Pengrowth Energy Trust announces first quarter results Stock
Symbol: (PGF.A/PGF.B) - TSX; (PGH) - NYSE CALGARY, April 27
/PRNewswire-FirstCall/ -- Pengrowth Corporation ("Pengrowth"),
administrator of Pengrowth Energy Trust, announced the unaudited
results for the three months ended March 31, 2005. First quarter
distributable cash before withholding reached record levels
increasing by 38 percent to $127.8 million compared to $92.9
million in the first quarter of 2004. Actual cash distributions to
unitholders in the first quarter of 2005 totaled Cdn $0.69 per
trust unit reflecting a payout ratio of 84 percent as compared to
90 percent for the same period in 2004. Based upon the current
forward market for commodity prices, it is proposed to maintain the
monthly cash distribution of $0.23 per trust unit through the
second quarter while continuing to reduce the payout ratio.
Pengrowth completed the successful acquisition of an additional
11.89 percent working interest in Swan Hills Unit No. 1 with the
trust?s working interest now totaling 22.34 percent. The
acquisition increased Pengrowth?s reserves base by approximately
five percent and added an estimated 12.0 million boe of proved plus
probable reserves. Continued strength in commodity prices, crude
oil in particular, has contributed to solid operating results.
Pengrowth?s average realized light oil price increased 34 percent
from $40.57 in the first quarter of 2004 to $54.42 in the first
quarter of 2005 and on a total barrels of oil equivalent basis,
Pengrowth?s average realized price increased 12 percent from $39.91
to $44.53 for the same periods, respectively. Total production in
the first quarter of 2005 averaged 59,082 boe per day, an increase
of 29 percent over the first quarter of 2004 due mainly to the
additional production associated with the Murphy Assets, an
additional shipment of condensate at SOEP during the quarter and
one month?s production associated with the Swan Hills Unit No. 1
acquisition. During the first quarter, Pengrowth announced an
Arrangement Agreement with Crispin Energy Inc. to acquire all of
the issued and outstanding shares of Crispin. This represents the
first public corporate acquisition for Pengrowth and is scheduled
to close by the end of April, 2005. The transaction is expected to
be accretive to unitholders and add proved reserves of 3.9 mmboe
and proved plus probable reserves of 5.2 mmboe. The transaction
will also increase Pengrowth's exposure to a coal bed methane play
and will increase Pengrowth's Canadian resident trust unit
ownership above the ownership threshold of 50.25 percent. Note
regarding currency: All figures contained within this report are
quoted in Canadian dollars unless otherwise indicated. Summary of
Financial and Operating Results Three Months ended March 31 %
(thousands, except per unit amounts) 2005 2004 Change INCOME
STATEMENT Oil and gas sales $ 236,768 $ 165,880(xx) 43 Net income $
56,314 $ 38,652 46 Net income per unit $ 0.37 $ 0.31 19 Funds
generated from operations $ 126,407 $ 91,798 38 Funds generated
from operations per unit $ 0.82 $ 0.73 12 Cash withheld $ 12,782 $
9,289 38 Distributable cash before withholding(x) $ 127,804 $
92,895 38 Distributable cash before withholding per unit(x) $ 0.83
$ 0.74 12 Distributable cash(x) $ 115,022 $ 83,606 38 Actual
distributions paid or $ 105,998 $ 82,955 28 declared Actual
distributions paid or declared per unit $ 0.69 $ 0.63 10 Weighted
average number of units outstanding 153,388 125,220 22 BALANCE
SHEET Working capital $ (97,897) $ 194,650 (150) Property, plant
and equipment and other assets $ 2,061,105 $ 1,507,905 37 Long-term
debt $ 441,920 $ 262,260 69 Unitholders' equity $ 1,414,203 $
1,315,025 8 Unitholders' equity per unit $ 9.21 $ 9.72 (5) Number
of units outstanding at period end 153,621 135,324 14 DAILY
PRODUCTION Crude oil (barrels) 20,443 21,516 (5) Heavy oil
(barrels) 6,046 - - Natural gas (thousands of cubic feet) 157,491
117,348 34 Natural gas liquids (barrels) 6,345 4,594 38 Total
production (BOE) 59,082 45,668 29 TOTAL PRODUCTION (MBOE) 5,317
4,156 29 PRODUCTION INCREASE (year over year) 29% (10)% PRODUCTION
PROFILE Crude oil 35% 47% Heavy oil 10% - Natural gas 44% 43%
Natural gas liquids 11% 10% AVERAGE PRICES Crude oil (per barrel) $
54.42 $ 40.57(xx) 34 Heavy oil (per barrel) $ 24.39 $ - - Natural
gas (per mcf) $ 6.84 $ 6.82(xx) - Natural gas liquids (per barrel)
$ 50.48 $ 37.08(xx) 36 Average price per BOE $ 44.53 $ 39.91(xx) 12
(x) See the section entitled "Non-GAAP Financial Measures" (xx)
Restated to conform to presentation adopted in the prior year.
Summary of Trust Unit Trading Data Three Months ended March 31
(thousands, except per unit amounts) 2005 2004 TRUST UNIT TRADING
(Class A) PGH (NYSE) after unit re-class(xxx) High $ 22.94 US $ -
US Low $ 18.11 US $ - US Close $ 20.00 US $ - US Value $ 515,131 US
$ - US Volume (thousands of units) 24,621 - PGF.A (TSX) (xxx) High
$ 28.29 $ - Low $ 22.15 $ - Close $ 24.03 $ - Value $ 53,267 $ -
Volume (thousands of units) 2,049 - TRUST UNIT TRADING (Class B)
PGF.B (TSX) (xxx) High $ 19.90 $ - Low $ 16.10 $ - Close $ 17.05 $
- Value $ 543,701 $ - Volume (thousands of units) 29,219 - TRUST
UNIT TRADING (before unit re-class) PGH (NYSE) before unit
re-class(xxx) High $ - US $ 16.60 US Low $ - US $ 12.10 US Close $
- US $ 13.70 US Value $ - US $ 525,609 US Volume (thousands of
units) - 36,899 PGF.UN (TSX) (xxx) High $ - $ 21.25 Low $ - $ 15.55
Close $ - $ 17.98 Value $ - $ 567,785 Volume (thousands of units) -
30,620 (xxx) July 27, 2004, all trust units were re-classified into
Class A or Class B trust units. Class A trust units trade on the
NYSE under PGH and on the TSX under PGF.A. Class B trust units
trade only on the TSX under PGF.B. 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. Non-GAAP Financial
Measures This discussion and analysis refers to certain financial
measures that are not determined in accordance with Canadian GAAP.
