RNS Number:8071J
Caza Oil & Gas, Inc.
13 December 2007
13 December 2007
NOT FOR DISTRIBUTION IN THE UNITED STATES OF AMERICA
Caza Oil & Gas, Inc.
("Caza" or the "Company")
Admission to AIM and the Toronto Stock Exchange
Caza, an oil and gas exploration and production company with on-shore assets
across three US States (Louisiana, Texas and New Mexico), announces the placing
of 18,821,000 common shares (the "Placing") and the admission of the Company's
issued and to be issued common shares with no par value ("Common Shares") to
trading on AIM, a market operated by the London Stock Exchange plc ("AIM"), and
to a listing on the Toronto Stock Exchange (the "TSX") (together "Admission").
The Common Shares were admitted to trading on AIM under the symbol "CAZA" at
2.30pm (UK time) on 12 December 2007 and on the TSX under the symbol "CAZ" at
5.15pm (UK time) on 12 December 2007. A temporary suspension of trading in
Caza's Common Shares on AIM was put in place at 3.15pm (UK Time) on 12 December
2007. This temporary suspension has now been lifted.
Noble & Company Limited is the Company's nominated adviser and Noble & Company
Limited and Haywood Securities (UK) Limited are the Company's joint brokers.
Regarding the issuance of the Common Shares and the Admission, John McGoldrick,
Executive Chairman of the Company, commented:
"We are delighted to have received support for our plans from investors. The
funds raised will accelerate our drilling programme and provide investors with
exposure to a balance of exploration, appraisal and development drilling."
Caza has 69,319,000 Common Shares in issue which trade under the following ISIN
numbers:
ISIN no. No. of Common Shares Type of shares
CA 1498011024 58,989,200 Unrestricted
US 1498012012 10,329,800 "Reg D"
"Reg D"
Certificates evidencing Common Shares issued to purchasers in the United States
pursuant to Regulation D of the US Securities Act 1933 ("Reg D") have been
issued in legended, certificated form. If such Common Shares are subsequently
traded in compliance with Regulation S under the US Securities Act of 1933 with
non-US investors then such Common Shares will become identical to the other Caza
Common Shares held by non-US investors and will no longer be subject to Reg D
restrictions.
Admission details:
Placing price per Common Share Cdn$0.80 (39 pence)
Number of Common Shares in the Placing to be issued by 18,821,000
the Company
Percentage of enlarged issued share capital 27.2%
represented by the Common Shares being placed
Common Shares in issue on Admission 69,319,000
Market capitalisation on Admission at the Placing price Cdn$55.5 million
(�27.0 million)
Estimated net proceeds of the Placing receivable by Cdn$11.8 million
the Company * (�5.7 million)
* Net proceeds receivable by the Company are stated after deduction of the
Placing expenses of approximately Cdn$3.3 million (�1.6 million).
For further information contact:
John McGoldrick, Executive Chairman, +1(0) 281 363 4442
Caza Oil & Gas, Inc.
Nick Naylor, Noble & Company Limited +44 (0) 20 7763 2200
(Nominated Adviser and Joint Broker)
Daniel Brooks, Haywood Securities +44 (0) 20 7031 8000
(UK) Limited
(Joint Broker)
Peter Reilly, Aquila Financial Ltd +44 (0) 20 7202 2601
(Financial Public Relations Advisers)
www.cazapetro.com
This press release is not an offer to sell Common Shares of the Company in the
United States. Common Shares may not be offered or sold in the United States
absent registration under the U.S. Securities Act of 1933 or an exemption from
registration. Any public offering of Common Shares to be made in the United
States will be made by means of a prospectus that may be obtained from the
Company and will contain detailed information about the Company and management
as well as financial statements.
Further information about Caza
Caza is engaged in the acquisition, exploration, development and production of
hydrocarbons in the Texas Gulf Coast (on-shore), south Louisiana, southeast New
Mexico and the Permian Basin of west Texas regions of the United States of
America through its subsidiary, Caza Petroleum, Inc. ("Caza Petroleum"). Caza
Petroleum and its predecessors have been managed by the current members of its
management team (John R. McGoldrick, W. Michael Ford, James M. Markgraf, Anthony
B. Sam and Richard R. Albro, together the "Management Team") and have been
engaged in the acquisition, exploration, development and production of
hydrocarbons in Caza Petroleum's core operating areas since 2000.
Caza Petroleum has drilled two successful exploration wells in its south
Louisiana focus area. These are the Thunder Stud discovery, located in Calcasieu
Parish, Louisiana, which is awaiting completion, and another which resulted in
the extension of the Dulac Field, located in Terrebonne Parish, Louisiana. The
well located in the Dulac Field was brought on stream in December 2006. Four of
seven wells drilled by Caza Petroleum in Wharton County, Texas, were successful
and have been completed as producing wells.
Caza Petroleum has interests in approximately 34,000 gross (11,400 net) acres of
land and operates the majority of its acreage. Caza Petroleum also enjoys
non-exclusive data licenses in respect of 8,000 square miles of 3-D Seismic
data. The Company's strategy is to utilize its 3-D Seismic data base to identify
undeveloped targets within proven hydrocarbon arenas.
Caza Petroleum's current asset portfolio includes producing assets, new
development projects, appraisal and exploration targets, prospects and leads.
A Competent Persons Report, prepared by Netherland Sewell Associates Inc.
("NSAI") (the "NSAI Report") estimates that, as at 30 June 2007, Caza
Petroleum's total net proved, probable and possible oil and natural gas reserves
were approximately 166.9 Mbbl of light and medium crude oil, 74.7 Bcf of natural
gas and 656.8 Mbbl of natural gas liquids. The NSAI Report also attributes a net
present value of US$187.9 million to Caza Petroleum's proved, probable and
possible reserves, before taxes, based on a discount rate of 10% and forecast
prices effective as at June 30, 2007.
Biographies of the directors of Caza
John Russell McGoldrick, Executive Chairman and Director
John Russell McGoldrick is a director and Executive Chairman of Caza and a
director and Executive Chairman of Caza Petroleum. From February 2004 to August
2006, Mr. McGoldrick served as President of Falcon Bay. Prior thereto, Mr.
McGoldrick was employed by Enterprise Oil plc from June 1984 to October 2002,
serving in a number of positions, including President of Enterprise Oil Gulf of
Mexico Inc. from August 2000 to October 2002 and Managing Director of Enterprise
Energy Ireland Ltd. from December 1997 to August 2000.
William Michael Ford, President, Chief Executive Officer and Director
William Michael Ford is Chief Executive Officer of Caza and President of Caza
Petroleum. From November 2000 to July 2006, Mr. Ford served as a Vice President
of Falcon Bay. Mr. Ford was also a founder and has served as President of
Penwell Energy, Inc. from 1988 to present. Penwell Energy, Inc. is depleting its
existing assets and has no plans for future business.
J. Russell Porter, Non-Executive Director
J. Russell Porter is a director of Caza and has served as an officer of Gastar
Exploration Ltd. since September 2000 and as President and Chief Executive
Officer of such company since February 2004. Prior thereto, Mr. Porter served as
Executive Vice President of Forcenergy Inc. from April 1994 to September 2000,
as Vice President of the Natural Resources Group of International Nederlanden
(U.S.) Capital Corporation from January 1992 to April 1994, as an Associate of
the energy merchant banking division of Manufacturers Hanover Trust Company from
July 1990 to January 1992, as assistant to the president of Gamxx Energy/
Reliable Production Service from 1987 to 1988, and as Gulf Coast Project
Director of Ramco Energy Corporation from 1986 to 1987.
