217 170,553 EXPENSES Operating 31,160 39,482
Amortization of injectants for miscible floods 5,204 9,863 Interest
4,177 3,653 Foreign exchange loss (Note 8) 2,371 750 General and
administrative 5,846 3,745 Management fee 2,754 3,763 Capital taxes
529 564 Depletion and depreciation 50,512 44,369 Accretion (Note 6)
1,999 1,428
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104,552 107,617
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INCOME BEFORE THE FOLLOWING 38,665 62,936 ROYALTY INCOME
ATTRIBUTABLE TO ROYALTY UNITS OTHER THAN THOSE HELD BY PENGROWTH
ENERGY TRUST 13 16
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NET INCOME $ 38,652 $ 62,920
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NET INCOME PER UNIT (Note 5) Basic $ 0.309 $ 0.568 Diluted $ 0.307
$ 0.566
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST CONSOLIDATED STATEMENTS OF CASH FLOW (Stated
in thousands of dollars) (Unaudited)
-------------------------------------------------------------------------
Three Months Ended March 31, 2004 2003
-------------------------------------------------------------------------
(restated see Note 2) CASH PROVIDED BY (USED FOR): OPERATING Net
income $ 38,652 $ 62,920 Depletion, depreciation and accretion
52,511 45,797 Amortization of injectants 5,204 9,863 Purchase of
injectants (7,259) (9,475) Expenditures on remediation (1,851)
(550) Unrealized foreign exchange loss (Note 8) 2,960 - Trust unit
based compensation 1,107 54 Amortization of deferred charges (Note
7) 474 -
-------------------------------------------------------------------------
Funds generated from operations 91,798 108,609 Changes in non-cash
operating working capital (Note 9) (4,876) (18,854)
-------------------------------------------------------------------------
86,922 89,755
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FINANCING Distributions (78,219) (71,961) Change in long-term debt
- (9,275) Proceeds from issue of trust units 199,439 6,394
-------------------------------------------------------------------------
121,220 (74,842)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INVESTING Expenditures on property, plant and equipment (24,862)
(18,503) Expenditures on property acquisitions (787) (1,973) Change
in non-cash investing working capital (Note 9) 4,728 453 Proceeds
from sale of marketable securities - 273 Change in Remediation
Trust Funds (298) (9)
-------------------------------------------------------------------------
(21,219) (19,759)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CHANGE IN CASH AND TERM DEPOSITS 186,923 (4,846) CASH AND TERM
DEPOSITS AT BEGINNING OF PERIOD 64,154 8,292
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CASH AND TERM DEPOSITS AT END OF PERIOD $ 251,077 $ 3,446
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST CONSOLIDATED STATEMENTS OF TRUST
UNITHOLDERS' EQUITY (Stated in thousands of dollars) (Unaudited)
-------------------------------------------------------------------------
Three Months Ended March 31, 2004 2003
-------------------------------------------------------------------------
(restated see Note 2) Unitholders' equity at beginning of period
$1,159,433 $1,073,164 Units issued, net of issue costs 199,439
6,394 Net income for period 38,652 62,920 Contributed surplus 1,107
54 Distributable cash (Note 3) (83,606) (97,221)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TRUST UNITHOLDERS' EQUITY AT END OF PERIOD $1,315,025 $1,045,311
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Unaudited) MARCH 31,
2004 (Tabular amounts are stated in thousands of dollars except per
unit amounts)
-------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICY The interim consolidated financial
statements of Pengrowth Energy Trust include the accounts of
Pengrowth Energy Trust and Pengrowth Corporation (collectively
referred to as "Pengrowth"). The financial statements have been
prepared by management in accordance with accounting principles
generally accepted in Canada. The interim consolidated financial
statements have been prepared following the same accounting
policies and methods of computation as the consolidated financial
statements for the fiscal year ended December 31, 2003. The
disclosures provided below are incremental to those included with
the annual consolidated financial statements. The interim
consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto in
Pengrowth's annual report for the year ended December 31, 2003. 2.