These measures do not have standardized meanings and may not be
comparable to similar measures presented by other trusts or
corporations. Although such measures as distributable cash,
distributable cash before withholding and operating netbacks do not
have standardized meanings prescribed by GAAP, distributable cash
is determined by reference to the Distributions and Taxability of
Distributions section of this report while the remaining measures
are determined by reference to our financial statements. We discuss
these measures, which have been applied on a consistent basis,
because we believe that they facilitate the understanding of the
results of our operations and financial position. Overview During
the first quarter, Pengrowth successfully completed the acquisition
of an additional 11.89 percent working interest in the Swan Hills
Unit No.1 property for $87 million. This acquisition increased
Pengrowth's total interest in the property to 22.34 percent and
added estimated proved plus probable reserves, as evaluated
effective October 1, 2004 by Gilbert Laustsen Jung Associates
Ltd.(GLJ), of 12.0 million boe, an increase of approximately 5
percent to Pengrowth's reserve base. Pengrowth funded the purchase
through existing bank facilities. Continued strength in commodity
prices and additional production from the Murphy acquisition, which
closed on May 31, 2004, had a favourable impact on 2005 first
quarter results relative to the first quarter of 2004. Net Income
Net income for the first quarter of 2005 was $56.3 million ($0.37
per trust unit) compared to $38.7 million ($0.31 per trust unit)
for the previous year. The increase in net income in 2005 compared
to the same period last year is due mainly to a 29 percent increase
in production volumes and a 12 percent increase in average
commodity prices offset in part by higher expenses. Production
Total BOE production for the first quarter of 2005 of 59,082 boe
per day is 29 percent higher than the 45,668 boe per day in the
first quarter of 2004 and 3 percent higher than fourth quarter 2004
production of 57,425 boe per day. Production from the Murphy
properties of 14,019 boe per day contributed significantly to the
quarter over quarter increase of 13,414 boe per day. Volumes for
the first quarter of 2005 also benefited due to the timing of Sable
Offshore Energy Project (SOEP) condensate sales and the
contribution of one month of production from the additional
interest acquired in Swan Hills Unit No. 1. Three months ended
Daily Production March 31 2005 2004 % Change
-------------------------------------------------------------------------
Light crude oil (bbls) 20,443 21,516 (5)% Heavy oil (bbls) 6,046 -
- Natural gas (mcf) 157,491 117,348 34% Natural Gas Liquids (bbls)
6,345 4,594 38%
-------------------------------------------------------------------------
Total boe/d 59,082 45,668 (29%)
-------------------------------------------------------------------------
Light oil production volumes decreased 5 percent in the first
quarter compared to the first quarter of 2004. The Murphy
acquisition and development activities over the past year have
contributed to partially offset natural production declines
occurring in the northeast B.C. projects of Rigel and Squirrel as
well as lower volumes from Judy Creek. Heavy oil production comes
from the recently acquired Murphy properties, including working
interests in Tangleflags and Bodo, both in Saskatchewan. Natural
gas production increased 34 percent in the first quarter of 2005
compared to the first quarter of 2004. Additional gas volumes of 40
mmcf per day from the Murphy properties, as well as incremental
volumes from development activities mitigated the impact of natural
production declines. Of note was increased gas production from the
Monogram, Tilley and Cessford areas where shallow gas development
in the Milk River, Medicine Hat and Second White Specs formations
added a further 9.6 mmcf per day of production compared to first
quarter 2004 levels. SOEP gas production decreased in the first
quarter of 2005 as compared to the same period in 2004 due mainly
to a well workover at the Venture 1 well. Natural gas liquids (NGL)
production increased by 38 percent in the first quarter of 2005
over the first quarter of 2004. The fluctuation in NGL sales from
quarter to quarter is due mainly to the timing of condensate sales
from SOEP. Two condensate shipments were made in the first quarter
of 2005, totaling approximately 135,000 barrels, compared to a
partial shipment of 11,000 barrels in the same period last year.
Pengrowth would normally anticipate one shipment of condensate per
quarter. Prices Pengrowth's average commodity price per boe for the
first quarter of 2005 was 12 percent higher than the first quarter
of 2004. Three months ended Average realized prices Cdn$ March 31
(after the impact of hedging) 2005 2004 % Change
-------------------------------------------------------------------------
Light crude oil (per bbl) $ 54.42 $ 40.57 34% Heavy oil (per bbl)
24.39 - - Natural gas (per mcf) 6.84 6.82 - Natural Gas Liquids
(per bbl) 50.48 37.08 36%
-------------------------------------------------------------------------
Total per boe $ 44.53 $ 39.91 12%
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Pengrowth's average light oil price increased 34 percent in the
first quarter of 2005 compared to the first quarter of 2004.
Although the West Texas Intermediate (WTI) benchmark price
increased 42 percent in the first quarter of 2005 compared to the
same period last year, it was partially offset by a 7 percent
decrease in the value of the U.S. dollar relative to the Canadian
dollar and a small negative adjustment in Pengrowth's average field
quality differentials relative to benchmark pricing. Pengrowth's
average natural gas price for the first quarter of 2005 remained
constant at $6.84 per mcf compared to $6.82 per mcf over the same
period last year. Pengrowth's average natural gas prices remained
relatively stable year over year reflective of the small increase
(1.4 percent) in the AECO average price. NYMEX average prices
increased by 10.2 percent but this was partially offset by a weaker
U.S. dollar relative to the Canadian dollar. Pengrowth did not
experience the full effect of increased market prices as certain
fixed price gas contracts which were part of the Murphy acquisition
partially offset the increase in market prices. Price Risk
Management Program Pengrowth uses forward and futures contracts to
manage its exposure to commodity price fluctuations and to provide
a measure of stability to our monthly cash distributions. In the
first quarter of 2005, Pengrowth realized a net hedging loss of
$0.1 million related to natural gas financial swap contracts,
compared to a net hedging loss of $4.7 million for the same period
last year. With the continued strength in crude oil prices in the
first quarter, Pengrowth realized a net hedging loss of $6.6
million on crude oil price swap transactions, compared to a loss of
$7.1 million in the first quarter of 2004. In conjunction with the
purchase of the Murphy Assets on May 31, 2004, Pengrowth assumed
certain fixed price natural gas sales contracts associated with the
Murphy reserves. Under these contracts, Pengrowth is obligated to
sell 3,886 MMBTU per day, until April 30, 2009 at an average
contract price of Cdn $2.27 per MMBTU. Pengrowth currently has
10,000 barrels per day of crude oil hedged for the remainder of
2005 at an average price of Cdn $54.39 per barrel and a further
4,000 barrels per day is hedged for 2006 at Cdn $64.08 per barrel.
Western gas production of 2,370 MMBTU per day is hedged at an
average price of $8.35 per MMBTU for the period of May 1 to
December 31, 2005 and a further 2,370 MMBTU per day is hedged at
$8.03 per MMBTU for 2006. Eastern gas production of 18,500 MMBTU
per day is hedged at an average delivered price of $9.51 per MMBTU
for the remainder of 2005 and 2,500 MMBTU per day is hedged at
$10.63 for 2006. The details of Pengrowth's commodity hedges are
provided in Note 8 to the financial statements. At March 31, 2005,
the mark-to-market value of Pengrowth's commodity hedges
represented a potential loss of $41.1 million consisting of a loss
of $4.7 million on natural gas contracts and $36.4 million for
crude oil contracts. Royalties Royalties, including crown and
freehold royalties, were 16 percent of oil and gas sales in the
three months ended March 31, 2005, compared to 15 percent in the
first three months of 2004 due to the higher effective rates
applicable at higher commodity prices. Operating Costs Operating
costs were $49.1 million (or $9.23 per boe) for the first quarter
of 2005, compared to $31.2 million (or $7.50 per boe) for the first
quarter of 2004. Higher operating costs associated with the Murphy
properties, charges relating to prior periods and increased fixed
expenses all contributed to higher operating costs on a per boe
basis compared to the first quarter of 2004. Injectants for
Miscible Floods During the first quarter of 2005, Pengrowth
purchased $7.6 million of injectants and amortized a related $5.4
million against first quarter net income and distributable cash,
compared to $7.3 million and $5.2 million, respectively, in first
quarter of 2004. The increase in injectant costs year over year is
due mainly to increased injectant volumes at Swan Hills. The
majority of ethane and natural gas volumes injected at Judy Creek
are proprietary volumes produced from Judy Creek and Swan Hills and
then re-injected. Revenue is not recorded for volumes that are
produced and subsequently re-injected. At March 31, 2005, the
balance of unamortized injectant costs was $27.2 million. Operating
Netbacks There is no standardized measure of operating netbacks and
therefore, operating netbacks, as presented below, may not be
comparable to similar measures presented by other companies.