John Ross Rooney, Non-Executive Director
John Ross Rooney has served as Chief Executive Officer and a director of TUSK
Energy Corporation. since December 2006. Mr. Rooney has also previously served
as President, Chief Executive Officer and a director of Zenas Energy Corp. from
August 2005 to January 2007, as President and Chief Executive Officer of
Blizzard Energy Inc. from December 2002 to July 2005, as Vice President and
Chief Financial Officer and then President and Chief Executive Officer of
Equatorial Energy Inc. from May 1999 to June 2002, as Vice President and Chief
Financial Officer of Calgary Louisiana Energy LLC from July 1997 to May 1999, as
an originator and organizer of a private drilling fund from May 1997 to March
1999, as Vice President and Chief Financial Officer of Tidal Resources Inc. from
June 1993 to January 1997, and as an accountant and other positions for Ernst &
Young and Clarkson Gordon from January 1980 to December 1992. Mr. Rooney is also
a director of Saxon Energy Services Inc.
James De Vaux Brillantes Guiang, Non-Executive Director
James De Vaux Brillantes Guiang is a director of Caza. Mr. Guiang has more than
25 years' experience in the international oil and gas exploration and production
industry and has served as a Portfolio Manager with Millennium Global
Investments since May 2006. Prior thereto, Mr. Guiang was an independent
consultant. Mr. Guiang also served as a non-executive director of Petrolatina
Energy PLC (an AIM listed company) until November 2007.
Biographies of the Management Team
Caza and Caza Petroleum are managed on a day to day basis by the Management Team
which consists of John McGoldrick, Michael Ford and the following three
executives:
James Michael Markgraf, Vice President Finance and Chief Financial Officer
James Michael Markgraf is Vice President, Finance and Chief Financial Officer of
Caza and Caza Petroleum. From October 2000 to July 2006, Mr. Markgraf served as
Chief Financial Officer and Treasurer of Falcon Bay. Prior thereto, Mr. Markgraf
served as Chief Financial Officer and Treasurer of Penwell Energy, Inc. from
October 1991 to October 2001, and as an accounting manager and accountant of
several different firms from 1984 to October 1991. Mr. Markgraf is a Certified
Public Accountant.
Anthony Bryan Sam, Vice President Operations
Anthony Bryan Sam is Vice President, Operations of Caza and has been Vice
President, Operations of Caza Petroleum and its predecessors since October 2000.
Mr. Sam also served as President of Chahta Petroleum, Inc. since January 1992.
Prior thereto, Mr. Sam served as President of Sendero Petroleum, Inc. from
January 1989 to June 1992, as Operations Manager of Mussleman, Owen & King
Operating, Inc. from August 1987 to January 1989, and as a Petroleum Engineer of
Chevron U.S.A. from May 1982 to August 1987.
Richard Ronald Albro, Vice President Land and Secretary
Richard Ronald Albro is Vice President, Land and Secretary of Caza and has been
Vice President, Land of Caza Petroleum and its predecessors since October 2000.
Mr. Albro also previously served in various land positions for Penwell Energy,
Inc. from September 1993, after serving two years as Penwell Energy's in-house
landman.
Quarter 3 results
Set out below is the text of an announcement made by the Company through the
Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") on 7
December 2007.
Consolidated Financial Statements of
CAZA OIL & GAS, INC.
For the three and nine months ended 30 September 2007
(Unaudited)
Caza Oil & Gas, Inc.
Consolidated Statements of Net Loss and Comprehensive Income (Loss), and
Retained Earnings (Deficit)
(unaudited)
For the Periods Ended (In Thousands of United States dollars, except per share
amounts)
Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
Revenue
Petroleum and natural gas 273 110 780 269
Other income - 135 - 239
Interest income 113 10 393 10
386 255 1,173 518
Expenses
Severance tax 21 13 64 36
Production 135 11 206 70
General and administrative 1,073 3,018 2,287 3,256
Depletion, depreciation, 104 24 215 52
amortization and accretion
Interest 33 10 33 28
1,366 3,076 2,805 3,442
Loss Before Income Taxes (980) (2,821) (1,632) (2,924)
Taxes
Current income tax expense (4) 4 - 4
(recovery)
Future income tax expense (303) (216) (408) (216)
(307) (212) (408) (212)
Net loss and comprehensive loss (673) (2,609) (1,224) (2,712)
Retained Earnings (Deficit), (1,954) 2,671 (1,403) 2,794
Beginning of Period
Amount ascribed to exchangeable - (970) - (970)
share rights on acquisition of
Caza Petroleum
Future income taxes recognized - (308) - (308)
on acquisition of Caza Petroleum
Distributions - (331) - (351)
Deficit, End of Period (2,627) (1,547) (2,627) (1,547)
Loss per share
basic and diluted $ (0.01) $ (0.04) $ (0.02) $ (0.04)
Weighted average shares
outstanding (Note 7(a))
basic and diluted 73,336,717 67,420,000 73,056,623 67,420,000
See accompanying notes to the consolidated financial statements
Caza Oil & Gas, Inc.
Consolidated Balance Sheets
(unaudited)
(In Thousands of United States dollars)
September 30, December 31,
2007 2006
Assets
Current
Cash and cash equivalents 9,250 13,697
Accounts receivable 4,186 2,155
Prepaid and other 93 123
13,529 15,975
Future income tax asset 187 -
Deferred financing costs (Note 9(c)) 1,400 -
Petroleum and natural gas properties and 17,291 8,243
equipment (Note 3)
32,407 24,218
Liabilities
Current
Accounts payable and accrued liabilities 12,963 4,171
Asset retirement obligation (Note 4) 62 56
Future income taxes - 221
13,025 4,448
Shareholders' Equity
Share capital (Note 5(b)) 19,378 18,923
Contributed surplus (Note 5(f)) 2,631 2,250
Deficit (2,627) (1,403)
19,382 19,770
32,407 24,218
Subsequent events (Note 9)
See accompanying notes to the
consolidated financial statements
Caza Oil & Gas, Inc.
Consolidated Statements of Cash Flows
(unaudited)
For the Periods Ended (In Thousands of United States dollars)
Three months ended Nine months ended
September 30 September 30
2007 2006 2007 2006
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
OPERATING
Net loss (673) (2,609) (1,224) (2,712)
Adjustments for items not
affecting cash:
Depletion, depreciation, 104 24 215 52
amortization and accretion
Stock-based compensation 64 2,250 304 2,250
Future income taxes recognized on - (308) - (308)
acquisition of Caza Petroleum
Future income tax expense (303) 92 (408) 92
(recovery)
Changes in non-cash working (435) 197 2,376 1,129
capital (Note 7(b))
Cash flow from (used in) operating (1,243) (354) 1,263 503
activities
FINANCING
Distributions - (331) - (351)
Deferred financing costs (1,400) - (1,400) -
Proceeds from issuance of shares, - 16,323 455 16,323
net of issue costs
Increase in notes payable - - - 280
Repayment of notes payable - (397) - (397)
Changes in non-cash working 1,280 - 1,310 -
capital (Note 7(b))
Cash flow from (used in) financing (120) 15,595 365 15,855
activities
INVESTING
Purchase of petroleum and gas (3,622) (1,348) (8,700) (1,937)
properties
Purchase of equipment (108) (3) (480) (4)
Changes in non-cash working 2,224 (906) 3,105 257
capital (Note 7(b))
Cash flow from (used in) investing (1,506) (2,257) (6,075) (1,684)
activities
INCREASE (DECREASE) IN CASH AND (2,869) 12,984 (4,447) 14,674
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, 12,119 1,892 13,697 202
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF 9,250 14,876 9,250 14,876
PERIOD (Note 7(d))
Supplementary information (Note 7)
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
(All Amounts In Thousands of United States dollars)
For the Three and Nine Months Ended September 30, 2007
(Unaudited)
1. BASIS OF PRESENTATION
Caza Oil & Gas, Inc. ("Caza" or the "Corporation") is a private Corporation,
incorporated under the laws of British Columbia on June 9, 2006 for the purposes
of acquiring shares of Caza Petroleum, Inc. ("Caza Petroleum"). The Corporation
and its subsidiaries are engaged in the exploration for and the development,
production and acquisition of, petroleum and natural gas reserves in the United
States. Caza owns 63.7% of the outstanding common shares of Caza Petroleum. The
remaining interest in Caza Petroleum is held by senior management of Caza and
may be exchanged for Common Shares pursuant to a Share Exchange and Shareholders
Agreement (Note 5).
