RNS Number : 1910B
Caspian Energy Inc
13 August 2008
13 August 2008
CASPIAN ENERGY INC.
ANNOUNCES SECOND QUARTER 2008 FINANCIAL RESULTS
TORONTO, August 13, 2008 - Caspian Energy Inc. (the "Company" or "CEK") (TSX and AIM: CEK) announced today its financial results for the
three and six months ending June 30, 2008.
Financial highlights
* Oil revenues before transportation costs for the three months ending June 30, 2008 were $3,363,412 (Q2 2007 - $1,889,400).
* For the three months ending June 30, 2008, Caspian's net loss and comprehensive loss was $1,219,004 (Q2 2007- $6,059,772)
* The Company's operations provided cash of $349,338 for the three months ended June 30, 2008 (Q2 2007 - ($849,893)).
* Working capital position of $7.2 million at the close of the quarter.
The Company's interim unaudited financial statements for the period and related management's discussion and analysis have been filed
with Canadian securities regulatory authorities and are available for viewing at www.sedar.com..
Operational highlights
* Increase in average price per barrel from $33.81 in the same period last year to $112.27 due to the impact of international oil
markets. The Company sold an average 328 Bopd during the three month period (Q2 2007 - 465 Bopd).
* Whilst Aransay �711, the second well in the Company's post-salt drilling programme was determined to be a dry hole, the presence
of reservoir-quality sands of such thickness in the Triassic confirmed that the area is a viable primary target in the presence of a proper
trap and seal.
* A contract has been signed and work is underway to complete the Technology Scheme for the development of the East Zhagabulak
Field. The field continues to produce at about 784 Bopd, of which Caspian's share is 392 bopd.
Outlook
* The Company has completed its East Zhagabulak Reserves Report for the Kazakhstan Government and is proceeding with its application
for a production license.
* The drilling rig has now been released from Aransay �711 and Caspian intends to further evaluate the portfolio of existing
prospects identified in the North Block before making further drilling decisions.
Rights Offering
* On April 17, 2008, the Company announced a Rights Offering, which closed on May 28, 2008. The Rights Offering was significantly
oversubscribed and raised gross proceeds of $4,347,635, through subscriptions for 17,390,543 units at a price of $0.25 per unit.
* Each unit comprised of one common share in the capital of Caspian (a "Share"), and one half of one Share purchase warrant (each
whole such Share purchase warrant a "Warrant") at an exercise price of $0.45 exercisable until the earlier of May 23, 2011, or 30 days
following the receipt of a notice from Caspian that the closing price of the Shares for any 20 consecutive trading days exceeded $0.75
Commenting on the results, William Ramsay, Chairman and Chief Executive Officer of Caspian Energy, Inc. said:
"Despite a couple of operational set backs this quarter, the continual production of the East Zhagabulak Field during times of strong
oil prices and the impressive reception to our Rights Offering, has allowed us to end the quarter with a robust working capital position and
mitigated our losses.
We have confirmed that the Triassic area is a viable primary target and remain confident on the new strategy that we are pursuing which
we believe presents a more attractive risk profile for the Company."
For further information contact:
Caspian Energy Inc.
William Ramsay
President and Chief Executive Officer
00 44 (0)20 7861 3232
Bell Pottinger Corporate and Financial
Sarah Williams
00 44 (0)20 7861 3232
Jefferies International Limited
Jack Pryde / Oliver Griffiths
00 44 (0)20 7029 8000
CAUTIONARY NOTE
Some of the statements and information contained in this news release may include certain estimates, assumptions and other
forward-looking information. The actual performance, developments and/or results of the Company may differ materially from any or all of the
forward-looking statements, which include current expectations, estimates and projections, in all or in part attributable to general
economic conditions, and other risks, uncertainties and circumstances partly or totally outside the control of the Company, including oil
prices, imprecision of reserve estimates, drilling risks, future production of gas and oil, rates of inflation, changes in future costs and
expenses related to the activities involving the exploration, development, production and transportation of oil, hedging, financing
availability and other risks related to financial activities, and environmental and geopolitical risks. Further information which may cause
results to differ materially from those projected in the forward-looking statements is contained in the Company's filings with Canadian securities regulatory authorities. The Company disclaims any intention or
obligation to update or revise forward-looking information, whether as a result of new information, future events or otherwise, except in
accordance with applicable securities laws.
