Pengrowth Energy Trust announces second quarter results Stock
Symbol: PGF.A/PGF.B, TSX; PGH, NYSE CALGARY, July 28
/PRNewswire-FirstCall/ -- Pengrowth Corporation ("Pengrowth"),
administrator of Pengrowth Energy Trust, announced the unaudited
results for the three months ended and six months ended June 30,
2004. - On May 31, 2004 Pengrowth acquired certain oil and natural
gas assets in Alberta and Saskatchewan (the "Murphy Assets") from a
subsidiary of Murphy Oil Corporation ("Murphy") for a purchase
price of Cdn $550.5 million. Net production revenue from the Murphy
Assets for the month of June was reflected in second quarter 2004
results. - Distributable cash for the second quarter 2004 increased
24% to $89.1 million from $83.6 million in the first quarter as the
result of continued strength in commodity prices and the inclusion
of production volumes associated with the Murphy Assets for the
month of June. Year-to-date 2004 distributable cash reached $172.7
million versus $169.0 million during the same period in 2003.
Actual cash distributions in respect of the second quarter 2004 and
on a year to date basis were $0.64 per unit and $1.27 per unit
respectively. At the end of the second quarter approximately $3
million remained available for distribution in future months over
the 10% holdback. - On July 22, 2004 Pengrowth announced a 5%
increase in the monthly distribution to $0.22 per unit after 13
consecutive months of maintaining a $0.21 per unit distribution.
The increased distribution will be payable to unitholders on August
15, 2004. - During the period Pengrowth issued $325 million of new
debt to fund the Murphy acquisition. Pengrowth's debt at June 30,
2004 was $591.8 million. - Total production for the second quarter
2004 averaged 51,451 barrels of oil equivalent per day ("boepd"),
an increase of 5% over the same period last year. Total production
also increased 5% year over year to 4.68 million boe from 4.44
million boe. - Based on second quarter 2004 production results,
Pengrowth now anticipates daily average production of approximately
53,000 to 54,000 boepd for the full year 2004. - Second quarter
operating results benefited from continued strength in all
commodity prices with Pengrowth realizing an average price of
$41.36 per boe in 2004 compared to $38.08 in the same period of
2003, an increase of 9%. - During the second quarter 2004,
Pengrowth unitholders approved the reclassification of trust units
into Class A and Class B trust units. The reclassification will
enable Pengrowth to manage the level of foreign ownership in the
trust to meet the requirements of being a Mutual Fund Trust; will
help maintain the long-term integrity of the markets for Pengrowth
units; and will permit Pengrowth to pursue equity markets in Canada
and internationally. Subsequent to quarter end, Pengrowth announced
that the implementation of the trust unit reclassification would
occur on July 27, 2004. PENGROWTH ENERGY TRUST HIGHLIGHTS -
CONSOLIDATED FINANCIAL STATEMENTS Three Months ended (thousands,
except per June 30 % unit amounts) 2004 2003 Change INCOME
STATEMENT Oil and gas sales $ 193,637 $ 169,238 14% Net income $
32,684 $ 54,214 (xx) -40% Net income per unit $ 0.24 $ 0.49 (xx)
-51% Funds generated from operations $ 102,932 $ 83,310 24% Funds
generated from operations per unit $ 0.76 $ 0.75 1% Funds withheld
to fund capital expenditures $ 9,902 $ 7,921 25% Distributable cash
before withholding (x) $ 99,021 $ 79,695 24% Distributable cash
before withholding per unit (x) $ 0.73 $ 0.71 3% Distributable cash
(x) $ 89,119 $ 71,774 24% Actual distributions paid or declared per
unit $ 0.64 $ 0.67 -4% Weighted average number of units outstanding
135,473 111,467 22% BALANCE SHEET Working capital $ (270,681) $
(47,224) 473% Property, plant and equipment and other assets
$1,990,977 $1,497,169 (xx) 33% Long-term debt $ 371,760 $ 334,280
11% Unitholders' equity $1,264,586 $1,045,736 (xx) 21% Unitholders'
equity per unit $ 9.32 $ 9.31 Number of units outstanding at period
end 135,677 112,297 21% TRUST UNIT TRADING (TSX) High $ 19.15 $
18.22 Low $ 16.15 $ 13.95 Close $ 18.67 $ 17.25 Value $ 328,450 $
519,020 -37% Volume (thousands of units) 18,145 32,575 -44% TRUST
UNIT TRADING (NYSE) High $ 14.24 US $ 13.80 US Low $ 11.62 US $
9.40 US Close $ 13.98 US $ 12.83 US Value $ 295,835 US $ 271,053 US
9% Volume (thousands of units) 22,194 22,500 -1% DAILY
PRODUCTION(xxx) Crude oil (barrels) 20,906 23,530 -11% Heavy oil
(barrels) 1,848 - Natural gas (thousands of cubic feet) 136,142
119,519 14% Natural gas liquids (barrels) 6,007 5,390 11% Total
production (BOE/d) 6:1 51,451 48,839 5% TOTAL PRODUCTION (BOE) 6:1
4,682 4,444 5% PRODUCTION PROFILE (6:1 conversion) Crude oil 41%
48% Heavy oil 3% - Natural gas 44% 41% Natural gas liquids 12% 11%
AVERAGE PRICES Crude oil (per barrel) $ 42.46 $ 40.56 5% Heavy oil
(per barrel) $ 30.19 $ - - Natural gas (per mcf) $ 7.02 $ 6.34 11%
Natural gas liquids (per barrel) $ 40.66 $ 32.17 26% Average price
per BOE 6:1 $ 41.36 $ 38.08 9% Six Months ended (thousands, except
per June 30 % unit amounts) 2004 2003 Change INCOME STATEMENT Oil
and gas sales $ 359,517 374,062 -4% Net income $ 71,336 117,134
(xx) -39% Net income per unit $ 0.55 $ 1.05 (xx) -48% Funds
generated from operations $ 194,730 $ 191,919 1% Funds generated
from operations per unit $ 1.49 $ 1.73 -14% Funds withheld to fund
capital expenditures $ 19,194 $ 18,725 3% Distributable cash before
withholding (x) $ 191,917 $ 187,720 2% Distributable cash before
withholding per unit (x) $ 1.47 $ 1.69 -13% Distributable cash (x)
$ 172,723 $ 168,995 2% Actual distributions paid or declared per
unit $ 1.27 $ 1.42 -11% Weighted average number of units
outstanding 130,346 111,119 17% BALANCE SHEET Working capital $
(270,681) $ (47,224) 473% Property, plant and equipment and other
assets $1,990,977 $1,497,169 (xx) 33% Long-term debt $ 371,760 $
334,280 11% Unitholders' equity $1,264,586 $1,045,736 (xx) 21%
Unitholders' equity per unit $ 9.32 $ 9.31 Number of units
outstanding at period end 135,677 112,297 21% TRUST UNIT TRADING
(TSX) High $ 21.25 $ 18.22 17% Low $ 15.55 $ 13.39 16% Close $
18.67 $ 17.25 8% Value $ 896,235 $ 816,625 10% Volume (thousands of
units) 48,765 52,697 -7% TRUST UNIT TRADING (NYSE) High $ 16.60 US
$ 13.80 US 20% Low $ 11.62 US $ 9.07 US 28% Close $ 13.98 US $
12.83 US 9% Value $ 821,444 US $ 351,860 US 133% Volume (thousands
of units) 59,093 30,667 93% DAILY PRODUCTION(xxx) Crude oil
(barrels) 21,211 24,165 -12% Heavy oil (barrels) 924 - Natural gas
(thousands of cubic feet) 126,745 119,958 6% Natural gas liquids
(barrels) 5,300 5,670 -7% Total production (BOE/d) 6:1 48,560
49,828 -3% TOTAL PRODUCTION (BOE) 6:1 8,838 9,019 -2% PRODUCTION
PROFILE (6:1 conversion) Crude oil 44% 49% Heavy oil 2% - Natural
gas 43% 40% Natural gas liquids 11% 11% AVERAGE PRICES Crude oil
(per barrel) $ 41.50 $ 42.81 -3% Heavy oil (per barrel) $ 30.19 $ -
- Natural gas (per mcf) $ 6.93 $ 7.05 -2% Natural gas liquids (per
barrel) $ 39.07 $ 37.00 6% Average price per BOE 6:1 $ 40.68 $
41.48 -2% (x) See Note 3 to the Financial Statements (xx) Restated
for a retroactive change in accounting policies - see Note 2 to the
financial statements. (xxx) Second quarter production includes one
month's production from the Murphy properties acquired May 31, 2004
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.
