TIDMCAZA
RNS Number : 1082S
Caza Oil & Gas, Inc.
15 November 2011
November 15, 2011
Caza Oil & Gas, Inc.
CAZA OIL & GAS ANNOUNCES THIRD QUARTER RESULTS
AND PROVIDES OPERATIONAL UPDATE
HOUSTON, TEXAS(Marketwire - November 15, 2011) - Caza Oil &
Gas, Inc. ("Caza" or the "Company") (TSX:CAZ) (AIM:CAZA), the U.S.
focused exploration, appraisal, development and production company,
is pleased to provide its unaudited financial and operational
results for the nine months ended September 30, 2011.
Third Quarter Financial Highlights
-- Caza's production increased 66% to 21,476 Boe for the
three-month period ended September 30, 2011, from 12,949 Boe for
the comparative period in 2010. This represents an average daily
production rate increase of 92 Boe/d for the three month period
ended September 30, 2011, 233 Boe/d as compared to 141 Boe/d for
the comparative period. Q3 2011 production was 3,346 Boe higher
than Q2 2011 (which was 18,130 Boe), due to additional wells coming
on line.
-- Caza had a cash balance of $16,031,398 as of September 30,
2011, as compared to $3,605,393 at September 30, 2010, and
$33,885,900 at December 31, 2010. The increase is attributable to
the placing announced on November 15, 2010. Caza's working capital
balance at September 30, 2011, was $14,146,741 as compared to
$20,870,708 at June 30, 2011. The decrease in Caza's working
capital balance primarily represents the investments made to drill
the O.B. Ranch #2 development well in Wharton County, Texas, the
Caza Elkins 3401 and 3402 wells in Midland County, Texas, and the
Caza 158 #3 in Upton County, Texas.
-- Revenues from oil and gas sales increased 152% to $995,466
for the three-month period ended September 30, 2011, up from
$395,725 for the comparative period in 2010. The increase in
revenues was primarily due to the additional wells brought on since
the comparative period. The average combined price received by Caza
increased 52% to $46.35 per Boe during the three-month period ended
September 30, 2011, from $30.56 per Boe during the comparative
period in 2010.
-- General and Administrative expenses were $1,297,623
($1,260,103 net of reimbursements) for the three-month period ended
September 30, 2011, as compared to $979,466 ($937,352 net of
reimbursements) for the comparative period in 2010. The change in
General and Administrative costs are a result of additional costs
incurred for geological and geophysical work associated with
Atchafalaya Bay, the Bol Mex merge area and Southeast New
Mexico.
Third Quarter Operational Highlights
-- Hite Offset Property, Wharton County, Texas. Operations are
continuing on the Caza McMillan #1 re-entry well to test the Yegua
9,650 sand. Caza will update the market accordingly upon completion
of this well.
Caza currently has a 42.53% working interest and a 31.05% net
revenue interest in the Caza McMillan #1 well.
-- San Jacinto Property, Midland County, Texas. As previously
announced, the Caza Elkins 3401 and 3402 wells have been fracture
stimulated and are producing across multiple pay intervals
including: the Dean, Wolfcamp, Strawn, Atoka and Mississippian
formations with additional Spraberry intervals to be fracture
stimulated at a later date. The 3402 well is scheduled to be
fracture stimulated in the Spraberry in December 2011, which should
bolster the producing rates associated with this well. Caza has
five additional proven undeveloped locations to drill on the San
Jacinto property. The next two wells on this property were planned
for the fourth quarter of 2011, however, the scheduling of these
wells may be subject to change in the context of a more
comprehensive drill plan for 2012.
Caza currently has an 85% working interest in the Caza Elkins
3401 well with a 63.75% net revenue interest. In all subsequent
wells on the San Jacinto property, including the Caza Elkins 3402
well, Caza will have a 75% working interest and a 56.25% net
revenue interest.
W. Michael Ford, Chief Executive Officer commented:
"Caza continued its positive operational and financial results
for the third quarter of 2011. The recent addition of Randy
Nickerson, as Vice President, Exploration, will help focus the
Company's strategy for growth, which is focused on delivering
increased production levels, cash flows and proven reserves through
the development of currently producing assets and the continued
drilling of our diverse project inventory. We are well funded and
have a good mix of projects, which we are in the process of risking
in order to plan our drilling strategy for the coming year."
Copies of the Company's unaudited financial statements for the
second quarter ended September 30, 2011, and the accompanying
management's discussion and analysis are available on SEDAR at
www.sedar.com and the Company's website at www.cazapetro.com.
About Caza
Caza is engaged in the acquisition, exploration, development and
production of hydrocarbons in the following regions of the United
States of America through its subsidiary, Caza Petroleum, Inc.:
Texas and Louisiana Gulf Coast (on-shore), and the Permian Basin
(West Texas and Southeast New Mexico).
For further information, please contact:
Caza Oil & Gas, Inc.
Michael Ford, CEO +1 432 682 7424
John McGoldrick, Chairman +1 832 573 1914/+44 7796 861 892
Cenkos Securities plc
Jon Fitzpatrick +44 20 7397 8900 (London)
Beth McKiernan +44 131 220 6939 (Edinburgh)
M: Communications
Patrick d'Ancona +44 20 7920 2330 (London)
Chris McMahon
The Toronto Stock Exchange has neither approved nor disapproved
the information contained herein.
In accordance with AIM Rules - Guidance Note for Mining, Oil and
Gas Companies, the information contained in this announcement 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.
ADVISORY STATEMENT
Information in this news release that is not current or
historical factual information may constitute forward-looking
information within the meaning of securities laws. Such information
is often, but not always, identified by the use of words such as
"seek", "anticipate", "plan", "schedule", "continue", "estimate",
"expect", "may", "will", "project", "predict", "potential",
"intend", "could", "might", "should", "believe", "develop", "test",
"anticipation" and similar expressions. In particular, information
regarding the depth, timing and location of future drilling,
intended production testing and the Company's future working
interests and net revenue interests in properties contained in this
news release constitutes forward-looking information within the
meaning of securities laws.
Implicit in this information, are assumptions regarding the
success and timing of drilling operations, rig availability,
projected revenue and expenses and well performance. These
assumptions, although considered reasonable by the Company at the
time of preparation, may prove to be incorrect. Readers are
cautioned that actual future operations, operating results and
economic performance of the Company are subject to a number of
risks and uncertainties, including general economic, market and
business conditions and could differ materially from what is
currently expected as set out above. In addition, the geotechnical
analysis and engineering to be conducted in respect of the various
wells is not complete. Future flow rates from wells may vary,
perhaps materially, and wells may prove to be technically or
economically unviable. Any future flow rates will be subject to the
risks and uncertainties set out herein.
For more exhaustive information on these risks and uncertainties
you should refer to the Company's most recently filed annual
information form which is available at www.sedar.com and the
Company's website at www.cazapetro.com. You should not place undue
importance on forward-looking information and should not rely upon
this information as of any other date. While we may elect to, we
are under no obligation and do not undertake to update this
information at any particular time except as may be required by
securities laws.
Boe may be misleading, particularly if used in isolation. A Boe
conversion ratio of 6 Mcf : 1 bbl 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.