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.
BUSINESS PROSPECTS AND OUTLOOK
The Company has been successful in establishing itself as an operating entity in the ROK and expects to continue with future growth
through continued work there.
Prior to the end of the fourth quarter 2005, EZ�301 was drilled to a total depth of 4,846 metres and logged. The well was completed with
the drilling rig before the rig was moved to the EZ�302 location. EZ�301 was matrix acidized and the two potentially productive hydrocarbon
bearing zones were flow-tested. The lower zone (KT-2) was tested at 2,532 Bopd. The upper zone (KT-1) had difficulty maintaining an
independent flow, so it was commingled with the lower zone and the well was tied-in to the Zhagabulak production facility. Subsequently,
productions logs were ran and it was determined that the KT-1 was producing 100 Bopd. Well 301 was undergoing a government mandated pressure
survey in November 2006, when a production logging tool and cable were lost in the hole. During the second quarter, the tool and wire were
recovered and the well has resumed production. Well 301 is currently producing 582 BOPD, 15 BWPD, 821 MCFD with a FTP (flowing tubing
pressure) of 348 psig and a shut in casing pressure of 1,881 psig on a 12 mm choke.
The second exploration effort, EZ�302, was spud on December 25, 2005. Acidizing and testing of the well were performed following removal
of the drilling rig. The well showed indications of hydrocarbons while drilling and logging; however, the stimulation efforts failed to
cause the well to flow naturally. In well 302 a workover has been prepared to isolate the KT-II and the lower portions of the KT-I that
exhibit higher water saturations on the logs.
The third location, EZ�303 is about 5.2 km southwest of EZ�302. EZ�303 spud on May 28, 2006. The well was permitted to a depth of 5,700
metres. EZ�303 reached a total depth of 4,630 metres in a sidetrack wellbore after the initial wellbore reached a depth of 5,430 metres, but
was lost due to a drill string parting, while pulling out of the hole for logging. A total of 70 meters were perforated and acidized in both
the KT-1 and KT-2 intervals. A combined test of both intervals yielded water with small amounts of oil, while the separate test on the KT-1
yielded water. In well 303 a workover is being written to isolate intervals and test separately to identify which perforations are producing
water.
The original producing well, EZ�213, drilled and completed during the Soviet period, was re-entered in November 2006 and perforations
were added in the KT-1 reservoir. Due to different casing weights, problems were encountered with packer setting for the acid operation and
consequently, only one-half of the productive zones were acidized. Despite the limits on the acidization, a significant improvement of daily
production over the pre-workover rates was achieved. Well 213 is currently producing 263 BOPD, 63 BWPD, 369 MCFD with a flowing tubing
pressure of 325 psig and a shut-in casing pressure of 1,663 psig on an 8.7mm choke. The choke size was increased from the previous 7.0 mm
choke after the flow line pressure was reduced by a successful hot oil treatment. Artificial lift equipment is currently being designed and
quoted and a procedure will be prepared once the design is finalized.
The Company has initiated the development process for East Zhagabulak. Caspian has made initial contacts with Kazakhstan design
institutes for the preparation of the development program report for the development of the East Zhagabulak field. The preparation of the
official State Reserves Report for East Zhagbulak is complete and is expected to be submitted to the government for approval and issuance of
a development contract in late summer, 2008. The preparation of the Technology Scheme, which outlines the detailed plan of development of
the field, is also underway and is expected to be completed by the end of November, 2008.
Ongoing petrophysical analyses of all wells penetrating the below salt reservoirs is being completed and correlations of these wells
will aid in the identification of future drilling locations in the North Block. Identification and acquisition of well data within the
extended territory is also be evaluated for inclusion into this process.
The Baktygaryn 3-D seismic program was completed in early November 2005. PGS-GIS, in Almaty, ROK was awarded the processing contract.