Certain assumptions have been made in allocating operating
expenses, other production income, other income and royalty
injection credits between light crude oil, heavy oil, natural gas
and natural gas liquids production. Operating netbacks increased by
approximately 8 percent reflecting the overall increase in oil and
gas prices during the quarter offset partially by the increase in
operating costs per boe. Combined Netbacks Three months ended
----------------------------------- March 31, March 31, ($ per bbl)
2005 2004 ----------------------------------- Sales Price $ 44.97 $
40.37 Other production income 0.15 0.24 GORR royalties (0.59)
(0.70) ----------------------------------- 44.53 39.91 Other income
0.79 0.82 Crown and Freehold Royalties (7.04) (5.90) Operating
Costs (9.23) (7.50) Transportation Costs (0.34) (0.37) Amortization
of injectants (1.01) (1.25) -----------------------------------
Operating Netback $ 27.70 $ 25.71
----------------------------------- Light Crude Netbacks Natural
Gas Netbacks Three months ended Three months ended
-----------------------------------
----------------------------------- March 31, March 31, March 31,
March 31, ($ per bbl.) 2005 2004 ($ per mcf) 2005 2004
-----------------------------------
----------------------------------- Sales Price $ 54.42 $ 40.57
Sales Price $ 6.84 $ 6.82 Other production GORR royalties (0.11)
(0.12) income 0.42 0.51 ----------------------------------- GORR
Royalties (0.64) (0.65) 6.73 6.70
----------------------------------- Other income 0.21 0.23 54.20
40.43 Crown and Freehold Other income 0.38 0.47 Royalties (1.16)
(1.04) Crown and Freehold Operating Costs (1.08) (1.05) Royalties
(6.47) (3.43) Transportation Operating Costs (10.74) (8.59) Costs
(0.09) (0.10) Transportation -----------------------------------
Costs (0.30) (0.23) Operating Amortization of Netback $ 4.61 $ 4.74
injectants (2.93) (2.66) -----------------------------------
----------------------------------- Operating Netback $ 34.14 $
25.99 ----------------------------------- Heavy Oil Netbacks
Natural Gas Liquids Netbacks Three months ended Three months ended
-----------------------------------
----------------------------------- March 31, March 31, March 31,
March 31, ($ per bbl) 2005 2004 ($ per bbl) 2005 2004
-----------------------------------
----------------------------------- Sales Price $ 24.39 $ - Sales
Price $ 50.48 $ 37.08 GORR Royalties (0.06) - GORR royalties (0.68)
(0.89) -----------------------------------
----------------------------------- 24.33 - 49.80 36.19 Other
income 0.99 - Crown and Freehold Crown and Royalties (13.39)
(15.88) Freehold Operating Costs (6.88) (7.45) Royalties (2.52) -
Transportation Operating Costs (18.56) - Costs - (0.10)
-----------------------------------
----------------------------------- Operating Operating Netback $
4.24 $ - Netback $ 29.53 $ 12.76
-----------------------------------
----------------------------------- General and Administrative
General and administrative expenses (G&A) were $7.1 million in
the first quarter of 2005 compared to $5.8 million for the first
quarter of 2004. Included in 2005 first quarter G&A is $0.8
million of non-cash compensation costs related to trust unit rights
and phantom trust units (see note 1 to consolidated financial
statements) compared to $1.1 million for the first quarter of 2004.
Excluding the non-cash component of G&A, 2005 year-to-date
G&A has increased over 2004 levels by $1.5 million due to a
number of factors including increased financial reporting and
regulatory costs and the addition of personnel and larger office
space required to manage the Murphy assets. On a per boe basis,
first quarter G&A is $1.33 per boe, compared to $1.41 per boe
for the first quarter of 2004 largely reflecting the volume
increases associated with the Murphy Assets. Management Fees
Management fees were $3.7 million for the first quarter of 2005
compared to $2.8 million for the first quarter of 2004. Management
fees recorded in the first quarter of 2005 include an accrual for
estimated performance fees of $0.6 million. Under the current
management agreement, which came into effect July 1, 2003, the
manager will earn a performance fee if Pengrowth trust unit total
returns exceed 8 percent per annum on a three year rolling average
basis. The maximum fees payable, including the performance fee, is
limited to 80 percent of the fees that would otherwise have been
payable under the old management agreement for the first three
years and 60 percent for the subsequent three years. Although the
rate base for the calculation of total fees payable to the manager
is less under the current management agreement, higher overall
production, prices and distributable cash have resulted in an
increase in the management fees. Interest Interest expense
increased to $5.4 million in the first quarter of 2005 compared to
$4.2 million for the first quarter of 2004. Interest expense
includes $0.4 million of fees on a year-to-date basis related to
the amortization of U.S. debt issue costs and imputed interest on
the note payable to Emera Offshore Incorporated. Higher ending
long-term debt levels in the first quarter of 2005 of $441.9
million versus $262.3 million at the end of first quarter 2004
contributed to the increase in interest expense. Depletion and
Depreciation Depletion and depreciation increased to $69.1 million
in the first quarter of 2005 compared to $50.5 million in the first
quarter of 2004. On a per boe basis, depletion and depreciation has
increased to $13.00 per boe in the first quarter of 2005 compared
to $12.15 per boe in the first quarter of 2004. The increase is
mainly attributable to the purchase of properties over the past
year, including the Murphy Assets in May 2004. With the sustained
strength in commodity prices in recent years, the higher cost of
acquiring oil and gas properties has increased resulting in a
higher depletion rate per boe produced. Distributions and
Taxability of Distributions Pengrowth generated $127.8 million
($0.83 per trust unit outstanding) of distributable cash before
withholding related to first quarter 2005 operations, compared to
$92.9 million ($0.74 per trust unit outstanding) in 2004.
Distributions paid or declared of $106 million (2004 - $83 million)
equates to approximately 84 percent of funds generated from
operations (2004 - 90 percent). Pengrowth's recent practice has
been to withhold approximately 10 percent of cash available for
distribution to repay debt and/or contribute to capital spending.