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Financial Position
(Unaudited)
September 30, December 31, January 1,
(In United States dollars) 2011 2010 2010
Assets
Current
Cash and cash equivalents $ 16,031,398 $33,885,900 $ 9,268,547
Accounts receivable 2,313,360 2,554,913 3,973,085
Prepaid and other 121,105 291,517 278,914
--------------- -------------- --------------
18,465,863 36,732,330 13,520,546
Exploration and evaluation assets (Note 3) 5,846,753 7,371,582 11,662,047
Petroleum and natural gas properties
and equipment (Note 4) 38,183,937 29,379,862 24,548,233
--------------- -------------- --------------
$ 62,496,553 $73,483,774 $49,730,826
--------------- -------------- --------------
Liabilities
Current
Accounts payable and accrued
liabilities $4,319,122 $ 7,362,243 $ 5,144,083
Decommissioning liabilities (Note 5) 1,083,637 807,754 706,541
--------------- -------------- --------------
5,402,759 8,169,997 5,850,624
Shareholders' Equity
Share capital (Note 6(b)) 75,032,482 75,013,680 50,293,526
Contributed surplus (Note 6(d)) 9,400,338 9,363,598 5,175,086
Deficit (as restated, Note 11) (29,826,627) (22,700,262) (12,506,981)
--------------- -------------- --------------
Equity attributable to owners of the
Company 54,606,193 61,677,016 42,961,631
Non-controlling interests (as restated, Note 11) 2,487,601 3,636,761 918,571
--------------- -------------- --------------
Total equity 57,093,794 65,313,777 43,880,202
--------------- -------------- --------------
$ 62,496,553 $ 73,483,774 $ 49,730,826
--------------- -------------- --------------
See accompanying notes to the interim condensed consolidated financial statements
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Comprehensive Loss
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
(In United States dollars) 2011 2010 2011 2010
-------------------------------------------------- ------------ ------------ ------------ ------------
Revenue and other
Petroleum and natural gas $ 995,466 $ 395,725 $ 2,883,245 $ 1,491,273
Gain on sale of assets - - - 728,239
Interest income 1,836 172 14,875 474
------------ ------------ ------------ ------------
997,302 395,897 2,898,120 2,219,986
------------ ------------ ------------ ------------
Expenses
Production 257,504 132,220 609,239 541,319
General and administrative 1,260,103 937,352 3,756,102 2,158,155
Depletion, depreciation and amortization 733,994 421,664 2,132,729 1,615,093
Financing costs - unwinding of the discount 3,169 6,322 16,363 18,965
Other expense (income) 9,821 - (86,371) -
Development and production impairment 72,252 141,156 145,435 141,156
Exploration and evaluation impairment 1,683,930 - 4,600,148 3,698,514
------------ ------------ ------------ ------------
4,020,773 1,638,714 11,173,645 8,173,202
------------ ------------ ------------ ------------
Net loss (3,023,471) (1,242,817) (8,275,525) (5,953,216)
------------ ------------ ------------ ------------
Attributable to (as restated, Note 11):
Owners of the Company (2,603,738) (1,016,943) (7,126,365) (4,871,257)
Non-controlling interests (419,733) (225,874) (1,149,160) (1,081,959)
------------ ------------ ------------ ------------
(3,023,471) (1,242,817) (8,275,525) (5,953,216)
------------ ------------ ------------ ------------
Net loss per share
- basic and diluted $ (0.02) $ (0.01) $ (0.05) $ (0.05)
Weighted average shares outstanding
- basic and diluted (1) 164,400,380 119,319,000 164,350,478 119,319,000
============ ============ ============ ============
(1) All options and warrants have been excluded from the diluted loss per share computation
as they are anti-dilutive.
See accompanying notes to the interim condensed consolidated financial statements
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended
September 30,
(In United States dollars) 2011 2010
---------------------------------- -------------- -------------
OPERATING
Net loss for the period (8,275,525) (5,953,216)
Adjustments for items not
affecting cash:
Depletion, depreciation and
amortization 2,132,729 1,615,093
Unwinding of the discount 16,363 18,965
Share-based compensation 44,482 94,449
Development and production
impairment
properties 145,435 141,156
Exploration and evaluation
impairment 4,600,148 3,698,514
Gain on sale of assets (54,185) (728,239)
Changes in non-cash working
capital (Note 8(a)) 52,041 (323,384)
-------------- -------------
Cash flows used in operating
activities (1,338,512) (1,436,662)
-------------- -------------
FINANCING
Proceeds from issuance of 11,060 -
shares
Changes in non-cash working
capital(Note 8(a)) (9,310)
-------------- -------------
Cash flow from (used in) 1,750 -
financing activities
-------------- -------------
INVESTING
Exploration and evaluation
expenditures (8,030,035) (3,435,157)
Development and production
expenditures (5,794,939) (2,483,740)
Purchase of office furniture
and equipment (18,879) (77,794)
Proceeds from the sale of
oil & gas assets - 1,800,000
Partner reimbursement - 988,850
Changes in non-cash working
capital (Note 8(a)) (2,673,887) (1,018,651)
-------------- -------------
Cash flows used in investing
activities (16,517,740) (4,226,492)
-------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (17,854,502) (5,663,154)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,885,900 9,268,547
-------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 16,031,398 3,605,393
============== =============
Supplementary information (Note 8)
See accompanying notes to the interim condensed
consolidated financial statements
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Changes in Equity
(Unaudited)
For the nine month periods ended September
30, 2011 2010
-------------------------------------------------- -------------- --------------
Share Capital
Balance, Beginning of Period 75,013,680 50,293,526
Common Shares Issued 18,802 (3,270,150)
Balance, End of Period 75,032,482 47,023,376
-------------- --------------
Contributed Surplus
Balance, Beginning of Period 9,363,598 5,175,086
Expired broker warrants - 3,270,150
Exercise of stock options (7,742) -
Share-Based Compensation 44,482 235,008
Balance, End of Period 9,400,338 8,680,244
-------------- --------------
Deficit (as restated, Note 11)
Balance, Beginning of Period (22,700,262) (12,506,981)
Net Loss (7,126,365) (4,871,257)
Balance, End of Period (29,826,627) (17,378,238)
-------------- --------------
Non-Controlling Interests (as restated,
Note 11)
Balance, Beginning of Period 3,636,761 918,571
Net loss allocated to non-controlling interests (1,149,160) (1,081,959)
Balance, End of Period 2,487,601 (163,388)
-------------- --------------
Total Shareholders' Equity 57,093,794 38,161,994
-------------- --------------
See accompanying notes to the interim condensed consolidated
financial statements
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. The Company's common shares are
listed for trading on the TSX and AIM stock exchanges.
In conjunction with the Company's annual audited Consolidated
Financial Statements to be issued under International Financial
Reporting Standards ("IFRS") for the year ended December 31, 2011,
these interim Condensed Consolidated Financial Statements present
Caza's financial results of operations and financial position under
IFRS as at and for the three and nine months ended September 30,
2011, including 2010 comparative periods. As a result, they have
been prepared in accordance with IFRS 1, "First-time Adoption of
International Reporting Standards" and with International
Accounting Standards ("IAS") 34, "Interim Financial Reporting", as
issued by the International Accounting Standards Board ("IASB")
using the accounting policies the Company expects to adopt in its
consolidated financial statements for the year ending December 31,
2011.
These interim Condensed Consolidated Financial Statements do not
include all the necessary annual disclosures in accordance with
IFRS. Prior to 2011 reporting, the Company prepared its interim and
annual consolidated financial statements in accordance with
Canadian general accepted accounting principles ("Canadian
GAAP").
The preparation of these interim Condensed Consolidated
Financial Statements resulted in selected changes to Caza's
accounting policies as compared to those disclosed in the Company's
annual audited Financial Statements for the period ended December
31, 2010 issued under GAAP. A summary of the significant changes to
Caza's accounting policies is disclosed in Note 11 along with
reconciliations presenting the impact of the transition to IFRS for
the comparative periods as at January 1, 2010, as and for the nine
months ended September 30, 2010, and as at for the twelve months
ended December 31, 2010.
Caza's reporting currency is the United States ("U.S.") dollar
as the majority of its transactions are denominated in the
currency.
2. Significant Accounting Policies
The accounting policies set out below have been applied
consistently to all years presented in these condensed consolidated
financial statements, and have been applied consistently by the
Company and its subsidiaries.
(a) Basis of consolidation:
Subsidiaries:
Subsidiaries are entities controlled by the Company. Control
exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that
currently are exercisable are taken into account. The financial
statements of subsidiaries are included in the condensed
consolidated financial statements from the date that control
commences until the date that control ceases.
Details of the Company's subsidiaries at the end of the
reporting period are as follows.
Proportion of ownership
Place of interest and voting
incorporation power held by the
Name of subsidiary and operation Company
---------------------- --------------- -------------------------
September
30,
December
2011 31, 2010
---------------------- --------------- ------------ -----------
Caza Petroleum Inc. Delaware/Texas 86% 82%
Caza Operating, LLC Texas 100% 100%
Falcon Bay Operating,
LLC Texas 100% 100%
Falcon Bay Sutton
County, LLC Texas 100% 100%
The proportion not owned by the Company is shown as
non-controlling interests in these financial statements and relates
to exchangeable rights in Caza Petroleum Inc. which are held by
management and which are exchangeable into the Company's shares
(see Note 6 (e)).
Jointly controlled operations and jointly controlled assets:
Many of the Company's oil and natural gas activities involve
jointly controlled assets. The condensed consolidated financial
statements include the Company's share of these jointly controlled
assets and a proportionate share of the relevant revenue and
related costs.
Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized
income and expenses arising from intercompany transactions, are
eliminated in preparing the condensed consolidated financial
statements.