Due to the presence of large salt bodies in the Baktygaryn Area, the 3-D data set was processed through PSDM (Pre-Stack Depth Migration) and
interpretation of this data has been completed. PSTM (Pre-Stack Time Migration) analysis, for the above salt section has also been
conducted. The acquisition of the 367 kilometre regional 2-D seismic survey covering the west and north areas of the North Block and tying
into the Zhagabulak and Baktygaryn 3-D seismic surveys that was completed in March 2007 has also been processed and interpreted. The
Baktygaryn 3-D program and the regional 2-D program were fully interpreted at the end of October 2006. The interpreted data from all new
seismic data acquired and from the earlier reprocessed Soviet-era 2-D seismic is being combined to create a geological model and identify
additional leads and prospects across the North Block territory.
The Baktygaryn Area presents drilling targets in both the below salt Lower Permian and Carboniferous sections and the above salt Upper
Permian and Mesozoic sections with depths ranging from approximately 400 to 2,500 metres and provides a second tier of exploration to the
Company's drilling portfolio. These targets are recognized in the forms of channel sands, traps against the Kungurian salt ridges and
underneath salt overhangs.
In addition to the ongoing interpretation work on the Baktygaryn 3-D and North Block regional 2-D seismic data and the identification of
several post-salt drilling targets in the Triassic and Permian formations, further progress on the interpretation has revealed the presence
of additional targets which are being added to the Company's prospect and lead portfolio. Completion of the interpretation work is expected
by late May 2008.
The first post-salt well identified from the Baktygaryn 3-D survey, Baktygaryn �703, was spud on March 17, 2008, reached total depth of
2,521 metres on June 15, 2008 and was rig-released on June 19, 2008. Numerous drilling delays were experienced due to deviation problems in
the salt and anhydrite section and mechanical failures of the drill string. The object of the vertical well was to secondarily, test
Triassic sandstones downdip on a faulted structure and primarily, Upper Permian sandstones in a trap below a Permian salt diaper overhang.
The well encountered excellent reservoir quality sandstones in the Triassic, but due to the downdip location of the well, no hydrocarbons
were found. Seismic anomalies that supported the presence of a hydrocarbon trap in the Upper Permian, below a salt overhang, were proven by
drilling to be inter-bedded claystones and anhydrite. No reservoirs in the Upper Permian were encountered and the well was plugged and
abandoned.
The rig moved to the Aransay �711 location, approximately 20 kilometres east, where it spud on July 11, 2008 and was rig released on
July 26, 2008. On reaching its total depth of 924 metres in the Upper Permian, the well encountered approximately 298 metres of reservoir
quality rocks in the Triassic section. The Triassic was interpreted to be sandstone reservoirs trapped against a fault and was supported by
a series of flat-based seismic reflectors believed to indicate a hydrocarbon/water interface. However, no shows were encountered while
drilling and electric logging has confirmed the absence of hydrocarbons. Nevertheless, the presence of reservoir-quality sands of such
thickness in the Triassic supports the interpretation that the Triassic is a viable primary target in the area in the presence of a proper
trap and seal.
Aral has decided to release the drilling rig following plugging operations to further evaluate the portfolio of existing prospects
identified in the block.
Soviet-era seismic data interpretation, mapping and the associated shallow well drilling in the Itisay, Kozdesay and West Kozdesay
areas, located in the southwestern portion of the North Block, yielded minor positive tests and shows of oil associated with the post-salt
sediments of Jurassic, Triassic and Upper Permian ages. A review of this data has resulted in the identification of several prospects and
leads ranging from 600 to 1,800 metres in trapping positions against Permian salt ridges and under-salt overhangs. Several lines from the
Company's 2006 2-D seismic program were shot across certain of these leads and prospects to verify this premise. Interpretation of most of
the regional 2006 2-D seismic survey covering the west and north areas of the North Block has been completed. The interpreted data from all
new seismic data acquired and from the earlier reprocessed Soviet-era 2-D seismic was combined to create a geological model and identify
additional leads and prospects across the North Block territory. As a result of this work, some of the earlier leads and prospects in the post-salt sediments identified on vintage maps and seismic
in three areas in the south western portion of the North Block, known as Itisay, Kozdesay and West Kozdesay have been confirmed and in
addition several new leads and drillable prospects have been identified in trapping positions against Permian salt ridges and under salt
overhangs. Drilling for these targets is expected to begin in 2008.