The Board of Directors may decide to increase (or decrease) the
amount withheld in the future, depending on a number of factors,
including expectations for future commodity prices, capital
expenditure requirements and opportunities, the impact of increased
(or decreased) withholdings on the taxability of the Trust and the
availability of debt and equity capital. Board discretion with
respect to withholding is subject to a maximum withholding amount
of 20 percent of gross revenues, as approved by unitholders at the
2003 annual general meeting. Given the level of current commodity
prices, Pengrowth's increased development opportunities from recent
acquisitions and ongoing maintenance requirements, Pengrowth
expects monthly distributions to remain at $0.23 per trust unit for
the second quarter of 2005. Cash distributions are paid to
unitholders on the 15th day of the second month following the month
of production. Pengrowth paid $0.69 per trust unit as cash
distributions during the first quarter of 2005. There is no
standardized measure of distributable cash and therefore
distributable cash, as reported by Pengrowth, may not be comparable
to similar measures presented by other trusts. The following table
provides a reconciliation of distributable cash for the first
quarter ended March 31, 2005 and 2004. ($ thousands, except per
unit amounts) Three months ended
-------------------------------------------------------------------------
March 31, March 31, 2005 2004
-------------------------------------------------------------------------
Funds generated from operations $ 126,407 $ 91,798 Change in
deferred injectants 2,179 2,055 Change in Remediation Trust Funds
(263) (298) Amortization of deferred charges (395) (474) Other
(124) (186)
-------------------------------------------------------------------------
Distributable cash before withholding 127,804 92,895 Cash withheld
(12,782) (9,289)
-------------------------------------------------------------------------
Distributable cash 115,022 83,606 Less: Actual distributions paid
or declared (105,998) (82,955)
-------------------------------------------------------------------------
Remaining Balance $ 9,024 $ 651 Actual distributions paid or
declared per unit $ 0.69 $ 0.63
-------------------------------------------------------------------------
At this time, Pengrowth anticipates that approximately 75-80
percent of 2005 distributions will be taxable; this estimate is
subject to change depending on a number of factors including, but
not limited to, the level of commodity prices, acquisitions,
dispositions and new equity offerings. Liquidity and Capital
Resources Pengrowth's long term debt at March 31, 2005 was $441.9
million, compared to $345.4 million at December 31, 2004 and $262.3
million at March 31, 2004. During the first quarter, Pengrowth
added $95 million of new debt. Of that amount $87 million was
utilized to fund the acquisition of the additional interest in the
Swan Hills property with the remainder to fund ongoing maintenance
and development activities. Capital expenditures, excluding
acquisitions, of $46 million were financed through the combination
withholdings on distributions of $13 million, DRIP issues and
option proceeds of $10 million, additional debt of $8 million and a
reduction in cash and working capital of $15 million. Approximately
$152 million of the $375 million credit facility remains unutilized
at March 31, 2005. In addition, Pengrowth has a $35 million demand
operating line of credit. The remainder of Pengrowth's debt
outstanding at the end of the first quarter 2005 is U.S. dollar
denominated fixed rate term debt, details of which are provided in
Note 2 to the financial statements. Due to the decrease in the
value of the Canadian dollar relative to the U.S. dollar, an
unrealized loss of $1.5 million has been recorded in the quarter
ended March 31, 2005 on the U.S. dollar denominated debt with a
total unrealized gain of $48.3 million recorded since the debt
issuance in April 2003. At the end of the first quarter of 2005,
Pengrowth was capitalized with 25 percent total debt (net of cash
balances) and 75 percent equity, as compared with 4 percent debt
and 96 percent equity at the end of the first quarter of 2004
(based on quarter-end market capitalization). The Trust's net debt
to annualized cash flow from operations was approximately 0.9 times
at the end of the first quarter of 2005, as compared to 0.2 times
at the end of the first quarter of 2004 when significant cash
balances were held. Acquisitions On February 28, 2005, Pengrowth
closed the acquisition of an additional working interest of 11.89
percent in Swan Hills Unit No.1 increasing Pengrowth's total
working interest in Swan Hills Unit No.1 to 22.34 percent. The
purchase price was $87 million, after adjustments from the October
1, 2004 effective date to the closing date. Pengrowth's independent
engineering evaluator, GLJ prepared an evaluation with an effective
date of October 1, 2004. The acquired reserves that are booked
based on this report include total proved reserves of 9.7 million
boe and proved plus probable reserves of 12.0 million boe using
GLJ's forecast of future prices at that time. Capital Spending
Capital expenditures for the three months ending March 31, 2005
totaled $45.5 million including $10.7 million at Judy Creek, $3.0
million at SOEP, $2.8 million at Squirrel, $2.5 million at Weyburn
and $2.3 million at Swan Hills. Capital expenditures increased at
Swan Hills due in part to the acquisition of an additional working
interest at the unit with capital spent in the first quarter on
drilling three hill slide wells which will be completed and tied-in
during the second quarter. Pengrowth expects to spend a total of
approximately $159.6 million on development activities in the
remaining three quarters of 2005 for a total revised capital
program of approximately $205 million for full year 2005. This
compares to Pengrowth's previous guidance of $171.1 million
provided in the Annual Report and reflects the addition of capital
resulting from both the Swan Hills and Crispin acquisitions as well
as an additional level of risked capital associated with
development opportunities currently viewed as having a greater
likelihood of initiation during 2005 than previously estimated.
Approximately 50% of first quarter capital expenditures have been
funded through the 10% holdback from distributable cash, DRIP
issues and options proceeds. Summary of Quarterly Results The
following table is a summary of quarterly results for 2003, 2004
and the first quarter of 2005. Net income and net income per unit
for the first quarter of 2005 increased over the previous quarter,
mainly due to the absence of a tax charge in 2005 versus the $14.9
million of future taxes booked in the fourth quarter of 2004. A one
percent increase in volumes and a seven percent increase in the
average per boe price realized accounted for the remaining
increase. 2004 2005
-------------------------------------------------------------------------
Q1 Q2 Q3 Q4 Q1
-------------------------------------------------------------------------
Oil and gas sales ($000's) 165,880 193,637 222,848 218,835 236,768
Net income ($ 000's) 38,652 32,684 51,271 31,138 56,314 Net income
per unit ($) 0.31 0.24 0.38 0.23 0.37 Net income per unit - diluted
($) 0.31 0.24 0.38 0.23 0.37 Distributable Cash ($000's) 83,606
89,119 93,870 96,466 115,022 Actual distributions paid or declared
per unit ($) 0.63 0.64 0.67 0.69 0.69 Daily production (boe) 45,668
51,451 60,151 57,425 59,082 Total Production mboe 4,156 4,682 5,534
5,283 5,317 Average realized price per boe ($ per boe) 39.91 41.36
40.27 41.42 44.53 Operating netback per boe ($ per boe) 25.71 25.71
22.77 24.31 27.70 2003
-------------------------------------------------------------------------
Q1 Q2 Q3 Q4
-------------------------------------------------------------------------
Oil and gas sales ($000's) 204,824 169,238 162,819 154,140 Net
income ($000's) 62,920 54,214 34,808 37,355 Net income per unit ($)
0.57 0.49 0.29 0.31 Net income per unit - diluted ($) 0.57 0.48
0.29 0.30 Distributable Cash ($000's) 97,221 71,774 72,951 71,469
Actual distributions paid or declared per unit ($) 0.75 0.67 0.63
0.63 Daily production (boe) 50,827 48,839 48,850 47,653 Total
Production mboe 4,574 4,444 4,494 4,384 Average realized price per
boe ($ per boe) 44.78 38.08 36.22 35.16 Operating netback per boe
($ per boe) 26.50 21.11 20.54 20.43
-------------------------------------------------------------------------
Outlook Based on first quarter 2005 production results, Pengrowth
expects daily average production of approximately 56,500 to 58,500
boe per day for the full year 2005. This estimate incorporates
production additions from the Swan Hills acquisition, Pengrowth's
2005 development program and the additional production expected as
a result of the Crispin acquisition, offset by the impact of normal
production declines. In line with Pengrowth's previous guidance
total operating costs for 2005 are expected to increase to
approximately $200.0 million including a full year of costs from
the Murphy Assets and those associated with the Swan Hills and
Crispin acquisitions. Assuming Pengrowth's average production
results for 2005 are as forecast above, Pengrowth now estimates
2005 operating costs per boe of between $9.25 and $9.58 and
combined G&A and management fees of approximately $1.91 to
$1.97 per boe. Pengrowth currently anticipates capital expenditures
for maintenance and development of approximately $205 million for
2005. An additional $188 million was incurred to complete the
Crispin and Swan Hills acquisitions. Pengrowth currently
anticipates the successful completion of the acquisition of Crispin
in the second quarter. The acquisition will be financed by a unit
for share exchange with Crispin shareholders. Assuming that current
levels of commodity prices continue, subject to Board approval,
Pengrowth expects monthly distributions during the second quarter
will be maintained at $0.23 per unit which represent a 74 percent
to 79 percent payout of distributable cash (before withholding). To
the extent that Class A trust units in the future represent less
than the ownership threshold of 49.75 percent, conversion of a
limited number of Class B trust units to Class A trust units will
be permissible under the Trust Indenture. Pengrowth intends to
implement a new form of reservation system in order to provide all
unitholders with an equal and orderly opportunity to convert Class
B trust units into Class A trust units. All registered and
beneficial unitholders will have the opportunity to participate in
the reservation system by providing an appropriate form to
Computershare Trust Company of Canada (Computershare). Pengrowth is
currently working with Computershare to implement this system but
is delaying the implementation of the conversion program pending
further discussions with the Department of Finance. Pengrowth
expects the system could be operational in the second half of 2005.