(b) Foreign currency:
The Company, its subsidiary companies each determines their
functional currency of the primary economic environment in which
they operate. The Company's (and its subsidiaries) functional
currency is the U.S. Dollar. Transactions denominated in a currency
other than the functional currency of the entity are translated at
the exchange rate in effect on the transaction date.
(c) Financial instruments:
Non-derivative financial instruments:
Non-derivative financial instruments comprise accounts
receivable, cash and cash equivalents, accounts payable and accrued
liabilities. Non-derivative financial instruments are recognized
initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, non-derivative financial
instruments are measured as described below.
Cash and cash equivalents:
Cash and cash equivalents comprise cash on hand, term deposits
held with banks, other short-term highly liquid investments
(including money market instruments) with original maturities of
three months or less.
Financial assets at fair value through profit or loss:
An instrument is classified at fair value through profit or loss
if it is held for trading or is designated as such upon initial
recognition. Upon initial recognition attributable transaction
costs are recognized in profit or loss when incurred. Financial
instruments at fair value through profit or loss are measured at
fair value, and changes therein are recognized in profit or loss.
The Company has designated cash and cash equivalents as fair value
through profit and loss.
Other:
Other non-derivative financial instruments, such as accounts
receivable and accounts payable and accrued liabilities, are
measured at amortized cost using the effective interest method,
less any impairment losses.
(d) Evaluation and exploration assets:
Pre-license costs are expensed in the statement of operations as
incurred.
Exploration and evaluation ("E&E") costs, including the
costs of acquiring licenses and directly attributable general and
administrative costs, initially are capitalized as either tangible
or intangible exploration and evaluation assets according to the
nature of the assets acquired. The costs are accumulated in cost
centers by well, field or exploration area pending determination of
technical feasibility and commercial viability.
Assets classified as E&E are not amortized, but are assessed
for impairment if (i) sufficient data exists to determine technical
feasibility and commercial viability, and (ii) facts and
circumstances suggest that the carrying amount exceeds the
recoverable amount. For purposes of impairment testing, exploration
and evaluation assets are allocated to cash-generating units.
The technical feasibility and commercial viability of extracting
a mineral resource is considered to be determinable when proven
reserves are determined to exist. A review of each exploration
license or field is carried out, at least annually, to ascertain
whether proven reserves have been discovered. Upon determination of
proven reserves, exploration and evaluation assets attributable to
those reserves are first tested for impairment and then
reclassified from exploration and evaluation assets to a separate
category within tangible assets referred to as petroleum and
natural gas interests.
(e) Development and production costs:
Items of property, plant and equipment ("PPE"), which include
oil and gas development and production assets, are measured at cost
less accumulated depletion and depreciation and accumulated
impairment losses. Development and production assets are grouped
into cash-generating units ("CGU")'s for impairment testing.
The cost of property, plant and equipment at January 1, 2010,
the date of transition to IFRS, was determined by allocating the
net costs in the full cost pool to the areas within the CGU's
according to the proven and probable reserves of each area.
Development costs that may be capitalized as PPE include land
acquisition costs, geological and geophysical expenses, the costs
of drilling productive wells, the cost of petroleum and natural gas
production equipment, directly attributable and incremental general
overhead and estimated abandonment costs. When significant parts of
an item of property, plant and equipment, including oil and natural
gas interests, have different useful lives, they are accounted for
as separate items.
Gains and losses on disposal of an item of property, plant and
equipment, including oil and natural gas interests, are determined
by comparing the proceeds from disposal with the carrying amount of
property, plant and equipment and are recognized within "other
expenses (income)" in profit or loss. The carrying amount of any
replaced or sold component is derecognized.
Maintenance:
The costs of the day-to-day servicing of property, plant and
equipment are recognized in profit or loss as incurred.
Depletion and depreciation:
The net carrying value of development or production assets is
depleted using the unit of production method by reference to the
ratio of production in the year to the related proven reserves,
taking into account estimated future development costs necessary to
bring those proved reserves into production. Future development
costs are estimated taking into account the level of development
required to produce the reserves. These estimates are reviewed by
independent reserve engineers at least annually.
Other Property and Equipment:
For other assets, depreciation is recognized in profit or loss
on a straight-line basis over the estimated useful lives of each
part of an item of property, plant and equipment. Leased assets are
depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the Company will obtain
ownership by the end of the lease term. Land is not
depreciated.
The estimated useful lives for other assets for the current and
comparative years are as follows:
Office equipment 5 - 7 years
Fixtures and fittings 5 - 7 years
Depreciation methods, useful lives and residual values are
reviewed at each reporting date.
(f) Impairment:
Financial assets:
A financial asset is assessed at each reporting date to
determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that
asset.
An impairment loss in respect of a financial asset measured at
amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash
flows.
All impairment losses are recognized in profit or loss. An
impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was
recognized. For financial assets measured at amortized cost the
reversal is recognized in profit or loss.
Non-financial assets:
The carrying amounts of the Company's non-financial assets,
other than "E&E" assets and deferred tax assets, are reviewed
at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, then the asset's
recoverable amount is estimated. An impairment test is completed
each year for other intangible assets that have indefinite lives or
that are not yet available for use. E&E assets are also
assessed for impairment if facts and circumstances suggest that the
carrying amount exceeds the recoverable amount and before they are
reclassified to property and equipment, as oil and natural gas
interests.
For the purpose of impairment testing, assets are grouped
together into CGUs. A CGU is a grouping of assets that generate
cash flows independently of other assets held by the Company. The
recoverable amount of an asset or a CGU is the greater of its value
in use and its fair value less costs to sell.
An impairment loss is recognized if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in profit or loss.
Impairment losses recognized in prior years are assessed at each
reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have
been determined, net of depletion and depreciation or amortization,
if no impairment loss had been recognized.
(g) Decommissioning liabilities:
The Company recognizes a decommissioning liability in the period
in which it has a present legal or constructive liability and a
reasonable estimate of the amount can be made. Liabilities are
measured based on current requirements, technology and price levels
and the present value is calculated using amounts discounted over
the useful economic life of the assets. Amounts are discounted
using the risk-free rate. On a periodic basis, management reviews
these estimates and changes, if any, will be applied prospectively.
The fair value of the estimated decommissioning liability is
recorded as a long-term liability, with a corresponding increase in
the carrying amount of the related asset. The capitalized amount is
depleted on a unit-of-production basis over the life of the proved
reserves. The liability amount is increased each reporting period
due to the passage of time and the amount of accretion is charged
to finance expense in the period. Periodic revisions to the
estimated timing of cash flows or to the original estimated
undiscounted cost can also result in an increase or decrease to the
decommissioning liability. Actual costs incurred upon settlement of
the obligation are recorded against the decommissioning liability
to the extent of the liability recorded.
(h) Share capital:
Common shares are classified as equity. Incremental costs
directly attributable to the issue of common shares and share
options are recognized as a deduction from equity, net of any tax
effects.
(i) Share based payments:
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
equity instruments at the grant date.
The grant date fair value of options granted to employees is
recognized as compensation expense on a graded basis over the
vesting period, within general and administrative expenses, with a
corresponding increase in contributed surplus. A forfeiture rate is
estimated on the grant date; however, at the end of each reporting
period, the Company revises its estimate of the number of equity
instruments expected to vest. The impact of the revision of the
original estimates, if any, is recognized on a prospective
basis.
(j) Revenue:
Revenue from the sale of oil and natural gas is recorded when
the significant risks and rewards of ownership of the product is
transferred to the buyer which is usually when legal title passes
to the external party. This is generally at the time product enters
the pipeline or any other means of transportation. Revenue is
measured net of royalties.
(k) Finance income and expenses:
Finance expense comprises interest expense on borrowings, if
any, unwinding of the discount on decommissioning liabilities and
impairment losses recognized on financial assets.
Borrowing costs incurred for the construction of qualifying
assets are capitalized during the period of time that is required
to complete and prepare the assets for their intended use or sale.
All other borrowing costs are recognized in profit or loss using
the effective interest method. The capitalization rate used to
determine the amount of borrowing costs to be capitalized is the
weighted average interest rate applicable to the Company's
outstanding borrowings during the period.
Interest income is recognized as it accrues in profit or loss,
using the effective interest method.
(l) Earnings per share:
Basic earnings per share is calculated by dividing the profit or
loss attributable to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share is determined by adjusting the profit or loss
attributable to common shareholders and the weighted average number
of common shares outstanding for the effects of dilutive
instruments such as options granted to employees. 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) Application of new and revised International Financial
Reporting Standards (IFRSs) issued but not yet effective.