Overview During the second quarter, Pengrowth successfully
completed an acquisition of oil and gas properties in Alberta and
Saskatchewan (the "Murphy Assets") from a subsidiary of Murphy Oil
Corporation ("Murphy") for $550.5 million. This acquisition added
estimated proved plus probable reserves of 48.7 million boe, an
increase of approximately 27% to Pengrowth's reserve base. The
acquisition which closed on May 31, 2004 was pre-funded in part by
$190 million net proceeds from an equity issue completed on March
23, 2004. Continued strength in commodity prices, and one month's
production from the Murphy Assets had a favourable impact on 2004
second quarter results. A full three months of contribution from
the Murphy Assets will be reflected in the third quarter which is
expected to result in higher distributable cash over the remainder
of 2004. Subsequent to quarter end 2004, Pengrowth announced that
the reclassification of Pengrowth Energy Trust units as Class A and
Class B trust units would be implemented effective July 27, 2004.
On July 27, 2004, generally, each Canadian unitholder will have the
trust units held by them reclassified as Class B trust units. Each
unitholder who is not a Canadian unitholder will have the trust
units held by them reclassified as Class B trust units and then
immediately converted into Class A trust units. The Class B trust
units will trade solely on the Toronto Stock Exchange. The Class A
trust units will trade on the Toronto Stock Exchange and the New
York Stock Exchange. See Note 14 to the June 30, 2004 Consolidated
Financial Statements for further details. The directors of
Pengrowth resolved to proceed with the Class A and Class B trust
unit reclassification based upon a combination of communications
from the Department of Finance, opinions from tax counsel and an
advance tax ruling from Canada Revenue Agency in respect to the
implementation of the Class A and Class B trust unit
reclassification. Distributable Cash Distributable cash increased
by 24% to $89.1 million for the second quarter of 2004, from $71.8
million in the second quarter of 2003. For the six months ended
June 30, 2004, Pengrowth recorded $172.7 million in distributable
cash, compared to $169.0 million in the first six months of 2003.
Actual cash distributions paid or declared in respect of the
results for the second quarter 2004 were $0.64 per unit and $1.27
per unit on a year to date basis. An additional $19.2 million
earned in the first half of 2004 was withheld to repay indebtedness
or fund capital expenditures. A balance of $3.0 million earned in
the first half of 2004 will be distributed to unitholders in future
months. Net Income Net income for the second quarter of 2004 was
$32.7 million compared to $54.2 million for the previous year. For
the first six months of 2004 Pengrowth recorded net income of $71.3
million, compared to $117.1 million for the previous year. The
decrease in net income in the second quarter of 2004 compared to
the same periods last year, is due mainly to the unrealized foreign
exchange gain that was recorded in 2003, as a result of the impact
of the change in the U.S.$/Cdn$ exchange rate on Pengrowth's U.S.
dollar denominated debt. Hedging losses and an increase in
depletion and depreciation in 2004 also contributed to lower
reported net income for the three months and six months ended June
30, 2004, compared to the same periods last year. Production Second
quarter 2004 production of 51,451 boepd was 5% higher than the
second quarter of 2003, due to additional production in June 2004
from the Murphy Assets and the impact of development activities,
which helped offset production declines over the past year. On a
year to date basis, production for the six months ended June 30,
2004 was 2% lower than the same period last year. Second quarter
2004 production was negatively impacted by a forest fire at Judy
Creek, which resulted in approximately 13,000 boepd of Judy Creek
and Swan Hills production being shut in for 3 days. Plant
turnarounds during the second quarter also reduced production
volumes from Judy Creek and Quirk Creek. The decline in production
due to these factors more than offset the positive impact on second
quarter production of an additional condensate shipment
(approximately 124,000 barrels) from Sable Offshore Energy Project
("SOEP"). Production Three months ended Six months ended June 30,
June 30, % June 30, June 30, % 2004 2003 Change 2004 2003 Change
-------------------------------------------------------------------------
Daily Production Light oil (bbls/d) 20,906 23,530 -11% 21,211
24,165 -12% Heavy oil (bbls/d) 1,848 - - 924 - - Natural gas
(mcf/d) 136,142 119,519 +14% 126,745 119,958 +6% Natural gas
liquids (bbls/d) 6,007 5,390 +11% 5,300 5,670 -7%
-------------------------------------------------------------------------
Total boe/d (6:1) 51,451 48,839 +5% 48,560 49,828 -3%
-------------------------------------------------------------------------
Total production (mboe) 4,682 4,444 +5% 8,838 9,019 -2%
-------------------------------------------------------------------------
Light oil production volumes decreased 11% in the second quarter,
and 12% for the six month period ended June 30, compared to the
same periods last year. Production from the Murphy Assets and
continued development activities over the past year have helped
offset natural production declines. Heavy oil production comes from
the newly acquired Murphy Assets, including working interests in
Tangleflags and Bodo, both in Saskatchewan. Natural gas production
increased 14% in the second quarter of 2004 compared to the second
quarter of 2003 and increased by 6% on a year to date basis.