CHANGE IN ACCOUNTING POLICIES Prior period comparative balances
have been restated due to the changes in accounting polices
described in Note 3 of the consolidated financial statements for
the fiscal year ended December 31, 2003. As a result of the changes
in accounting policies, net income for the three months ended March
31, 2003 increased by $1,870,000. Net income per unit basic and
diluted for the three months ended March 31, 2003 increased by
$0.017 per unit and $0.016 per unit, respectively. 3. DISTRIBUTABLE
CASH There is no standardized measure of Distributable Cash and
therefore Distributable Cash, as presented below, may not be
comparable to similar measures presented by other trusts. Three
months ended March 31, March 31, 2004 2003
---------------------------------------------------------------------
Net income $ 38,652 $ 62,920 Add (Deduct): Depletion, depreciation
and accretion 52,511 45,797 Asset retirement obligation expenses
not covered by the trust funds and contributions to Remediation
Trust Funds (2,210) (621) Unrealized foreign exchange loss (Note 8)
2,960 - Non-cash compensation expense 1,107 54 Other (125) (125)
---------------------------------------------------------------------
Distributable cash before withholding 92,895 108,025 Cash withheld
to fund capital expenditures (9,289) (10,804)
---------------------------------------------------------------------
Distributable cash 83,606 97,221 Less: Actual distributions paid or
declared (82,955) (82,201)
---------------------------------------------------------------------
Balance to be distributed $ 651 $ 15,020
---------------------------------------------------------------------
Actual distributions paid or declared per unit $ 0.630 $ 0.750
---------------------------------------------------------------------
The per unit amount of distributions paid or declared reflect
actual distributions paid or declared based on units outstanding at
the time. Distributions are declared payable during the month
following the month in which the distributions were earned.
Distributions are paid to unitholders on the 15th day of the second
month after the distributions are earned. 4. LONG TERM DEBT As at
As at March December 31, 2004 31, 2003
---------------------------------------------------------------------
U.S. dollar denominated debt: $150 million senior unsecured notes
at 4.93 percent due April 2010 $ 217,680 $ 217,680 $50 million
senior unsecured notes at 5.47 percent due April 2013 72,560 72,560
Unrealized foreign exchange gain on translation (27,980) (30,940)
---------------------------------------------------------------------
$ 262,260 $ 259,300
---------------------------------------------------------------------
5. TRUST UNITS The authorized capital of Pengrowth is 500,000,000
trust units. March 31, 2004 December 31, 2003
---------------------------------------------------------------------
Number Number Trust Units Issued of units Amount of units Amount
---------------------------------------------------------------------
Balance, beginning of period 123,873,651 $1,872,924 110,562,327
$1,662,726 Issued for cash 10,900,000 200,560 8,500,000 144,075
Less: issue expenses - (10,659) - (7,820) Issued for cash on
exercise of trust unit options and rights incentive options 313,989
5,226 3,358,442 51,701 Issued for cash under Distribution
Reinvestment Plan ("DRIP") 236,044 4,312 1,452,882 22,242
---------------------------------------------------------------------
Balance, end of period 135,323,684 $2,072,363 123,873,651
$1,872,924
---------------------------------------------------------------------
The per unit amounts for net income are based on the weighted
average units outstanding for the period. The weighted average
units outstanding for the three months ended March 31, 2004 were
125,219,843 units (March 31, 2003 - 110,768,338 units). In
computing diluted net income per unit, 648,233 units were added to
the weighted average number of units outstanding during the period
ended March 31, 2004 (March 31, 2003 - 328,340 units) for the
dilutive effect of trust unit options and rights. Trust Unit Option
Plan As at March 31, 2004 options to purchase 1,736,514 trust units
were outstanding (December 31, 2003 - 2,014,903) that expire at
various dates to June 28, 2009. March 31, 2004 December 31, 2003
---------------------------------------------------------------------
Weighted Weighted Number Average Number Average of Exercise of
Exercise Trust Unit Options options price options price
---------------------------------------------------------------------
Outstanding at beginning of period 2,014,903 $ 17.47 4,451,131 $
16.78 Exercised (275,189) 17.06 (2,374,182) 16.19 Cancelled (3,200)
12.98 (62,046) 17.17
---------------------------------------------------------------------
Outstanding at period-end 1,736,514 $ 17.54 2,014,903 $ 17.47
Exercisable at period-end 1,721,047 $ 17.56 1,999,436 $ 17.48
---------------------------------------------------------------------
Rights Incentive Plan As at March 31, 2004 rights to purchase
2,166,628 trust units were outstanding (December 31, 2003 -
1,112,140) that expire at various dates to February 6, 2009. March
31, 2004 December 31, 2003
---------------------------------------------------------------------
Weighted Weighted Number Average Number Average of Exercise of
Exercise Rights Incentive Options rights price rights price