------------------------------------------------------------------------
------------------------------------------------------------------------
CONFERENCE CALL Pengrowth will hold a conference call beginning at
11:00 A.M. Eastern Time (9:00 A.M. Mountain Time) on Wednesday,
April 27, 2005 during which Management will review Pengrowth's 2005
first quarter financial and operating results and respond to
inquiries from the investment community. To participate callers may
dial (800) 814-4941 or Toronto local (416) 640-4127. To ensure
timely participation in the teleconference callers are encouraged
to dial in 10-15 minutes prior to commencement of the call to
register. A live audio webcast will be accessible through the
Webcast and Multimedia Centre section of Pengrowth's website at
http://www.pengrowth.com/. The webcast will be archived through
June 24, 2005. A telephone replay will be available thru to
midnight Eastern Time on Friday, April 29, 2005 by dialing (877)
289-8525 or Toronto local (416) 640-1917 and entering passcode
number 21121261 followed by the pound key.
------------------------------------------------------------------------
------------------------------------------------------------------------
James S. Kinnear Chairman, President and Chief Executive Officer
April 27, 2005 Operations Review REVIEW OF DEVELOPMENT ACTIVITIES
(All volumes stated below are net to Pengrowth unless otherwise
stated) OPERATED PROPERTIES: Judy Creek (100% working interest) -
Drilled one oil producer in "A" Pool. This well will be completed
and placed on production during the second quarter. - Drilled one
vertical waterflood injector in the NW quadrant of "A" Pool. -
Drilled one horizontal miscible injector in the NW quadrant of "A"
Pool. Solvent injection is scheduled to begin in the third quarter.
This is the second horizontal injector in this area of "A" Pool.
The first pattern recovered over 700,000 barrels of oil. - Ongoing
benefits are being seen from the waterflood optimization work
performed over the past two years: - A previously abandoned oil
producer was reactivated and acid fracture stimulated in the first
quarter. Completion operations are continuing and the well will be
tied in during the second quarter. - An artificial lift upgrade
performed on an "A" Pool oil producer resulted in an increase of
115 barrels of oil per day. Buick/Prespatou (100% working interest)
- Drilled two wells as a continuation of the program begun late in
2004, for a total of four wells. A compressor station and tie-in to
the sales point will be completed after break up, for expected
initial production volumes of 2.5 mmcf per day. - One well will be
recompleted in an uphole zone once the compressor station is in
operation. Squirrel (100% working interest) - Drilled the sixth
well of a multi-well program started in 2004. The well encountered
water higher than anticipated in the zone, and is being evaluated
for conversion to a water injector for the waterflood. - Drilled
one well to farm-in on a section adjacent to Pengrowth's existing
land. Initial completion on a secondary zone was unsuccessful, and
recompletion to the primary target will be completed after breakup.
- One well was recompleted uphole adding 35 barrels of oil per day.
Bulrush (79% working interest) - Drilled two wells, one of which is
on stream at 1.0 mmcf per day. The second well encountered a
depleted zone, and additional evaluation is underway - One well was
recompleted to an uphole zone, resulting in 500 mcf per day of
additional gas production. Other NEBC (50-100% working interest) -
One well was drilled at Willow and is on stream at 900 mcf per day.
- One well was drilled at Elm, and is on production at 25 barrels
of oil per day. - One well was drilled at Velma; two zones were
tested with limited results. - Two wells were drilled and
abandoned: one at Oak (zone was wet), and the second at Beaverdam
(zone was tight). The Beaverdam wellbore was sold to the operator
of the uphole rights. NEBC Recompletions: - Recompletions in
alternate zones were undertaken in Weasel, Redeye, and Beatton.
Wells will be brought on stream after break up for anticipated
incremental production of 1 mmcf per day. West Pembina - Drilled
one well at West Pembina. Completion is underway with two potential
zones. Central Area Recompletions - Two recompletions were done,
one is waiting for tie-in after breakup and expected to add initial
production of 1 mmcf per day, and one recompletion was abandoned.
NON-OPERATED PROPERTIES: Sable Offshore Energy Project (SOEP) (8.4%
working interest) Production - First quarter gross raw gas
production from the five SOEP fields, Thebaud, Venture, North
Triumph, Alma and South Venture averaged 392 mmcf per day (32.9
mmcf per day net). - Monthly raw production for January, February
and March was 371 mmcf per day (31.2 mmcf per day net), 402 mmcf
per day (33.8 mmcf per day net), 403 mmcf per day (33.8 mmcf per
day net), respectively. - Pengrowth also received condensate
shipments in January and March. Tier II Status - Fabrication has
started on the compression topsides, jacket and piles. In-service
date for the compressor is scheduled for late 2006. - As of March
31 the South Venture 3 well was at a drilled depth of 4,000 meters
with a projected total depth of 4,612 meters. - The South Venture 2
well is expected to be completed and producing by mid 2005.
Monogram Unit (53.8% working interest) - The 154 well 2004 shallow
gas well program was successful and Pengrowth's working interest
production volumes have increased from 7.5 mmcf per day in mid 2004
to an average of 16 mmcf per day for the first quarter of 2005.
Tilley Milk River Gas Unit (9.7% working interest) - Pengrowth
participated in a successful 100 well shallow gas program in 2004.