Additional gas volumes from the Murphy properties, as well as
incremental volumes from development activities mitigated the
impact of natural production declines. Natural gas liquids (NGL)
production increased by 11 % in the second quarter of 2004 over the
second quarter of 2003 but on a year to date basis NGL production
decreased by 7% compared to last year. 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 second
quarter of 2004, totaling approximately 124,000 barrels, compared
to 47,000 barrels in the same period last year. At this time,
Pengrowth anticipates only one additional 2004 condensate shipment
from SOEP during the fourth quarter of 2004. Prices Pengrowth's
average commodity price realized for the second quarter of 2004 was
9% higher than the second quarter of 2003, and on a year to date
basis, the average price realized for the first half of 2004 was 2%
lower than the prior year. Average realized prices C$ Three months
ended Six months ended (after impact June 30, June 30, % June 30,
June 30, % of hedging) 2004 2003 Change 2004 2003 Change
-------------------------------------------------------------------------
Light crude oil (per bbl) $42.23 $40.35 +5% $41.27 $42.60 -3% Heavy
oil (per bbl) $30.19 - - $30.19 - - Natural gas (per mcf) $ 6.91 $
6.20 +11% $ 6.82 $ 6.91 -1% Natural gas liquids (per boe) $40.66
$32.17 +26% $39.07 $37.00 +6%
-------------------------------------------------------------------------
Total per boe (6:1) $40.97 $37.63 +9% $40.30 $41.03 -2%
-------------------------------------------------------------------------
Pengrowth's average realized light oil price increased 5% in the
second quarter of 2004 compared to the second quarter of 2003. For
the first six months of 2004, Pengrowth's average crude oil price
was 3% lower than the same period last year. Although the West
Texas Intermediate (WTI) benchmark price increased 17% in the first
half of 2004 compared to the same period last year, the decrease in
the value of the U.S. dollar relative to the Canadian dollar and
the impact of increased hedging losses in 2004 more than offset
this increase in WTI. Pengrowth's average natural gas price for the
second quarter of 2004 increased by 11% over prices realized in the
second quarter of 2003. For the first six months of 2004 prices
decreased by 2% to $6.93 per mcf compared to $7.05 per mcf over the
same period last year. By comparison, the AECO and Nymex average
prices decreased by 10% and 3% respectively in the first six months
of 2004 as compared to the same period last year. A reduction of
hedging losses in 2004 as compared to 2003 accounts for the lower
year over year decline in Pengrowth's average realized natural gas
price, relative to the AECO and Nymex indices. 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 monthly cash distributions. In the second
quarter of 2004, Pengrowth realized a net hedging loss of $2.8
million ($0.23 per mcf) related to natural gas financial swap
contracts, compared to a net hedging loss of $3.5 million ($0.32
per mcf) for the same period last year. On a year to date basis,
Pengrowth has realized a net hedging loss on natural gas of $7.5
million ($0.33 per mcf) in the first six months of 2004, compared
to a net hedging loss of $15.0 million ($0.69 per mcf) for the same
period last year. With the continued strength in crude prices in
the second quarter, Pengrowth realized a net hedging loss of $12.8
million ($6.72 per bbl) on light crude oil price swap transactions,
compared to a gain of $1.1 million ($0.52 per bbl) in the second
quarter of 2003. On a year to date basis, Pengrowth has realized a
net hedging loss on light crude oil swaps of $19.9 million ($5.15
per bbl) in the first six months of 2004, compared to an $8.0
million ($1.83 per bbl) net loss in the first half of 2003. In
conjunction with the Murphy acquisition on May 31, 2004, Pengrowth
assumed a fixed price natural gas sales contract associated with
certain reserves of the Murphy Assets. Under the contract,
Pengrowth is obligated to sell 3,886 mcf per day, until April 30,
2009 at an average contract price of Cdn $2.27 per mcf. As required
by generally accepted accounting principles, the fair value of the
contract was recognized as a liability ($21.8 million) based on the
mark to market value at May 31, 2004. This liability will be drawn
down and recognized in income as the contract is settled. As this
is a non-cash component of income, it will not be included in the
calculation of distributable cash. Pengrowth currently has 10,500
barrels per day of crude oil hedged for the remainder of 2004 at an
average price of Cdn $38.78 per barrel. Western gas production of
3,317 mcf per day is hedged at an average price of Cdn $7.58 per
mcf, and 19,500 mmbtu of Eastern gas is hedged at an average price
of Cdn $7.51per mmbtu for the remainder of 2004. Further details of
Pengrowth's commodity hedges are provided in Note 12 to the
financial statements. At June 30, 2004, the mark-to-market value of
Pengrowth's commodity hedges was negative $26.7 million consisting
of a loss of $8.1 million on natural gas contracts and negative
$18.6 million for crude oil. Royalties Royalties, including crown
and freehold royalties, were 16.0% of oil and gas sales in the
three months ended June 30, 2004, compared to 18.8 % in 2003. For
the six month period, royalties were 15.4% and 17.9% in 2004 and
2003, respectively. The average royalty rate has decreased year
over year at some of Pengrowth's crude oil properties including
Rigel, Squirrel and Nipisi due to lower production volumes. Low
productivity wells generally attract significantly lower crown
royalty rates, and as production declines at some of these major
oil producing properties, there are more wells producing at these
lower rates. Royalties were also lower at Weyburn in 2004 due to
expansion of the CO2 miscible flood program, which enjoys lower
initial royalty rates for qualifying wells. Operating Costs
Operating costs were $38.8 million (or $8.29 per boe) for the
second quarter of 2004, compared to $34.7 million (or $7.80 per
boe) for the second quarter of 2003. For the six months ended June
30, 2004, operating costs were $70.0 million ($7.92 per boe),
compared to $74.1 million ($8.22 per boe) for the first half of
2003. Second quarter operating costs reflect the addition of the
Murphy Assets for one month. Excluding the impact of the Murphy
Assets second quarter operating expenses were higher than first
quarter 2004 by approximately $4.8 million due to a number of
factors including annual plant turnaround costs at Judy Creek and
Quirk Creek, property tax and power adjustments, well workover
costs at Judy Creek, and compressor related costs at SOEP. On a
year to date basis, operating costs are lower than the prior year
due mainly to the purchase of the Sable facilities in May and
December of 2003 which reduced operating costs on a year over year
basis by approximately $11.5 million, offset in part by additional
costs from the Murphy Assets, and some incremental second quarter
2004 costs as discussed above. Injectants for miscible floods
During the second quarter of 2004, Pengrowth purchased $1.9 million
of injectants and amortized a related $4.8 million against second
quarter income and distributable cash, compared to $5.3 million and
$9.0 million respectively in the second quarter of 2003. On a year
to date basis, Pengrowth has purchased $9.2 million of injectants
and amortized $10.0 million, compared to $14.8 million and $18.9
million in the same period last year. The decline in injectant
costs year over year is due mainly to reduced injectant volumes at
Judy Creek and an increase in the use of proprietary injectants.
The majority of ethane and natural gas volumes injected at Judy
Creek are proprietary volumes from Judy Creek and Swan Hills, which
are re-injected. No cost is recorded in the financial statements
for these re-injected volumes. At June 30, 2004, the balance of
unamortized injectant costs was $23.5 million. General and
administrative General and administrative expenses (G&A) were
$5.0 million in the second quarter of 2004 compared to $4.3 million
for the second quarter of 2003. For the six months ended June 30,
2004, G&A expenses were $10.8 million compared to $8.0 million
for the same period last year. On a per boe basis, year to date
G&A is $1.23 per boe, compared to $0.89 per boe for the first
half of 2003. Included in 2004 second quarter G&A is $0.3
million of non-cash compensation costs related to trust unit rights
($1.4 million year to date) compared to $0.1 million for the first
six months of 2003. Excluding the non-cash component of G&A,
2004 year to date G&A has increased over 2003 levels by $1.5
million due to a number of factors including increased financial
reporting and regulatory costs and the addition of personnel and
additional office space required to manage the Murphy Assets.
Management Fees Management fees were $5.6 million for the second
quarter of 2004 compared to $2.3 million for the second quarter of
2003. For the six month period, management fees were $8.4 million
in 2004 compared to $6.1 million in 2003. Management fees recorded
in the second quarter of 2004 include an accrual for estimated
performance fees of $3.0 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% per annum on a three year rolling average basis. The maximum
fees, including the performance fee, is limited to 80% of the fees
that would otherwise have been paid under the old management
agreement (including acquisition fees) for the first three years,
and 60% thereafter. Although the total fees payable to the manager
are less under the current management agreement, which came into
effect on July 1, 2003, the new fee structure includes a
performance fee component. Under the management agreement that was
in effect in the second quarter of 2003, the manager earned an
acquisition fee, but this was capitalized as part of the cost of
the properties acquired. Interest Interest expense increased to
$7.8 million in the second quarter of 2004 compared to $6.3 million
for the second quarter of 2003. Included in 2004 second quarter
interest is $2.3 million of bank fees incurred to establish the
bridge facility used to finance the Murphy acquisition. Second
quarter 2003 interest expense included $1.9 million associated with
terminating interest rate swaps on long-term debt. For the first
six months of 2004, interest expense was $11.9 million compared to
$10.0 million for the first half of 2003. Interest expense also
includes on a year to date basis $0.9 million of fees related to
the amortization of U.S. dollar debt issue costs and imputed
interest on the note payable to Emera Offshore Incorporated.