The interim unaudited consolidated financial statements of Caza have been
prepared by management, in accordance with Canadian generally accepted
accounting principles. The preparation of financial statements in conformity
with Canadian generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the interim
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates. The consolidated financial statements are expressed
in United States of America ("US") dollars as this is the functional currency of
Caza and its subsidiaries. The interim consolidated financial statements have,
in management's opinion, been properly prepared using careful judgment with
reasonable limits of materiality. These interim consolidated financial
statements do not include all the note disclosures required for annual
consolidated financial statements and therefore they should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 2006. The interim consolidated financial statements have been
prepared following the same significant accounting policies as the most recently
reported audited consolidated financial statements of Caza.
2. NEW ACCOUNTING POLICIES
Effective January 1, 2007, the Corporation adopted the Canadian Institute of
Chartered Accountants ("CICA") Section 1530, "Comprehensive Income", Section
3855, "Financial Instruments - Recognition and Measurement", Section 3861,
"Financial Instruments - Disclosure and Presentation" and Section 3865,
"Hedges". The Corporation has adopted these standards prospectively and the
comparative interim consolidated financial statements have not been restated.
Upon adoption of Section 3855, all financial instruments are classified into one
of the following five categories: held-for-trading, loans and receivables,
held-to-maturity investments, available-for-sale financial assets or other
financial liabilities. Subsequent measurement of the financial instruments is
based on their initial classification. Held-for-trading financial assets are
measured at fair value and changes in fair value are recognized in net income.
Available-for-sale financial instruments are measured at fair value with changes
in fair value recorded in other comprehensive income until the instrument is
derecognized or impaired. All derivative instruments are recorded in the balance
sheet at fair value unless they qualify for the normal sale and normal purchase
exemption. All changes in their fair value are recorded in net income unless
cash flow hedge accounting is used, in which case changes in fair value are
recorded in other comprehensive income until the underlying hedged transaction
is recognized in net income. Any hedge ineffectiveness is immediately recognized
in net income. The other categories of financial instruments are recognized at
amortized cost using the effective interest rate method.
Upon adoption of these standards, the Corporation classified its cash and cash
equivalents as held-for-trading, which are measured at fair value. Accounts
receivable are classified as loans and receivables, which are amortized at cost.
Accounts payable and notes payable are classified as other financial
liabilities, which are measured at amortized cost.
For financial assets and financial liabilities that are not classified as
held-for-trading, the transaction costs that are directly attributable to the
acquisition or issue of a financial asset or financial liability are adjusted to
the fair value initially recognized for that financial instrument. These costs
are expensed using the effective interest rate method.
The adoption of Section 1530 has no material impact on the consolidated
financial statements of the Corporation.
The Corporation currently does not utilize hedges or other derivative financial
instruments in its operations, and as a result of the adoption of Section 3865
had no material impact on the consolidated financial statements of the
Corporation.
The adoption of these new standards had no impact on the Corporation's opening
retained earnings (deficit) as at January 1, 2007.
The Corporation has also adopted Section 3251, "Equity" and Section 1506,
"Accounting Changes". Section 3251 replaces Section 3250, "Surplus" and
describes standards for the presentation of equity and changes in equity for
reporting periods as a result of the application of Section 1530, "Comprehensive
Income". The only impact of Section 1506, "Accounting Changes", is to provide
disclosure of when an entity has not applied a new source of GAAP that has been
issued but is not yet effective. This is the case with Section 3862, Financial
Instruments Disclosures" and Section 3863, "Financial Instruments Presentations"
which are required to be adopted for fiscal years beginning on or after October
1, 2007. The Corporation will adopt these standards on January 1, 2008 and it is
expected the only effect on the Corporation will be additional disclosures
regarding the significance of financial instruments for the entity's financial
position and performance; and the nature, extent and management of risks
arriving from financial instruments to which the entity is exposed.
The Company has assessed new and revised accounting pronouncements that have
been issued that are not yet effective and determined that the following may
have a significant impact on the Company:
* As of January 1, 2008, Caza will be required to adopt two
new CICA standards, Section 3862 "Financial Instruments - Disclosures" and
Section 3863 "Financial Instruments - Presentation," which will replace Section
3861 "Financial Instruments - Disclosure and Presentation." The new disclosure
standard increases the emphasis on the risks associated with both recognized and
unrecognized financial instruments and how those risks are managed. The new
presentation standard carries forward the former presentation requirements. The
new financial instruments presentation and disclosure requirements were issued
in December 2006 and the Company is assessing the impact on its consolidated
financial statements.
* As of January 1, 2008, Caza will be required to adopt two
new CICA standards, Section 1535 "Capital Disclosures," which will require
companies to disclose their objectives, policies and processes for managing
capital. In addition, disclosures are to include whether companies have complied
with externally imposed capital requirements. The new capital disclosure
requirements were issued in December 2006 and the Company is assessing the
impact on its consolidated financial statements.
* The Corporation will be required to adopt CICA Handbook
Section 3031, Inventories. This new accounting standard is effective for interim
and annual financial statements for fiscal years beginning on or after January
1, 2008. This new standard is not expected to have a material impact on the
Corporation's consolidated financial statements.
* In January 2006, the CICA Accounting Standards Board
("AcSB") adopted a strategic plan for the direction of accounting standards in
Canada. As part of that plan, accounting standards in Canada for public
companies are expected to converge with International Financial Reporting
Standards ("IFRS") by the end of 2011. The Company continues to monitor and
assess the impact of convergence of Canadian GAAP and IFRS.
3. PETROLEUM AND NATURAL GAS PROPERTIES AND EQUIPMENT
September 30, 2007
Cost Accumulated Depletion Net Book
and Depreciation Value
($'000's)
Petroleum and natural gas 17,734 923 16,811
assets
Equipment 582 102 480
18,316 1,025 17,291
December 31, 2006
Cost Accumulated Depletion Net Book
and Depreciation Value
($'000's)
Petroleum and natural gas 8,954 766 8,188
assets
Equipment 102 47 55
9,056 813 8,243
At September 30, 2007 the cost of petroleum and natural gas properties includes
$9,574 (December 31, 2006 - $6,674) relating to unproven properties which have
been excluded from costs subject to depletion and depreciation.
Caza capitalized general and administrative expenses of $1,004 in the nine month
period ended September 30, 2007 (first nine months of 2006 of $26) relating to
exploration and development activities of which $77 related to stock based
compensation. Capitalized general and administrative expense for the three month
periods ending September 30, 2006 and 2007 were $17 and $389, respectively.
4. ASSET RETIREMENT OBLIGATIONS
The following table presents the reconciliation of the beginning and ending
aggregate carrying amount of the obligation associated with the retirement of
oil and gas properties.
As at September 30, December 31,
2007 2006
($'000's)
Beginning balance 56 160
Obligations incurred 4 10
Accretion expense 2 2
Obligations settled - (116)
Ending balance 62 56
The Corporation's asset retirement obligations result from net ownership
interests in petroleum and natural gas properties. The Corporation estimates the
total undiscounted amount of cash flows required to settle its asset retirement
obligation as at September 30, 2007 to be $68 (December 31, 2006 - $62) which
will be incurred between 2008 and 2028. This amount has been discounted using a
credit-adjusted risk free rate of 6.0 percent and an inflation rate of 3.0
percent.
