First Calgary Petroleums Ltd. Announces 2008 First Quarter Results
TSX: FCP
AIM: FPL
Note: $ refers to the U.S. dollar and C$ refers to the Canadian dollar.
CALGARY, May 9 /CNW/ - First Calgary Petroleums Ltd. (FCP or the Company)
announces its results for the three months ended March 31, 2008.
President and Chief Executive Officer, Shane O'Leary commented:
"There is no doubt that the recent settlement reached between Waterford
and FCP was in the best interest of all shareholders, offering continuity
and a Board that is experienced and able to offer guidance and advice
during this important time for FCP. More crucially, operations were not
distracted by the changes at the Board level and have continued to make
significant progress during the first quarter of 2008, moving forward
with both MLE and CAFC activities. The new management team and Board are
committed to building shareholder value and are reviewing options to
drive the project forward and maximize value creation."
HIGHLIGHTS
Corporate
- Shane O'Leary appointed as President and Chief Executive Officer to
provide continuity of relationship with Sonatrach following the proxy
contest.
- An experienced Board comprised of five previous directors of FCP,
including Gar Emerson as Chairman, and four new independent directors
with strength in the oil and gas sector.
Operational
- Phase 1: MLE Development
- Four qualified firms have indicated interest in submitting a
bid for the Engineering, Procurement and Construction (EPC)
contracts.
- Anticipated that the EPC contractor will be selected in the
second half of 2008; targeting first gas for the second half
of 2010.
- Ten bids received in response to the issue of the invitation to
tender (ITT) package for gas gathering system and export system
line pipe.
- ITT's for other key long lead items, such as the gas compressor
package and the turbo-expander package expected to be issued in
the second quarter of 2008.
- Two development wells were completed by the end of the first
quarter and FCP is currently utilizing one rig to drill
development wells in the MLE field.
- Excellent progress has been made with Sonatrach in establishing
the joint venture organization in Hassi Messaoud to implement the
development.
- In recent meetings, Sonatrach expressed a strong desire to
continue to drive forward the development.
- Senior manager positions for key disciplines have been filled.
- Award of the Hassi base construction contract is pending and
early civil works mobilization is underway.
- Phase 2/3: CAFC Development
- Expect to start and complete a conceptual study with an
engineering company and submit the Final Discovery Report in the
second quarter of 2008.
Financing
- FCP and its financial advisor Citibank continue to progress
preparatory work related to setting in place financing for MLE
Phase 1. It is anticipated that debt financing for MLE will be
structured as a reserve based debt facility.
- FCP has been engaged in preliminary discussions with a group of banks
and the consensus view remains that financing on acceptable terms is
achievable.
- It is currently anticipated that FCP will formally approach a small
group of primarily European banks to secure underwriting commitments
in the second quarter of 2008 and with a view to loan signing taking
place in the second half of 2008.
Conference Call
A conference call with senior management to review the quarter results is
scheduled for 8:30 a.m. MDT/10:30 a.m. EDT/3:30 p.m. BST on Monday, May 12,
2008. To participate in the conference call, please dial: +1-416-641-6113.
Please call in five to 10 minutes prior to the scheduled start time. A
replay of the conference call will be available on FCP's website.
Company Profile
First Calgary Petroleums Ltd is an oil and gas company actively engaged
in international exploration and development activities in Algeria. The
Company's common shares trade on the Toronto Stock Exchange in Canada (FCP)
and on the AIM market of the London Stock Exchange in the United Kingdom
(FPL). Further information is available on the FCP website: www.fcpl.ca
Forward-looking Statements
This news release includes statements about expected future events and
financial results that are forward looking in nature and subject to risks and
uncertainties. FCP cautions that actual performance may be affected by a
number of factors, many of which are beyond its control. Future events and
results may vary substantially from what First Calgary Petroleums Ltd.
currently foresees.
Report to Shareholders
We are pleased to update our shareholders on the Company's activities for
the three months ended March 31, 2008.
The first quarter of 2008 through to the Annual and Special Meeting on
April 18th was a very challenging period in the history of FCP. On April 14th,
FCP and a shareholder group led by Waterford Finance & Investment Limited
announced a settlement regarding Board and management appointees at FCP. This
settlement was subsequently voted on at the annual meeting and received
overwhelming majority approval at the meeting from FCP's shareholders.
As part of the settlement, Mr. Richard Anderson agreed to step aside to
facilitate a compromise and I was appointed President and Chief Executive
Officer of FCP. Richard has agreed to remain a consultant to FCP for
approximately six months to assist in the executive transition.