The Company has not applied the following new and revised IFRSs
that have been issued but are not yet effective.
IFRS 7 (revised) "Financial Instruments: Disclosures"
IFRS 9 (revised) "Financial Instruments: Classification and Measurement"
IAS 12 (revised) "Income Taxes"
IFRS 10 (new) "Consolidated Financial Statements"
IFRS 11 (new) "Joint Arrangements"
IFRS 12 (new) "Disclosure of Interests in Other Entities"
IAS 27 (revised) "Separate Financial Statements"
IAS 28 (revised) "Investments in Associates and Joint Ventures"
IFRS 13 (new) "Fair Value Measurement"
IAS 1 (revised) "Presentation of Financial Statements"
(n) Critical accounting judgments and key sources of estimation
uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the amounts reported in the interim condensed consolidated
financial statements and accompanying notes. Actual results could
differ from those estimates. The interim condensed consolidated
financial statements have, in management's opinion, been properly
prepared using careful judgment with reasonable limits of
materiality.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those
involving estimations (see below), that management has made in the
process of applying the Company's accounting policies and that have
the most significant effect on the amounts recognized in the
consolidated financial statements include:
a) Estimation of reserves
Estimates of recoverable quantities of proved and probable
reserves include judgmental assumptions and require interpretation
of complex geological and geophysical models in order to make an
assessment of the size, shape, depth and quality of reservoirs, and
their anticipated recoveries. The economic, geological and
technical factors used to estimate reserves may change from period
to period. Reserve estimates are prepared in accordance with the
Canadian Oil and Gas Evaluation Handbook and are reviewed by third
party reservoir engineers.
Estimates of oil and gas reserves are inherently imprecise,
require the application of judgment and are subject to regular
revision, either upward or downward, based on new information such
as from the drilling of additional wells, observation of long-term
reservoir performance under producing conditions and changes in
economic factors, including product prices, contract terms or
development plans
Changes in reported reserves can impact property, plant and
equipment impairment calculations, estimates of depletion and the
provision for decommissioning obligations due to changes in
expected future cash flows based on estimates of proved and
probable reserves, production rates, future petroleum and natural
gas prices, future costs and the remaining lives and period of
future benefit of the related assets.
b) Identification of cash-generating units
Management reviews the CGU determination on a periodic basis.
The recoverability of property, plant and equipment carrying values
are assessed at the CGU level. Determination of what constitutes a
CGU is subject to management judgments. The asset composition of a
CGU can directly impact the recoverability of the related
assets.
c) Estimation of fair value of stock options
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.
Key sources of estimation uncertainty
The following are the key assumptions concerning the key sources
of estimation uncertainty at the end of the reporting period, that
have a significant risk of causing adjustments to the carrying
amounts of assets and liabilities within the next financial
year.
-- Estimates of recoverable quantities of proved and probable
reserves include judgmental assumptions and the economic,
geological and technical factors used to estimate reserves may
change from period to period
-- Forward price estimates of the oil and natural gas prices are
used in the impairment model. Commodity prices have fluctuated
widely in recent years due to global and regional factors including
supply and demand fundamentals, inventory levels, weather, economic
and geopolitical factors.
-- The impairment model uses discount rate to calculate the net
present value of cash flows based on weighted average cost of
capital estimates. Changes in the general economic environment
could result in significant changes in this estimate.
-- Amounts recorded from joint venture partners are based on the
Company's interpretation of underlying agreements and may be
subject to joint approval. The Company has recorded balances due
from its joint venture partners based on costs incurred and its
interpretation of allowable expenditures. Any adjustment required
as a result of joint venture audits are recorded in the period of
the determination with joint venture partners.
-- The provision for site restoration and abandonment is based
on current legal and constructive requirements, technology, price
levels and expected plans for remediation. Actual costs and cash
outflows can differ from estimates because of changes in laws and
regulations, public expectations, prices and discovery and analysis
of site conditions and changes in clean-up technology.
The above judgments, estimates and assumptions relate primarily
to unsettled transactions and events as of the date of the
consolidated financial statements. Actual results could differ from
these estimates and the differences could be material.
3. Exploration and evaluation assets
September 30, 2011 December 31, 2010
------------------------------------------------ ------------------- ------------------
Balance, beginning of period $ 7,371,582 $ 11,662,047
Additions to exploration and evaluation assets 8,044,843 3,793,883
Transfers to property, plant and equipment (4,969,524) (4,385,834)
Unsuccessful exploration and evaluation costs (4,600,148) (3,698,514)
Balance, end of period $ 5,846,753 $ 7,371,582
------------------------------------------------ ------------------- ------------------
During the nine month period ended September 30, 2011, the
Company expensed $3,872,640 of exploration and evaluation costs of
which $2,915,699 related to the Marian Baker et al, No 1 drilled
during the period ended March 31, 2011 that did not encounter
hydrocarbons as well as an adjustment to the valuation of the Las
Animas prospect. The balance of the costs expensed related to other
leasehold and prospect expenditures that have expired or no longer
prospective for the Company.
4. Petroleum and natural gas properties and equipment
Development & Production Assets Corporate Assets Total
----------------------------- -------------------------------- ----------------- -------------
Cost
Balance, January 1, 2010 $ 24,205,722 $ 730,209 $ 24,935,931
Additions 3,465,058 77,794 3,542,852
Disposals (671,761) - (671,761)
Transfers from E&E 4,385,834 - 4,385,834
Balance, December 31, 2010 $ 31,384,853 $ 808,003 $ 32,192,856
Additions 6,141,279 18,879 6,160,158
Disposal (47,444) - (47,444)
Transfers from E&E 4,969,524 - 4,969,524
----------------------------- -------------------------------- ----------------- -------------
Balance, September 30, 2011 $ 42,448,212 $ 826,882 $ 43,275,094
----------------------------- -------------------------------- ----------------- -------------
Development & Production Assets Corporate Assets Total
---------------------------------------- -------------------------------- ----------------- ------------
Accumulated Depletion and Depreciation
Balance, January 1, 2010 $ - $ 387,698 $ 387,698
Depletion and depreciation 2,094,080 151,516 2,245,596
Impairment 179,700 - 179,700
Reversal of impairment - - -
Balance, December 31, 2010 $ 2,273,780 $ 539,214 $ 2,812,994
Depletion and depreciation 2,021,793 110,936 2,132,729
Impairment 145,954 - 145,954
Reversal of impairment (520) - (520)
---------------------------------------- -------------------------------- ----------------- ------------
Balance, September 30, 2011 $ 4,441,007 $ 650,150 $ 5,091,157
---------------------------------------- -------------------------------- ----------------- ------------
Carrying amounts
At January 1, 2010 $24,205,722 $ 342,511 $24,548,233
At December 31, 2010 $29,111,073 268,789 29,379,862
At September 30, 2011 $38,007,205 176,732 38,183,937
----------------------- ------------ ---------- ------------
Future development costs of proved undeveloped reserves of
$15,028,250 were included in the depletion calculation at September
30, 2011 and $9,292,700 for the period ended December 31, 2010.
During the three and nine months ended September 30, 2011 the
Company did not capitalize general and administrative expenses
(September 30, 2010 - $74,026 and $264,095) directly relating to
exploration and development activities of which $9,937 and $160,202
related to stock based compensation for the three and nine months
ended September 30, 2010.
5. Decommissioning Liabilities
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:
Year ended
September December
30, 2011 31, 2010
---------- ----------
Decommissioning liabilities, beginning
of period $807,754 $706,541
Obligations incurred 131,319 75,928
Revision in estimated cash flows and discount
rate 358,526 -
Obligations settled (230,325) -
Unwinding of the discount 16,363 25,285
Decommissioning liabilities, end of period $1,083,637 $807,754
---------- ----------
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 $1,680,023
(December 31, 2010 - $1,032,726). The obligation was calculated
using a risk free discount rate of 2.5 percent (December 31, 2010 -
4.19%) 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 2012 and 2030.
6. Share Capital
(a) Authorized
Unlimited number of voting common shares.