5. SHARE CAPITAL
(a) Authorized:
Unlimited number of voting Common Shares.
(b) Issued:
Common Shares Warrants
Number of Amount Number of Amount
Shares ($'000's) Warrants ($'000's)
Incorporation on June 9, 2006 1 - - -
Redemption of initial share (1) - - -
Founders shares (Note (c)) 5,000,000 243 - -
Initial offering shares (Note 34,420,000 11,659 17,210,000 3,700
(d))
Initial offering broker - - 2,065,200 246
warrants
1st Over-allotment closing 4,610,000 1,576 2,305,000 496
(Note (d))
1st Over-allotment broker - - 276,600 33
warrants
Balance at December 31, 2006 44,030,000 13,478 21,856,800 4,475
2nd Over-allotment closing 970,000 345 485,000 104
(Note (d))
2nd Over-allotment broker - - 58,200 7
warrants
Issued for exchange rights 1,498,000 52 - -
Issued Entitlement shares 3,442,000 - - -
(Note (d), (iv))
Balance September 30, 2007 49,940,000 13,875 22,400,000 4,585
Number of Common Amount
Shares to be
issued ($'000's)
Exchangeable Share Rights (See Note 4 (e))
Issued on the acquisition of Caza 28,000,000 970
Petroleum
Outstanding as of December 31, 2006 28,000,000 970
Rights exercised on March 8, 2007 (1,103,200) (38)
Rights exercised on April 20, 2007 (394,800) (14)
Outstanding as of September 30, 2007 26,502,000 918
(c) Founders Shares:
On August 28, 2006, the Corporation completed a founders Common Share offering
of 5,000,000 shares at a purchase price of US$0.05 per share. A stock-based
compensation expense of $2,250 was recognized on the issuance of the founders
shares.
(d) Initial Placement:
(i) On September 22, 2006, the Corporation completed the
initial closing of its private equity offering of 34,420,000 units at a purchase
price of US$0.50 per unit. Each unit consisted of one Common Share, 1/2 of a
warrant and one entitlement right (see Note 5(d)(iv)). Each full warrant gives
the holder the right to purchase one Common Share at an exercise price of
US$1.00 per Common Share. Share issuance costs of $1,812 have been netted
against this offering. On November 20, 2006, the Corporation completed its first
over-allotment closing of 4,610,000 units. On January 17, 2007 the Corporation
completed its second over-allotment closing of 970,000 units. The initial
closing of the private equity offering and subsequent over-allotment closings
are referred to as the "Initial Placement". The Corporation has allocated
US$0.215 per warrant to the warrants issued in conjunction with the Private
Equity Offering, with the remaining value allocated to the Common Shares.
(ii) Each full warrant is exercisable until the earlier of (i)
three years after the date the Common Shares are listed on the Toronto Stock
Exchange or the TSX Venture Exchange, subject to reduction by the Corporation to
such lesser time period as may be required by the exchange on which the
Corporation's securities are listed and (ii) four years following the closing
date on which the warrants were acquired. Pursuant to the entitlement rights
described below (see Note 5 (d)(iv)), if a liquidity event is not completed
within one year of the closing date, the warrants will entitle the holder to
acquire 1.1 Common Shares.
(iii) In connection with the Initial Placement, the Corporation
issued 2,400,000 warrants (the "Broker Warrants") to the agents as partial
consideration for their services rendered in connection with the Initial
Placement. Each Broker Warrant entitles the holder to purchase one Common Share
at a price of US$0.50 until March 22, 2008 in the case of 334,800 warrants and
March 31, 2008 for the balance of the warrants. The Corporation ascribed
US$0.119 per warrant to each of the Broker Warrants. No Broker Warrants have
been exercised at December 31, 2006 or June 30, 2007.
The fair value of each warrant and Broker Warrant was determined using the
assumptions set out below:
Broker
Warrants Warrants
Exercise price US$1.00 US$0.50
Risk-free interest 4.75% 4.75%
rate
Expected maturity 3.0 1.5
(years)
Expected volatility 88.16% 88.16%
Dividend yield 0% 0%
(iv) As part of the Initial Placement, the Corporation issued to the purchaser's
liquidity entitlements, which provided purchasers under the September 22, 2006
closing, the right to receive for no additional consideration an aggregate of
3,442,000 Common Shares if as the "liquidity event" did not occur by September
22, 2007. Purchasers under the November 20, 2006 and January 17, 2007 closings
have the right to receive an aggregate of 558,000 Common Shares if a "liquidity
event" does not occur by November 20, 2007, see (Note 9(a)). The entitlement is
based on the receipt of 0.10 of a Common Share for each Common Share purchased
in the Initial Placement. Additionally, a comparable adjustment would be made to
the exercise of the warrants those purchasers received in the Initial Placement.
A "liquidity event" is either (i) the completion of an initial public offering
and listing of the Common Shares on the TSX or the TSX Venture Exchange or (ii)
a reverse take over transaction which involves the exchange of the Common Shares
for common shares of a company that is listed on the TSX or TSX Venture
Exchange.
(e) Acquisition of Caza Petroleum:
Share Exchange and Shareholders Agreement
Prior to the consummation of the Initial Placement the Corporation became a
party to a Share Exchange and Shareholders Agreement with Caza Petroleum and the
management of Caza Petroleum and their respective spouses. Under the agreement
management are not permitted to transfer their shares of Caza Petroleum (other
than among themselves and family members), except to the Corporation under
certain conditions. Management has the right at any time to exchange their Caza
Petroleum shares for Common Shares of the Corporation on the basis of 2,800
Common Shares for each Caza Petroleum share. In addition, the Corporation has
the right to cause each manager to exchange his Caza Petroleum shares for common
shares in certain circumstances, including a change of control, liquidation,
sale of substantially all of the assets, or bankruptcy of the Corporation, or
the divorce, death or incapacity of the manager or a breach of the agreement.
(f) The following table presents the changes in contributed surplus.
September 30, December 31,
2007 2006
Balance, beginning of 2,250 -
period
Stock-based 381 2,250
compensation
Balance, end of period 2,631 2,250
6. STOCK-BASED COMPENSATION
The Corporation granted stock options to its directors, officers and employees
under the stock option plan dated January 31, 2007. The Corporation has
authorized for issuance options in respect of 7,000,000 Common Shares. As at
September 30, 2007, the remaining options available for issuance are 3,035,000.
The exercise price of each option is no less than the fair market value of the
Corporation's Common Shares on the date of grant. Except as otherwise determined
by the Board and subject to the limitation that the stock options may not be
exercised later than the expiry date provided in the relevant option agreement
but in no event later than 10 years (or such shorter period required by an
exchange) from their date of grant. Subject to the Board's sole discretion in
modifying the vesting of stock options, stock options granted shall vest, and
become exercisable, as to 33 1/3% on the first anniversary date and 33 1/3% on
each subsequent anniversary of that date. All options granted to a participant
but not yet vested shall vest immediately upon a change of control (as defined
in the Stock Option Plan) or upon the Corporation's termination of a
participant's employment without cause.
