RNS Number:1118R
Caza Oil & Gas, Inc.
31 March 2008
NEWS RELEASE TRANSMITTED BY MARKETWIRE
FOR: CAZA OIL & GAS, INC.
TSX SYMBOL: CAZ
AIM SYMBOL: CAZA
March 31, 2008
Caza Oil & Gas, Inc.: ANNOUNCES RESULTS FOR THE YEAR ENDED DECEMBER 31,2007
HOUSTON, TEXAS--(Marketwire - March 31, 2008) - Caza Oil & Gas, Inc. ("Caza" or
"the Company") (TSX:CAZ)(AIM:CAZA) announces the Company's final results for the
year ended December 31, 2007. Caza has hydrocarbon exploration, development and
production assets in Texas, New Mexico and Louisiana USA.
Highlights of the year include:
- Shares admitted to trading on the Toronto Stock Exchange ("TSX") and AIM in
December 2007.
- Fundraising of approximately US. $ 11.4 million net in initial public
offering.
- Matthys McMillan #1 well discovered gas and is in production.
- Multiple offset development locations identified on Hite Offset Property,
Texas.
- Oil and gas discovered with the E.W. Brown #1 well on the Thunder Stud
Property.
Highlights since the year end include:
- Jonell Cerny Gas Unit #1 Well, successfully drilled and awaiting pipeline
tie-in.
- The Mudslide Slim Federal 15 - #1 well successfully drilled and awaiting
pipeline tie-in.
W. Michael Ford, CEO of Caza, commented:
"Caza is a young, growing company and the results from our exploration
activities have added significantly to our asset base and provided continuing
opportunities to grow our production, cash flow and net asset value.
Caza is planning to embark on a development drilling program on projects in
Wharton County, Texas and Southeast New Mexico as a result of the success of our
drilling activities. In addition exploitation operations are scheduled in the
Wolfberry trend of the Permian Basin along with further exploration activity in
Texas.
Caza continues to actively evaluate investment opportunities in addition to our
on-going effort to identify opportunities on our existing assets."
Copies of the Company's financial statements for the year ended December 31,
2007 and the management's discussion and the Annual Information Form for the
year ended December 31, 2007 are available on SEDAR at www.sedar.com.
President/CEO Statement
I am pleased to report to the shareholders of Caza Oil & Gas, Inc. ("Caza" or
"the Company") significant progress, growth and development during the financial
year ended December 31, 2007.
During the past year the company has achieved many of its immediate goals. These
include admission to the Toronto Stock Exchange and admission to the AIM, a
market operated by London Stock Exchange plc, on December 12, 2007, which was
accompanied by an initial public offering fundraising of approximately US. $11.4
million net. The Company successfully operated and participated in the drilling
of a number of wells, most significant was the Matthys McMillan #1 well in the
Hite Offset Property which is now on production.
We are excited to announce that during 2007 proved + probable reserves increased
by 516% consisting of 17.76 Bcfe at December 31, 2007 as compared to 2.88 Bcfe
for the year ending December 31, 2006. Proved Developed Producing reserves
during the same period increased by 228% consisting of 2.53 Bcf at December 31,
2007 as compared to 0.77 Bcf for the year ending December 31, 2006.
Caza is planning to embark on a development drilling program on projects in
Wharton County, Texas and Southeast New Mexico. In addition exploitation
operations are scheduled in the Wolfberry trend of the Permian Basin along with
further exploration activity in Texas.
For the year ended December 31, 2007, the Company increased revenues from oil
and gas sales by 223% from 2006 to $1.38 million. Caza is reporting a decreased
net loss per share of $0.02 per share (2006 - $0.04 per share).
Principal Properties
The principal properties held by Caza Petroleum, Inc., a subsidiary of Caza, are
located in the following areas:
a) Texas Gulf Coast;
b) South Louisiana;
c) Southeast New Mexico; and
d) Permian Basin of West Texas.
A description of Caza Petroleum's principal properties and prospects in these
areas is set forth below. The description includes disclosure relating to the
reserves or resources attributed to individual project and prospect areas by
Netherland, Sewell and Associates Inc., independent petroleum engineers, in
their report (the "NSAI Report") which evaluates the reserves of Caza Petroleum,
Inc. as at December 31, 2007. The estimates of reserves for individual project
areas may not reflect the same confidence level as estimates of reserves for all
properties, due to the effects of aggregation.
Texas Gulf Coast
General
Caza Petroleum holds interests in approximately 12,100 gross acres (5,298 net
acres) in a total of 13 properties and prospects in the Wilcox, Frio, and Yegua
trends located in Wharton, Webb and Duval counties of Texas.
In the Wilcox trend, Caza Petroleum targets structural closures at depths of
approximately 9,500 feet to 18,000 feet. Caza Petroleum's prospects in the Frio
and Yegua trends are typically amplitude natural gas plays at depths of between
3,500 and 8,500 feet. All of Caza Petroleum's prospects in these properties have
been generated through 3-D Seismic data, advanced reprocessing and attribute
analysis.
The NSAI Report assigned proven, probable and possible net reserves of 50.8 Bcfe
to Caza Petroleum's Texas Gulf Coast properties. The properties are all located
within a few miles of the Matthys McMillan well and are located in areas which
are well served by gathering systems.
Additionally, the Netherland, Sewell Associates Inc. report dated June 30, 2007
has assigned best estimate net prospective resources of 41.4 Bcf to Caza's Las
Animas prospect.
As of December 31, 2007 Caza Petroleum was producing an average of 822 Mcfe/d
net from its 3 gross (0.76 net wells) producing wells in this region.
Caza Petroleum's principal Texas Gulf Coast properties and prospects are
described below.
Hite Offset Property
The Hite Offset property is located in the Wharton West Wilcox Field in the
south central part of Wharton County, Texas. Caza Petroleum has interests in
approximately 1,149 gross acres (225 net acres) and a 19.6% working interest
(14.4% net revenue interest) in this property.
During 2007, Caza Petroleum, as operator, drilled the Matthys McMillan #1 well
to a depth of 17,700 feet. The well was completed in the upper Wilcox formation
and, as of December 31, 2007, was producing 722 mcfe/d net to Caza Petroleum.
Wilcox 116 Property
The Jonell Cerny Gas Unit #1 Well, was drilled to test the Wilcox 116 property
which is located approximately 3 miles to the southwest of and on trend with the
accumulation found by the Matthys McMillan #1 well. In February 2008, Caza
Petroleum entered into two separate farmout agreements with Singular Oil & Gas
Sands, LLC ("Singular") and Sojitz Gulf Exploration, Inc. ("Sojitz") on the
Wilcox 116 Property in South Texas. Singular and Sojitz each acquired a 10.00%
interest on a promoted basis. The transactions combined to reduced Caza
Petroleum's working interest in the property from a 47.8% after completion
working interest to a 29.9% working interest (which reduces to a 27.8% working
interest after completion of the initial well) and a corresponding 20.9% net
revenue interest.
Drilling operations commenced on January 15, 2008 and reached a total depth of
16,510 feet on March 3, 2008. Analysis of the log data indicates the well
encountered Wilcox Sand pay at multiple intervals from 13,500 feet to 16,400
feet. Completion operations are planned to commence in April, following pipeline
connection into the gathering system. Caza anticipates, depending on well
performance, several additional development locations.