The Board is comprised of a combination of five directors that previously
served as FCP directors, with the addition of four new independent directors.
Mr. Gar Emerson remains as Chairman of the Board. If you are not already
familiar with the credentials of the new board members - Alastair Beardsall,
Raymond Cej, Menno Grouvel, Keith Henry, Matthew Lechtzier, Frank Proto, Yuri
Shafranik, and H. Garfield Emerson, I urge you to visit our website for their
full biographies. I am looking forward to benefiting from the expertise that
the new board members will bring to the Company.
I have been with the Company since 2006, and in my former role as the
Chief Operating Officer, I was responsible for drilling and development
activities and the primary interface with Sonatrach. In my new role, I intend
to ensure continuity in the relationship with the Algerian authorities and
momentum for the project.
In the first quarter of 2008, First Calgary continued to achieve key
project milestones. With the completion of the Front End Engineering and
Design (FEED) Study in partnership with Sonatrach and the tenders for the
Engineering, Procurement and Construction (EPC) contract issued on
February 18, efforts now are focused on securing project financing for the
first phase of the MLE development. The EPC contract is expected to be awarded
in the second half of 2008. Currently, four reputable and qualified EPC
contractors have indicated an interest in bidding for the work. First gas is
targeted for the second half of 2010.
With a strong management team guided by a diverse and seasoned Board of
Directors, we are committed to generating value for FCP shareholders by moving
the Algerian development project forward expeditiously and reviewing options
to maximize value.
Shane P. O'Leary
President and CEO
Management's Discussion and Analysis
Management's discussion and analysis (MD&A) is a review of operations,
current financial position and outlook for First Calgary Petroleums Ltd.
(First Calgary, FCP or the Company). It should be read in conjunction with the
unaudited interim financial statements for the three months ended March 31,
2008 and 2007 and the audited financial statements and MD&A for the year ended
December 31, 2007. In this discussion and analysis $ refers to U.S. dollars
unless otherwise indicated, and C$ refers to the Canadian dollar.
OPERATIONAL REVIEW
FCP's objectives remain to achieve an on budget first production in
second half of 2010 from MLE and all of our principal operational activities
are centered on achieving this. In addition, considerable effort is being
directed at submitting development plans for the Central Area Field Complex
(CAFC) areas by the second quarter of 2008. Approved development plans for the
CAFC will enable these areas to be held by a 30 year production license
similar to MLE.
Menzel Ledjmet East (MLE) Activities this Period
Maintaining the schedule translates into value for FCP, so we are
focusing on ordering long lead items that are critical for holding the
schedule. In this regard:
- In response to the issue in late December 2007 of the invitation
to tender (ITT) package for gas gathering system and export system
line pipe, ten bids were received. These bids are currently
undergoing technical and commercial evaluation. It is anticipated
that an award for the supply of these materials will be made in
the second quarter of 2008.
- The commercial sections of the ITTs for the other key long lead
items, such as the gas compressor package and the turbo-expander
package, are currently being finalized with Sonatrach. It is
anticipated that these ITTs will be issued by second quarter
of 2008.
In mid-February 2008, an ITT package for the Engineering, Procurement and
Construction (EPC) works was issued to four short-listed bidders. Technical
bids are due in the second quarter, and it is anticipated that the EPC
contractor will be selected in the second half of 2008, with a resultant
aggressive target first gas date for the second half of 2010.
Financing: FCP is actively engaged with its financial advisor Citibank to
arrange a reserve based loan in the order of $750 to $800 million. A
considerable amount of commercial work is in progress with Sonatrach to
finalize all of the gas and liquids agreements and other commercial documents
that will enable this loan.
JV organization: Excellent progress has been made with Sonatrach in
establishing the joint venture organization in Hassi Messaoud to implement the
development. Senior manager positions for key disciplines have been filled and
the transfer from an "exploration" to a "development" organization is
progressing very well. Award of the Hassi case construction contract is
pending and early civil works mobilization is underway.
The drilling of two development wells were completed by the end of the
first quarter (MLE 7 & 8). We are continuing to utilize one rig to drill
development wells in the MLE field.
Central Area Field Complex (CAFC) Activities this Period
Exploration and appraisal testing activities in the CAFC were completed
in the first quarter of 2008. The goal is to submit the development plans for
the CAFC by second quarter of 2008. The CAFC represents the second phase
development of Block 405b.
Process flow-sheets and simulations were developed for the various
reservoir depletion options and in-house cost estimation began.
In second quarter 2008, we expect to start and complete a conceptual
study with an engineering company and submit the Final Discovery Report.