Future seismic activity includes a third 3-D seismic acquisition, pending the results of the upcoming drilling campaign and further
ongoing 2-D seismic interpretation.
The relatively shallow post salt targets at Baktygaryn offer a completely new series of opportunities for the Company. The 3-D and 2-D
seismic data have enabled several new prospects to be identified and the Company is now in the process of selecting additional drilling
locations.
The Company's work program extension, with the ROK, to December 2007 has now been extended for an additional two-year period, subject to
the terms of the original exploration contract. The 2008 work program commits the Company to undertake US$8.6 million of exploration
expenditures prior to the close of that calendar year and the 2009 work program - US$10.5 million of exploration expenditures. Additionally,
during 2008, Aral is obligated to make-up an additional US$ 7.1 million in cumulative shortfalls under the contract. At June 30, 2008, Aral
had expended approximately $US 7.3 million discharging this shortfall.
Balance Sheet
June 30 December 31
2008 2007
$ $
Assets
Current assets
Cash and cash equivalents 6,005,587 4,373,919
Accounts receivable 2,404,677 935,773
Prepaids and other deposits 2,661,819 2,310,302
Inventory (note 3) 880,239 454,302
Restricted cash (note 5) 264,003 253,132
Property, plant and equipment (note 4) 128,844,891 124,795,793
Liabilities
Current liabilities
Accounts payable and accrued liabilities 4,763,126 3,458,427
Asset retirement obligation (note 5) 276,093 252,279
Loan payable (note 6) 7,123,255 6,947,055
Future income taxes 992,350 967,400
Convertible debentures (note 7) 18,863,925 17,669,238
Share capital (note 8) 124,444,925 121,470,892
Warrants to purchase common shares (note 9) 1,893,416 946,508
Contributed surplus (note 10) 15,408,976 14,467,311
Deficit (32,704,850) (33,055,889)
Going concern (note 1)
See accompanying notes to consolidated financial statements.
Interim Consolidated Statement of Income (Loss), Comprehensive Income (Loss) and Deficit
(Unaudited)
Three months ended Three months ended Six months ended Six months ended
June 302008 June 30 2007 June 30 2008 June 30 2007
$ $ $ $
Revenue
Oil and gas revenue, net 3,363,412 1,889,400 6,800,193 2,247,397
Interest 21,606 1,520,836 38,777 1,648,185
Other 12,937 (66,251) 48,544 2,492
Expenses
General and administrative 975,358 984,878 1,748,174 1,589,198
Accretion of convertible 75,015 78,590 150,923 164,602
debentures (note 6)
Interest 491,648 1,190,266 984,796 1,651,059
Operating 739,329 560,577 1,982,960 927,206
Transportation 728,223 156,504 961,270 184,713
Stock-based compensation (note 907,123 1,877,803 941,665 2,473,717
8)
Foreign exchange loss (gain) 335,280 3,346,492 (1,006,800) 3,084,189
Depletion, depreciation and 364,983 760,078 773,487 811,728
accretion
Net income (loss) and
comprehensive income
(loss) before income taxes
Future income taxes - 448,569 - 448,569
Net income (loss) and
comprehensive income (loss)
for the period
Deficit - Beginning of period (31,485,846) (21,224,336) (33,055,889) (19,847,201)
Deficit - End of period
Basic income (loss) per share (0.01) (0.06) 0.00 (0.07)
(note 7)
Diluted income (loss) per (0.01) (0.06) 0.00 (0.07)
share (note 7)
See accompanying notes to consolidated financial statements.