Puku Property
Caza Petroleum holds approximately 218.4 gross acres (76.4 net acres) and a 35%
working interest (26.5% net revenue interest) in this property. A well is
anticipated within 12 months for this property.
The property targets an attic gas accumulation that was penetrated by a
commercially productive offsetting well.
Eland and Sable Properties
The Eland and Sable properties are located approximately one mile east of the
Puku properties. Caza Petroleum holds an aggregate of approximately 362 gross
acres (127 net acres) in the properties and a 35% working interest (25.1% net
revenue interest) in each property. A well to test the properties is being
planned for the second quarter of 2008.
The property targets an upthrown threeway high side closure in the Frio
Formation.
Las Animas Prospect
The Las Animas prospect is located in Duval County, Texas. Caza Petroleum has
leasehold interests in approximately 5,980 gross acres (2,567 net acres) in the
prospect area made up of gross working interests ranging from 100% to 28% (with
corresponding gross net revenue interests of 80% to 75%) in various tracts
which, in conjunction with various agreements, results in a weighted average
42.8% working interest (30.0% net revenue interest) in this prospect. A well is
anticipated within 12 months for this property.
The prospect targets two upthrown threeway high side closures in the Upper
Wilcox Duval Complex. One is estimated to be 5,000 acres at the primary
objective Upper Wilcox sand interval and the other is estimated to be 1,500
acres, both at depths of 14,000 to 18,000 feet.
South Louisiana
General
Caza Petroleum holds interests in approximately 4,100 gross acres (410 net
acres) covering two properties in trends located in Calcasieu and Terrebonne
Parish, Louisiana. The Dulac Field property is located in Terrebonne Parish and
the Thunder Stud property is located in Calcasieu Parish. Following further
evaluation Caza Petroleum does not intend to maintain its lease position on the
Alligator Property.
Caza Petroleum's prospects in south Louisiana are predominantly focused on the
Hackberry, Yegua and Middle Miocene trends. The Hackberry trend is typically
located at depths between 8,500 and 10,000 feet. The Yegua and Middle Miocene
structural and stratigraphic plays are at depths between 9,000 and 20,000 feet.
All of Caza Petroleum's prospects in these properties have been generated
through 3-D Seismic data, advanced reprocessing and attribute analysis.
Proven, probable and possible net reserves of 14.5 Bcfe have been assigned to
Caza Petroleum's south Louisiana properties in the NSAI Report. As of December
31, 2007 Caza Petroleum was producing 235 Mcfe/d net from one gross (0.06 net)
well in this region. All of Caza's south Louisiana properties are located in
areas which are well served by gathering systems.
Caza Petroleum's principal Louisiana properties are described below.
Dulac Field Property
The Dulac Field property is located in Terrebonne Parish, Louisiana. Caza
Petroleum holds approximately 200 gross acres (17 net acres) and an approximate
8.2% working interest (5.9% net revenue interest) in this property.
In July 2006, Falcon Bay, as operator, drilled the State Lease 18582 #1 well as
an exploratory test well to a depth of 14,118 feet. The well was completed in
the middle Miocene Eggerella sand and, as of December 31, 2007, was producing
235 Mcfe/d net to Caza Petroleum.
Thunder Stud Property
The Thunder Stud property is located in the southwest corner of Calcasieu
Parish, Louisiana. Caza Petroleum holds a 10.0% non operated working interest
(7.2% net revenue interest) in approximately 3,900 gross acres (390 net acres)
subject to a back in after project payout reduction of 37.5%.
Caza Petroleum participated in the drilling of the E.W. Brown # 1 well on this
property targeting the Yegua formation in the Phoenix Lake Field. This well
reached a total depth of 17,905 feet on May 3, 2007.
The E.W. Brown # 1 well encountered both oil & gas potential from multiple
intervals between 13,500 feet to 16,300. Caza Petroleum, as a non-operator,
anticipates that an appraisal program will be undertaken, subject to partner and
other approvals.
Southeast New Mexico
General
Caza Petroleum has interests in approximately 4,200 gross acres (1,700 net
acres) in four properties in Southeast New Mexico. After further evaluation,
Caza Petroleum elected not to participate in the drilling of the Northwest
Raptor Property.
Caza Petroleum's properties target primarily Pennsylvanian Clastics formations
consisting of lowstand gas and condensate bearing marine deltaic sandstone
reservoirs in the Atoka Morrow formations at depths ranging from 8,000 feet to
15,000 feet and Permian oil objectives at depths ranging from 2,000 to 8,500
feet.
Caza Petroleum's land holdings in Southeast New Mexico are a combination of
state and federal leases and limited fee lands. The state and federal
jurisdictions hold periodic auctions for lease which provide the opportunity for
Caza Petroleum to acquire additional land positions over time. Leases for
federal lands have a 10 year term while state leases have a five year term.
NSAI has assigned probable net reserves of 3.8 Bcfe to Caza Petroleum's interest
in its Southeast New Mexico prospects in the NSAI Report. All of these
properties are located in areas which are well served by gathering systems.
Caza has applied for drilling permits on all its New Mexico Properties.
Lynch Property
The Mudslide Slim Federal 15-1 well, located in Lea County, New Mexico, was
drilled to test the Lynch (Morrow) Prospect. Caza Petroleum has earned a 40.0%
working interest (31.3% net revenue interest) before payout which reduces to a
27.8% working interest (20.9% net revenue interest) after payout of the initial
well in this property. Caza Petroleum holds approximately 320 gross acres 128
net acres.
Drilling operations were commenced on January 13, 2008 and reached a total depth
of 13,513 feet on March 2, 2008. Analysis of log data indicates the well
encountered Morrow Sand Pay at multiple intervals from 13,040 feet to 13,160
feet. Completion operations are planned to commence in May pending a pipeline
connection into the gathering system.
China Draw Property
The China Draw property is located in Eddy County. Caza Petroleum holds
approximately 1,740 gross acres (580 net acres) and a 33.3% working interest
(28.2% net revenue interest) in this property.
Forehand Ranch Property
The Forehand Ranch property is located in Eddy County. Caza Petroleum holds
approximately 800 gross acres (350 net acres) and a weighted average 43.3%
working interest (36.6% net revenue interest) in this property.
Azotea Mesa Property
The Azotea Mesa property is located in Eddy County. Caza Petroleum holds 1,280
gross acres (640 net acres) and a 50.0% working interest (42.3% net revenue
interest) in this property.
Permian Basin of West Texas
General
Caza Petroleum has interests in approximately 11,500 gross acres (3,700 net
acres) in the Permian Basin of West Texas located in Crane, Upton and Sutton
counties.
These properties target the Spraberry/Wolfcamp formation at depths of 8,000 to
10,000 feet and the Canyon Sands formation at depths of 6,500 to 9,000 feet.
NSAI has assigned proven, probable and possible net reserves of 3.9 Bcfe to Caza
Petroleum's interest in its Permian Basin properties. Caza Petroleum is
currently producing 80 Mcf/d net from three gross (1.9 net) producing wells
located in this region.
All of Caza's Permian Basin of West Texas properties are located in areas which
are well served by gathering systems.
Caza Petroleum's principal Permian Basin of West Texas properties are described
below.