Issued
Nine Months Ended Year Ended
September 30, 2011 December 31, 2010
Shares Amounts Shares Amounts
Opening balance common
shares 164,319,000 $75,013,680 119,319,000 $46,423,526
Exercise of stock options
(i) 158,000 18,802
Private placement (ii) - - 45,000,000 28,590,154
Balance end of year 164,477,000 75,032,482 164,319,000 75,013,680
-------------------------- ----------- ------------ ------------ ------------
Opening balance warrants - - 19,800,000 3,870,000
Expired common warrants
(iii) - - (19,800,000) (3,870,000)
Balance end of year - - - -
-------------------------- ----------- ------------ ------------ ------------
$75,032,482 $75,013,680
-------------------------- ----------- ------------ ------------ ------------
(i) The Company issued 158,000 common shares as a result of
exercised stock options
(ii) The Company issued 45,000,000 common shares in a private
placement at approximately $0.67 (United Kingdom 42 pence per
common share). Pursuant to this private placement, the Company
incurred $1,545,896 of share issuance costs.
(iii) 18,000,000 warrants for the purchase of 19,800,000 common
shares have expired as at December 31, 2010
(c) Stock options
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 (plus common shares that
would be outstanding upon the exercise of all exchangeable rights)
at the time of grant of any option. 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 a stock 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 331/3% on the first anniversary of
the date of grant and 331/3% on each of the following two
anniversaries of the date of grant. All options granted to a
participant but not yet vested will vest immediately upon a change
of control or upon the Company's termination of a participant's
employment without cause. A summary of the Company's stock option
plan as at September 30, 2011 and December 31, 2010 and changes
during the respective period and year ended on those dates is
presented below.
Nine months ended Year ended
September 30, 2011 December 31, 2010
Weighted Weighted
average average
Number Exercise Number of exercise
Stock Options of options price options price
--------------------------- ------------------ ---------------- ------------------ ----------------
Beginning of period 12,635,000 $0.28 5,371,667 $0.62
Granted - - 7,970,000 0.07
Exercised (158,000) 0.07 - -
Forfeited (1,870,000) 0.08 (706,667) 0.66
------------------ ---------------- ------------------ ----------------
End of period 10,607,000 $0.31 12,635,000 $0.28
------------------ ---------------- ------------------ ----------------
Exercisable, end
of period 6,810,332 $0.45 4,418,333 $0.63
================== ================ ================== ================
Weighted
Number Average Number
Outstanding Remaining Exercisable
as at September Exercise Contractual Date of September
Date of Grant 30, 2011 Price Life Expiry 30, 2011
--------------- ----------------- --------- ------------- -------------- ------------------
January 31, January 31,
2007 2,025,000 $ 0.50 5.34 2017 2,025,000
December 12, December 12,
2007 1,900,000 $ 0.79 6.21 2017 1,900,000
April 7, 2008 500,000 $ 0.59 6.52 April 7, 2018 500,000
August 11, August 11,
2008 220,000 $ 0.44 6.87 2018 220,000
April 9, 2010 5,292,000 $ 0.07 8.53 April 9, 2020 1,941,999
April 12, April 12,
2010 400,000 $ 0.07 8.54 2020 133,333
May 19, 2010 250,000 $ 0.07 8.64 May 19, 2020 83,333
September September
14, 2010 20,000 $ 0.35 8.96 14, 2020 6,667
10,607,000 7.38 6,810,332
No options were granted during the nine months period ended
September 30, 2011. During the year ended December 31, 2010,
7,950,000 options were granted at a fair value of $0.05 per option
and 20,000 options were granted at a fair value of $0.24 per
option. The fair value of these options was determined using the
Black-Sholes model with the following assumptions:
Dividend yield Nil
Expected volatility 115%
Risk free rate of return 4.00%
Weighted average life 3 years
Forfeiture rate 9.5%
(d) Contributed surplus
The following table presents the changes in contributed
surplus:
September
30,
December
2011 31, 2010
------------------------------ ------------ -------------
Balance, beginning of period $ 9,363,598 $ 5,175,086
Expired broker warrants(i) - 3,870,000
Exercise of stock options (7,742) -
Stock based compensation 44,482 318,512
------------ -------------
Balance, end of period $ 9,400,338 $ 9,363,598
------------------------------ ------------ -------------
(i) During the period ended December 31, 2010 19,800,000
warrants expired with a value of $3,870,000.
(e) Non-controlling interest
September December
30, 2011 31, 2010
Opening balance non-controlling
interest (exchangeable
rights) (i) 26,502,000 26,502,000
Balance end of period 26,502,000 26,502,000
-------------------------------- ---------- ----------
(i) Management has a non-controlling interest in the Company
which allows shares of Caza Petroleum, Inc. to be exchanged into
the Company's shares at an exchange rate of 2800 to 1.
7. Related Party Transactions
The aggregate amount of expenditures made to related
parties:
During the years 2010 and 2011, Singular Oil & Gas Sands,
LLC ("Singular") agreed to participate in the drilling of the
Matthys McMillan Gas Unit #2 and the O B Ranch #1 and 2 wells
located in Wharton County, Texas. Under the terms of that
agreement, Singular paid 14.01% of the drilling costs through
completion to earn a 10.23% net revenue interest on the Matthys
McMillan Gas Unit #2 well and paid 12.5% of the drilling costs to
earn a 6.94% net revenue interest on the O B Ranch #1 well. Under
the terms of the agreement of the O B Ranch #2 Singular paid 9.375%
of the drilling costs to earn approximately 6.8% net revenue
interest. 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 owes the Company $232,153 in joint
venture partner receivables as at September 30, 2011 (December 31,
2010 - $19,968; January 1, 2010 - $7,819). Singular is a related
party as it is a company under common control with Zoneplan
Limited, which is a significant shareholder of Caza.
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.
Cash remuneration of key management personnel of the Company,
which includes directors, officers and other key personnel, is set
out below in aggregate:
Nine months Nine months
ended ended
September September
30, 30,
2011 2010
----------------------------------------- ------------ ------------
Salaries and wages $ 755,591 $ 907,829
Short term benefits - -
Share-based payments - 281,750
----------------------------------------- ------------ ------------
Total compensation $ 755,591 $ 1,189,579
----------------------------------------- ------------ ------------
8. Supplementary Information
(a) net change in non-cash working capital
Nine months ended
September 30,
2011 2010
------------------------------ ------------- -------------
Provided by (used in)
Accounts receivable 241,553 755,817
Prepaid and other 170,412 195,890
Accounts payable and accrued
liabilities (3,043,121) (2,293,742)
------------- -------------
(2,631,156) (1,342,035)
------------- -------------
Summary of changes
Operating 52,041 (323,384)
Investing (2,673,887) (1,018,651)
Financing (9,310) -
------------- -------------
(2,631,156) (1,342,035)
------------- -------------
(b) supplementary cash flow information
Nine months Nine months
Ended Ended
September
September 30, 30,
2011 2010
------------------- --------------- ------------
Interest paid $- $-
Interest received 14,875 474
(c) cash and cash equivalents
September 30, December 31, January 1,
2011 2010 2010
--------------------------- --------------- ------------- -------------
Cash on deposit $2,901,580 $ 3,010,615 $ 1,991,207
Money market instruments 13,129,818 30,875,285 7,277,340
--------------- ------------- -------------
Cash and cash equivalents $ 16,031,398 $33,885,900 $ 9,268,547
=============== ============= =============
The money market instruments bear interest at a rate of 0.057%
as at September 30, 2011
(December 31, 2010 - 0.136%). Cash on deposit is held with Wells
Fargo Bank Texas and the money market account is a fund managed by
Wells Fargo Brokerage Services, LLC investing in U.S. Treasury Bill
securities.
9. Capital Risk Management
The Company's objectives when managing capital is to safeguard
the entity's ability to continue as a going concern, so that it can
continue to provide returns for shareholders and benefits for other
stakeholders. The Company defines capital as shareholder's equity,
working capital and credit facilities when available. The Company
manages the capital structure in light of changes in economic
conditions and the risk characteristics of the underlying assets.
The Company's objective is met by retaining adequate equity and
working capital to provide for the possibility that cash flows from
assets will not be sufficient to meet future cash flow
requirements. The Board of Directors does not establish
quantitative return on capital criteria for management; but rather
promotes year over year sustainable profitable growth.
September 30, December 31, January 1,
2011 2010 2010
--------------------------- -------------- ------------- --------------
Cash and cash equivalents $ 16,031,398 $ 33,885,900 $9,268,547
Other current assets 2,434,465 2,846,430 4,251,999
Accounts payable and
accrued
liabilities (4,319,122) (7,362,243) (5,144,083)
--------------------------- -------------- ------------- --------------
Net working capital $ 14,146,741 $ 29,370,087 $8,376,463
Shareholders' equity $ 57,093,794 $ 65,313,777 $ 43,880,202
-------------- ------------- --------------
Total capital $ 42,947,053 $ 35,943,690 $ 35,503,739
--------------------------- -------------- ------------- --------------
The Company has evaluated its net working capital balance as at
December 31, 2010. Due to long lead times on several of the
Company's exploration and development projects, from time to time
the Company secures capital to fund its investments in petroleum
and natural gas exploration projects in advance which has resulted
in a net working capital balance. As exploration and development
projects progress the Company expects the net working capital
balance to significantly decrease from current levels, and
additional capital may be required to fund additional projects. If
the Company is unsuccessful in raising additional capital, the
Company may have to sell or farm out certain properties. If the
Company cannot sell or farm out certain properties, it will be
unable to participate with joint venture partners and may forfeit
rights to some of its properties.