Interim Consolidated Statement of Cash Flows
(Unaudited)
Three months Three months Six months Six months
ended ended ended ended
June 30 2008 June 30 2007 June 30 2008 June 30 2007
$ $ $ $
Cash provided by (used in)
Operating activities
Net income (loss) and (1,219,004) (6,059,771) 351,039 (7,436,907)
comprehensive income (loss)
for the period
Items not affecting cash
Stock-based compensation 907,123 1,877,803 941,665 2,473,717
Unrealized foreign exchange 102,423 2,324,801 (1,108,471) 2,737,540
loss (gain)
Depletion, depreciation and 364,983 760,078 773,487 811,728
accretion
Accretion of convertible 75,015 78,590 150,923 164,602
debentures
Future income taxes - 448,569 - 448,569
Interest on convertible 118,798 468,409 606,172 925,792
debentures
Interest on inter-company - (748,372) - (748,372)
advance
Changes in non-cash working 313,397 (418,509) (1,468,904) (336,650)
capital balances
Financing activities
Loan payable (63,681) - 176,200 -
Restricted cash 2,232 18,526 (10,871) 15,693
Issuance of common shares and 4,347,635 - 4,347,635 -
warrants
Share issue expenses (426,694) - (426,694) -
Investing activities
Acquisition of property, plant (1,726,991) 4,496,504 (3,227,783) (5,502,127)
and equipment
Changes in non-cash working (233,057) (5,558,027) 527,270 (4,950,252)
capital balances
Increase (decrease) in cash
and cash equivalents
Cash and cash equivalents - 3,443,408 7,937,017 4,373,919 17,022,285
Beginning of period
Cash and cash equivalents -
End of period
Interest received and paid
Interest received 21,606 54,691 38,777 183,840
Interest paid 365,847 - 365,847 -
See accompanying notes to consolidated financial statements.
Notes to Interim Consolidated Financial Statements
Nature of operations
Caspian Energy Inc. ("Caspian" or the "Company") is engaged in the exploration for and development and production of oil and gas in the
Republic of Kazakhstan. Its primary operating activities are carried out through its wholly-owned subsidiary, Caspian Energy Ltd. ("Caspian
Ltd.").
Caspian's principal assets are a 50% interest in Aral Petroleum Capital LLP ("Aral"), held by Caspian Ltd. Through its interest in Aral,
Caspian has the right to explore and develop certain oil and gas properties in Kazakhstan, known as the North Block, a 3,458 square
kilometre area located in the vicinity of the Kazakh pre-Caspian basin. The Company also has minor resource interests in Canada.
Aral's exploration and development rights to the North Block were granted pursuant to the terms of an exploration contract between the
government of Kazakhstan and Aral (the "Exploration Contract"). The initial three-year term of the Exploration Contract was extended for a
two-year period (expiring in December 2007) and a further extension of two years to December 31, 2009 with a minimum work commitment of US
$19.1 million has now been placed into effect.
Under the terms of the Exploration Contract, Aral was obligated to spend at least US $20.8 million under a minimum work program in
respect of the North Block during the initial three-year term of the contract. The expenditures include processing and reinterpretation of
geological and geophysical data of prior years, two dimensional and three dimensional seismic shoots and surveys, drilling exploration
wells, well reactivations and well surveys and testing. The minimum work program matured at the end of calendar 2005. As of December 31,
2005, Aral's financial obligation under the minimum work program had been discharged. The work program extension to December 2008 includes
drilling three wells to a combined total of 8,500 metres with a monetary obligation of US $20.15 million. At December 31, 2007, Aral had
contract shortfalls aggregating US $7.1 million. Management of Aral believes the Company is in compliance with its commitments under the
Minimum Working Program and has received authorization from the Ministry of Energy and Natural Resources and other competent bodies to carry over fulfillment of the above shortfalls to the year ending
December 31, 2008. At , Aral had expended approximately US $7.3 million toward discharging the shortfall.
Under terms of a shareholders' agreement dated June 25, 2004, among Caspian Ltd., Azden Management Limited ("Azden") and Aral, Caspian
was committed to fund Aral's US $20.8 million obligation under the initial work program. This financial commitment was satisfied, in full,
by the Company. In addition, Caspian Ltd. undertook, on a best efforts basis, to raise financing of US $84.0 million to fund Aral's
operations pursuant to the Exploration Contract. At March 31, 2007, Caspian Ltd. had discharged this undertaking.
Going concern
These financial statements have been prepared in accordance with Canadian generally accepted accounting policies ("GAAP") applicable to
a going concern, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the
Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities
as they become due.
The Company reported a net income of $351,039 and funds generated from operations of $1,912,833 for the period ended . The Company had
net working capital of $7,189,196. As a result, there is substantial doubt about the Company's ability to continue as a going concern. The
Company's continuation is dependent upon the ability to raise capital and the success of its drilling and exploration program.
The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Such adjustments
could be material.