Depletion and Depreciation Depletion and depreciation increased to
$58.1 million in the second quarter of 2004 compared to $44.8
million in the second quarter of 2003. For the six month period,
depletion and depreciation was $108.6 million compared to $89.2
million in the first half of 2003. On a per boe basis, depletion
and depreciation has increased to $12.29 per boe in the first half
of 2004 compared to $9.89 per boe in the first half of 2003. The
increase is attributable to the purchase of properties over the
past year, including the Murphy Assets in May 2004, and the SOEP
facilities in 2003, which had no associated reserve additions. With
the sustained strength in commodity prices in recent years, the
cost of acquiring oil and gas properties has increased resulting in
higher depletion per boe. LIQUIDITY AND CAPITAL RESOURCES
Pengrowth's long term debt at June 30, 2004 was $371.8 million,
compared to $259.3 million at December 31, 2003, and $334.3 million
at June 30, 2003. During the second quarter, Pengrowth issued $325
million of new debt to fund the Murphy acquisition. Of this amount,
$220 million is an acquisition facility with a one year term ending
May 31, 2005 and the remaining $105 million was provided for from a
$275 million revolving credit facility with a renewal date of May
30, 2005. Approximately $170 million of the credit facility remains
unutilized at June 30, 2004. Pengrowth also maintains a $35 million
demand operating line of credit. The remainder of Pengrowth's debt
outstanding at the end of the second quarter 2004 is U.S. dollar
denominated fixed rate term debt, details of which are provided in
Note 4 to the financial statements. Due to the decrease in the
value of the Canadian dollar relative to the U.S. dollar at the
balance sheet dates, an unrealized loss of $4.5 million has been
recorded for the quarter ended June 30, 2004. A total unrealized
gain of $23.5 million has been recorded since the debt issuance in
April 2003. Acquisition On May 31, 2004, Pengrowth acquired all of
the issued and outstanding shares of Murphy which had interests in
oil and natural gas assets in Alberta and Saskatchewan for a
purchase price of $550.5 million. Pengrowth's independent
engineering evaluator, Gilbert Laustsen Jung Associates Ltd.
("GLJ") prepared an evaluation with an effective date of April 1,
2004. The reserves that are booked based on this report include
total proved reserves of 39.6 million boe and proved plus probable
reserves of 48.7 million boe. As required by Canadian generally
accepted accounting principles (GAAP), Pengrowth recorded a future
tax liability upon acquisition of the Murphy Assets. The tax
liability arises due to the deficiency in tax pools of the Murphy
Assets acquired, less certain excess tax pools (compared to book
value) from past acquisitions. The future tax liability represents
the income taxes that would arise, based on the enacted income tax
rates, if the operating company's assets and liabilities were
disposed of or settled at book value. Because of the tax effective
structure of the Trust, Pengrowth does not expect to pay cash
income taxes in the operating companies in the foreseeable future.
In accordance with GAAP, Pengrowth was also required to record
goodwill of $170.5 million upon acquisition of the Murphy Assets.
The goodwill value was determined based on the excess of total
consideration paid less the net value assigned to other
identifiable assets and liabilities, including the future income
tax liability. Details of the Murphy acquisition are provided in
Note 5 of the financial statements. Capital Spending Capital
expenditures for the six months ending June 30, 2004 totaled $63.6
million including $19.9 million at Judy Creek, $5.1 million at
Monogram, $2.0 million at Weyburn, $2.9 million at McLeod and the
balance at SOEP and other projects. Pengrowth plans to spend a
total of approximately $98 million on development activities in the
second half of 2004, including approximately $18 million on the
newly acquired Murphy Assets. Over 54% of capital expenditures
undertaken in the first half of 2004 have been funded through the
combination of the 10% holdback from distributable cash and cash
generated through the Distribution Reinvestment Plan ("DRIP") and
the exercise of trust units. OPERATIONS REVIEW REVIEW OF
DEVELOPMENT ACTIVITIES (All volumes stated below are net to
Pengrowth unless otherwise stated) OPERATED PROPERTIES: Judy Creek
'A' Pool (100% working interest) - Began solvent injection in two
horizontal wells which were drilled in the first quarter of 2004. -
Began injection on one new miscible pattern and one new waterflood
pattern during the second quarter 2004. - Tied in three vertical
producers drilled in the first quarter of 2004 with combined
production of approximately 375 bbls of oil per day. - Drilled one
horizontal miscible flood injector with injection beginning in the
third quarter. - Production volumes were down in the second quarter
due to a forest fire that required evacuation of the Judy Creek
Production Complex. The facility was shut down for 3 days. McLeod
(varied working interest) - Completed a well that was drilled in
the first quarter. The well is currently on production at 500 mcf
per day. - Drilled a well at Pine Creek. The well is currently
awaiting completion. Aitken Creek (100% working interest) - Drilled
and completed one well. The reservoir was wet and the well will be
abandoned. Squirrel (100% working interest) - Drilled the first
well in a seven well waterflood expansion. The well was cased for
oil and is awaiting completion. Sounding Lake (38% working
interest) - A non-operated well was drilled and cased for gas and
is awaiting completion. NON-OPERATED PROPERTIES: Sable Offshore
Energy Project (SOEP) (8.4 % working interest) Production - Second
quarter gross raw gas production from the four SOEP fields,
Thebaud, Venture, North Triumph and Alma, averaged 430 mmcf per day
(36.1 mmcf per day net). Monthly raw production for April, May, and
June was 447 mmcf per day (37.5 mmcf per day net), 419 mmcf per day
(35.2 mmcf per day net) and 423 mmcf per day (35.5 mmcf per day
net) respectively. Tier II Status - Construction of the topside
facilities for the second Tier II field, South Venture, is
continuing. The jacket built in Holland arrived at the South
Venture field on May 16, 2004. A heavy lift vessel, named the
Hermod, set the jacket in place and drilling activity began on the
South Venture wells using the Sante Fe Galaxy II drilling rig. As
of June 30, 2004 the South Venture 2 well was drilling at a depth
of 2,780 metres with a planned target depth of 5,267 metres. - The
topsides being built in Halifax are expected to be completed and
installed on the jacket by the fourth quarter. - Engineering and
design for the SOEP compression project is underway along with the
placement of equipment orders. Monogram Gas Unit (53.8% working
interest) - Despite the unseasonably wet weather, drilling
operations proceeded on 139 of the 154 wells included in the 2004
shallow gas well program with 71 wells completed to the end of the
second quarter. Drilling plans call for ten additional wells to be
drilled in July. The remaining wells will be delayed until fall due
to wildlife restrictions. Completion operations are ongoing and
pipelining is expected to commence in mid July with first
production from the new wells anticipated towards the end of the
third quarter. Dunvegan Gas Unit (7.975% working interest) - Three
wells were drilled in the second quarter bringing the total number
of wells drilled in the 2004 program to ten. Test results from this
program have met, or exceeded expectations, and the wells are
anticipated to be tied in and commence production in July and
August. Pengrowth is currently evaluating the second phase of the
2004 program for an additional 14 wells. Swan Hills Unit (10.45%
working interest) - A total of five wells were drilled in the
second quarter. Completion operations are expected to commence in
the third quarter. Weyburn Unit (9.75% working interest) - Weyburn
production continues to outperform budget expectations largely due