10. Financial Instruments
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 and natural gas
liquids commodity prices. To date the Company has not entered into
any forward commodity contracts.
(b) Credit Risk
Credit risk arises when a failure by counter parties to
discharge their obligations could reduce the amount of future cash
inflows from financial assets on hand at the condensed consolidated
statement of financial position date. A majority of the Company's
financial assets at the condensed consolidated statement of
financial position date arise from natural gas liquids and natural
gas sales and the Company's accounts receivable that are with these
customers and joint venture participants in the oil & natural
gas industry. Industry standard dictates that commodity sales are
settled on the 25th day of the month following the month of
production. The Company's natural gas and condensate 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 three and nine month ended period September 30, 2011,
the Company sold 63.30% and 66.22% respectively (three and nine
months ended September 30, 2010 - 66.12% and 52.03% respectively)
of its natural gas and condensates to a single purchaser. These
sales were conducted on transaction terms that are typical for the
sale of natural gas and condensates in the United States. In
addition, when joint operations are conducted on behalf of a joint
venture partner relating to capital expenditures, costs of such
operations are paid for in advance to the Company by way of a cash
call to the partner of the operation being conducted.
Caza management assesses quarterly whether there should be any
impairment of the financial assets of the Company. At September 30,
2011, the Company had overdue accounts receivable from certain
joint interest partners of $17,623 which were outstanding for
greater than 60 days and $610,172 that were outstanding for greater
than 90 days. At September 30, 2011, the Company's two largest
joint venture partners represented approximately 20% and 11% of the
Company's receivable balance (December 31, 2010 25% and 15%
respectively). The maximum exposure to credit risk is represented
by the carrying amount on the condensed consolidated statement of
financial position of cash and cash equivalents, accounts
receivable and deposits. The Company has their checking and money
markets accounts with Wells Fargo Bank Texas, N.A. The money market
is backed by United States treasury bills.
(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. At September 30, 2011, the Company
considers this risk to be relatively limited and not material and
therefore does not hedge its foreign exchange risk.
(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 condensed
consolidated statement of financial position due to their
short-term nature.
IFRS establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The
three levels of the fair value hierarchy are described below:
-- Level 1: Values based on unadjusted quoted prices in active
markets that are accessible at the measurement date for identical
assets or liabilities.
-- Level 2: Values based on quoted prices in markets that are
not active or model inputs that are observable either directly or
indirectly for substantially the full term of the asset or
liability.
-- Level 3: Values based on prices or valuation techniques that
require inputs that are both unobservable and significant to the
overall fair value measurement.
The Company's cash and cash equivalents, which are classified as
fair value through profit or loss, are categorized as Level 1
financial instruments.
All other financial assets are classified as loans or
receivables and are accounted for on an amortized cost basis. All
financial liabilities are classified as other liabilities. There
are no financial assets on the condensed consolidated statement of
financial position that have been designated as available-for-sale.
There have been no changes to the aforementioned classifications
during the periods presented.
(e) Liquidity Risk
Liquidity risk includes the risk that, as a result of our
operational liquidity requirements:
-- The Company will not have sufficient funds to settle a transaction on the due date;
-- The Company will be forced to sell assets at a value which is
less than what they are worth; or
-- The Company may be unable to settle or recover a financial asset at all.
The Company's operating cash requirements including amounts
projected to complete the Company's existing capital expenditure
program are continuously monitored and adjusted as input variables
change. These variables include but are not limited to, available
bank lines, natural gas production from existing wells, results
from new wells drilled, commodity prices, cost overruns on capital
projects and regulations relating to prices, taxes, royalties, land
tenure, allowable production and availability of markets. As these
variables change, liquidity risks may necessitate the Company to
conduct equity issues or obtain project debt financing. The Company
also mitigates liquidity risk by maintaining an insurance program
to minimize exposure to insurable losses. The financial liabilities
as at September 30, 2011 that subject the Company to liquidity risk
are accounts payable and accrued liabilities. The contractual
maturity of these financial liabilities is generally the following
sixty days from the receipt of the invoices for goods of services
and can be up to the following next six months. Management believes
that current working capital will be adequate to meet these
financial liabilities as they become due.
11. Transition to IFRS
The Company has adopted IFRS effective January 1, 2010 (the
"transition date") and has prepared its opening IFRS condensed
consolidated statement of financial position as at that date. Prior
to the adoption of IFRS the Company prepared its financial
statements in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). The Company's consolidated
financial statements for the year ending December 31, 2011 will be
the first annual financial statements that comply with IFRS. The
Company will ultimately prepare its opening IFRS condensed
consolidated statement of financial position by applying existing
IFRS with an effective date of December 31, 2011 or prior.
Accordingly, the opening IFRS condensed consolidated statement of
financial position and the December 31, 2010 comparative condensed
consolidated statement of financial position presented in the
consolidated financial statements for the year ending December 31,
2011 may differ from those presented at this time.
IFRS 1 requires the presentation of comparative information as
at the January 1, 2010 transition date and subsequent comparative
periods as well as the consistent and retrospective application of
IFRS accounting policies. To assist with the transition, the
provisions of IFRS 1 allow for certain mandatory and optional
exemptions for first-time adopters to alleviate the retrospective
application of all IFRSs.
Elected exemptions from full retrospective application
In preparing these consolidated financial statements in
accordance with IFRS 1, "First-time Adoption of International
Financial Reporting Standards" ("IFRS 1"), the Company has applied
certain of the optional exemptions from full retrospective
application of IFRS. The optional exemptions applied are described
below.
a) Deemed cost for oil and gas assets
The Company has elected to measure oil and gas assets previously
recorded in the full cost pool under Accounting Guidelines 16, "Oil
and Gas Accounting - Full Cost" ("AcG 16") of Canadian GAAP at the
transition date as follows:
i) the full cost pool was allocated to development and
production assets pro rata using proved plus probable reserve
values.
b) Decommissioning liabilities included in the cost of property and equipment
The Company has elected to measure decommissioning liabilities
as at the transition date in accordance with IAS 37, "Provisions,
Contingent Liabilities and Contingent Assets" ("IAS 37") and
recognize directly in deficit the difference between that amount
and the carrying amount of those liabilities at the date of
transition determined under Canadian GAAP.
c) Business combinations
The Company has applied the business combinations exemption in
IFRS 1 to not apply IFRS 3, "Business Combinations" ("IFRS 3")
retrospectively to past business combinations. Accordingly, the
Company has not restated business combinations that took place
prior to the transition date.
d) Share-based payment transactions
The Company has elected not to apply IFRS 2, "Share-based
Payments" ("IFRS 2") to equity instruments granted after November
7, 2002 that have not vested by the transition date.
e) Borrowing costs
The Company has applied the borrowing costs exemption in IFRS to
not apply IAS 23, "Borrowing Costs" ("IAS 23") retrospectively to
past borrowing costs related to transactions that took place prior
to the transition date.
Mandatory exceptions to retrospective application
a) Estimates
Hindsight was not used to create or revise estimates and
accordingly the estimates previously made by the Company under
Canadian GAAP are consistent with their application under IFRS.
The remaining IFRS 1 exemptions were not applicable or material
to the preparation of Caza's Condensed consolidated statement of
financial position at the date of transition on January 1,
2010.
The following reconciliations present the adjustments made to
the Company's Canadian GAAP financial results of operations and
financial position to comply with IFRS. A summary of the
significant accounting policy changes and applicable exemptions are
discussed following the reconciliations. Reconciliations include
the Company's Condensed consolidated statement of financial
positions as at January 1, 2010, September 30, 2010 and December
31, 2010, and Condensed Consolidated Statement of Comprehensive
Loss for the three and nine months ended September 30, 2010 and the
year ended December 31, 2010.