The 2005 program encompasses 108 wells. A total of 102 wells were
drilled prior to spring break up and the remaining 6 will be
drilled post break up. A total of 30 wells have been placed on
stream to the end of the first quarter and the remainder should
commence production after the installation of compression
facilities in mid July. Pengrowth's working interest production
averaged 3.4 mmcf per day for the first quarter of 2005. Weyburn
Unit (9.75% working interest) - 2005 will be an active year for
development in this unit with expenditures planned for both the
waterflood and enhanced oil recovery areas. Pengrowth's working
interest production averaged 2,420 barrels of oil per day for the
first quarter of 2005. PENGROWTH ENERGY TRUST UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 Consolidated
Balance Sheets As at As at March 31 December 31 (Stated in
thousands of dollars) 2005 2004
-------------------------------------------------------------------------
ASSETS (unaudited) (audited) CURRENT ASSETS Accounts receivable $
105,320 $ 104,228 Inventory - 439
-------------------------------------------------------------------------
105,320 104,667 REMEDIATION TRUST FUNDS 8,572 8,309 DEFERRED
CHARGES (Note 5) 3,256 3,651 GOODWILL 170,619 170,619 PROPERTY,
PLANT AND EQUIPMENT AND OTHER ASSETS 2,061,105 1,989,288
-------------------------------------------------------------------------
$ 2,348,872 $ 2,276,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY CURRENT LIABILITIES Bank
indebtedness $ 7,608 $ 4,214 Accounts payable and accrued
liabilities 89,796 80,423 Distributions payable to unitholders
79,721 70,456 Due to Pengrowth Management Limited 5,426 7,325 Note
payable 15,000 15,000 Current portion of contract liabilities 5,666
5,795
-------------------------------------------------------------------------
203,217 183,213 NOTE PAYABLE 20,000 20,000 CONTRACT LIABILITIES
16,896 18,216 LONG-TERM DEBT (Note 2) 441,920 345,400 ASSET
RETIREMENT OBLIGATIONS (Note 4) 177,453 171,866 FUTURE INCOME TAXES
75,183 75,628 TRUST UNITHOLDERS' EQUITY: Trust Unitholders' capital
(Note 3) 2,393,379 2,383,284 Contributed surplus (Note 3) 2,528
1,923 Accumulated earnings 783,371 727,057 Accumulated
distributable cash (1,765,075) (1,650,053)
-------------------------------------------------------------------------
1,414,203 1,462,211
-------------------------------------------------------------------------
SUBSEQUENT EVENT (Note 9)
-------------------------------------------------------------------------
$ 2,348,872 $ 2,276,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Income and Accumulated Earnings (Stated
in thousands of dollars) Three months ended March 31 (Unaudited)
2005 2004
-------------------------------------------------------------------------
REVENUES Oil and gas sales $ 236,768 $ 165,880 Processing and other
income 4,118 2,985 Crown royalties, net of incentives (33,963)
(23,021) Freehold royalties and mineral taxes (3,457) (1,495)
-------------------------------------------------------------------------
203,466 144,349 Interest and other income 112 425
-------------------------------------------------------------------------
NET REVENUE 203,578 144,774 EXPENSES Operating 49,079 31,160
Transportation 1,807 1,557 Amortization of injectants for miscible
floods 5,392 5,204 Interest 5,433 4,177 General and administrative
7,081 5,846 Management fee 3,708 2,754 Foreign exchange loss (Note
6) 1,360 2,371 Depletion and depreciation 69,149 50,512 Accretion
(Note 4) 3,403 1,999
-------------------------------------------------------------------------
146,412 105,580
-------------------------------------------------------------------------
INCOME BEFORE TAXES 57,166 39,194 INCOME TAX EXPENSE (REDUCTION)
Capital 1,297 542 Future (445) -
-------------------------------------------------------------------------
852 542 NET INCOME $ 56,314 $ 38,652
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated earnings, beginning of period 727,057 573,312
-------------------------------------------------------------------------
ACCUMULATED EARNINGS, END OF PERIOD $ 783,371 $ 611,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NET INCOME PER UNIT (Note 3) Basic $0.367 $0.309 Diluted $0.366
$0.307
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flow (Stated in thousands of
dollars) Three months ended March 31 (Unaudited) 2005 2004
-------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR): OPERATING Net income $ 56,314 $ 38,652
Depletion, depreciation and accretion 72,552 52,511 Future income
taxes (445) - Contract liability amortization (1,449) -
Amortization of injectants 5,392 5,204 Purchase of injectants
(7,571) (7,259) Expenditures on remediation (1,118) (1,851)
Unrealized foreign exchange loss (Note 6) 1,520 2,960 Trust unit
based compensation (Note 3) 817 1,107 Amortization of deferred
charges (Note 5) 395 474
-------------------------------------------------------------------------
Funds generated from operations 126,407 91,798 Changes in non-cash
operating working capital (Note 7) 10,013 (4,876)
-------------------------------------------------------------------------
136,420 86,922
-------------------------------------------------------------------------
FINANCING Distributions (105,757) (78,219) Change in long-term debt
95,000 - Proceeds from issue of trust units 9,883 199,439
-------------------------------------------------------------------------
(874) 121,220
-------------------------------------------------------------------------
INVESTING Expenditures on property acquisitions (89,950) (787)
Expenditures on property, plant and equipment (45,535) (24,862)
Change in remediation trust funds (263) (298) Change in non-cash
investing working capital (Note 7) (3,192) 4,728
-------------------------------------------------------------------------
(138,940) (21,219)
-------------------------------------------------------------------------
CHANGE IN CASH AND TERM DEPOSITS (3,394) 186,923 CASH AND TERM
DEPOSITS (BANK INDEBTEDNESS) AT BEGINNING OF PERIOD (4,214) 64,154
-------------------------------------------------------------------------
CASH AND TERM DEPOSITS (BANK INDEBTEDNESS) AT END OF PERIOD $
(7,608) $ 251,077
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 (Unaudited) (Tabular amounts are stated in thousands
of dollars except per unit amounts) 1. SIGNIFICANT ACCOUNTING
POLICIES The interim consolidated financial statements of Pengrowth
Energy Trust include the accounts of Pengrowth Energy Trust,
Pengrowth Corporation and its subsidiaries (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, 2004. 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, 2004.
LONG-TERM INCENTIVE PLAN Effective January 1, 2005, Pengrowth
established a new long-term incentive plan whereby rights incentive
options and restricted share units ("Phantom trust units") are
granted under the plan. The terms of the rights incentive options
are consistent with the existing Trust Units Rights Incentive Plan.
Compensation expense related to rights incentive options is based
on a fair value method using a modified Black Scholes model
described in Note 10 of the consolidated financial statements for
the fiscal year ended December 31, 2004. The terms of the Phantom
trust units are described in Note 3. Compensation expense related
to Phantom trust units is based on the fair value of the Phantom
trust units at the date of grant. The number of Class B trust units
awarded at the end of the vesting period is subject to certain
performance conditions. Compensation expense incorporates the
estimated fair value of the Phantom trust units at the date of
grant, management's estimate of the number of Phantom trust units
that will accrue over the vesting period and an estimate of the
relative performance multiplier. Fluctuations in compensation
expense may occur due to changes in estimating the outcome of the
performance conditions. An estimate of forfeiture has not been
made; rather compensation expense is reduced for actual forfeitures
as they occur. Compensation expense is recognized in income over
the vesting period with a corresponding increase or decrease to
contributed surplus. Upon issuance of the Class B trust units at
the end of the vesting period, trust unitholders' capital is
increased and contributed surplus is reduced. 2. LONG-TERM DEBT As
at As at March 31, December 31, 2005 2004
---------------------------------------------------------------------
U.S. dollar denominated debt: U.S. $150 million senior unsecured
notes at 4.93% due April 2010 $ 181,440 $ 180,300 U.S. $50 million
senior unsecured notes at 5.47% due April 2013 60,480 60,100
---------------------------------------------------------------------
241,920 240,400 Canadian dollar revolving credit borrowings 200,000
105,000
---------------------------------------------------------------------
$ 441,920 $ 345,400
---------------------------------------------------------------------
On March 31, 2005 Pengrowth had a $375 million revolving unsecured
credit facility syndicated among eight financial institutions with
an extendible 364 day revolving period and a two year amortization
term period. The facilities are currently reduced by outstanding
letters of credit in the amount of approximately $23 million. In
addition, it has a $35 million demand operating line of credit.