Financing Update
FCP is actively engaged with its financial advisor Citibank in putting
together a financing package for the development of the MLE phase of the
project whose net costs to FCP are forecast at approximately $1 billion.
Between $750 and 800 million of MLE costs are expected to be financed via a
reserve based debt financing, complementing an equity component of
approximately $250 million provided from the proceeds of the December, 2007
$267 million convertible bond offering. Financing for the CAFC phase is also
expected to be largely provided by reserve based debt financing, but details
are not available as the Final Discovery Report relating to CAFC has yet to be
finalized.
It is anticipated that a small group of primarily European banks under
the leadership of Citibank will underwrite the MLE related debt financing,
which will be structured as a reserve based debt facility. This method of
financing oil and gas field development projects has a well established
tradition and methodology. It is based on the establishment of a 'borrowing
base' by reference to forecast reserves, depletion profiles, related projected
forecast cash flows, and other related factors. Banks traditionally also
require that key project related commercial agreements are in place including
among others: EPC contractual arrangements; technical, environmental and legal
due diligence reports; and comprehensive legal credit documentation. FCP is
working closely with its principal legal advisor, Clifford Chance, to ensure
that all necessary agreements and documentation related to the project
financing are delivered within the requisite time frame.
Preliminary discussions with targeted debt underwriters have been
underway. Interest on the part of a number of experienced oil and gas project
financing banks continues to be high. While the current credit markets
environment is seen as challenging, the consensus view, among the banks with
who FCP are in discussions, remains that financing on acceptable terms is
achievable. It is currently anticipated that banks will be formally approached
in the second quarter for purposes of securing preliminary underwriting
commitments, with loan signing being planned for the second half of 2008.
New Ventures
FCP continues to identify potential new opportunities for growth. The
operating experience gained in Algeria over the past ten years could be
readily applied upon the successful acquisition of new exploration or
appraisal opportunities in Algeria and elsewhere.
Development Schedule
Readers are referred to the schedule which is available on the Company's
website at www.fcpl.ca.
The timeline for the phased development plans is shown in the schedule:
- Phase 1 is the approved MLE development including the single
260 MMCF/D train and export pipelines, of which 200 MMCF/D has been
initially contracted for.
- Phase 2 is the first phase of the CAFC development, including planned
development of the TAGI oil pool, lean gas in the MZL area and
initial development of the gas condensate pools.
- Phase 3 will include full development of the remaining CAFC
discoveries on the block.
The development plan for Phases 2 and 3 is expected to be issued to the
authorities for approval by the end of the second quarter of 2008.
Contracts for the EPC phase have been tendered. Technical bids are due in
the second quarter, and it is expected that the EPC contractor will be
selected in the second half of 2008. The EPC phase is aggressively scheduled
to take approximately two years, with first gas production in the second half
of 2010.
CURRENT OUTLOOK
Readers are referred to the map which is available on the Company's
website at www.fcpl.ca.
FCP continues to make good progress in moving the MLE project forward.
- Under the leadership of Jim Corbett, Vice President Projects, a
project team of high calibre professionals has been assembled to
manage and execute the development of block 405b, both in London and
in Hassi Messaoud. The strength and professionalism of this team has
been widely acknowledged.
- The successfully completed front end engineering and design (FEED)
work for MLE identified the critical path for three categories of
items requiring long lead items, such as line pipe for gas
gathering and export systems, gas compressors and turbo-expanders.
An ITT has been issued for the line pipe, and an award is expected
in the second quarter. The ITTs for the gas compressors and
turbo-expanders are expected to be issued in the second quarter.
- Four reputable and qualified EPC contractors have signalled their
interest in bidding for the main construction of the gas plant and
pipeline infrastructure work. Bids are expected to be received in
the second quarter, leading to selection of a contractor in the
second half of 2008.
- Under the leadership of Roger Whittaker, Vice President Exploration
and Development, FCP's drilling team in Algeria continues to set
benchmarks for drilling efficiency and performance, and is often
referred to by Sonatrach as one of the top performing drilling teams
in the country.
- The team initiated the MLE development drilling program in late
November 2007 and by the end of first quarter 2008 has completed
drilling two wells as part of that program, MLE-7 and MLE-8.
FCP plans to continue the development drilling program in MLE
throughout 2008 with the Saipem rig and plans to complete the
drilling of an additional four wells by year-end. To date the
program has been successful in further delineating existing pools
and providing important data for further reservoir management
planning.
- CAFC appraisal drilling and testing was completed in the first
quarter of 2008. FCP is currently preparing the development plan
for the CAFC area which is planned for the second quarter
2008 submission to the appropriate government authorities.