A summary of the changes during the nine months ended September 30, 2007 is
presented below:
Number Weighted
Average
Price (US$)
Outstanding December 31, 2006
Granted 3,965,000 0.50
Outstanding September 30, 2007 3,965,000 0.50
Date of Number Date of Weighted Weighted Number
Grant outstanding Expiry Average Life Average Exercisable
at Remaining Exercise at September
September Contractual Price (US$) 30, 2007
30, 2007 Life
January 3,325,000 January 31, 9.33 Years 0.50 1,108,333
31, 2007 2017
February 400,000 February 5, 9.34 Years 0.50 -
5, 2007 2017
May 10, 220,000 May 10, 2017 9.60 Years 0.50 -
2007
June 11, 20,000 June 11, 2017 9.69 Years 0.50 -
2007
3,965,000 9.35 Years 0.50 1,108,333
The weighted-average remaining contractual life of the options with an exercise
price of US$0.50 per option granted during the first nine months of 2007, as at
September 30, 2007 was 9.3 years. The fair value of the stock options is
estimated using the Black-Scholes option-pricing model that takes into account,
the assumptions listed below. For the nine months ended September 30, 2007 the
Corporation recorded stock-based compensation expense of $381 in connection with
issuance of stock options to directors, officers and employees of which $304 is
included in G&A and $77 was capitalized in PP&E. The fair value of the stock
options granted is US$0.293 per option.
Assumptions
Exercise price US$0.50
Risk-free interest 4.75%
rate
Expected maturity 10
(years)
Expected volatility 88.16%
Dividend yield 0%
7. Supplementary Information
(a) per share information
The following table summarizes the Common Shares used in the per share
calculations.
Nine Months ended Three Months ended
Sept. 30, Sept. 30 Sept 30 Sept 30
2007
2006 2007 2006
Weighted average shares outstanding
Basic 73,056,623 67,420,000 73,336,717 67,420,000
Diluted 73,056,623 67,420,000 73,336,717 67,420,000
(b) net change in non-cash working capital
Nine months ended Three Months ended
Sept 30, Sept 30, Sept 30, Sept 30,
2007 2006 2007 2006
($'000's)
Provided by (used in)
Accounts receivable (2,031) (222) 200 (1,015)
Prepaids and other 30 (20) 127
Accounts payable and 8,792 1,628 2,742 306
accrued liabilities
6,791 1,386 3,069 (709)
Summary of changes
Operating 2,376 1,129 (435) 197
Financing 1,310 - 1,280 -
Investing 3,105 257 2,224 (906)
6,791 1,386 3,069 (709)
(c) supplementary cash flow information
Nine Months ended Three Months ended
($'000's) Sept. 30, Sept. 30 Sept 30 Sept 30
2007
2006 2007 2006
Interest paid 33 28 33 10
Interest received 393 10 113 10
Cash taxes paid - - - -
(d) cash and cash equivalents
Nine Months ended
Sept. 30, Sept 30, 2006 year end December
2007 31,
($'000's) 2006
Cash on deposit 1,755 106 195
Money market instruments 7,495 14,770 13,502
Cash and cash equivalents 9,250 14,876 13,697
The money market instruments bear interest at a rate of 5.29% as at September
30, 2007 (December 31, 2006 - 5.19%)
8. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The nature of oil and gas operations exposes the Corporation to fluctuations in
commodity prices and foreign currency exchange rates. The Corporation may use
derivative instruments to manage these risks.
Credit Risk
A substantial portion of the Corporation's accounts receivable are with
customers and joint-venture participants in the oil and natural gas industry and
are subject to normal industry credit risks. The carrying amount of accounts
receivable reflects management's assessment of the credit risk associated with
theses customers and participants. The Corporations accounts receivable trade
balance is comprised primarily of joint interest receivables derived from
outside joint venture partners participating in the Corporations drilling
activities. The Corporation's oil and natural gas production is sold to large
marketing companies. Typically, the Corporation's maximum credit exposure to
customers is revenue from two months sales. During the three and nine month
period ended September 30, 2007, the Corporation sold a significant amount of
its crude oil and natural gas production to a single purchaser. This purchaser
accounted for 95% of the production for the three month and nine month periods
ended September 30, 2007. For the three and nine month periods ended September
30, 2006 this purchaser acquired 82% and 74% respectively of our production.
These sales were conducted on transaction terms that are typical for the sale of
crude oil and natural gas in the US.
Foreign Currency Exchange Risk
The Corporation is exposed to foreign currency exchange fluctuations, as certain
general and administrative expenses and financing costs are or will be
denominated in Canadian dollars and United Kingdom pounds sterling. The
Corporations' sales of oil and natural gas are all transacted in US dollars.
Fair Value of Financial Instruments
The Corporation has determined that the fair value of the financial instruments
consisting of cash and cash equivalents, accounts receivable and accounts
payable is not materially different from the carrying value of such instruments
reported on the balance sheet due to their short-term nature.
9. SUBSEQUENT EVENTS
(a) On November 20, 2007, the liquidity entitlements issued
to purchasers in the November 20, 2006 closing of the Initial Placement and the
purchaser of the final closing of the Initial Placement on January 17 2007
became effective. On November 20, 2007, the Corporation issued 558,000
additional Common Shares to those purchasers and adjusted the warrants held by
those purchasers to have the right to receive 1.1 Common Shares in lieu of each
Common Share that they were previously entitled to receive upon exercise of the
warrants.
(b) On October 9 2007, the Corporation amended its stock
option plan to convert to a 10% rolling plan.
(c) Under the terms of an agency agreement dated November
28, 2007, the Corporation agreed to issue a minimum of 18,750,000 Common Shares
and a maximum of 25,000,000 Common Shares. Upon closing, the maximum net
proceeds of this issue are estimated to be $16,613, net of the estimated issue
expenses and agents' fees in the aggregate of approximately $2,224 of which
$1,400 was recorded at September 30, 2007. In connection with the terms of this
agency agreement and an admission agreement involving one of the agents, the
Company has agreed to grant compensation options entitling the agents to acquire
from the Corporation at the offering price, a number of Common Shares equal to
an aggregate of 5% of the number of Common Shares sold by the Corporation under
this offering for a period of 24 months after the Common Shares are listed on
the Toronto Stock Exchange or AIM, a market operated by the London Stock
Exchange, plc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis ("MD&A") should be read in
conjunction with the unaudited interim consolidated financial statements and
accompanying notes for the three and nine month periods ended September 30, 2007
and the audited consolidated financial statements and the accompanying notes for
the year ended December 31, 2006. The financial statements and the financial
data included in the MD&A have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") and the amounts reported in
this MD&A are in thousands (US$000's) of US dollars, unless otherwise noted.
This MD&A is dated December 7, 2007.
Caza Oil & Gas, Inc. ("Caza") owns 63.7% of the outstanding common shares of
Caza Petroleum, Inc. ("Caza Petroleum"). The remaining interest in Caza
Petroleum is held by the management team and may be exchanged for Common Shares
pursuant to the share exchange agreement dated September 22, 2006 (the "Share
Exchange Agreement") between the management of Caza Petroleum and Caza. Caza
Petroleum amalgamated with Falcon Bay Energy ("Falcon Bay") on September 14,
2006. As Caza, Caza Petroleum and Falcon Bay (collectively, the "Corporation")
were under common control, the Corporation's consolidated financial statements
are presented on a continuity-of-interest basis of accounting and represent the
activities of Caza from September 14, 2006 to September 30, 2007 and Falcon Bay
prior to that date.
The information herein contains forward-looking information relating to the
Corporation's plans and other aspects of the Corporation's anticipated future
operations, strategies, financial and operating results and business
opportunities. Forward??looking information is typically contained in statements
using words such as "anticipate", "believe", "project", "expect", "plan",
"intend" or similar words suggesting future outcomes, statements that actions,
events or conditions "may", "would", "could" or "will" be taken or occur in the
future, or statements regarding the outlook for petroleum prices, estimated
amounts and timing of capital expenditures, anticipated results of construction
projects, estimates of future production, operating costs or other expectations,
beliefs, plans, objectives, assumptions or statements about future events or
performance. Statements concerning reserves are also forward-looking
statements, as they reflect estimates as to the expectation that the deposits
can be economically exploited in the future.