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Financial Position
As at January 1, 2010
Effect of IFRS
Canadian Transition to
GAAP IFRS
Assets
Current
Cash and cash equivalents $9,268,547 $ - $9,268,547
Accounts receivable 3,973,085 - 3,973,085
Prepaid and other 278,914 - 278,914
Exploration and evaluation assets - 11,662,047 11,662,047
Petroleum and natural gas properties
and equipment 36,201,223 (11,652,990) 24,548,233
------------- -------------- --------------
Total Assets $ 49,721,769 $9,057 $ 49,730,826
------------- -------------- --------------
Liabilities
Current
Accounts payable and accrued liabilities $5,144,083 $- $ 5,144,083
Decommissioning liabilities 549,450 157,091 706,541
------------- -------------- --------------
Total Liabilities 5,693,533 157,091 5,850,624
Equity
Share capital 51,212,097 (918,571) 50,293,526
Contributed surplus 4,805,074 370,012 5,175,086
Deficit (11,988,935) (518,046) (12,506,981)
Non-controlling interest - 918,571 918,571
Total Equity 44,028,236 (148,034) 43,880,202
------------- -------------- --------------
Total Liabilities and Equity $ 49,721,769 $ 9,057 $ 49,730,826
------------- -------------- --------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Financial Position
As at September 30, 2010
Effect of IFRS
Canadian Transition to
GAAP IFRS
Assets
Current
Cash and cash equivalents $3,605,393 $ - $ 3,605,393
Accounts receivable 3,217,268 - 3,217,268
Prepaid and other 83,024 - 83,024
Exploration and evaluation assets - 10,145,414 10,145,414
Petroleum and natural gas properties and equipment 37,694,036 (12,918,480) 24,775,556
-------------- -------------- --------------
Total Assets $ 44,599,721 $ (2,773,066) $41,826,655
-------------- -------------- --------------
Liabilities
Current
Accounts payable and accrued liabilities $2,850,342 $- $ 2,850,342
Decommissioning liabilities 651,185 163,135 814,320
-------------- -------------- --------------
Total Liabilities 3,501,527 163,135 3,664,662
Equity
Share capital 47,941,947 (918,571) 47,023,376
Contributed surplus 8,493,826 186,418 8,680,244
Deficit (15,337,579) (2,040,661) (17,378,240)
Non-controlling interest - (163,387) (163,387)
Total Equity 41,098,194 (2,936,201) 38,161,993
-------------- -------------- --------------
Total Liabilities and Equity $44,599,721 $ (2,773,066) $ 41,826,655
-------------- -------------- --------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Financial Position
As at December 31, 2010
Effect of IFRS
Canadian Transition to
GAAP IFRS
Assets
Current
Cash and cash equivalents $ 33,885,900 $ - $33,885,900
Accounts receivable 2,554,913 - 2,554,913
Prepaid and other 291,517 - 291,517
Exploration and evaluation assets - 7,371,582 7,371,582
Petroleum and natural gas properties and equipment 39,637,241 (10,257,379) 29,379,862
-------------- -------------- --------------
Total Assets $ 76,369,571 $ (2,885,797) $73,483,774
-------------- -------------- --------------
Liabilities
Current
Accounts payable and accrued liabilities $ 7,362,243 $- $ 7,362,243
Decommissioning liabilities 627,639 180,115 807,754
-------------- -------------- --------------
Total Liabilities 7,989,882 180,115 8,169,997
Equity
Share capital 75,932,251 (918,571) 75,013,680
Contributed surplus 9,190,226 173,372 9,363,598
Deficit (16,742,788) (5,957,474) (22,700,262)
Non-controlling interest - 3,636,761 3,636,761
-------------- -------------- --------------
Total Equity 68,379,689 (3,065,912) 65,313,777
-------------- -------------- --------------
Total Liabilities and Equity $ 76,369,571 $ (2,885,797) $73,483,774
-------------- -------------- --------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Comprehensive Loss
Three months ended September 30, 2010
Effect of IFRS
Canadian Transition to
GAAP IFRS
Revenue
Petroleum and natural gas $ 395,725 $- $ 395,725
Gain on sale of assets - - -
Interest income 172 - 172
$ 395,897 $ - $ 395,897
-------------- -------------- ---------------
Expenses
Production $ 132,220 $- $ 132,220
General and administrative 979,192 (41,840) 937,352
Depletion, depreciation, amortization,
accretion and impairment 623,898 (623,898) -
Depletion, depreciation and
amortization - 421,664 421,664
Financing costs - unwinding of the
discounts - 6,322 6,322
Exploration & evaluation impairment 141,156 141,156
1,735,310 (96,596) 1,638,714
-------------- -------------- ---------------
Net loss and comprehensive loss $ (1,339,413) $ 96,596 $ (1,242,817)
-------------- -------------- ---------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Comprehensive Loss
Nine months ended September 30, 2010
Effect of IFRS
Canadian Transition to
GAAP IFRS
Revenue
Petroleum and natural gas $1,491,273 $ - $ 1,491,273
Gain on sale of assets - 728,239 728,239
Interest income 474 - 474
$1,491,747 $ 728,239 $ 2,219,986
--------------- -------------- --------------
Expenses
Production $ 541,319 $- $ 541,319
General and administrative 2,253,373 (95,218) 2,158,155
Depletion, depreciation, amortization,
accretion and impairment 2,045,696 (2,045,696) -
Depletion, depreciation and
amortization - 1,615,093 1,615,093
Financing costs - unwinding of the
discounts - 18,965 18,965
Exploration and evaluation impairment - 3,839,670 3,839,670
4,840,388 3,332,814 8,173,202
--------------- -------------- --------------
Net loss and comprehensive loss $ (3,348,641) $ (2,604,575) $ (5,953,216)
Caza Oil & Gas, Inc.
Condensed Consolidated Statement of Comprehensive Loss
Year ended December 31, 2010
Previous Effect of IFRS
Canadian Transition to
GAAP IFRS
Revenue
Petroleum and natural gas $ 2,233,682 $ - $ 2,233,682
Interest and other income 4,723 - 4,723
Gain on sale of assets - 728,239 728,239
$ 2,238,405 $ 728,239 $ 2,966,644
-------------- -------------- ---------------
Expenses
Production $ 718,186 $- $ 718,186
General and administrative 3,626,789 (108,124) 3,518,665
Depletion, depreciation, amortization,
accretion and impairment 2,647,283 (2,647,283) -
Depletion, depreciation and
amortization - 2,277,384 2,277,384
Financing costs - unwinding of the
Discount - 25,286 25,286
Exploration and evaluation
impairment - 3,698,514 3,698,514
Development impairment 179,700 179,700
6,992,258 3,425,477 10,417,735
-------------- -------------- ---------------
Net loss and comprehensive loss $ (4,753,853) $(2,697,238) $ (7,451,091)
The following discussion explains the significant differences
between Caza's previous GAAP accounting policies and those applied
by the Company under IFRS. IFRS policies have been retrospectively
and consistently applied except where specific IFRS 1 optional and
mandatory exemptions permitted an alternative treatment upon
transition to IFRS for first-time adopters. The descriptive note
captions below correspond to the adjustments presented in the
preceding reconciliations.
Exploration and Evaluation Assets ("E&E")
Under Canadian GAAP, Caza followed AcG-16 under which all costs
directly associated with the acquisition of, the exploration for,
and the development of natural gas and liquids reserves were
capitalized on a prospect cost basis. Costs accumulated within each
prospect were depleted using the unit-of-production method based on
proved reserves determined using estimated future prices and costs.
Upon transition to IFRS, the Company was required to adopt new
accounting policies for exploration and development activities.
Under IFRS, exploration and evaluation costs are those
expenditures for an area where technical feasibility and commercial
viability has not yet been determined. Development costs include
those expenditures for areas where technical feasibility and
commercial viability has been determined. Caza adopted the IFRS 1
exemption whereby the Company deemed its January 1, 2010 IFRS asset
costs to be equal to its previous GAAP historical property, plant
and equipment net book value. Accordingly, exploration and
evaluation costs were deemed equal to the unproved properties
balance and the development costs were deemed equal to the full
cost pool balance.
Under IFRS, exploration and evaluation costs are presented on
separate line items on the Condensed consolidated statement of
financial position. Under Canadian GAAP these assets are included
in the general balance of property and natural gas properties and
equipment.
Exploration and evaluation assets at January 1, 2010 were
determined to be $11,662,047, representing the unproved properties
balance under Canadian GAAP. This resulted in a reclassification of
$11,662,047 from petroleum and natural gas properties to
exploration and evaluation assets on Caza's Condensed consolidated
statement of financial position as at January 1, 2010 (December 31,
2010 - $7,371,582; September 30, 2010 - $10,145,414). As at the
date of transition, the Company tested all of its exploration and
evaluation assets for impairment and determined no impairment
charges were necessary.