Glass Ranch Property
The Glass Ranch property is located in Crane and Upton counties. Caza Petroleum
holds approximately 890 gross acres (330 net acres) and a weighted average 37.6%
working interest (28.2% net revenue interest) in this property. It is
anticipated that Caza will participate in several wells on this property in
2008.
Glass Ranch 2 Property
The Glass Ranch 2 property is recently acquired acreage and is located in Crane
and Upton counties. Caza Petroleum holds approximately 314 gross acres (314 net
acres) and a 100% working interest (75% net revenue interest) in this property.
The property targets the Spraberry/Wolfcamp formation.
Aldwell Ranch Property
The Aldwell Ranch property is located in the southwest part of Sutton County,
Texas. Caza Petroleum holds 5,000 gross (2,500 net) acres of farmout acreage in
this property and a 50.0% working interest before completion and 45.5% working
interest after completion (34.1% net revenue interest) in the north block which
has been partially developed and approximately 5,500 gross (520 net) acres and a
9.4% working interest (7.5% net revenue interest) of undeveloped land in the
southern block. It is anticipated that Caza will participate in an under
balanced well on this property in 2008.
Caza Petroleum is currently producing 80.0 Mcf/d net from three gross (1.9 net)
producing wells located in the area.
The property targets the Canyon Sands formation.
Health and Safety
Caza as the operator of 90% of its properties have adopted and maintain high
environmental standards and safety programs. In addition, environmentally
sympathetic methods of drilling and production are employed.
Conclusion and the Future
In Summary, Caza is a young, growing company with strong news flow expected from
our operations in the US.
The results from our continuing drilling, development program have added
significantly to our asset and reserve base. In 2007 our average production was
increased by 180% resulting in revenues from oil and gas sales increasing 223%
from 2006.
Our substantial investments in key projects are beginning to bear fruit; in
addition, we have a growing prospect inventory resulting from our geological and
geophysical efforts.
Caza is also very active in evaluating potential deals, some of which I
anticipate will be finalized in 2008.
I would like to take this opportunity to thank our shareholders, my fellow
directors and management, and our advisers in the US, Canada and the UK for
their collective efforts in making 2007 an extremely successful year for Caza.
W. Michael Ford
CEO/President
March 28, 2008
In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies,
the information contained in this announcement constituting a resource or
drilling update has been reviewed and approved by Anthony B. Sam, Vice President
Operations of Caza who is a Petroleum Engineer and a member of the Society of
Petroleum Engineers.
The reserves data set out in this announcement have been extracted from the
Company's Annual Information Form (available on SEDAR at www.sedar.com). The
evaluation of the reserves data included in the Annual Information Form was
carried out in accordance with standards set out in the Canadian Oil and Gas
Evaluation Handbook prepared jointly by the Society of Petroleum Engineers
(Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum
(Petroleum Society). Certain key terms used in the Annual Information Forum and
this announcement are set out below:
/T/
bbl one barrel, each barrel representing 34.972 Imperial gallons
or 42 U.S. gallons
Bcf billion cubic feet
Bcfe billion cubic feet equivalent
boe barrels of crude oil equivalent derived by converting natural
gas to crude oil in the ratio of six thousand cubic feet of
natural gas to one barrel of crude oil
Mcf one thousand cubic feet
Mcf/d one thousand cubic feet per day
Mcfe one thousand of cubic feet of natural gas equivalent derived
by converting crude oil to natural gas in the ratio of one barrel
of oil into six thousand cubic feet of natural gas
Mcfe/d one thousand of cubic feet of natural gas equivalent per day
/T/
Boe or Mcfe may be misleading, particularly if used in isolation. A boe
conversion of 6 Mcf: 1 bbl or a Mcfe conversion ratio of 1 bbl : 6 Mcf is based
on an energy equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the well head.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS - In the interests of providing
Caza shareholders and potential investors with information regarding Caza,
including management's assessment of Caza's and its subsidiaries' future plans
and operations, certain statements contained in this news release are
forward-looking statements or information within the meaning of applicable
securities legislation, collectively referred to herein as "forward-looking
statements". Forward-looking statements in this news release include, but are
not limited to: future economic and operating performance (including per share
growth, cash flow and increase in net asset value); future drilling costs;
anticipated growth and success of resource plays and the expected
characteristics of resource plays; free cash flow which may be generated in 2008
and beyond, and potential uses for such free cash flow; anticipated production
and sales of oil, natural gas and NGLs in 2008; anticipated impact and success
of Caza's price hedging strategy, if any; anticipated costs; anticipated prices
for oil and natural gas; anticipated capital investment in 2008 and the
allocation thereof; anticipated capital inflation; anticipated capital and
operating cost efficiencies; anticipated growth in hydrocarbon production;
forecast cash flow for 2008 and the anticipated ability to meet guidance
targets.
Readers are cautioned not to place undue reliance on forward-looking statements,
as there can be no assurance that the plans, intentions or expectations upon
which they are based will occur. By their nature, forward-looking statements
involve numerous assumptions, known and unknown risks and uncertainties, both
general and specific, that contribute to the possibility that the predictions,
forecasts, projections and other forward-looking statements will not occur,
which may cause the company's actual performance and financial results in future
periods to differ materially from any estimates or projections of future
performance or results expressed or implied by such forward-looking statements.
These risks and uncertainties include, among other things: volatility of and
assumptions regarding oil and gas prices; assumptions based upon the company's
current guidance; fluctuations in currency exchange and interest rates; product
supply and demand; market competition; risks inherent in the company's marketing
operations, including credit risks; imprecision of reserve estimates and
estimates of recoverable quantities of oil, natural gas and liquids from
resource plays and other sources not currently classified as proved; the
company's ability to replace and expand oil and gas reserves; the company's
ability to generate sufficient cash flow from operations to meet its current and
future obligations; the company's ability to access external sources of debt and
equity capital; the timing and the costs of well and pipeline construction;
blowouts, fires, explosions and other sudden emergencies; drilling difficulties,
such as lost circulation; the company's ability to secure adequate product
transportation; changes in royalty, tax, environmental and other laws or
regulations or the interpretations of such laws or regulations; the risk of
terrorist threats; risks associated with future lawsuits and regulatory actions
made against the company; and other risks and uncertainties described from time
to time in the reports and filings made with securities regulatory authorities
by Caza.
Although Caza believes that the expectations represented by such forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove to be correct. Readers are cautioned that the foregoing list of important
factors is not exhaustive. Furthermore, the forward-looking statements contained
in this news release are made as of the date of this news release, and, except
as required by law or regulation, Caza does not undertake any obligation to
update publicly or to revise any of the included forward-looking statements,
whether as a result of new information, future events or otherwise. The
forward-looking statements contained in this news release are expressly
qualified by this cautionary statement.
Financial outlook information contained in this press release about prospective
results of operations, financial position or cash flows is based on assumptions
about future events, including economic conditions and proposed courses of
action, based on management's assessment of the relevant information currently
available. Readers are cautioned that such financial outlook information
contained in this press release should not be used for purposes other than for
which it is disclosed herein.
Auditors' Report
To the Shareholders of Caza Oil & Gas, Inc.
We have audited the consolidated balance sheets of Caza Oil & Gas, Inc. as at
December 31, 2007 and 2006, the consolidated statements of Net Loss and
Comprehensive Income (Loss), and Retained Earnings (Deficit) and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2007
and 2006 and the results of its operations and its cash flows for the years then
ended, in accordance with Canadian generally accepted accounting principles.