to favourable CO2 response. Pengrowth's share of Weyburn production
is forecast to average 2,300 bbls per day for the remainder of
2004. - The CO2 supplier, North Dakota Gasification Company,
scheduled a one time total turnaround for the month of June. Wet
weather had a major impact on field operations in May shutting down
drilling operations for two weeks and reducing the operator's
effectiveness to service wells. Four horizontal wells were drilled
in the second quarter. 2004 Tax Estimate Update Pengrowth forecasts
that in the current commodity price environment, approximately 65%
to 70% of distributions paid in 2004 will be taxable to Canadian
unitholders, with the remainder of distributions treated as return
of capital and thus tax deferred. The increase in taxability
estimate compared to the first quarter estimate relates mainly to
higher distributable cash expected as a result of the acquisition
of the Murphy Assets, without a corresponding increase in tax pools
at the Trust level. Conference Call and Webcast Pengrowth will be
conducting a conference call and webcast for analysts, brokers,
investors and media representatives regarding its first quarter
results at 9:00 A.M. Mountain Daylight Time (11:00 A.M. Eastern
Daylight Time) on Wednesday, July 28, 2004. Callers may dial (800)
814-4860 or Toronto local (416) 640-4127 a few minutes prior to
start and request the Pengrowth conference call. The call will also
be available for replay by dialing (877) 289-8525 or Toronto local
(416) 640-1917 and entering passcode number 21055715 followed by
the pound key. Interested users of the internet are invited to go
to: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal
sign)844140 or http://www.pengrowth.com/ for replay. PENGROWTH
CORPORATION James S. Kinnear, President PENGROWTH ENERGY TRUST
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 PENGROWTH
ENERGY TRUST CONSOLIDATED BALANCE SHEETS As at As at June 30
December 31 (Stated in thousands of dollars) 2004 2003
-------------------------------------------------------------------------
ASSETS (unaudited) (audited) CURRENT ASSETS Cash and term deposits
$ 5,641 $ 64,154 Accounts receivable 96,489 65,570 Inventory 416
699
-------------------------------------------------------------------------
102,546 130,423 REMEDIATION TRUST FUND 8,065 7,392 DEFERRED CHARGES
(Note 9) 4,597 5,544 GOODWILL (Note 5) 170,470 - PROPERTY, PLANT
AND EQUIPMENT AND OTHER ASSETS 1,990,977 1,530,359
-------------------------------------------------------------------------
$ 2,276,655 $ 1,673,718
-------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY CURRENT LIABILITIES Accounts
payable and accrued liabilities $ 71,279 $ 54,196 Distributions
payable to unitholders 61,333 52,139 Due to Pengrowth Management
Limited 4,860 1,122 Note payable 10,000 10,000 Current portion of
contract liabilities (Note 5) 5,755 - Current portion of long term
debt (Note 4) 220,000 -
-------------------------------------------------------------------------
373,227 117,457 NOTE PAYABLE 35,000 35,000 CONTRACT LIABILITIES
(Note 5) 21,596 - LONG-TERM DEBT (Note 4) 371,760 259,300 ASSET
RETIREMENT OBLIGATIONS (Note 7) 155,262 102,528 FUTURE INCOME TAXES
(Note 8) 55,224 - TRUST UNITHOLDERS' EQUITY Trust Unitholders'
capital (Note 6) 2,078,352 1,872,924 Contributed surplus (Note 6)
1,301 189 Accumulated earnings 644,648 573,312 Accumulated
distributable cash (1,459,715) (1,286,992)
-------------------------------------------------------------------------
1,264,586 1,159,433 COMMITMENTS (Note 13) SUBSEQUENT EVENT (Note
14) $ 2,276,655 $ 1,673,718
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST CONSOLIDATED STATEMENTS OF INCOME AND
ACCUMULATED EARNINGS (Stated in thousands Three months ended Six
months ended of dollars) June 30 June 30 (Unaudited) 2004 2003 2004
2003
-------------------------------------------------------------------------
(restated (restated see Note 2) see Note 2) REVENUES Oil and gas
sales $ 193,637 $ 169,238 $ 359,517 $ 374,062 Processing and other
income 2,639 2,124 5,624 4,979 Crown royalties, net of incentives
(27,762) (30,086) (50,783) (62,776) Freehold royalties and mineral
taxes (3,251) (1,758) (4,746) (4,252)
-------------------------------------------------------------------------
165,263 139,518 309,612 312,013 Interest and other income 701 (26)
1,126 55
-------------------------------------------------------------------------
NET REVENUE 165,964 139,492 310,738 312,068 EXPENSES Operating
38,825 34,653 69,986 74,135 Transportation 1,818 2,016 3,374 4,039
Amortization of injectants for miscible floods 4,823 9,033 10,027
18,896 Interest 7,755 6,335 11,932 9,988 General and administrative
5,003 4,262 10,849 8,007 Management fee 5,617 2,332 8,371 6,095
Foreign exchange loss (gain) (Note 10) 4,666 (20,226) 7,037
(19,476) Depletion and depreciation 58,088 44,847 108,600 89,216
Accretion 2,373 1,508 4,372 2,936
-------------------------------------------------------------------------
128,968 84,760 234,548 193,836
-------------------------------------------------------------------------
NET INCOME BEFORE TAXES 36,996 54,732 76,190 118,232 Income taxes
(Note 8) Capital 833 518 1,375 1,098 Future 3,479 - 3,479 -
-------------------------------------------------------------------------
4,312 518 4,854 1,098
-------------------------------------------------------------------------
NET INCOME $ 32,684 $ 54,214 $ 71,336 $ 117,134
-------------------------------------------------------------------------
Accumulated earnings, beginning of period 611,964 446,935 573,312
384,015
-------------------------------------------------------------------------
ACCUMULATED EARNINGS, END OF PERIOD $ 644,648 $ 501,149 $ 644,648 $
501,149
-------------------------------------------------------------------------
NET INCOME PER UNIT (Note 6) Basic $ 0.241 $ 0.486 $ 0.547 $ 1.054
Diluted $ 0.240 $ 0.484 $ 0.545 $ 1.050
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST CONSOLIDATED STATEMENTS OF CASH FLOW (Stated
in thousands Three months ended Six months ended of dollars) June
30 June 30 (Unaudited) 2004 2003 2004 2003
-------------------------------------------------------------------------
(restated (restated see Note 2) see Note 2) CASH PROVIDED BY (USED
FOR): OPERATING Net income $ 32,684 $ 54,214 $ 71,336 $ 117,134
Depletion, depreciation and accretion 60,461 46,355 112,972 92,152
Future income taxes 3,479 - 3,479 - Contract liability amortization
(824) - (824) - Amortization of injectants 4,823 9,033 10,027
18,896 Purchase of injectants (1,949) (5,371) (9,208) (14,846)
Expenditures on remediation (979) (287) (2,830) (837) Unrealized
foreign exchange loss (gain) (Note 10) 4,500 (20,740) 7,460
(20,740) Trust unit based compensation 264 12 1,371 66 Amortization
of deferred charges 473 - 947 - Loss on sale of marketable
securities - 94 - 94
-------------------------------------------------------------------------
Funds generated from operations 102,932 83,310 194,730 191,919
Changes in non-cash operating working capital (Note 11) 4,768 664
(108) (18,190)
-------------------------------------------------------------------------
107,700 83,974 194,622 173,729
-------------------------------------------------------------------------
FINANCING Distributions (85,310) (83,431) (163,529) (155,392)
Change in long-term debt, net 325,000 47,794 325,000 38,519
Proceeds from issue of trust units 5,730 17,974 205,169 24,368
-------------------------------------------------------------------------
245,420 (17,663) 366,640 (92,505)
-------------------------------------------------------------------------
INVESTING Expenditures on acquisitions (552,406) (59,369) (553,193)
(61,342) Expenditures on property, plant and equipment (38,703)
(17,012) (63,565) (35,515) Proceeds on property dispositions -
2,751 - 2,751 Deferred Charges - (2,087) - (2,087) Change in
Remediation Trust Fund (375) (171) (673) (180) Proceeds from sale
of marketable securities - 1,539 - 1,812 Change in non-cash
investing working capital (Note 11) (7,072) 305 (2,344) 758
-------------------------------------------------------------------------
(598,556) (74,044) (619,775) (93,803)