- FCP is currently evaluating the commerciality of the ZER area.
FCP remains well positioned for the project execution phase, with a
highly skilled and experienced team in place to focus on the quality, budget
and schedule requirements, in order to achieve first gas in the second half of
2010.
FINANCIAL REVIEW
Three months ended
March 31,
($ thousands) 2008 2007
-------------------------------------------------------------------------
Net loss $ 11,978 $ 2,397
The net loss for the quarter was $12 million, compared to $2.4 million in
2007, primarily due to the onset of interest expense on the convertible
debentures issued in December 2007, and higher G&A costs as outlined below.
Three months ended
March 31,
($ thousands) 2008 2007
-------------------------------------------------------------------------
Interest income $ 2,232 $ 991
Interest income has increased from 2007 due to higher average cash and
cash equivalent balances on hand during comparable periods.
Three months ended
March 31,
($ thousands) 2008 2007
-------------------------------------------------------------------------
Interest expense $ 8,073 -
Interest expense consists of interest incurred on the $267 million
convertible debenture which was issued on December 14, 2007. The debentures
bear interest at 9 percent, payable semi-annually, with the first interest
payment due May 29, 2008.
Three months ended
March 31,
($ thousands) 2008 2007
-------------------------------------------------------------------------
General and administrative $ 7,870 $ 4,222
Less capitalized amount 2,917 1,258
---------------------
Expensed $ 4,953 $ 2,964
The increase in 2008 general and administrative costs of $3.6 million, or
86 percent, is primarily the result of increased staffing costs and
professional fees required to manage and operate the Algerian project, which
is consistent with the heightened project-related activity. Additional costs
related to project financing and the recent shareholder motions and resulting
proxy contest have also contributed to the increase.
Three months ended
March 31,
($ thousands) 2008 2007
-------------------------------------------------------------------------
Stock-based compensation $ 2,318 $ 1,014
Less capitalized amount 1,643 781
---------------------
Expensed $ 675 $ 233
Stock-based compensation increased by $1.3 million due to additional
option grants throughout 2007 and the first quarter of 2008, with a
corresponding increase in the amount of stock based compensation capitalized.
Three months ended
March 31,
($ thousands) 2008 2007
-------------------------------------------------------------------------
Capital Expenditures
Exploration & Appraisal
-----------------------
Drilling, completion and testing $ 345 $ 39,715
Geological and geophysical 810 778
MLE commercialization 303 -
Development
-----------
Drilling, completion and testing $ 19,711 2,739
Geological and geophysical 444 97
MLE commercialization 8,694 4,305
---------------------
$ 30,307 $ 47,634
Block management, administration
and corporate 2,894 3,273
---------------------
Total capital expenditures $ 33,201 $ 50,907
Less non-cash expenditures (stock-based
compensation, asset retirement provisions) 1,736 910
---------------------
Net capital expenditures $ 31,465 $ 49,997
-------------------------------------------------------------------------
Capital expenditures are lower in 2008 over 2007 due to the greater level
of drilling activity of the appraisal drilling program in the first quarter of
2007. In 2008, FCP's focus has shifted from exploration and appraisal to a
development drilling focus. In the first quarter of 2008, FCP used one
drilling rig compared to two rigs in the same period in 2007.
Liquidity and Capital Resources
First Calgary had $210.7 million of working capital on hand as at
March 31, 2008 compared with $251.1 million at the end of 2007. Cash balances
and short-term investments were $245.1 million at the end of the quarter.
Development of the Ledjmet Block 405b reserves through to commercial
production will require significant funding, with 75 percent being FCP's
share. The expectation for development funding continues to focus on project
debt. The gross development cost of the MLE Field is currently estimated at
approximately $1.3 billion, and will mainly be incurred over the 2008 - 2010
period.
The Company is listed on the Toronto Stock Exchange and the AIM market of
the London Stock Exchange. The diluted numbers of shares outstanding at the
following dates were:
May 9, March 31, December 31,
2008 2008 2007
-------------------------------------------------------------------------
Common shares 254,939,030 254,639,030 254,619,030
Issuable on conversion
of debentures 63,571,428 63,571,428 63,571,428
Employee stock options 16,121,747 16,755,080 16,806,747
-------------------------------------------------------------------------
Diluted shares outstanding 334,632,205 334,965,538 334,997,205
-------------------------------------------------------------------------
Summary of Quarterly Results
2008 2007
-------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Interest income $ 2,232 $ 1,372 $ 1,511 $ 1,502 $ 991
Income (loss) (11,978) (5,940) (1,745) (1,613) (2,397)
Income (loss)
per share (0.05) (0.02) (0.01) (0.01) (0.01)
Total assets 1,034,599 1,031,916 788,554 775,867 643,642
2006
---------------------------------------------------
Q4 Q3 Q2
---------------------------------------------------
Interest income $ 1,633 $ 2,052 $ 1,902
Income (loss) (19,706) (266) 6,577
Income (loss)
per share (0.09) 0.00 0.03
Total assets 650,053 649,354 641,938
The net loss in first quarter 2008 relates mainly to interest on the
convertible debt issued in December 2007.