(signed) "Deloitte & Touche LLP"
Chartered Accountants
Calgary, Canada
March 7, 2008
/T/
-------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Consolidated Balance Sheets
December 31, December 31,
(In Thousands of United States dollars) 2007 2006
-------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 13,195 $ 13,697
Accounts receivable 3,271 2,155
Prepaid and other 334 123
------------ ------------
16,800 15,975
Petroleum and equipment (Note 3) 20,354 8,243
Future income tax asset (Note 5) 426 -
------------ ------------
$ 37,580 $ 24,218
------------ ------------
Liabilities
Current
Accounts payable and accrued liabilities $ 6,877 $ 4,171
Asset retirement obligations (Note 4) 286 56
Future income taxes (Note 5) - 221
------------ ------------
286 277
Shareholders' Equity
Share capital (Note 6) 30,811 18,923
Contributed surplus (Note 6(h)) 2,787 2,250
Deficit (3,181) (1,403)
------------ ------------
------------ ------------
30,703 20,047
------------ ------------
------------ ------------
$ 37,580 $ 24,218
------------ ------------
See accompanying notes to the consolidated financial statements
-------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Consolidated Statements of Net Loss and Comprehensive Income (Loss), and
Retained Earnings (Deficit)
For the Years Ended
(In Thousands of United States dollars, December 31, December 31,
except per share amounts) 2007 2006
-------------------------------------------------------------------------
Revenues
Petroleum and natural gas $ 1,380 $ 427
Other income - 240
Interest income 455 192
------------ ------------
1,835 859
------------ ------------
------------ ------------
Expenses
Production 464 129
General and administrative 3,204 3,217
Depletion, depreciation, amortization and
accretion 521 121
Interest 37 29
------------ ------------
------------ ------------
4,226 3,496
------------ ------------
------------ ------------
Loss before income taxes (2,391) (2,637)
------------ ------------
Income taxes (Note 5)
Current income taxes 30 18
Future income taxes (643) (87)
------------ ------------
(613) (69)
------------ ------------
Net loss and comprehensive loss for the year (1,778) (2,568)
Retained Earnings (Deficit), beginning of year (1,403) 2,794
Amount ascribed to exchangeable share rights
on acquisition of Caza petroleum (Note 6) - (970)
Future income taxes recognized on acquisition
of Caza Petroleum (Note 5) - (308)
Distributions - (351)
------------ ------------
Deficit, end of year $ (3,181) $ (1,403)
------------ ------------
Net loss per share
- basic and diluted (0.02) $ (0.04)
------------ ------------
Weighted average shares outstanding
- basic and diluted (1) 75,003,890 67,950,466
------------ ------------
(1) The options and warrants have been excluded from the diluted loss per
share computation as they are anti-dilutive
See accompanying notes to the consolidated financial statements
-------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, December 31,
(In Thousands of United States dollars) 2007 2006
-------------------------------------------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
OPERATING
Net loss for the year (1,778) (2,568)
Adjustments for items not affecting cash:
Depletion, depreciation, amortization and
accretion 521 121
Stock-based compensation 364 2,250
Future income taxes recognized on acquisition
of Caza Petroleum - (308)
Future income tax expense (recovery) (647) 221
Changes in non-cash working capital (Note 9(a)) (760) 165
---------- ------------
Cash flow from (used in) operating activities (2,300) (119)
---------- ------------
FINANCING
Distributions - (351)
Proceeds from issuance of shares, net of issue
costs 11,888 17,953
Increase in notes payable - 280
Repayment of notes payable - (397)
Changes in non-cash working capital (Note 9(a)) 837 -
---------- ------------
Cash flow from financing activities 12,725 17,485
---------- ------------
INVESTING
Exploration and development expenditures (11,734) (5,175)
Purchase of equipment (495) (24)
Changes in non-cash working capital (Note 9(a)) 1,302 1,328
---------- ------------
Cash flow (used in) investing activities (10,927) (3,871)
---------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (502) 13,945
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,697 202
---------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR 13,195 13,697
---------- ------------
Supplementary information (Note 9)
See accompanying notes to the consolidated financial statements
/T/
1. Basis of Presentation
Caza Oil & Gas, Inc. ("Caza" or the "Company") was incorporated under the laws
of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza
Petroleum, Inc. ("Caza Petroleum"). The Company and its subsidiaries are engaged
in the exploration for and the development, production and acquisition of,
petroleum and natural gas reserves. On December 12, 2007 the Company's shares
were listed for trading on the TSX and AIM markets.
Caza owns 71% 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 (see Note 6(e)). Caza Petroleum was amalgamated with Falcon Bay
Energy, LLC ("Falcon Bay") on September 14, 2006.
As all of the entities (Caza, Caza Petroleum and Falcon Bay) were under common
control, these consolidated financial statements of Caza and its subsidiaries
have been presented on a continuity-of-interest basis of accounting and
represent the activities of all of the above noted entities from the date that
each of them commenced operations. The Company's consolidated financial
statements presented for comparative purposes reflect the financial position,
results of operations and cash flows as if Caza had been consolidated with Caza
Petroleum and Falcon Bay since inception.
Caza's reporting currency is the United States ("US") dollar as the majority of
its transactions are denominated in the currency.
2. Significant Accounting Policies
The consolidated financial statements of the Company 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 these consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. These consolidated financial statements have, in management's
opinion, been properly prepared using careful judgement with reasonable limits
of materiality and within the framework of the significant accounting policies
summarized below:
Basis of consolidation
The consolidated financial statements include those of the Caza, Caza Petroleum,
and Caza Petroleum's wholly owned subsidiaries Caza Operating, LLC, Falcon Bay
Sutton County, LLC and Falcon Bay Operating, LLC. All material inter-company
transactions have been eliminated.
(b) Financial instruments
As of January 1, 2007, Caza adopted the Canadian Institute of Chartered
Accountants ("CICA") Section 3855 "Financial Instruments - Recognition and
Measurement;" Section 3861, "Financial Instruments - Disclosure and
Presentation" and Section 3865 "Hedges."
CICA Section 3855 prescribes when a financial instrument is to be recognized on
the balance sheet and at what amount. It also specifies how financial instrument
gains and losses are to be presented. All financial instruments are classified
into one of the following five categories: held for trading, held-to-maturity,
loans and receivables, available-for-sale financial assets, or other financial
liabilities. Initial and subsequent measurement and recognition of changes in
the value of financial instruments depends on their initial classification:
- Held-to-maturity investments, loans and receivables, and other financial
liabilities are initially measured at fair value and subsequently measured at
amortized cost. Amortization of premiums or discounts and losses due to
impairment are included in current period net earnings.
- Available-for-sale financial assets are measured at fair value. Revaluation
gains and losses are included in other comprehensive income until the asset is
removed from the balance sheet.
- Held for trading financial instruments are measured at fair value. All gains
and losses are included in net earnings in the period in which they arise.
- All derivative financial instruments are classified as held for trading
financial instruments and are measured at fair value, even when they are part of
a hedging relationship. All gains and losses are included in net earnings in the
period in which they arise.
The financial instruments recognized on Caza's balance sheet were deemed to
approximate their estimated fair values, and therefore no further adjustments
were required upon adoption of the new sections on January 1, 2007. There were
no financial assets on the balance sheet which were designated as
held-for-trading or available-for-sale. All financial assets were classified as
loans or receivables and are accounted for on an amortized cost basis, and all
financial liabilities were classified as other liabilities on January 1, 2007.