Interest payable on amounts drawn is at the prevailing bankers'
acceptance rates plus stamping fees, lenders' prime lending rates,
or U.S. libor rates plus applicable margins, depending on the form
of borrowing by the Corporation. The margins and stamping fees vary
from 0.25 percent to 1.50 percent depending on financial statement
ratios and the form of borrowing. The revolving credit facility
will revolve until May 30, 2005, whereupon it may be renewed for a
further 364 days, subject to satisfactory review by the lenders, or
converted into a term facility. One third of the amount outstanding
would be repaid in equal quarterly instalments in each of the first
two years with the final one third to be repaid upon maturity of
the term period. The Corporation can post, at its option, security
suitable to the banks in lieu of the first year's payments. In such
an instance, no principal payment would be made to the banks for
one year following the date of non-renewal. 3. TRUST UNITS The
total authorized capital of Pengrowth is 500,000,000 trust units.
March 31, 2005 December 31, 2004
---------------------------------------------------------------------
Number of Number of Trust Units Issued units Amount units Amount
---------------------------------------------------------------------
Balance, beginning of period 73,325 $ 1,123 123,873,651 $1,872,924
Issued for cash - - 10,900,000 200,560 Less: issue expenses - - -
(10,710) Issued for cash on exercise of trust units options and
rights - - 547,974 8,735 Issued for cash under Distribution
Reinvestment Plan (DRIP) - - 543,888 9,636 Trust unit rights
incentive plan (non-cash exercised) - - - 259 Royalty units
exchanged for trust units - - 700 -
---------------------------------------------------------------------
Balance, prior to conversion - - 135,866,213 $ 2,081,404 Converted
to Class A or Class B trust units (17,352) (266)(135,792,888)
(2,080,281)
---------------------------------------------------------------------
Balance, end of period 55,973 $ 857 73,325 $ 1,123
---------------------------------------------------------------------
Class A Trust Units: For the period from July 27, 2004 to March 31,
2005 Dec 31, 2004
---------------------------------------------------------------------
Number of Number of Trust Units Issued units Amount units Amount
---------------------------------------------------------------------
Balance, beginning of period 76,792,759 $ 1,176,427 - $ - Trust
units converted 1,580 24 76,792,759 1,176,427
---------------------------------------------------------------------
Balance, end of period 76,794,339 $ 1,176,451 76,792,759 $
1,176,427
---------------------------------------------------------------------
Class B Trust Units: For the period from July 27, 2004 to March 31,
2005 Dec 31, 2004
---------------------------------------------------------------------
Number of Number of Trust Units Issued units Amount units Amount
---------------------------------------------------------------------
Balance, beginning of period 76,106,471 $ 1,205,734 - $ - Trust
units converted 15,772 242 59,000,129 903,854 Issued for cash - -
15,985,000 298,920 Less: issue expenses - - - (15,577) Issued for
cash on exercise of trust units options and rights 409,645 5,607
746,864 11,516 Issued for cash under Distribution Reinvestment
(DRIP) Plan 238,850 4,276 374,478 6,750 Trust unit rights incentive
plan (non-cash exercised) - 212 - 271
---------------------------------------------------------------------
Balance, end of period 76,770,738 $ 1,216,071 76,106,471 $1,205,734
---------------------------------------------------------------------
The total number of trust units outstanding as at March 31, 2005
was 153,621,050 trust units (December 31, 2004 - 152,972,555). Per
Unit Amounts The per unit amounts of net income are based on the
following weighted average units outstanding for the period. The
weighted average units outstanding for the three months ended March
31, 2005 were 153,387,514 units (March 31, 2004 - 125,219,843
units). In computing diluted net income per unit, 574,190 units
were added to the weighted average number of units outstanding
during the three months ended March 31, 2005 (March 31, 2004 -
648,233 units) for the dilutive effect of trust unit options,
rights and phantom trust units. For the three months ended March
31, 2005, 1,318,508 (March 31, 2004 - 691,622) trust unit options
and rights were excluded from the diluted net income per unit
calculation as their effect is anti-dilutive. Contributed Surplus
March 31, December 31, 2005 2004
---------------------------------------------------------------------
Balance, beginning of period $ 1,923 $ 189 Trust unit rights
incentive plan (non-cash expensed) 695 2,264 Phantom trust units
(non-cash expensed) 122 - Trust unit rights incentive plan
(non-cash exercised) (212) (530)
---------------------------------------------------------------------
Balance, end of period $ 2,528 $ 1,923
---------------------------------------------------------------------
Trust Unit Option Plan As at March 31, 2005, options to purchase
658,732 Class B trust units were outstanding (December 31, 2004 -
845,374) that expire at various dates to June 28, 2009. March 31,
2005 December 31, 2004
---------------------------------------------------------------------
Weighted Weighted Average Average Number of Exercise Number of
Exercise Trust Unit Options options price options price
---------------------------------------------------------------------
Outstanding at beginning of period 845,374 $ 16.97 2,014,903 $
17.47 Exercised (184,242) $ 14.31 (838,789) $ 16.82 Expired (2,400)
$ 15.25 (325,200) $ 20.44 Cancelled - $ - (5,540) $ 16.53
---------------------------------------------------------------------
Outstanding and exercisable at period-end 658,732 $ 17.71 845,374 $
16.97
---------------------------------------------------------------------
Rights Incentive Plan As at March 31, 2005, rights to purchase
2,209,153 Class B trust units were outstanding (December 31, 2004 -
2,011,451) that expire at various dates to March 3, 2010. March 31,
2005 December 31, 2004
---------------------------------------------------------------------
Weighted Weighted Average Average Rights Incentive Number of
Exercise Number of Exercise Options rights price rights price
---------------------------------------------------------------------
Outstanding at beginning of period 2,011,451 $ 14.23 1,112,140 $
12.20 Granted(x) 482,945 $ 18.14 1,409,856 $ 17.35 Exercised
(225,403) $ 13.18 (456,049) $ 13.47 Cancelled (59,840) $ 16.14
(54,496) $ 14.19
---------------------------------------------------------------------
Outstanding at period-end 2,209,153 $ 14.86 2,011,451 $ 14.23
---------------------------------------------------------------------
Exercisable at period-end 1,317,437 $ 13.57 1,037,078 $ 12.48
---------------------------------------------------------------------
(x) Weighted average exercise price of rights granted is based on
the exercise price at the date of grant. The fair value of rights
incentive options granted during the three months ended March 31,
2005 was estimated at 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. Long
Term Incentive Program Effective January 1, 2005, the Board of
Directors approved a Long Term Incentive Plan. Under the Long Term
Incentive Plan, Phantom trust units are granted to employees,
officers, directors and certain consultants of the Corporation and
the Manager. The number of Phantom trust units granted is based on
a grant value as a percentage of an individual's base salary and an
established weighting of Phantom trust units and/or rights
incentive options that is dependent on an individual's position.