-------------------------------------------------------------------------
DECREASE IN CASH AND TERM DEPOSITS (245,436) (7,733) (58,513)
(12,579) CASH AND TERM DEPOSITS (BANK INDEBTEDNESS) AT BEGINNING OF
PERIOD 251,077 3,446 64,154 8,292
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CASH AND TERM DEPOSITS (BANK INDEBTEDNESS) AT END OF PERIOD $ 5,641
$ (4,287) $ 5,641 $ (4,287)
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
PENGROWTH ENERGY TRUST NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS JUNE 30, 2004 (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, 2003. The disclosures provided below are incremental
to those included with the annual consolidated financial
statements. The interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and
the notes thereto in Pengrowth's annual report for the year ended
December 31, 2003. GOODWILL Goodwill must be recorded upon a
corporate acquisition when the total purchase price exceeds the net
identifiable assets and liabilities of the acquired company. The
goodwill balance will not be amortized but instead is assessed for
impairment each reporting period. Impairment is determined based on
the fair value of the reporting entity compared to the net book
value of the reporting entity. Any impairment will be charged to
earnings in the period in which the fair value of the reporting
entity is below the book value. 2. CHANGE IN ACCOUNTING POLICIES
Prior period comparative balances have been restated due to the
changes in accounting polices described in Note 3 of the
consolidated financial statements for the fiscal year ended
December 31, 2003. As a result of the changes in accounting
policies, net income for the three months and six months ended June
30, 2003 increased by $1,779,000 and $3,649,000, respectively. Net
income per unit basic and diluted for the three months and six
months ended June 30, 2003 increased by $0.016 per unit and $0.033
per unit, respectively. 3. DISTRIBUTABLE CASH There is no
standardized measure of Distributable Cash and therefore
Distributable Cash, as presented below, may not be comparable to
similar measures presented by other trusts. Three months ended Six
months ended June 30, June 30, June 30, June 30, 2004 2003 2004
2003
---------------------------------------------------------------------
Net income $ 32,684 $ 54,214 $ 71,336 $ 117,134 Add (Deduct):
Depletion, depreciation and accretion 60,461 46,355 112,972 92,152
Future income taxes 3,479 - 3,479 - Asset retirement obligation
expenses not covered by the trust funds and contributions to
Remediation Trust Funds (1,417) (521) (3,627) (1,142) Unrealized
foreign exchange loss (gain) (Note 10) 4,500 (20,740) 7,460
(20,740) Contract liability amortization (824) - (824) - Non-cash
compensation expense 264 12 1,371 66 Other (126) 375 (250) 250
Distributable cash before withholding 99,021 79,695 191,917 187,720
Cash withheld to fund capital expenditures (9,902) (7,921) (19,194)
(18,725)
---------------------------------------------------------------------
Distributable cash $ 89,119 $ 71,774 $ 172,723 $ 168,995 Less:
Actual distributions paid or declared (86,153) (61,846) (169,757)
(159,067)
---------------------------------------------------------------------
Balance to be distributed $ 2,966 $ 9,928 $ 2,966 $ 9,928
---------------------------------------------------------------------
Actual distributions paid or declared per unit $0.640 $0.670 $1.270
$1.420
---------------------------------------------------------------------
The per unit amount of distributions paid or declared reflect
actual distributions paid or declared based on units outstanding at
the time. Distributions are declared payable during the month
following the month in which the distributions were earned.
Distributions are paid to unitholders on the 15th day of the second
month after the distributions are earned. 4. LONG TERM DEBT As at
As at June 30, December 31, 2004 2003
---------------------------------------------------------------------
U.S. dollar denominated debt: U.S. $150 million senior unsecured
notes at 4.93% due April 2010 $ 200,070 $ 194,475 U.S. $50 million
senior unsecured notes at 5.47% due April 2013 66,690 64,825
---------------------------------------------------------------------
266,760 259,300
---------------------------------------------------------------------
Canadian dollar revolving credit borrowings 105,000 - Canadian
dollar acquisition borrowing 220,000 -
---------------------------------------------------------------------
591,760 259,300 Less: Current portion of long-term debt (220,000) -
---------------------------------------------------------------------
$ 371,760 $ 259,300
---------------------------------------------------------------------
On June 30, 2004, Pengrowth had a $275 million revolving credit
facility syndicated among eight financial institutions with an
extendible 364 day revolving period and a two year amortization
term period. In addition, it has a $35 million demand operating
line of credit. The facilities are currently reduced by outstanding
letters of credit in the amount of approximately $23 million. A
$220 million unsecured acquisition facility with a one year term
was put in place May 31, 2004 to fund the Murphy acquisition (see
Note 5). 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 on the revolving credit facility vary from 0.25
percent to 1.50 percent depending on financial statement ratios and
the form of borrowing. The margins and stamping fees on the
acquisition facility for the first six month term vary from 1.50
percent to 2.50 percent and for the final six month term the fees
vary from 4.0 percent to 5.0 percent depending on 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 with amounts outstanding under the facility repayable in
equal quarterly installments. One third of the amount outstanding
would be paid in each of the first two years and the final one
third owing would be repaid upon maturity of the term period.
Pengrowth 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. 5. CORPORATE ACQUISITION On May 31, 2004,
Pengrowth acquired all of the issued and outstanding shares of a
company which had interests in oil and natural gas assets in
Alberta and Saskatchewan (the "Murphy Assets"). The transaction was
accounted for using the purchase method of accounting with the
allocation of the purchase price and consideration as follows:
---------------------------------------------------------------------
Net assets acquired Working capital $ 7,363 Property, plant, and
equipment 502,924 Goodwill 170,470 Asset retirement obligations
(50,345) Future income taxes (51,745) Contract liabilities (28,175)
---------------------------------------------------------------------
$ 550,492
---------------------------------------------------------------------
Financed by: Cash and term deposits $ 224,836 Acquisition facility
325,000 Acquisition costs 656
---------------------------------------------------------------------
$ 550,492
---------------------------------------------------------------------
Property, plant and equipment of $503 million represents the fair
value of the assets acquired determined in part by an independent
reserve evaluation, net of purchase price adjustments. Goodwill of
$170 million was determined based on the excess of the total
consideration paid less the value assigned to the identifiable
assets and liabilities including the future income tax liability.
The future income tax liability was determined based on the enacted
income tax rate of approximately 34 percent as at May 31, 2004.
Contract liabilities include a natural gas fixed price sales
contract (see Note 12) and firm pipeline demand charge contracts.
The fair values of these liabilities have been determined on the
date of acquisition and a liability of $21,824,000 has been
recorded for the natural gas fixed price sales contract and
$6,351,000 has been recorded for the firm pipeline contracts. The
liabilities will be reduced as the contracts are settled. Results
from operations of the acquired Murphy Assets subsequent to May 31,
2004 are included in the consolidated financial statements. 6.