There have been no changes to these classifications at December 31, 2007. The
fair values of these financial instruments are the same as their carrying
values. All transaction costs will be expensed.
CICA Section 3865 provides alternative treatments to Section 3855 for entities
which choose to designate qualifying transactions as hedges for accounting
purposes. It replaces and expands on Accounting Guideline 13 "Hedging
Relationships", and the hedging guidance in Section 1650 "Foreign Currency
Translation" by specifying how hedge accounting is applied and what disclosures
are necessary when it is applied. Caza did not have any hedges during 2007.
(c) Comprehensive income
On January 1, 2007, Caza adopted CICA Section 1530 which introduces a new
requirement to temporarily present certain gains and losses from changes in fair
value outside net income. It includes unrealized gains and losses, such as:
changes in the currency translation adjustment relating to self-sustaining
foreign operations; unrealized gains or losses on available-for-sale
investments; and the effective portion of gains or losses on derivatives
designated as cash flow hedges. The application of this revised standard did not
result in comprehensive income (loss) being different from the net loss for the
periods presented.
(d) Cash and cash equivalents
Cash and short-term investments consists of cash on deposit and money market
instruments that are highly liquid having a maturity date of not more than
ninety days at the time of purchase.
(e) Joint venture operations
Substantially all of the Company's petroleum and natural gas exploration
activities are conducted jointly with others. These consolidated financial
statements reflect only the Company's proportionate interest in such activities.
(f) Property and equipment
The Company follows the full cost method of accounting for oil and natural gas
operations whereby all costs relating to the acquisition, exploration and
development of oil and natural gas reserves are initially capitalized into a
single United States cost centre. Such costs include land acquisition costs,
geological and geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive wells, related
production equipment costs, asset retirement and abandonment costs and overhead
charges directly related to acquisition, exploration and development activities.
Capitalized costs, excluding costs related to unproven properties, are depleted
and depreciated using the unit-of-production method based on estimated proven
oil and natural gas reserves before deduction of royalties as determined by
independent petroleum engineers. Petroleum and natural gas reserves and
production are converted to thousand cubic feet of gas equivalent using a ratio
of one barrel of oil to six thousand cubic feet of natural gas.
Costs of acquiring and evaluating unproved properties are initially excluded
from depletion calculations. These unevaluated properties are assessed
periodically to ascertain whether impairment has occurred. When proved reserves
are assigned or the property is considered to be impaired, the cost of the
property or the amount of the impairment is added to costs subject to depletion.
Proceeds from the sale of petroleum and natural gas properties will be applied
against capitalized costs, with no gain or loss recognized, unless such a sale
would result in a greater than 20% change in the depletion and depreciation
rate.
A limit is placed on the carrying value of the net capitalized costs in each
cost centre in order to test impairment. The Company is required to perform this
impairment test at least annually. An impairment loss exists when the carrying
value of a cost centre exceeds the estimated undiscounted future net cash flows
associated with the cost centre's proved reserves. If an impairment loss is
determined to exist, the costs carried on the balance sheet in excess of the
discounted future net cash flows associated with the cost centre's proved plus
probable reserves are charged to income. The Company did not incur an impairment
loss in 2007. Reserves are determined pursuant to the Canadian Securities
Administrators' National Instrument 51-101 "Standard of Disclosure for Oil and
Gas Activities".
Office equipment and furniture is carried at cost and depreciated on a straight
line basis over the estimated service lives of five to seven years.
(g) Revenue recognition
Revenue from the sale of oil, gas and liquids is recognized based on volume
delivered at contractual delivery points and rates. The costs associated with
the delivery, including operating and transportation expenses, are recognized in
the same period in which the related revenue is earned and recorded.
(h) Future income taxes
The Company follows the tax liability method of accounting for income taxes.
Under this method, future tax assets and liabilities are determined based on
differences between the carrying value and the tax basis of assets and
liabilities, and measured using the substantively enacted tax rates and laws
expected to be in effect when the differences are expected to reverse. The
effect on future tax assets and liabilities of a change in tax rates is
recognized in income in the period in which the change is substantively enacted.
Future income tax assets are only recognized to the extent it is more likely
than not that sufficient future taxable income will be available to allow the
future income tax asset to be realized.
(i) Asset retirement obligation
The Company recognizes the fair value of a liability for an asset retirement
obligation in the period in which it is incurred or when a reasonable estimate
of the fair value can be made, and records a corresponding increase in the
carrying value of the related long-lived asset. The fair value is determined
through a review of engineering studies, industry guidelines, and management's
estimate on a site-by-site basis. The liability is subsequently adjusted for the
passage of time, which is recognized as an accretion expense in the consolidated
statement of net loss. The liability is also adjusted due to revisions in either
the timing or the amount of the original estimated cash flows associated with
the liability. Actual costs incurred upon settlement of the asset retirement
obligations are charged against the asset retirement obligation to the extent of
the liability recorded.
(j) Foreign currency translation
The Company translates foreign currency denominated monetary assets and
liabilities at the exchange rate in effect at the balance sheet date and
non-monetary assets and liabilities are translated at historical exchange rates.
Revenues and expenses are translated at transaction date exchange rates except
depletion and depreciation expense, which is translated at the same historical
exchange rate as the related assets. Exchange gains or losses are included in
the determination of net income as foreign exchange loss.
(k) Stock-based compensation
The Company accounts for stock-based compensation using the fair-value method of
accounting for stock options issued to directors, officers and employees using
the Black-Scholes option-pricing model. Under this method, the compensation
costs attributed to the stock options are measured at the time of grant or
issuance and amortized over the vesting period with a corresponding increase to
contributed surplus. When stock options are exercised, the associated amounts
previously recorded as contributed surplus are reclassified to common share
capital. The Company does not incorporate an estimated forfeiture rate for stock
options that will not vest but instead accounts for forfeitures as a change in
estimate in the period in which they occur.
(l) Per share information
Basic per share amounts are calculated using the total weighted average number
of common shares outstanding during the period. Shares outstanding also include
common shares issuable upon exchange of Caza Petroleum shares (See Note 6(e)).
Diluted per share calculations reflect the exercise or conversion of potentially
dilutive securities or other contracts to issue shares at the later of the date
of grant of such securities or the beginning of the period. The Company computes
diluted earnings per share using the treasury stock method to determine the
dilutive effect of securities or other contracts. Under this method, the diluted
weighted average number of shares is calculated assuming the proceeds that arise
from the exercise of outstanding, in-the-money options are used to purchase
common shares of the Company at their average market price for the period. No
adjustment to diluted earnings per share or diluted shares outstanding is made
if the result of the calculations is anti-dilutive.
(m) Measurement uncertainty
The operations of the Company are complex, and regulations and legislation
affecting the Company are continually changing. Although the ultimate impact of
these matters on the net income or loss cannot be determined at this time, it
could be material for any one quarter or year. Management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and revenues and expenses during the reporting period.
Actual results can differ from those estimates.
Recorded amounts for depletion and depreciation of petroleum and natural gas
properties and equipment are based on estimates of oil and natural gas reserves.