Under Canadian GAAP, exploration and evaluation costs were
capitalized as property and equipment in accordance with the CICA's
full cost accounting guidelines. Under IFRS, Caza capitalizes these
costs initially as exploration and evaluation assets. Once
technical feasibility and commercial viability of the area has been
determined, the costs are transferred from exploration and
evaluation assets to property, plant and equipment. Under IFRS,
unrecoverable exploration and evaluation costs associated with an
area and costs incurred prior to obtaining the legal rights to
explore are expensed.
During the twelve months ended December 31, 2010, Caza
transferred $4,385,834 (nine months ended September 30, 2010 -
$1,494,369) of exploration and evaluation costs to petroleum and
natural gas properties and expensed $3,698,514 (nine months ended
September 30, 2010 - $3,698,514) of unsuccessful exploration and
evaluation assets and $12,047 in direct exploration costs.
Depreciation, depletion, amortization and accretion
("DD&A")
Development costs at January 1, 2010 were deemed to be
$24,205,722, representing the depletable pool balance under
previous GAAP. Consistent with Canadian GAAP, these costs are
capitalized as petroleum and natural gas properties under IFRS.
Under Canadian GAAP, development costs were depleted using the
unit-of-production method calculated on for each country's cost
centers (Caza only had one cost center under Canadian GAAP). Under
IFRS, development costs are depleted using the unit-of-production
method calculated at the CGU level. The IFRS 1 exemption permitted
the Company to allocate development costs to the CGU's using proved
and probable reserves values for each area as at January 1, 2010.
Depleting on an area basis under IFRS resulted in a $352,671
decrease to Caza's DD&A expense for the twelve months ended
December 31, 2010 (three and nine months ended September 30, 2010 -
$197,927 and $417,682 respectively).
Impairments
Under Canadian GAAP, an impairment was recognized if the
carrying amount of the full cost pool exceeded the undiscounted
cash flows expected from the production of the proved reserves. If
the carrying amount of the full cost pool was less than these cash
flows, an impairment was recognized as the amount by which the
carrying value exceeded the sum of the discounted cash flows
expected from the production of the proved and probable reserves.
Impairments recognized under previous GAAP were not reversed.
Under IFRS, an impairment is recognized if the carrying value
exceeds the recoverable amount for a cash-generating unit. Prospect
areas are aggregated into cash-generating units based on their
ability to generate independent cash flows. If the carrying value
of the cash-generating unit exceeds the recoverable amount, the
cash-generating unit is written down with an impairment recognized
in net earnings. Impairments recognized under IFRS are reversed
when there has been a subsequent increase in the recoverable
amount. Impairment reversals are recognized in net earnings and the
carrying amount of the cash-generating unit is increased to its
revised recoverable amount as if no impairment had been recognized
for the prior periods.
At the date of transition, January 1, 2010, the Company
recognized an impairment of $nil on its petroleum and natural gas
properties which was recorded directly to the opening deficit.
For the twelve months ended December 31, 2010, Caza recognized
impairments of $179,700 relating to the Company's development and
production activities (nine months ended September 30, 2010 -
$141,156). The impairment recognized was based on the difference
between the December 31, 2010 net book value of the assets and the
recoverable amount. The recoverable amount was determined using
fair value less costs to sell based on discounted future cash flows
of proved and probable reserves using forecast prices and costs.
Under Canadian GAAP, these assets were included in the full cost
pool ceiling test, which was not impaired at December 31, 2010.
Divestitures (gain on sale of assets)
Under Canadian GAAP, proceeds from divestitures of producing
assets were deducted from the full cost pool without recognition of
a gain or loss unless the sale resulted in a change to the
depletion rate of 20 percent or greater, in which case a gain or
loss was recorded.
Under IFRS, gains or losses are recorded on divestitures and are
calculated as the difference between the proceeds and the net book
value of the asset disposed. For the twelve months ended December
31, 2010, Caza recognized a $728,239 net gain on divestitures under
IFRS compared to previous GAAP results. The net gain arose from the
sale of the Glass Ranch properties in Texas.
Decommissioning liabilities
Under Canadian GAAP, asset retirement obligations, referred to
as decommissioning liabilities, were measured as the estimated fair
value of the retirement and decommissioning expenditures expected
to be incurred. The obligations were discounted using a credit
adjusted risk free rate. Liabilities were not remeasured to reflect
period end discount rates.
Under IFRS, the decommissioning liabilities are measured as the
best estimate of the expenditure to be incurred and requires that
the decommissioning liabilities be remeasured using the period end
discount rate. Under IFRS, a risk free rate is used to discount the
obligations.
In conjunction with the IFRS 1 exemption regarding assets
discussed above, Caza was required to remeasure its decommissioning
liabilities upon transition to IFRS and recognize the difference in
the opening deficit. The application of this exemption and the
change in discount rates used resulted in a $157,091 increase to
the decommissioning liabilities on Caza's Condensed consolidated
statement of financial position as at January 1, 2010.
Subsequent IFRS remeasurements of the obligation are recorded
through petroleum and natural gas properties and equipment with an
offsetting adjustment to the decommissioning liabilities. As at
December 31, 2010, excluding the January 1, 2010 adjustment, Caza's
decommissioning liabilities increased by $23,024 (three and nine
months ended September 30, 2010 - $2,015 and $6,044 respectively) ,
which primarily reflects the remeasurement of the obligation using
Caza's discount rate of 4.19 percent as at December 31, 2010.
Share based payments
Under Canadian GAAP, Caza accounted for certain stock-based
compensation plans whereby the obligation and compensation costs
were amortized over the vesting period using the straight line
method. For these stock-based compensation plans, IFRS requires the
compensation expense for share-based payments be fair valued using
an option pricing model, such as the Black-Scholes-Merton model, at
each reporting date using the graded method of amortization.
Accordingly, upon transition to IFRS, the Company recorded a
fair value adjustment of $370,012 as at January 1, 2010 to increase
the contributed surplus with a corresponding charge to the opening
deficit. Caza elected not to use the IFRS 1 exemption whereby the
liabilities for share-based payments that had vested or settled
prior to January 1, 2010 were not required to be retrospectively
restated. Subsequent IFRS fair value adjustments are capitalized as
appropriate to petroleum and natural gas properties or E&E
assets or expensed to exploration and evaluation expenses, and
administrative expenses with an offsetting adjustment to
contributed surplus.
In addition to the January 1, 2010 adjustment discussed above
the IFRS remeasurement costs subsequent to transition decreased the
contributed surplus by $196,639 as at December 31, 2010 (three and
nine months ended September 30, 2010 - $41,840 and $183,594
respectively) in comparison to previous GAAP.
Non-controlling interests
Under Canadian GAAP, the exchangeable rights as described in
Note 6(e) were recorded as share capital due to Emerging Issues
Committee No. 151 as the rights met the required conditions for
this classification. However, under IFRS, the exchangeable rights
represent a non-controlling interest in a subsidiary. As a result,
there are differences in presentation within shareholders' equity
and the statement of comprehensive loss. Additionally, under IFRS,
net loss per share is calculated on the total weighted average
number of common shares outstanding, excluding the exchangeable
rights.
In the course of preparing the June 30, 2011 condensed
consolidated financial statements management identified an error in
the application of IFRS on initial adoption. The Company had
previously retrospectively recognized its non-controlling interest
upon initial adoption of IFRS at January 1, 2010. Management has
determined that a prospective application should have been applied.
The impact is that non-controlling interest within equity
understated by approximately $2.5 million with deficit overstated
by a corresponding amount as at January 1, 2010 (December 31, 2010
- $6.4 million). Additionally, the net loss attributable to
non-controlling interests for the year ended December 31, 2010 was
overstated by $0.3 million with the offset to the net loss
attributable to owners of the Company. This has been corrected in
these condensed consolidated financial statements and the notes
thereto.
12. Subsequent events
On October 12, 2011, the Company's Board of Directors granted
options over 500,000 Common Shares to David McManus, a
Non-Executive Director of the Company under the Company's share
option agreements. The options have an exercise price of US$0.13
per Common Share, representing the closing price on the Toronto
Stock exchange of the Common Shares on October 11, 2011. Provided
Mr. McManus remains a Non-Executive Director of the Company, the
options vest one-third on July 12, 2012 and one-third on July 12,
2013 and 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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