Forward-looking information is based on certain facts and assumptions
including, without limitation, with respect to expected growth, results of
operations, business prospects and opportunities, oil and natural gas prices,
reserves estimates, estimates of quantities of hydrocarbons recoverable from the
Corporation's properties, the ability of the Corporation to replace and expand
reserves, the cost and availability of drilling and other oilfield services and
the ability to access external sources of debt and equity capital in order to
make capital investments, fund acquisitions or further the Corporation's
exploration and development program. While the Board of Directors, having made
due and careful enquiry, believe such assumptions are accurate and the
Corporation and the Board of Directors, consider the assumptions to be
reasonable based on information currently available to them, these assumptions
may prove to be incorrect.
By its nature, forward-looking information involves numerous assumptions, risks
and uncertainties and other factors that contribute to the possibility that the
predicted outcome will not occur. Among the factors that could cause actual
events or results to differ materially from those reflected in the forward-
looking information in this MD&A include those identified under the heading
"Risk Factors" in the final long prospectus of Caza dated November 28, 2007.
Readers should be aware that the list of risks set forth hereunder and there
under is not exhaustive.
Except as required by applicable securities laws, Caza undertakes no obligation
to update or revise any forward-looking information.
Per barrel of oil equivalent ("boe") amounts have been calculated using a
conversion rate of six thousand cubic feet of natural gas to one barrel of oil.
BOE's may be misleading, particularly if used in isolation. The boe conversion
ratio used is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.
Non-GAAP Measures
"Netbacks" and "Funds flow from operations" are used in the following MD&A, but
do not have any standardized meaning under GAAP and are unlikely to be
comparable to similarly defined measures presented by other issuers. For these
purposes, Caza defines netbacks as revenue less royalty and production costs.
Funds flow from operations includes all cash from operating activities and is
calculated before changes in non-cash working capital. The most comparable
measure calculated in accordance with GAAP would be cash flow from operating
activities. Funds flow from operations is reconciled with cash flow from
operating activities in this MD&A. Management uses these non-GAAP measurements
for its own performance measures and to provide its shareholders and investors
with a measurement of the Corporation's efficiency and its ability to fund a
portion of its future growth expenditures.
The above terms should not, on their own, be construed as indicators of the
Corporation's performance or as a measure of liquidity and should only be used
in conjunction with the financial statements to which they relate.
The Corporation calculates funds flow from operations as follows:
($'000's) Nine months ended Three months ended
Sept 30, Sept 30, Sept 30, Sept 30,
2007 2006 2007 2006
Cash flow from (used in) operating 1,263 503 (1,243) (354)
activities
Adjustment for items not affecting 2,376 1,129 (435) 197
cash
Changes in non-cash working
capital
Funds flow from (used in) (1,113) (626) (808) (551)
operations
Comparison of Results of Operations for the three and nine month periods ended
September 30, 2007 and 2006.
Petroleum and natural gas revenues increased to $780 and $273 for the nine and
three month periods ended September 30, 2007 from $269 and $110 for the nine and
three month periods ended September 30, 2006. The Corporation produced 109.6
MMcf of gas and 725 bbls of condensate during the nine month period ended
September 30, 2007 and for the three month period ended September 30, 2007 the
Corporation produced 43.3MMcf of gas and 286 bbls of condensate. This represents
an average production rate for the nine month period ended September 30, 2007 of
418 Mcfe/d compared to an average production rate during the nine month period
ended September 30, 2006 of 171 Mcfe/d. The average natural gas price received
by Caza increased to $6.68 per Mcf from $5.75 per Mcf during the first nine
months of the prior year, an increase of 16.0%. The average price received for
the Corporation's condensate production during the period was $64.86 per barrel.
The Corporation did not produce any condensates in the respective 2006 periods.
Caza has not hedged any of its production and does not have any commodity price
management programs in place.
Other income, which is comprised primarily of consulting fees received from
third party oil and gas companies decreased to $nil in the first nine months of
2007 from $239 during the same period of 2006.
Interest income increased to $393 from $10 during the same period last year,
primarily as a result of interest earned on the proceeds from the Corporation's
Initial Private Placement ("Initial Placement") which was completed in the last
half of 2006 and in early 2007. The Corporation invested the proceeds from these
financings in short-term money market funds.
Severance taxes were $64 during the nine month period ended September 30, 2007
an increase from the $36 incurred during the nine month period ended September
30, 2006. The increases in the Corporation's production during the nine months
of 2007 and in the price of natural gas received by the Corporation were largely
responsible for the increase.
Production expenses for the nine month period ended September 30, 2007 were $206
compared to $70 for the same period in 2006. The Corporation's average lifting
cost for the three and nine month periods ended September 30, 2007 was $3.00 and
$1.81 per Mcfe, respectively. The Corporation's average lifting costs for the
three and nine month periods ended September 30, 2006 was $0.54 and $1.49 per
Mcfe, respectively. The overall increase in lease operating expenses per Mcfe
resulted from four of the Corporation's wells decreasing in production while the
lease operating expenses remain relatively fixed. On a per Mcfe basis, lease
operating expenses increased by 17.7% as a result of this decrease in
production. The Corporation's production expenses in 2006 and 2007 were also
affected by higher costs in the Aldwell Ranch area.
General and administrative expenses for the three month period ended September
30, 2007 were $1,073 and for the nine month period ended September 30, 2007 were
$2,287. For the nine month period ended September 30, 2006 general and
administrative expenses were $3,256 of which $2,250 were stock based
compensation expense incurred in 2006. General and administrative expenses for
the three months ended September 30, 2006 were $768 excluding stock based
compensation expense of $2,250. Stock-based compensation expenses in the amount
of $64 and $304 are included in general and administrative expenses for the
respective three and nine month periods ended September 30, 2007. Increased
salaries and wages, travel, administration, consulting and other expenses were
largely responsible for the increase in total general and administrative
expenses as a result of company growth and the initial public offering
activities. During the period ended September 30, 2007 the Corporation
capitalized general and administrative expenses relating to exploration and
development activities of $1,004 (first nine months of 2006 of $26) of which $77
related to capitalized stock-based compensation. The Corporation issued
3,965,000 stock options to directors, officers and employees at an exercise
price of $0.50 per share during the first nine months of 2007. These were the
first grants of options made under the Corporation's option plan. The future
stock option expense will be dependent on the number of new options granted,
volatility of the share price and the vesting provisions thereof.
Depletion, depreciation, amortization and accretion expense for the first nine
months of 2007 increased to $215 from $52 in the prior period. For the three
month period ended September 30, 2007 the depletion, depreciation and
amortization expense was $104 and $24 in the prior period. The drilling costs
associated with, and production from, three new wells in Texas were the reasons
for the increase.
During the nine month period ended September 30, 2007 the Corporation incurred
interest expense of $33, an increase of $5 from the $28 incurred during the
first nine months of 2006. The Corporation eliminated the balance of the debt
during the last quarter of 2006. The Corporation incurred interest expense
relating to the payment of suspended royalty payments made to the state of
Louisiana during the third quarter of 2007. This interest expense was incurred
because of the royalty in one of the Corporation's wells within the state of
Louisiana was suspended until the royalty owners, including the state of
Louisiana, could agree upon the allocation of their respective royalty
percentage.
The Corporation accrued a future tax recovery of $(408) for the nine month
period ended September 30, 2007. The Corporation did not pay cash taxes during
the nine months of 2007.
The Corporation's net loss for the first nine months of 2007 was $1,224 as
compared to net loss of $2,712 during the first nine months of 2006 which
includes the $2,250 stock based compensation expense in the third quarter of
2006. For the three month period ended September 30, 2007 the Corporation's net
loss was $673 as compared to $2,609 for the same period in 2006.