The ceiling test and impairment calculations are based on estimates of oil and
natural gas reserves, future costs required to develop those reserves and the
fair value of unproved properties. By their nature, these estimates of reserves
and the related future cash flows are subject to measurement uncertainty, and
the effect on the consolidated financial statements of future periods could be
significant.
The value of the asset retirement obligation depends on estimates of current
market interest rates, future restoration and reclamation expenditures and the
timing of expenditures. 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.
The consolidated financial statements include accruals based on the terms of
existing joint venture agreements. Due to varying interpretations of the
definition of terms in these agreements the accruals made by management in this
regard may be significantly different from those determined by the Company's
joint venture partners.
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. 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. 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.
The amounts recorded for 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.
(n) Accounting Changes
On January 1, 2007, Caza adopted CICA Section 1506, "Accounting Changes,"
provides expanded disclosures for changes in accounting policies, accounting
estimates and corrections of errors. Under the new standard, accounting changes
should be applied retrospectively unless otherwise permitted or where
impracticable to determine. As well, voluntary changes in accounting policy are
made only when required by a primary source of GAAP or the change results in
more relevant and reliable information.
(o) Accounting pronouncements
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 new CICA standard,
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.
- As of January 1, 2008, the Company will be required to adopt CICA Handbook
Section 3031 Inventory. This new standard is effective for interim and annual
financial statements relating to fiscal years beginning on or after July 1,
2007.
- 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.
- In February 2008, the CICA issued Section 3064 Goodwill and Other Intangible
Assets, replacing Section 3062 Goodwill and Other Intangible Assets and Section
3450 Research and Development Costs. Various other changes have been made to
other sections of the CICA Handbook for consistency. The new Section will be
applicable to financial statements relating to fiscal years beginning on or
after October 1, 2008. Accordingly, the Company will adopt the new standard for
its fiscal year beginning January 1, 2009. The new Section establishes standards
for the recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062.
3. Property and Equipment
/T/
--------------------------------------------------------
2007 2006
--------------------------------------------------------
Accumulated Accumulated
depletion Net depletion Net
and Book and Book
Cost depreciation Value Cost depreciation Value
--------------------------------------------------------
Petroleum and
natural gas
properties and
equipment $21,089 $ 1,201 $19,888 $8,954 $ 766 $8,188
Office equipment
and furniture 597 131 466 102 47 55
--------------------------------------------------------
$21,686 $ 1,332 $20,354 $9,056 $ 813 $8,243
--------------------------------------------------------
/T/
At December 31, 2007 the cost of petroleum and natural gas properties includes
$8,133 (December 31, 2006 - $6,674) relating to unproven properties which have
been excluded from costs subject to depletion and depreciation.
The Company capitalized general and administrative expenses of $1,528 in the
year ended December 31, 2007 (2006 - $463) relating to exploration and
development activities of which $173 related to stock based compensation in 2007
(2006 - $Nil).
The Company performed an impairment test at December 31, 2007 to assess whether
the carrying value of its petroleum and natural gas properties exceeds fair
value. No impairment was recorded as at December 31, 2007. The petroleum and
natural gas future prices (adjusted for quality differentials) are based on
commodity price forecasts of the Company's independent reserve evaluators.
The following table outlines benchmark prices used in the impairment test at
December 31, 2007:
/T/
NYMEX Natural
Crude Oil Gas
Year ($/bbl) ($/mmbtu)
------------------------------------------------------------------------
2008 90.86 8.70
2009 88.42 8.48
2010 86.05 8.59
2011 85.64 8.57
Thereafter (inflation %) +2.0%/yr +2.0%/yr
------------------------------------------------------------------------
/T/
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:
/T/
2007 2006
--------- ---------
Asset retirement obligation, beginning of year $ 56 $ 160
Obligations incurred 90 10
Accretion expense 3 2
Obligations settled - (116)
Change in estimates 137 -
--------- ---------
Asset retirement obligation, end of year $ 286 $ 56
--------- ---------
/T/
The undiscounted amount of cash flows, required over the estimated reserve life
of the underlying assets, to settle the obligation, adjusted for inflation, is
estimated at $398 (2006 - $62). The obligation was calculated using a
credit-adjusted risk free discount rate of 6 percent and an inflation rate of 3
percent. It is expected that this obligation will be funded from general Company
resources at the time the costs are incurred with the majority of costs expected
to occur between 2009 and 2020.
5. Income Taxes
The following is a reconciliation of income taxes, calculated at the statutory
combined federal and provincial income tax rates, to the income tax recovery
included in the consolidated statements of net loss.
/T/
--------------------------------------------------------------------------
Years ended December 31,
--------------------------------------------------------------------------
($000's) 2007 2006
Net Income (loss) before taxes (2,391) (2,637)
Income tax (recovery) at statutory rate of (768) (847)
32.12% (2006 - 32.12 %)
Difference in statutory tax rates: Canada vs. US (69) (76)
Stock-based compensation 127 723
Taxable income taxed in the LLC's - 37
Texas franchise tax 30 18
Other 67 76
-----------------------
Total (613) (69)
-----------------------
/T/
Prior to September 14, 2006, the operations of the Company were conducted in a
Texas limited liability company, Falcon Bay, and three other limited liability
companies that were wholly owned by Falcon Bay. All of the Company's operations
prior to that time were conducted in the United States. As a limited liability
company, the combined incomes of the three companies were not subject to U.S.
federal income taxation but were instead allocated to and taxed in the hands of
its owners.
On September 14, 2006, when Falcon Bay merged into Caza Petroleum, the Company's
operations became subject to U.S. federal income tax at the Company level. The
following items detail the differences that result in the provision for income
taxes not being equal to the combined United States federal and state tax rate
of 35% applied to income (loss) before taxes.
The components of future income tax liabilities (assets) at December 31, 2007
and 2006 are as follows:
/T/
-------------------------------------------------------------------------
($000's) 12/31/2007 12/31/2006
-------------------------------------------------------------------------
Future income tax liability (asset):
Petroleum and natural gas properties 4,079 770
Net operating losses carried forward (4,505) (549)
-------------------------------------------------------------------------
Net future income tax liability (asset) (426) 221
-------------------------------------------------------------------------
/T/
The Company has the following losses available to be carried forward:
/T/
-------------------------------------------------------------------------
Expiring at December 31, Amounts
-------------------------------------------------------------------------
($000's)
US Canada
2026 1,524 205
2027 11,085 1,065
-------------------------------------------------------------------------
/T/
6. Share Capital
(a) Authorized
Unlimited number of voting common shares.