Significant accounting policies
The consolidated financial statements of Caspian are stated in Canadian dollars and have been prepared in accordance with Canadian
GAAP.
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from
those estimates.
Cash and cash equivalents
Cash and cash equivalents are comprised of cash and short-term investments with an initial maturity date of three months or less.
Inventory
Inventory is recorded at the lower of cost calculated using the weighted average method, and net realizable value. Cost comprises direct
materials and where applicable direct labour costs and those overheads which have been incurred in bringing the inventories to their present
location and condition. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.
Joint ventures
The Company's oil and gas exploration and development activities are conducted mainly in Kazakhstan through its 50% interest in Aral
and, accordingly, these consolidated financial statements reflect only the Company's proportionate interest in such activities.
Property, plant and equipment
Capitalized costs
The Company follows the full cost method of accounting for oil and natural gas operations, whereby all costs related to the acquisition,
exploration and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition costs, geological
and geophysical costs, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells, the cost of
petroleum and natural gas production equipment and overhead charges directly related to exploration and development activities. Proceeds
from the sale of oil and gas properties are applied against capital costs, with no gain or loss recognized, unless such a sale would change
the rate of depletion and depreciation by 20% or more, in which case, a gain or loss would be recorded.
Depletion, depreciation and amortization
The capitalized costs are depleted and depreciated using the unit-of-production method based on proven petroleum and natural gas
reserves, as determined by independent consulting engineers. Oil and natural gas liquids reserves and production are converted into
equivalent units of natural gas based on relative energy content on a ratio of six thousand cubic feet of gas to one barrel of oil.
Significant development projects and expenditures on exploration properties are excluded from calculation of depletion prior to assessment
of the existence of proved reserves.
Other property, machinery and equipment are recorded at historical cost. Depreciation is calculated on a straight-line basis at the
following annual rates:
Buildings 8%
Machinery and equipment 8%
Vehicles 7%
Other fixed assets 10%
Ceiling test
The Company follows the Canadian accounting guideline on full cost accounting. In applying the full cost guideline, Caspian calculates
its ceiling test for each cost centre by comparing the carrying value of oil and natural gas properties and production equipment to the sum
of undiscounted cash flows expected to result from Caspian's proved reserves. If the carrying value is not fully recoverable, the amount of
impairment is measured by comparing the carrying value of oil and gas properties and production and equipment to the estimated net present
value of future cash flows from proved plus probable reserves using a risk-free interest rate and expected future prices. Any excess
carrying value above the net present value of the future cash flows is recorded as a permanent impairment. Unproved property
Costs of acquiring and evaluating unproven properties are initially excluded from costs subject to depletion, until it is determined
whether or not proved reserves are attributable to the properties or, in the case of major development projects, commercial production has
commenced, or impairment has occurred. Impairment occurs whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. When proven reserves are determined or the property is considered to be impaired, the cost of the property or the amount
of the impairment is added to the costs subject to depletion for that country's cost centre.
Asset retirement obligation
Caspian records the fair value of asset retirement obligations ("ARO") as a liability in the period in which it incurs a legal
obligation to restore an oil and gas property, typically when a well is drilled or other equipment is put in place. The associated asset
retirement costs are capitalized as part of the carrying amount of the related asset and depleted using a unit-of-production method over the
life of the proved reserves. Subsequent to initial measurement of the obligations, the obligations are adjusted at the end of each reporting
period to reflect the passage of time and changes in estimated future cash flows underlying the obligation. Actual costs incurred on
settlement of the ARO are charged against the ARO.
Income taxes
Income taxes are calculated using the liability method of tax accounting. Temporary differences arising from the difference between the
tax basis of an asset or liability and its carrying value amount on the balance sheet are used to calculate future income tax assets and
liabilities. Future income tax assets and liabilities are calculated using tax rates anticipated to apply in the periods that the temporary
differences are expected to reverse.
Stock-based compensation
The Company grants options to purchase common shares to employees and directors under its stock option plan. Under this standard, future
awards are accounted for using the fair value of accounting for stock-based compensation. Under the fair value method, an estimate of the
value of the option is determined at the time of grant using a Black-Scholes option-pricing model. The fair value of the option is
recognized as an expense and contributed surplus over the vesting period of the option. Proceeds received on exercise of stock options,
along with amounts previously included in contributed surplus, are credited to share capital.