Liquidity and Capital Resources
At September 30, 2007, Caza had a working capital surplus of $566. This was a
decline from the December 31, 2006 working capital of $11,804. The Corporation
had a cash balance of $9,250 and has no bank credit facilities in place. The
major components of Caza's working capital are cash and cash equivalents,
accounts receivable and accounts payable. As at September 30, 2007 the
Corporation's accounts receivable and joint venture receivable were $308 and
$3,878 and their accounts payable and joint venture payable were $5,299 and
$7,664 respectively. As at December 31, 2006 the Corporation's accounts
receivable and joint venture receivable were $203 and $1,952 and their accounts
payable and joint venture payable were $901 and $3,270 respectively.
The decline in working capital is the result of the Corporation's capital
expenditure program during the first nine months of 2007 and the corresponding
decline in cash and cash equivalents and the increase in accounts receivable and
accounts payable. Under the terms of an agency agreement dated November 28,
2007, the Corporation agreed to issue a minimum of 18,750,000 Common Shares and
a maximum of 25,000,000 Common Shares. Upon closing, the maximum net proceeds of
this issue are estimated to be $16,613, net of the estimated issue expenses and
agents' fees in the aggregate amounting to approximately $2,224 of which $1,400
was incurred as at September 30, 2007. In connection with the terms of this
agency agreement and an admission agreement involving one of the agents, the
Company has agreed to grant broker warrants entitling the agents to acquire from
the Corporation at the offering price an aggregate of 700,000 Common Shares for
a period of 24 months after the Common Shares are listed on the Toronto Stock
Exchange or AIM, a market operated by the London Stock Exchange, plc. The net
proceeds from the Initial Public Offering ("Offering") will be used for
exploration and development drilling, for general and administrative expenses
and to provide working capital for the operations of the Corporation.
Contractual Obligations Payments due by Period
US$000's Less 1 - 3 4 - 5 Thereafter Total
than 1 Years Years
year
Operating leases 240 216 - - 456
Asset retirement obligations 48 - 39 87
240 264 - 39 543
Note:
The Corporation has commitments with respect to the lease on its offices located
in Houston and Midland, Texas and a corporate apartment located in Houston.
Contractual obligations can be financial or non-financial. Financial obligations
are known future cash payments that the Corporation must make under existing
contracts such as lease arrangements. Commercial commitments are contingent
obligations that become payable if certain pre-defined events occur. The
Corporation has $87 of undiscounted asset retirement obligations after
inflation. As of September 30, 2007, the discounted value ($62) of these
estimated obligations have been provided for in our consolidated interim
financial statements. The timing of any payments is difficult to determine with
certainty, and the table has been prepared using our best estimates.
On August 31, 2004, the Corporation entered into a financing arrangement with a
third party for the purposes of financing drilling on the Aldwell Ranch project.
During 2004, 2005 and 2006 the Corporation received a total $2,565 under this
agreement. These funds are repayable out of the production from three wells on
the Aldwell Ranch project at a rate of 47.281% of 100% of the gross revenues
from the wells until repayment of the loan amount and 40.787% of 100% of the
gross revenues thereafter. The repayment obligation ceases upon ninety percent
(90%) of the then current estimated recoverable reserves being produced.
Financial instruments held by Caza include cash and cash equivalents which
included an interest bearing money market account, accounts receivable and
accounts payable.
The Corporation's prospects are dependent upon the investment of capital into
its development and exploration projects. Caza anticipates through a combination
of funds raised from the initial public offering, its existing cash balances and
internally generated cash flow, that it will have adequate liquidity to fund
future capital expenditures during 2007 and 2008 and pursue new opportunities
that are consistent with its business plan.
At September 30, 2007, Caza had 49,940,000 Common Shares outstanding. During the
first half of 2007 the Corporation completed a financing, issuing 970,000 Common
Shares, 485,000 warrants and liquidity entitlements (entitling the holders
thereof to acquire 97,000 Common Shares in certain situations) for net proceeds
of $455. The shares were issued as a result of the exercise of the
over-allotment option granted to the agents retained in connection with the
Initial Placement completed during the second half of 2006. The Corporation also
issued 1,498,000 Common Shares in exchange for common shares of Caza Petroleum.
The remaining shares of Caza Petroleum held by the management team are
exchangeable for 26,502,000 Common Shares pursuant to the Share Exchange
Agreement.
On September 22, 2007, the Corporation issued 3,442,000 Common Shares to
subscribers of the Corporation's Initial Placement under their entitlement
rights. These entitlement rights resulted in each subscriber receiving an
additional 0.1 Common Shares for each Common Share initially purchased. The
total number of shares outstanding after the issuance of these shares is
49,940,000, as at September 30, 2007. On November 20, 2007, the Corporation
issued 558,000 additional Common Shares to those purchasers and adjusted the
warrants held by those purchasers to have the right to receive 1.1 Common Shares
in lieu of each Common Share that they were previously entitled to receive upon
exercise of the warrants.
As of the date of this MD&A, the Corporation has 50,498,000 shares outstanding.
Funds Flow from Operating Activities
9 months 9 months 3 months 3 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
(in $000's)
Net income (loss) (1,224) (2,712) (673) (2,609)
Funds flow used in (1,113) (626) (808) (551)
operations (1)
Notes:
Funds flow from operating activities is before changes in non-cash working
capital. See "Non-GAAP Measures" discussion above.
The Corporation's net loss was $1,224 for the first nine months of 2007,
compared to a net loss of $2,712 incurred in the first nine months of 2006.
Caza's net loss is reflective of the Corporation's early stage of development.
The Corporation has focused on increasing the number of employees over the last
18 months and developing a large group of prospective drilling opportunities.
The Corporation's current level of production from its existing wells is small.
To the extent the Corporation's general and administrative and other expenses
are in excess of cash flow from operations, Caza will finance these expenses and
future capital expenditures from its existing cash balances and from future
equity offerings. The Corporation's cash flow from operations was reduced during
the first nine months of the year primarily due to the increased general and
administrative expenses.
Investing Activities
9 months 9 months 3 months 3 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
(in $000's)
Purchase of petroleum 8,700 1,937 3,622 1,348
and natural gas
properties
Purchase of equipment 480 4 108 3
The Corporation's expenditures for petroleum and natural gas properties
increased to $8,700 for the nine months ended September 30, 2007 ($1,937 for the
first nine months of 2006). The Corporation participated in the drilling of five
gross (1.1 net) to date in 2007. Our drilling program was financed with the
proceeds from the initial placements made in 2006 and first half of 2007.
Relatively small expenditures were made to acquire other equipment, which
represents additional office equipment and leasehold improvements required in
connection with the Corporation's increased staffing levels.
Financing Activities
9 months 9 months 3 months 3 months
ended ended ended ended
September September 30, September September
30, 2007 2006 30, 2007 30, 2006
(in $000's)
Distributions - (351) - (331)
Deferred finance costs 1,400 - 1,400 -
Proceeds from share 455 - - -
issuances, net
Increase in notes - 280 - -
payable
Principal payments on - (397) - (397)
notes payable
The Corporation did not make any distributions in the first nine months of 2007.
The distributions made in 2006 represent distributions made by Falcon Bay prior
to its amalgamation with Caza Petroleum.
During the first nine months of 2007 the Corporation completed a financing,
issuing 970,000 Common Shares for net proceeds of $455. The shares were issued
as part of the over-allotment option granted to the agents of the private
placement completed during the second half of 2006. The Corporation also issued
1,103,200 Common Shares in March and 394,800 Common Shares in April pursuant to
the Share Exchange Agreement.
New Accounting Standards
Effective January 1, 2007, the Corporation adopted the Canadian Institute of
Chartered Accountants ("CICA") Section 1530, "Comprehensive Income", Section
3855, "Financial Instruments - Recognition and Measurement", Section 3861,
"Financial Instruments - Disclosure and Presentation" and Section 3865,
"Hedges". The Corporation has adopted these standards prospectively and the
comparative interim consolidated financial statements have not been restated.