(b) Issued
/T/
---------------------------------------------
2007 2006
---------------------------------------------
Amounts Amounts
Shares ($000's) Shares ($000's)
---------------------------------------------
Opening balance
common shares 44,030,000 $ 13,478 - $ -
Incorporated on
June 9, 2006 - - 1 -
Redemption of
Initial share - - (1) -
Founders shares
(Note 6 (c)) - - 5,000,000 243
Initial
offering shares
(Note 6 (d)(i)) - - 34,420,000 11,659
1st Over-allotment
closing (Note 6 (d)(i)) - - 4,610,000 1,576
2nd Over-allotment
closing (Note 6 (d)(i)) 970,000 345 - -
Exchangeable shares 1,498,000 52 - -
Entitlement shares
(Note 6 (d)(iv)) 3,442,000 - - -
Entitlement Shares
(Note 6 (d)(iv)) 558,000 - - -
IPO Shares
(Note 6 (d)(v)) 18,821,000 11,162 - -
---------------------------------------------
Balance end of year 69,319,000 25,037 44,030,000 $ 13,478
---------------------------------------------
Opening balance
exchangeable rights
(Note 6(e)) 28,000,000 970 - -
Issuance of
exchangeable shares - - 28,000,000 970
Rights exercised
March 8, 2007 (1,103,200) (38) - -
Rights exercised
April 20, 2007 (394,800) (14) - -
---------------------------------------------
Balance end of year 26,502,000 918 28,000,000 970
---------------------------------------------
Opening balance
warrants 21,856,800 4,475 - -
Initial offering
warrants
(Note 6 (d)(i)(ii)) - - 17,210,000 3,700
Initial offering
broker warrants
(Note 6 (d)(iii)) - - 2,065,200 246
1st Over-allotment
warrants
(Note 6 (d)(i)(ii)) - - 2,305,000 496
1st Over-allotment broker
warrants (Note 6
(d)(iii)) - - 276,600 33
2nd Over-allotment
warrants
(Note 6 (d)(i)(ii)) 485,000 104 - -
2nd Over-allotment
broker warrants
(Note 6 (d)(iii)) 58,200 7 - -
Entitlement warrants
September 22, 2007
(Note 6 (d)(iv)) 1,721,000 - - -
Entitlement warrants
November 21, 2007
(Note 6 (d)(iv)) 279,000 - - -
IPO broker warrants
(Note 6 (d)(v)) 700,000 270 - -
---------------------------------------------
Balance end of year 25,100,000 4,856 21,856,800 4,475
---------------------------------------------
---------------------------------------------
$ 30,811 $ 18,923
---------------------------------------------
/T/
(c) Founders Shares:
On August 28, 2006, the Company completed a founder's 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 founder's
shares.
(d) Initial Placement:
(i) On September 22, 2006, the Company completed the initial closing of a
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 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 $6,287 have been netted against this offering. On
November 20, 2006, the Company completed its first over-allotment closing of
4,610,000 units. On January 17, 2007 the Company 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 Company 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 Company to such lesser time period
as may be required by the exchange on which the Company's securities are listed
and (ii) four years following the closing date on which the warrants were
acquired.
(iii) In connection with the Initial Placement, the Company 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 Company ascribed US$0.119 per warrant to each of
the Broker Warrants. No Broker Warrants have been exercised at December 31,
2007.
The fair value of each warrant and Broker Warrant was determined using the
assumptions set out below:
/T/
-------------------------------------------------------------------------
December December
31, 2007 31, 2006
-------------------------------------------------------------------------
Warrants
Exercise price - US$1.00
Risk-free interest rate - 4.75%
Expected maturity (years) - 3.0
Expected volatility - 88.16%
Dividend yield - 0%
Broker Warrants
Exercise price US$0.79 US$0.50
Risk-free interest rate 4.00% 4.75%
Expected maturity (years) 2.0 1.5
Expected volatility 88.16% 88.16%
Dividend yield 0% 0%
/T/
(iv) As part of the Initial Placement, the Company issued to the purchasers,
liquidity entitlements, which provided purchasers the right to receive for no
additional consideration additional common shares equal to 10% of the common
shares purchased in the Initial Placement if a "liquidity event" did not occur
within a specified time period. The Company issued additional common shares for
these liquidity entitlements in the amount of 3,442,000 shares on September 22,
2007, and 558,000 shares on November 20, 2007. Additionally, the liquidity
entitlements required a comparable adjustment to be made to the number of shares
purchasable from exercise of the warrants received in the Initial Placement. As
a result, the Company adjusted the warrants to provide for the right to purchase
additional common shares in the amount of 1,721,000 shares on September 20,
2007, and 279,000 shares on November 20, 2007.
(v) On December 12, 2007 the Company completed its initial public offering
("IPO") issuing a total of 18,821,000 common shares. The shares were issued at
CAD $0.80 or USD $0.7926 raising funds of USD $14,916 less issuance costs of USD
$3,484 that have been netted against the offering. In connection with the IPO,
the Company issued 700,000 Broker Warrants to the agents as partial
consideration for their services rendered in connection with the IPO. Each
Broker Warrant entitles the holder to purchase one common share at a price of
CAD $0.80 until December 12, 2009. The Company ascribed USD $0.385 per warrant
to each of the Broker Warrants. No Broker Warrants have been exercised at
December 31, 2007.
(e) Acquisition of Caza Petroleum:
Share Exchange and Shareholders Agreement
Prior to the consummation of the Initial Placement the Company 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 Company under certain
conditions. Management has the right at any time to exchange their Caza
Petroleum shares for common shares of the Company on the basis of 2,800 common
shares for each Caza Petroleum share, subject to adjustment in certain events.
In addition, the Company 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 Company, or the divorce, death or incapacity of the manager or
a breach of the agreement.
(f) Stock options
The Company granted stock options to its directors, officers and employees under
its stock option plan dated January 31, 2007, and as amended and restated dated
October 10, 2007. The maximum number of common shares for which options may be
granted, together with shares issuable under any other share compensation
arrangement of the Company, is limited to 10% of the total number of outstanding
common shares at the time of grant of any option. For this determination,
outstanding common shares include common shares issuable in exchange for Caza
Petroleum shares under the Share Exchange and Shareholders Agreement. At
December 31, 2007, the maximum number of shares issuable under the stock option
plan was 9,582,100. The exercise price of each option may not be less than the
fair market value of the Company'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, options cease to be
exercisable: (i) immediately upon a participant's termination by the Company for
cause, (ii) 90 days (30 days in the case of a participant engaged in investor
relations activities) after a participant's termination from the Company for any
other reason except death and (iii) one year after a participant's death.
Subject to the Board's sole discretion in modifying the vesting of stock
options, stock options will vest, and become exercisable, as to 33?% on the
first anniversary of the date of grant and 33?% on each subsequent anniversary
of the date of grant. All options granted to a participant but not yet vested
will vest immediately upon a change of control (as defined in the stock option
plan) or upon the Company's termination of a participant's employment without
cause.
/T/
2007
Weighted
average
Number of Exercise
Stock Options options price
----------------------------------------------------
Beginning of year - -
Granted 6,605,000 $ 0.6159
Exercised - -
Forfeited - -
---------------------------
End of year 6,605,000 $ 0.6159
---------------------------
---------------------------
Weighted
Average
Remain-
ing Number
Number Contrac- Exercisable
Date of Outstand- Exercise tual Date of December 31,
Grant ing Price Life Expiry 2007
--------------------------------------------------------------------------
January 31,
2007 3,325,000 0.50 9.09 January 31, 2017 1,108,333
February 5,
2007 400,000 0.50 9.10 February 5, 2017 -
May 10, 2007 220,000 0.50 9.34 May 10, 2017 -
June 11, 2007 20,000 0.50 9.45 June 11, 2017 -
December 12,
2007 2,640,000 0.79 9.95 December 12, 2017 -
--------------------------------------------------------------------------
6,605,000 9.45 1,108,333
--------------------------------------------------------------------------
/T/
In 2007, the weighted average fair market value per option of $0.359 was
estimated using the Black-Scholes option pricing model with the following
assumptions:
/T/
2007
----------
Dividend yield Nil
Expected volatility 88.16%
Risk free rate of return 4.00-4.75%
Weighted average life 3 years
/T/
(g) Escrowed securities
In accordance with the policies of the TSX, a total of 20,457,500 exchangeable
shares were held pursuant to escrow agreements. In addition 25,200,000 shares of
non-management common shares have been held pursuant to the escrow agreements.