TRUST UNITS The authorized capital of Pengrowth is 500,000,000
trust units. June 30, 2004 December 31, 2003
---------------------------------------------------------------------
Number Number Trust Units Issued of units Amount of units Amount
---------------------------------------------------------------------
Balance, beginning of period 123,873,651 $ 1,872,924 110,562,327 $
1,662,726 Issued for cash 10,900,000 200,560 8,500,000 144,075
Less: issue expenses - (10,717) - (7,820) Issued for cash on
exercise of trust units options and rights 433,265 7,025 3,358,442
51,701 Issued for cash under Distribution Reinvestment Plan
("DRIP") 469,749 8,301 1,452,882 22,242 Trust unit rights incentive
plan (non-cash exercised) - 259 - - Royalty units exchanged for
trust units 700 - - -
---------------------------------------------------------------------
Balance, end of period 135,677,365 $ 2,078,352 123,873,651 $
1,872,924
---------------------------------------------------------------------
The per unit amounts for net income are based on weighted average
units outstanding for the period. The weighted average units
outstanding for the three months ended June 30, 2004 were
135,472,925 (June 30, 2003 - 111,466,759 units) and for the six
months ended June 30, 2004 were 130,346,384 (June 30, 2003 -
111,119,478 units). In computing diluted net income per unit,
588,294 units were added to the weighted average number of units
outstanding during the quarter ended June 30, 2004 (June 30, 2003 -
508,654 units) and 618,264 units were added for the six months
ended June 30, 2004 (June 30, 2003 - 418,995 units) for the
dilutive effect of trust unit options and rights. Contributed
Surplus June 30, December 31, 2004 2003
---------------------------------------------------------------------
Balance, beginning of period $ 189 $ - Trust unit rights incentive
plan (non-cash expensed) 1,371 189 Trust unit rights incentive plan
(non-cash exercised) (259) -
---------------------------------------------------------------------
Balance, end of period $ 1,301 $ 189
---------------------------------------------------------------------
Trust Unit Option Plan As at June 30, 2004, options to purchase
1,700,550 trust units were outstanding (December 31, 2003 -
2,014,903) that expire at various dates to June 28, 2009.
---------------------------------------------------------------------
June 30, 2004 December 31, 2003
---------------------------------------------------------------------
Weighted Weighted Average Average Number Exercise Number Exercise
Trust Unit Options of options price of options price
---------------------------------------------------------------------
Outstanding at beginning of period 2,014,903 $ 17.47 4,451,131 $
16.78 Exercised (311,153) 16.77 (2,374,182) 16.19 Cancelled (3,200)
12.98 (62,046) 17.17
---------------------------------------------------------------------
Outstanding at period-end 1,700,550 $ 17.60 2,014,903 $ 17.47
Exercisable at period-end 1,700,550 $ 17.60 1,999,436 $ 17.48
---------------------------------------------------------------------
Rights Incentive Plan As at June 30, 2004, rights to purchase
2,076,916 trust units were outstanding (December 31, 2003 -
1,112,140 units) that expire at various dates to February 6, 2009.
---------------------------------------------------------------------
June 30, 2004 December 31, 2003
---------------------------------------------------------------------
Weighted Weighted Average Average Rights Incentive Number Exercise
Number Exercise Options of rights price of rights price
---------------------------------------------------------------------
Outstanding at beginning of period 1,112,140 $ 12.20 1,964,100 $
13.29 Granted (1) 1,106,538 16.80 165,000 16.35 Exercised (122,112)
14.79 (984,260) 13.49 Cancelled (19,650) 11.77 (32,700) 12.75
---------------------------------------------------------------------
Outstanding at period-end 2,076,916 $ 13.85 1,112,140 $ 12.20
Exercisable at period-end 652,574 $ 13.74 359,740 $ 11.92
---------------------------------------------------------------------
(1) Weighted average exercise price of rights granted are based on
the exercise price at the date of grant Fair Value of Unit Based
Compensation The fair value of rights incentive options granted
during the six months ended June 30, 2004 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. For trust unit options and rights granted in
2002, Pengrowth has elected to disclose the pro forma effect on net
income had compensation expense been recorded using the fair value
method. The following is the pro forma effect on net income: Three
months ended Six months ended June 30, June 30, June 30, June 30,
2004 2003 2004 2003
---------------------------------------------------------------------
Net income $ 32,684 $ 54,214 $ 71,336 $ 117,134 Compensation cost
related to options - (106) - (200) Compensation cost related to
rights (321) (333) (626) (663)
---------------------------------------------------------------------
Pro forma net income $ 32,363 $ 53,775 $ 70,710 $ 116,271
---------------------------------------------------------------------
Pro forma net income per unit: Basic $0.239 $0.482 $0.542 $1.046
Diluted $0.238 $0.480 $0.540 $1.042
---------------------------------------------------------------------
7. ASSET RETIREMENT OBLIGATIONS For the For the six months year
ended ended June 30, December 31, 2004 2003
---------------------------------------------------------------------
Asset Retirement Obligations, beginning of period $ 102,528 $
73,493 Increase in liabilities during the period related to:
Acquisition 50,345 - Additions 847 11,086 Revisions - 15,153
Accretion expense 4,372 6,039 Liabilities settled during the period
(2,830) (3,243)
---------------------------------------------------------------------
Asset Retirement Obligations, end of period $ 155,262 $ 102,528
---------------------------------------------------------------------
8. INCOME TAXES The provision for income taxes in the financial
statements differs from the result which would have been obtained
by applying the combined federal and provincial tax rate to
Pengrowth's income before taxes. This difference results from the
following items: Six months ended June 30, 2004 2003
---------------------------------------------------------------------
Income before taxes $ 76,190 $ 118,232 Combined federal and
provincial tax rate 38.6% 40.6%
---------------------------------------------------------------------
Expected income tax 29,409 48,002 Income allocated to trust
unitholders (26,860) (42,373) Effect of resource allowance over
non-deductible crown royalties (1,000) (1,445) Unrealized foreign
exchange loss (gain) 1,400 (4,210) Trust unit based compensation
530 26
---------------------------------------------------------------------
Future income taxes 3,479 - Capital taxes 1,375 1,098
---------------------------------------------------------------------
$ 4,854 $ 1,098
---------------------------------------------------------------------
The net future income tax liability is comprised of: As at As at
June 30, December 31, 2004 2003
---------------------------------------------------------------------
Future income tax liabilities: Property, plant and equipment $
76,629 $ - Unrealized foreign exchange gain 3,947 5,356 Other 25 27
---------------------------------------------------------------------
80,601 5,383 Future income tax assets: Property, plant and
equipment - (60,628) Asset retirement obligation (17,036) - Alberta
Canadian royalty income (573) - Contract liabilities (7,768) -
---------------------------------------------------------------------
55,224 (55,245) Valuation allowance - 55,245
---------------------------------------------------------------------
Net future income tax liability/(asset) $ 55,224 $ -
---------------------------------------------------------------------
9. DEFERRED CHARGES As at As at June 30, December 31, 2004 2003
---------------------------------------------------------------------
Imputed interest on note payable (net of accumulated amortization
of $794) $ 2,813 $ 3,607 U.S. debt issue costs (net of accumulated
amortization of $357) 1,784 1,937
---------------------------------------------------------------------
$ 4,597 $ 5,544
---------------------------------------------------------------------
10. FOREIGN EXCHANGE LOSS (GAIN) Three months ended Six months
ended June 30 June 30 June 30 June 30 2004 2003 2004 2003
---------------------------------------------------------------------
Unrealized foreign exchange loss (gain) on translation of US dollar
denominated debt $ 4,500 $ (20,740) $ 7,460 $ (20,740) Realized
foreign exchange losses (gains) 166 514 (423) 1,264
---------------------------------------------------------------------
$ 4,666 $ (20,226) $ 7,037 $ (19,476)
---------------------------------------------------------------------
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. 11. OTHER
CASH FLOW DISCLOSURES Change in Non-Cash Operating Working Capital
Three months ended Six months ended June 30 June 30 June 30 June 30
2004 2003 2004 2003
---------------------------------------------------------------------
Accounts receivable $ (23,757) $ 15,908 $ (23,556) $ (3,897)
Inventory 641 426 283 611 Accounts payable and accrued liabilities
24,279 (15,218) 19,427 (14,602) Due to Pengrowth Management Limited
3,605 (452) 3,738 (302)
---------------------------------------------------------------------
$ 4,768 $ 664 $ (108) $ (18,190)
---------------------------------------------------------------------
Change in Non-Cash Investing Working Capital Three months ended Six
months ended June 30 June 30 June 30 June 30 2004 2003 2004 2003
---------------------------------------------------------------------
Accounts payable for capital accruals $ (7,072) $ 305 $ (2,344) $
758
---------------------------------------------------------------------
Cash Payments Three months ended Six months ended June 30 June 30
June 30 June 30 2004 2003 2004 2003
---------------------------------------------------------------------
Cash payments made for capital taxes $ 632 $ 512 $ 1,155 $ 997 Cash
payments made for interest $ 10,244 $ 2,435 $ 10,588 $ 7,281
---------------------------------------------------------------------
12. FINANCIAL INSTRUMENTS Foreign Exchange Risk Pengrowth entered
into a foreign exchange swap which fixed the Canadian to U.S.