---------------------------------------------------------------------
Outstanding at beginning of period 1,112,140 $ 12.20 1,964,100 $
13.29 Granted(1) 1,106,538 16.80 165,000 16.35 Exercised (38,800)
13.69 (984,260) 13.49 Cancelled (13,250) 11.76 (32,700) 12.75
---------------------------------------------------------------------
Outstanding at period-end 2,166,628 $ 14.22 1,112,140 $ 12.20
Exercisable at period-end 700,853 $ 14.19 359,740 $ 11.92
---------------------------------------------------------------------
(1) Weighted average exercise price of rights granted are based on
the exercise price at the date of grant Fair Value of Unit Based
Compensation The fair value of rights incentive options granted
during the three months ended March 31, 2004 was estimated as 15
percent of the exercise price at the date of grant using a modified
Black-Scholes option pricing model with the following assumptions:
risk-free rate of 3.9 percent, volatility of 22 percent, expected
life of five years and adjustments for the estimated distributions
and reductions in the exercise price over the life of the right
incentive option. For trust unit options and rights granted in
2002, Pengrowth has elected to disclose the pro forma effect on net
income had compensation expense been recorded using the fair value
method. The following is the pro forma effect on net income: Three
months ended March March 31, 2004 31, 2003
---------------------------------------------------------------------
Net income $ 38,652 $ 62,920 Compensation expense related to trust
unit options granted in 2002 - (94) Compensation expense related to
rights incentive options granted in 2002 (305) (330)
---------------------------------------------------------------------
Pro forma net income $ 38,347 $ 62,496
---------------------------------------------------------------------
Pro forma net income per unit: Basic $ 0.306 $ 0.564 Diluted $
0.305 $ 0.563
---------------------------------------------------------------------
6. ASSET RETIREMENT OBLIGATIONS As at As at March December 31, 2004
31, 2003
---------------------------------------------------------------------
Asset Retirement Obligations, beginning of period $ 102,528 $
73,493 Increase in liabilities during the period related to:
Additions 354 11,086 Revisions - 15,153 Accretion expense 1,999
6,039 Liabilities settled during the period (1,851) (3,243)
---------------------------------------------------------------------
Asset Retirement Obligations, end of period $ 103,030 $ 102,528
---------------------------------------------------------------------
7. DEFERRED CHARGES As at As at March December 31, 2004 31, 2003
---------------------------------------------------------------------
Imputed interest on note payable (net of accumulated amortization
of $397) $ 3,210 $ 3,607 U.S. debt issue costs (net of accumulated
amortization of $281) 1,860 1,937
---------------------------------------------------------------------
$ 5,070 $ 5,544
---------------------------------------------------------------------
8. FOREIGN EXCHANGE LOSS Three months ended March March 31, 2004
31, 2003
---------------------------------------------------------------------
Unrealized foreign exchange loss on translation of U.S. dollar
denominated debt $ 2,960 $ - Realized foreign exchange losses
(gains) (589) 750
---------------------------------------------------------------------
$ 2,371 $ 750
---------------------------------------------------------------------
The U.S. dollar denominated debt is translated into Canadian
dollars at the exchange rate in effect at the balance sheet date.
Foreign exchange gains and losses are included in income. 9. OTHER
CASH FLOW DISCLOSURES Change in Non-Cash Operating Working Capital
March March 31, 2004 31, 2003
---------------------------------------------------------------------
Accounts receivable $ 201 $ (19,805) Inventory (358) 185 Accounts
payable and accrued liabilities (4,852) 616 Due to Pengrowth
Management Limited 133 150
---------------------------------------------------------------------
$ (4,876) $ (18,854)
---------------------------------------------------------------------
Change in Non-Cash Investing Working Capital March March 31, 2004
31, 2003
---------------------------------------------------------------------
Accounts payable for capital accruals $ 4,728 $ 453
---------------------------------------------------------------------
Cash Payments March March 31, 2004 31, 2003
---------------------------------------------------------------------
Cash payments made for taxes $ 523 $ 485 Cash payments made for
interest $ 343 $ 4,846
---------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS Foreign Exchange Risk Pengrowth entered
into a foreign exchange swap which fixed the Canadian to U.S.
dollar exchange rate at Cdn$1.55 per U.S.$1 on U.S.$750,000 per
month effective 2003 and 2004. This swap has mitigated a portion of
the exchange risk on U.S. dollar denominated gas sales. The
estimated fair value of the foreign exchange swap has been
determined based on the amount Pengrowth would receive or pay to
terminate the contract at period end. At March 31, 2004, the amount
Pengrowth would receive to terminate the foreign exchange swap
would be Cdn$1,567,000. Forward and Futures Contracts Pengrowth has
a price risk management program whereby the commodity price
associated with a portion of its future production is fixed.