Revenue recognition
Revenue from the sale of oil and natural gas is recognized based on volumes delivered to customers at contractual delivery points and
rates. The costs associated with the delivery, including operating and maintenance costs, transportation, and production-based royalty
expenses will be recognized in the same period in which the related revenue is earned and recorded.
Measurement uncertainty
The amounts recorded for depletion and depreciation of property, plant and equipment, the provision for asset retirement obligations and
the amounts used for ceiling test calculations are based on estimates of reserves and future costs. The Company's reserve estimates are
reviewed annually by an independent engineering firm. The amounts disclosed relating to fair values of stock options issued are based on
estimates of future volatility of the Company's share price, expected lives of options, and other relevant assumptions. By their nature,
these estimates are subject to measurement uncertainty.
Income (loss) per share
Basic per share amounts are calculated using the weighted average number of shares outstanding during the period. Diluted per share
amounts are calculated based on the treasury stock method whereby the weighted average number of shares is adjusted for the dilutive effect
of options. The Company applies the treasury stock method for the calculation of diluted net loss per share whereby the effect of the "in
the money" instruments such as stock options and warrants affect the calculation. The treasury stock method assumes that the proceeds from
the exercise are used to repurchase common shares of the Company at the weighted average market price during the year.
Financial instruments
Fair values
The fair values of accounts receivable, accounts payable and accrued liabilities, and loan payable approximate their carrying values due
to their short-term maturity.
Credit risk
Substantially all of the Company's accounts receivable are due from companies in the oil and gas industry and are subject to the normal
industry credit risks. The carrying value of accounts receivable reflects management's assessment of the associated credit risks.
Foreign currency
All operations are considered financially and operationally integrated. Results of operations are translated to Canadian dollars, using
average rates for revenues and expenses, except depreciation which is translated at the rate of exchange applicable to the related assets.
Monetary items denominated in foreign currency are translated to Canadian dollars at exchange rates in effect at the balance sheet date and
non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Foreign exchange
gains and losses are recorded in the statement of loss.
Changes in accounting policies
On January 1, 2008, the Company adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook Sections:
* Section 1535, "Capital Disclosures". This section establishes standards for disclosing information about an entity's objectives,
policies and processes for how it manages its capital. A company must also disclose qualitative data about what the entity regards as
capital; and whether the company has complied with any capital requirements and if not, the consequences of such non-compliance. The Company
adopted this standard effective January 1, 2008 (see note 14).
* Section 3862, "Financial Instruments - Disclosures". This section describes the required disclosures to evaluate the significance
of financial instruments for the entity's financial position and performance as well as the nature and extent of risks arising from both
recognized and unrecognized financial instruments to which the entity is exposed and how the entity manages those risks. The Company adopted
this standard effective January 1, 2008 (see note 12).
* Section 3863, "Financial Instruments - Presentation". This section establishes standards for presentation of financial instruments
and non-financial derivatives. It details the presentation of the standards described in Section 3861, "Financial Instruments - Disclosure
and Presentation". The Company adopted this standard effective3 January 1, 2008 (see note 12).
Inventory
June 30 2008 December 31 2007
$ $
Oil inventory 135,155 187,300
Fuel 52,624 25,748
Construction materials 2,773 2,742
Spare parts 4,518 5,004
Other materials 685,169 233,508
Property, plant and equipment
June 30 2008 December 31 2007
$ $
Petroleum and natural gas assets 130,280,463 126,806,121
Other assets 4,536,405 3,122,928
Accumulated depletion and depreciation (5,971,977) (5,133,256)
Excluded from the depletable base of oil and gas assets at are unproved properties of $80,854,852 (December 31, - $72,049,847).
The Company applied the ceiling test to its capitalized assets at and December 31, and determined that there was no impairment of such
carrying costs.
WTI Crude oil price $US/bbl
2008 90.00
2009 86.70
2010 83.20
2011 79.60
2012 78.50
The prices increase by 2% for years thereafter.
During the period ended , the Company capitalized $256,611 (December 31, - $269,548) of general and administrative expenses related
directly to exploration and development activities.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PTMATMMABBPP
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