dollar exchange rate at Cdn$1.55 per U.S.$1 on U.S.$750,000 per
month effective 2003 and 2004. This swap has mitigated a portion of
the exchange risk on U.S. dollar denominated gas sales. The
estimated fair value of the foreign exchange swap has been
determined based on the amount Pengrowth would receive or pay to
terminate the contract at period end. At June 30, 2004, the amount
Pengrowth would receive to terminate the foreign exchange swap
would be Cdn $958,000. Forward and Futures Contracts Pengrowth has
a price risk management program whereby the commodity price
associated with a portion of its future production is fixed.
Pengrowth sells forward a portion of its future production through
a combination of fixed price sales contracts with customers and
commodity swap agreements with financial counterparties. The
forward and futures contracts are subject to market risk from
fluctuating commodity prices and exchange rates. As at June 30,
2004, Pengrowth had fixed the price applicable to future production
as follows: Crude Oil:
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Volume Reference Price Remaining Term (bbl/d) Point per bbl
---------------------------------------------------------------------
2004 ---- Financial: ---------- July 1, 2004 - Dec 31, 2004 10,500
WTI(1) $38.78 Cdn 2005 ---- Jan 1, 2005 - Dec 31, 2005 2,000 WTI(1)
$48.60 Cdn
---------------------------------------------------------------------
Natural Gas:
---------------------------------------------------------------------
Volume Reference Price Remaining Term (mmbtu/d) Point per mmbtu
---------------------------------------------------------------------
2004 ---- Financial: ---------- July 1, 2004 - Dec 31, 2004 12,500
Tetco M3(1) $8.33 Cdn July 1, 2004 - Dec 31, 2004 7,000 Transco Z6
$3.90 U.S. July 1, 2004 - Dec 31, 2004 3,317 AECO $7.58 Cdn 2005
---- Financial: ---------- Jan 1, 2005 - Dec 31, 2005 8,500 Tetco
M3(1) $9.08 Cdn
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(1) Associated CDN$ / U.S.$ foreign exchange rate has been fixed.
The estimated fair value of the financial crude oil and natural gas
contracts have been determined based on the amounts Pengrowth would
receive or pay to terminate the contracts at period-end. At June
30, 2004, the amount Pengrowth would pay to terminate the financial
crude oil and natural gas contracts would be $18,583,000 and
$8,121,000 respectively. Pengrowth entered into an agreement to
purchase 5 megawatts of electricity at a price of $53.00 per
megawatt hour effective February 1, 2004 to December 31, 2004.
Natural Gas Fixed Price Sales Contract: Pengrowth assumed a natural
gas fixed price sales contract in conjunction with the acquisition
of the Murphy Assets. The fair value of the liability associated
with the natural gas contract at the date of acquisition was
determined to be $21,824,000 in respect thereof. The liability will
be reduced as the contract is settled. Details of the physical
fixed price sales contract are provided below:
---------------------------------------------------------------------
Volume Price Remaining Term (mcf/d) per mcf(1)
---------------------------------------------------------------------
2004 ---- July 1, 2004 - Oct 31, 2004 3,886 $2.12 Cdn Nov 1, 2004 -
Dec 31, 2004 3,886 $2.18 Cdn 2005 to 2009 ------------ Jan 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
---------------------------------------------------------------------
(1) Reference price based on AECO 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
June 30, 2004 was $8,066,000 (December 31, 2003 - $7,479,000). The
fair value of the U.S. dollar denominated debt at June 30, 2004 was
approximately $260,341,000 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 June 30,
2004, approximates its carrying value net of the imputed interest
included in deferred charges. 13. COMMITMENTS Associated with the
Murphy Assets acquired by Pengrowth are firm pipeline demand charge
commitments, payments of which are expected to be, based on current
toll rates, approximately $18,450,000 in 2004, $19,051,000 in 2005,
$18,895,000 in 2006, $18,449,000 in 2007, and $15,686,000 in 2008
and are expected to continue until 2015 with total payments
totaling approximately $78,701,000 for the period from 2009 to
2015. 14. SUBSEQUENT EVENT Reclassification of Trust Units On July
13, 2004, Pengrowth announced that the reclassification of
Pengrowth Energy Trust trust units as Class A and Class B trust
units would be implemented effective July 27, 2004. On July 27,
2004, generally, each Canadian unitholder will have the trust units
held by them reclassified as Class B trust units. Each unitholder
who is not a Canadian unitholder will have the trust units held by
them reclassified as Class B trust units and then immediately
converted into Class A trust units. The Class B trust units will
trade solely on the Toronto Stock Exchange. The Class A trust units
will trade on the Toronto Stock Exchange and the New York Stock
Exchange. The Class A and Class B trust units will have the same
rights as the existing trust units to vote, obtain distributions
and participate in the assets of Pengrowth upon wind-up or
dissolution of Pengrowth. Class A trust units will have no
residency restriction and will be exchangeable for Class B trust
units provided the holder is a resident of Canada. With the
exception of the implementation period, Class A trust units will be
subject to an "ownership threshold" equivalent to 49.75 percent of
all outstanding trust units. Class B trust units may only be held
by Canadian residents and will be exchangeable into Class A trust
units provided that the number of Class A trust units does not
exceed the ownership threshold of 49.75 percent. DATASOURCE:
Pengrowth Energy Trust CONTACT: Please visit our website
http://www.pengrowth.com/ or contact: Investor Relations, Calgary
E-mail: , Telephone: (403) 233-0224, Toll Free: 1-800-223-4122,
Facsimile: (403) 294-0051; Investor Relations, Toronto E-mail: ,
Telephone: (416) 362-1748, Toll Free: 1-888-744-1111, Facsimile:
(416) 362-8191
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