The Phantom trust units fully vest on the third anniversary year
from the date of grant. The Phantom trust units will receive
distributions in the form of additional Phantom trust units. The
number of Phantom trust units, including any additional units from
re-invested distributions at the end of the three year vesting
period will be subject to a relative performance test which
compares Pengrowth's three year average total return to the three
year average total return of a peer group of other energy trusts.
Upon vesting, the number of Class B trust units issued from
treasury may range from zero to one and one-half times the number
of Phantom trust units granted. As at March 31, 2005, 159,644
Phantom trust units were outstanding. The Phantom trust units vest
on March 2, 2008. Number of Phantom trust units
---------------------------------------------------------------------
Outstanding, beginning of period - Granted 160,888 Cancelled
(1,244)
---------------------------------------------------------------------
Outstanding, end of period 159,644
---------------------------------------------------------------------
Compensation expense associated with the Phantom trust units was
based on the estimated fair value of $18.14 per Phantom trust unit
and management's estimate of the number of Phantom trust units to
be issued on maturity. 4. ASSET RETIREMENT OBLIGATIONS For the
three For the months ended year ended March 31, December 31, 2005
2004
---------------------------------------------------------------------
Asset retirement obligations, beginning of period $ 171,866 $
102,528 Increase in liabilities related to: Acquisitions 2,309
44,368 Additions 993 2,681 Revisions - 16,087 Accretion expense
3,403 10,642 Liabilities settled during the period (1,118) (4,440)
---------------------------------------------------------------------
Asset retirement obligations, end of period $ 177,453 $ 171,866
---------------------------------------------------------------------
5. DEFERRED CHARGES As at As at March 31, December 31, 2005 2004
---------------------------------------------------------------------
Imputed interest on note payable (net of accumulated amortization
of $1,905) $ 1,702 $ 2,020 U.S. debt issue costs (net of
accumulated amortization of $587) 1,554 1,631
---------------------------------------------------------------------
$ 3,256 $ 3,651
---------------------------------------------------------------------
6. FOREIGN EXCHANGE LOSS (GAIN) Three months ended March 31, March
31, 2005 2004
---------------------------------------------------------------------
Unrealized foreign exchange loss on translation of U.S. dollar
denominated debt $ 1,520 $ 2,960 Realized foreign exchange gains
(160) (589)
---------------------------------------------------------------------
$ 1,360 $ 2,371
---------------------------------------------------------------------
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. 7. OTHER
CASH FLOW DISCLOSURES Change in Non-Cash Operating Working Capital
March 31, March 31, 2005 2004
---------------------------------------------------------------------
Accounts receivable $ (1,092) $ 201 Inventory 439 (358) Accounts
payable and accrued liabilities 12,565 (4,852) Due to Pengrowth
Management Limited (1,899) 133
---------------------------------------------------------------------
$ 10,013 $ (4,876) Change in Non-Cash Investing Working Capital
March 31, March 31, 2005 2004
---------------------------------------------------------------------
Accounts payable for capital accruals $ (3,192) $ 4,728
---------------------------------------------------------------------
Cash Payments March 31, March 31, 2005 2004
---------------------------------------------------------------------
Cash payments made for taxes $ 1,247 $ 523 Cash payments made for
interest $ 1,875 $ 343
---------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS 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,
2005, Pengrowth had fixed the price applicable to future production
as follows: Crude Oil: Volume Reference Price Remaining Term
(bbl/d) Point per bbl
---------------------------------------------------------------------
2005 ---- Financial: ---------- April 1, 2005 - Dec 31, 2005 10,000
WTI(x) $54.39 Cdn 2006 ---- Financial: ---------- Jan 1, 2006 - Dec
31, 2006 2,000 WTI(x) $63.01 Cdn
---------------------------------------------------------------------
Natural Gas: Volume Reference Price Remaining Term (mmbtu/d) Point
per mmbtu
---------------------------------------------------------------------
2005 ---- Financial: ---------- April 1, 2005 - Dec 31, 2005 11,000
Tetco M3(x) $9.27 Cdn April 1, 2005 - Dec 31, 2005 2,500 Transco
Z6(x) $10.01 Cdn April 1, 2005 - Dec 31, 2005 2,500 NGI Chicago(x)
$9.41 Cdn May 1, 2005 - Dec 31, 2005 2,500 Transco Z6(x) $10.21 Cdn
May 1, 2005 - Dec 31, 2005 2,370 AECO $8.35 Cdn 2006 ----
Financial: ---------- Jan 1, 2006 - Dec 31, 2006 2,500 Transco
Z6(x) $10.63 Cdn Jan 1, 2006 - Dec 31, 2006 2,370 AECO $8.03 Cdn
---------------------------------------------------------------------
(x) Associated Cdn$ / 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, 2005, the amount Pengrowth would pay to terminate the financial
crude oil and natural gas contracts would be $36,407,000 and
$4,647,000, respectively. Natural Gas Fixed Price Sales Contract:
Pengrowth also has a natural gas fixed price physical sales
contract outstanding, the details of which are provided below:
Volume Price Remaining Term (mmbtu/d) per mmbtu(x)
---------------------------------------------------------------------
2005 to 2009 ------------ April 1, 2005 - Oct 31, 2005 3,886 $2.18
Cdn Nov 1, 2005 - Oct 31, 2006 3,886 $2.23 Cdn Nov 1, 2006 - Oct
31, 2007 3,886 $2.29 Cdn Nov 1, 2007 - Oct 31, 2008 3,886 $2.34 Cdn
Nov 1, 2008 - April 30, 2009 3,886 $2.40 Cdn
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(x)(x) Reference price based on AECO As at March 31, 2005, the fair
value amount Pengrowth would pay to terminate the natural gas fixed
price sales contract would be $28,863,000 (December 31, 2004 -
$22,282,000). 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, 2005 was
approximately $8,647,000 (December 31, 2004 - $8,366,000). The fair
value of the U.S. dollar denominated debt at March 31, 2005 was
approximately $234,904,000 (December 31, 2004 - $238,726,000) 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, 2005, approximates its
carrying value net of the imputed interest included in deferred
charges. 9. SUBSEQUENT EVENT On February 17, 2005, Pengrowth
announced an Arrangement Agreement (the "Arrangement") with Crispin
Energy Inc. (Crispin) under which Corporation will acquire all of
the issued and outstanding shares of Crispin on the basis of 0.0725
Class B trust units of EnergyTrust for each share held by Canadian
resident shareholders of Crispin and 0.0512 Class A trust units for
each share held by non-Canadian resident shareholders of Crispin.
The Board of Directors of Crispin have called a Special Meeting of
Shareholders on April 28, 2005 for approval of the Arrangement. The
Arrangement will require the approval of 66 2/3 percent of the
votes cast by shareholders and optionholders of Crispin voting as a
single class, the approval of the majority of shareholders
excluding certain management personnel and the approval of the
Court of Queen's Bench of Alberta and certain regulatory agencies.
The Arrangement is scheduled to close prior to the end of April
2005. DATASOURCE: Pengrowth Energy Trust; Pengrowth Corporation
CONTACT: For further information about Pengrowth, please visit our
website http://www.pengrowth.com/ or contact: Investor Relations,
Calgary Telephone: (403) 233-0224, Toll Free: 1-800-223-4122,
Facsimile: (403) 294-0051; Investor Relations, Toronto Telephone:
(416) 362-1748, Toll Free: 1-888-744-1111, Facsimile: (416)
362-8191
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