One-third of the escrowed shares are to be released six months after the date of
listing on the TSX of December 12, 2007. One-half of the escrowed shares
remaining in escrow are to be released twelve months after the date of listing
on the TSX. All remaining shares then remaining in escrow will be released
eighteen months after the date of listing on the TSX.
(h) Contributed surplus
The following table presents the changes in contributed surplus:
/T/
2007 2006
-------------------------------------------------------------------------
Balance, beginning of period $ 2,250 $ Nil
Founder shares (Note 6c) - 2,250
Stock based compensation 537 -
-------------------------------------------------------------------------
Balance, end of period $ 2,787 $ 2,250
-------------------------------------------------------------------------
/T/
7. Related Party Transactions
The aggregate amount of expenditures made to related parties:
(a) The Vice President, Exploration of Caza Petroleum, prior to becoming an
employee, was a consultant to Caza Petroleum and as a consultant was eligible to
receive a 2% carried working interest (subject to proportionate reduction based
on the Company's working interest) to casing point in the initial test well in
certain prospects. The applicable prospects are the Bongo, Puku, Eland and Sable
properties. Since becoming an employee this individual is no longer eligible to
participate for additional interests beyond those described.
(b) In March 2007, Caza Petroleum entered into a farmout agreement with Singular
Oil & Gas Sands, LLC ("Singular") to participant in the drilling of the
Matthys-McMillan well in Wharton County, Texas. Under the terms of that
agreement, Singular paid 15.67% of the drilling costs to casing point of the
Matthys-McMillan well to earn a 14.01% interest in the property thereafter. This
participation was in the normal course of Caza's business and on the same terms
and conditions to those of other joint venture partners. Singular is a related
party as it is a company under common control with Sercor Limited, which is a
significant shareholder of Caza.
(c) Interest of $7 was paid to an officer in 2006 for money advanced to the
Company. The advanced funds were repaid during 2006.
All related party transactions are in the normal course of operations and have
been measured at the agreed to exchange amounts, which is the amount of
consideration established and agreed to by the related parties and which is
comparable to those negotiated with third parties.
8. Commitments and Contingencies
(a) As of December 31, 2007, the Company is committed under operating leases for
its offices and corporate apartment. The Company is committed to the following
aggregate minimum lease payments which are shown below:
/T/
-----------------------------
($'000's)
-----------------------------
2008 222
2009 169
/T/
(b) The Company received $2,565 in 2004, 2005 and 2006 under an agreement
whereby the funds received are only repayable from production from three wells
on the Aldwell Ranch project at a rate of 47.281% of 100% of the revenues until
repayment of the project financing and 40.787% of 100% of the revenues
thereafter. The repayment obligation ceases upon ninety percent (90%) of the
then current estimated recoverable reserves being produced. This has been
accounted for as a net profits interest and has reduced the carrying amount of
the full cost center.
9. Supplementary Information
(a) net change in non-cash working capital
/T/
($'000's) 2007 2006
----------------------------------------------------------------
Provided by (used in)
--------------------
Accounts receivable (1,116) (1,006)
Prepaid and other (211) (101)
Accounts payable and accrued liabilities 2,706 2,600
----------------
1,379 1,493
----------------
----------------
Summary of changes
Operating (760) 165
Financing 837 -
Investing 1,302 1,328
----------------
1,379 1,493
----------------
----------------
/T/
(b) supplementary cash flow information
/T/
($'000's) 2007 2006
----------------------------------------------------------------
Interest paid 37 29
Interest received 455 192
Cash taxes paid 34 -
/T/
(c) cash and cash equivalents
/T/
($'000's) 2007 2006
----------------------------------------------------------------
Cash on deposit 4,238 195
Money market instruments 8,957 13,502
----------------
Cash and cash equivalents 13,195 13,697
----------------
----------------
/T/
The money market instruments bear interest at a rate of 4.819% as at December
31, 2007 (December 31, 2006 - 5.19%)
10. Financial Instruments
As disclosed in Note 2(b), the Company holds various forms of financial
instruments. The nature of these instruments and the Company's operations expose
the Company to commodity price, credit, and foreign exchange risks. The Company
manages its exposure to these risks by operating in a manner that minimizes its
exposure to the extent practical.
(a) Commodity price risk
The Company is subject to commodity price risk for the sale of natural gas. The
Company may enter into contracts for risk management purposes only, in order to
protect a portion of its future cash flow from the volatility of natural gas
commodity prices.
(b) Credit Risk
A substantial portion of the Company'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
these customers and participants. The Company's oil and natural gas production
is sold to large marketing companies. Typically, the Company's maximum credit
exposure to customers is revenue from two months of sales. During the year ended
December 31, 2007, the Company sold 95.47% (2006 - 80.24%) of its natural gas
and condensate production to a single purchaser. These sales were conducted on
transaction terms that are typical for the sale of natural gas and condensate in
the United States. At December 31, 2007, the accounts receivable from sales of
production represented approximately 18% of the Company's accounts receivable.
At December 31, 2007, one of the Company's joint venture partners represented
approximately 26% of the Company's accounts receivable and two of the Company's
joint venture partners represented approximately 37% of the Company's accounts
receivable.
(c) Foreign Currency Exchange Risk
The Company is exposed to foreign currency exchange fluctuations, as certain
general and administrative expenses are or will be denominated in Canadian
dollars and United Kingdom pounds sterling. The Company's sales of oil and
natural gas are all transacted in US dollars.
(d) Fair Value of Financial Instruments
The Company has determined that the fair values of the financial instruments
consisting of cash and cash equivalents, accounts receivable and accounts
payable are not materially different from the carrying values of such
instruments reported on the balance sheet due to their short-term nature.
Annual Report and AGM
The annual report will be available on the Company's website, www.cazapetro.com,
and posted to shareholders shortly. The annual report will be accompanied by an
information circular and a notice of the annual general meeting of the company
which will be held at 10:00a.m. on or about May 27, 2008 at the Woodlands
Waterway Marriott, located at 1601 Lake Robbins Drive, The Woodlands, Texas.
-30-
FOR FURTHER INFORMATION PLEASE CONTACT:
Caza Oil & Gas, Inc.
John McGoldrick
Executive Chairman
(281) 363-4442
Email: jmcgoldrick@cazapetro.com
Website: www.cazapetro.com
OR
Noble & Company Limited
Nick Naylor / Jamie Boyd
Nominated Adviser and Joint Broker
+44 (0) 20 7763 2200
OR
Aquila Financial Ltd.
Peter Reilly
Financial Public Relations Advisers
+44 (0) 20 7202 2601
The Toronto Stock Exchange has neither approved nor disapproved the information
contained herein.
INDUSTRY: Energy and Utilities-Oil and Gas
SUBJECT: ERN
-0-
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SDWEESSASEFD
Caza Oil & Gas (LSE:CAZA)
Historical Stock Chart
From Aug 2024 to Sep 2024
Caza Oil & Gas (LSE:CAZA)
Historical Stock Chart
From Sep 2023 to Sep 2024