Upon adoption of Section 3855, all financial instruments are classified into one
of the following five categories: held-for-trading, loans and receivables,
held-to-maturity investments, available-for-sale financial assets or other
financial liabilities. Subsequent measurement of the financial instruments is
based on their initial classification. Held-for-trading financial assets are
measured at fair value and changes in fair value are recognized in net income.
Available-for-sale financial instruments are measured at fair value with changes
in fair value recorded in other comprehensive income until the instrument is
derecognized or impaired. All derivative instruments are recorded in the balance
sheet at fair value unless they qualify for the normal sale and normal purchase
exemption. All changes in their fair value are recorded in net income unless
cash flow hedge accounting is used, in which case changes in fair value are
recorded in other comprehensive income until the underlying hedged transaction
is recognized in net income. Any hedge ineffectiveness is immediately recognized
in net income. The other categories of financial instruments are recognized at
amortized cost using the effective interest rate method.
Upon adoption of these standards, the Corporation classified its cash and cash
equivalents as held-for-trading, which are measured at fair value. Accounts
receivable are classified as loans and receivables, which are amortized at cost.
Accounts payable and notes payable are classified as other financial
liabilities, which are measured at amortized cost.
For financial assets and financial liabilities that are not classified as
held-for-trading, the transaction costs that are directly attributable to the
acquisition or issue of a financial asset or financial liability are adjusted to
the fair value initially recognized for that financial instrument. These costs
are expensed using the effective interest rate method.
The adoption of Section 1530 has no material impact on the consolidated
financial statements of the Corporation.
The Corporation currently does not utilize hedges or other derivative financial
instruments in its operations, and as a result of the adoption of Section 3865
had no material impact on the consolidated financial statements of the
Corporation.
The adoption of these new standards had no impact on the Corporation's opening
retained earnings (deficit) as at January 1, 2007.
The Corporation has also adopted Section 3251, "Equity" and Section 1506,
"Accounting Changes". Section 3251 replaces Section 3250, "Surplus" and
describes standards for the presentation of equity and changes in equity for
reporting periods as a result of the application of Section 1530, "Comprehensive
Income". The only impact of Section 1506, "Accounting Changes", is to provide
disclosure of when an entity has not applied a new source of GAAP that has been
issued but is not yet effective. This is the case with Section 3862, "Financial
Instruments Disclosures" and Section 3863, "Financial Instruments Presentations"
which are required to be adopted for fiscal years beginning on or after October
1, 2007. The Corporation will adopt these standards on January 1, 2008 and it is
expected the only effect on the Corporation will be additional disclosures
regarding the significance of financial instruments for the entity's financial
position and performance; and the nature, extent and management of risks
arriving from financial instruments to which the entity is exposed.
The Company has assessed new and revised accounting pronouncements that have
been issued that are not yet effective and determined that the following may
have a significant impact on the Company:
* As of January 1, 2008, Caza will be required to adopt two new CICA
standards, Section 3862 "Financial Instruments - Disclosures" and Section
3863 "Financial Instruments - Presentation," which will replace Section 3861
"Financial Instruments - Disclosure and Presentation." The new disclosure
standard increases the emphasis on the risks associated with both recognized
and unrecognized financial instruments and how those risks are managed. The
new presentation standard carries forward the former presentation
requirements. The new financial instruments presentation and disclosure
requirements were issued in December 2006 and the Company is assessing the
impact on its consolidated financial statements.
* As of January 1, 2008, Caza will be required to adopt two new CICA
standards, Section 1535 "Capital Disclosures," which will require companies
to disclose their objectives, policies and processes for managing capital.
In addition, disclosures are to include whether companies have complied with
externally imposed capital requirements. The new capital disclosure
requirements were issued in December 2006 and the Company is assessing the
impact on its consolidated financial statements.
* The Corporation will be required to adopt CICA Handbook Section 3031,
Inventories. This new accounting standard is effective for interim and
annual financial statements for fiscal years beginning on or after January
1, 2008. This new standard is not expected to have a material impact on the
Corporation's consolidated financial statements
* In January 2006, the CICA Accounting Standards Board ("AcSB") adopted a
strategic plan for the direction of accounting standards in Canada. As part
of that plan, accounting standards in Canada for public companies are
expected to converge with International Financial Reporting Standards
("IFRS") by the end of 2011. The Company continues to monitor and assess the
impact of convergence of Canadian GAAP and IFRS.
Critical Accounting Policies and Estimates
The Corporation's financial statements are prepared in accordance with GAAP,
which require management to make judgments, estimates and assumptions which may
have a significant impact on the financial statements. A summary of the
Corporation's significant accounting policies found in Note 2 to the
Corporation's financial statements. The following is a discussion of those
accounting policies and estimates that are considered critical in the
determination of the Corporation's financial results.
Capital Assets - Full Cost Accounting
The Corporation follows the full cost method of accounting as described in Note
2 to the financial statements. Alternatively, the Corporation could follow the
successful efforts method of accounting whereby all costs related to
non-productive wells are expensed in the period in which they are incurred.
Under the full cost method of accounting, capitalized costs are subject to a
country-by-country cost center impairment test. Under successful efforts method
of accounting, the costs are aggregated on a property-by-property basis and the
carrying value of each property is subject to an impairment test. These policies
may result in a different carrying value for capital assets and net income. The
Corporation has elected to follow the full cost method and it is the method most
commonly followed.
Under full cost accounting, a limit is placed on the carrying value of the net
capitalized costs in each cost center in order to test impairment. Impairment
exists when the carrying value of developed properties of a cost center exceeds
the estimated undiscounted future net cash flows associated with the cost
center's proved reserves. Costs relating to undeveloped properties are subject
to individual impairment assessments until it can be determined whether proved
reserves exist. If impairment is determined to exist, the costs carried on the
balance sheet in excess of the discounted future net cash flows associated with
the cost center's proved plus probable reserves are charged to income.
Reserve estimates
Reserve estimates can have a significant impact on net income and the carrying
value of capital assets. The process of estimating reserves requires significant
judgment based on available geological, geophysical, engineering, and economic
data, projected rates of production, estimated commodity price forecasts and the
timing of future expenditures, all of which are subject to interpretation and
uncertainty. Reserve estimates impact net income through depletion expense and
the application of impairment tests. Revisions or changes in reserve estimates
can have either a positive or a negative impact on net income and can impact the
carrying amount of capital assets.
Potential lenders may also use reserve estimates to assess the allowable
borrowing base under a secured credit facility. Changes to the reserve estimates
can result in borrowing base increases or decrease, which could impact the
Corporation's financial position.
Asset Retirement Obligations
The Corporation recognizes the estimated fair value of future retirement
obligations associated with capital assets as a liability. The Corporation
estimates the liability based on the estimated cost to abandon and reclaim its
net ownership in tangible long-lived assets such as wells and the estimated
timing of the costs to be incurred in future periods. Actual payments to settle
the obligations may differ from estimated amounts.
Income taxes
The amounts recorded as future income tax assets and liabilities and the
utilization of future tax assets subject to an expiry date are based on
estimates of future cash flows and profitability. By their nature, these
estimates are subject to measurement uncertainty and the effect on the
consolidated financial statements of changes of estimates in future periods
could be significant.
Stock based Compensation
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. This model is used to value the stock options granted. In
addition, option pricing models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
Internal Controls over Financial Reporting
Internal controls over financial reporting are designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the financial statements for external purposes in accordance with GAAP.
During the third quarter of 2007 there were no changes in the Corporation's
internal controls over financial reporting that materially affected, or are
reasonably likely to materially affect, the Corporation's internal controls over
financial reporting.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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