Pengrowth sells forward a portion of its future production through
a combination of fixed price sales contracts with customers and
commodity swap agreements with financial counterparties. The
forward and futures contracts are subject to market risk from
fluctuating commodity prices and exchange rates. As at March 31,
2004, Pengrowth had fixed the price applicable to future production
as follows: Crude Oil: Volume Reference Price Remaining Term
(bbl/d) Point Per bbl
---------------------------------------------------------------------
2004 ---- Financial: ---------- April 1, 2004 - Dec 31, 2004 10,500
WTI(1) $38.78 Cdn
---------------------------------------------------------------------
Natural Gas: Volume Reference Price Remaining Term (mmbtu/d) Point
Per mmbtu
---------------------------------------------------------------------
2004 ---- Financial: ---------- April 1, 2004 - Dec 31, 2004 8,000
Tetco M3(1) $7.39 Cdn April 1, 2004 - Dec 31, 2004 7,000 Transco Z6
$3.90 U.S. April 1, 2004 - Dec 31, 2004 948 AECO $6.70 Cdn 2005
---- Financial: ---------- Jan 1, 2005 - Dec 31, 2005 1,000 Tetco
M3(1) $8.22 Cdn
---------------------------------------------------------------------
(1) Associated CDN$/U.S.$ foreign exchange rate has been fixed. The
estimated fair value of the financial crude oil and natural gas
contracts have been determined based on the amounts Pengrowth would
receive or pay to terminate the contracts at period-end. At March
31, 2004, the amount Pengrowth would pay to terminate the financial
crude oil and natural gas contracts would be $16,060,000 and
$9,997,000, respectively. Pengrowth entered into an agreement to
purchase 5 megawatts of electricity at a price of $53.00 per
megawatt hour, effective February 1, 2004 to December 31, 2004.
Fair Value of Financial Instruments The carrying value of financial
instruments included in the balance sheet, other than long term
debt, the note payable and remediation trust funds, approximate
their fair value due to their short maturity. The fair value of the
remediation trust funds at March 31, 2004 was $7,783,000 (December
31, 2003 - $7,479,000). The fair value of the U.S. dollar
denominated debt at March 31, 2004 was approximately $268,836,000
based on the changes in the fair value of the underlying U.S.
Treasury Bill that was originally used as the basis for determining
the coupon rate for each of Pengrowth Corporation's notes. The fair
value of the note payable at March 31, 2004, approximates its
carrying value net of the imputed interest included in deferred
charges. 11. SUBSEQUENT EVENTS Acquisition of Oil and Gas
Properties On April 8, 2004, Pengrowth announced it had entered
into an agreement with a subsidiary of Murphy Oil Corporation
("Murphy") to acquire certain oil and natural gas assets in Alberta
and Saskatchewan for $550 million before adjustments. The
acquisition will be effective April 1, 2004 and is expected to be
completed in late May 2004. Pengrowth anticipates it will finance
the acquisition on closing through cash and term deposits on hand,
and a committed bridge credit facility. Reclassification of Trust
Units Pengrowth received Trust Unitholder approval to reclassify
the trust unit capital into Class A and Class B units at the Annual
and Special Meeting of Trust Unitholders on April 22, 2004. The
reclassification will be implemented at a date to be determined and
announced by the Board of Directors upon receipt of regulatory
approval and satisfaction of other conditions as described in the
Information Circular and Proxy Statement and the related
Supplemental Information in Respect of the Information Circular and
Proxy Statement. DATASOURCE: Pengrowth Energy Trust CONTACT: about
Pengrowth, please visit our website http://www.pengrowth.com/ or
contact: Investor Relations, Calgary, E-mail: , Telephone: (403)
233-0224, Toll Free: 1-800-223-4122, Facsimile: (403) 294-0051;
Investor Relations, Toronto, E-mail: , Telephone: (416) 362-1748,
Toll Free: 1-888-744-1111, Facsimile: (416) 362-8191
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