CHANGE IN ACCOUNTING POLICIES
Financial Instruments - Recognition and Measurement
Two new Canadian accounting standards have been issued which required
additional disclosure in the Company's financial statements commencing
January 1, 2008, pertaining to the Company's use of financial instruments as
well as its capital and how it is managed. These standards have been adopted
in the Company's unaudited statements for first quarter 2008.
BUSINESS RISKS AND UNCERTAINTIES
The MD&A and Annual Information Form (AIF) for the year ended
December 31, 2007 includes an overview of certain business risks and
uncertainties facing the Company. Those risks remain in effect as at
March 31, 2008.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
Certain information with respect to the Company contained in this report,
including management's assessment of future plans and operations, contains
forward-looking statements. These forward-looking statements are based on
assumptions and are subject to numerous risks and uncertainties, some of which
are beyond FCP's control, including the timing and receipt of joint venture
and governmental approvals, the impact of general economic conditions,
industry conditions, volatility of commodity prices, currency exchange rate
fluctuations, reserve estimates, environmental risks, competition from other
explorers, stock market volatility and ability to access sufficient capital.
In addition, actual results may vary because FCP principally operates in
jurisdictions with less developed legal systems than in the case of more
established economies and relies on continuing existing strategic
relationships and forming new ones with other entities in the oil and gas
industry, such as joint venture parties and farm-in partners. FCP's actual
results, performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking statements and,
accordingly, no assurance can be given that any events anticipated by the
forward-looking statements will transpire or occur.
Company Information
Additional information related to FCP, including the Company's Annual
Information Form, is available on FCP's website at www.fcpl.ca or on SEDAR's
website at www.sedar.com.
May 9, 2008
Consolidated Balance Sheets
As at As at
(in thousands of U.S. dollars) March 31, December 31,
(unaudited) 2008 2007
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 245,055 $ 275,270
Accounts receivable 1,209 1,222
Deposits and prepaid expenses 1,195 1,333
-------------------------------------------------------------------------
247,459 277,825
Other assets (note 2) 23,067 23,048
Property, plant and equipment 764,073 731,043
-------------------------------------------------------------------------
$1,034,599 $1,031,916
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 36,797 $ 26,763
Convertible debentures (note 3) 224,661 222,589
Asset retirement obligations 3,415 3,225
Future income taxes 18,548 18,548
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 4) 763,339 763,257
Contributed surplus (note 4) 28,238 25,955
Equity portion of convertible debentures
(note 3) 30,453 30,453
Accumulated other comprehensive income 6,502 6,502
Deficit (77,354) (65,376)
-------------------------------------------------------------------------
751,178 760,791
Operations and commitments (note 1)
-------------------------------------------------------------------------
$1,034,599 $1,031,916
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations and Deficit
Three months ended
March 31,
(in thousands of U.S. dollars)
(unaudited) 2008 2007
-------------------------------------------------------------------------
Revenue
Interest $ 2,232 $ 991
Expenses
Interest Expense 8,073 -
General and administrative 4,953 2,964
Stock-based compensation (note 4) 675 233
Foreign exchange loss 242 61
Depreciation and accretion 267 130
-------------------------------------------------------------------------
14,210 3,388
-------------------------------------------------------------------------
Net loss for the period (11,978) (2,397)
Deficit, beginning of period (65,376) (53,681)
-------------------------------------------------------------------------
Deficit, end of period $ (77,354) $ (56,078)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss per share (note 4)
Basic and diluted $ (0.05) $ (0.01)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Three months ended
March 31,
(in thousands of U.S. dollars)
(unaudited) 2008 2007
-------------------------------------------------------------------------
Operating activities
Net loss for the period $ (11,978) $ (2,397)
Items not involving cash
Accretion on convertible debentures 2,072 -
Stock-based compensation 675 233
Foreign exchange gain (231) (61)
Depreciation and accretion 267 130
-------------------------------------------------------------------------
(9,195) (2,095)
Change in non-cash working capital 5,107 (619)
-------------------------------------------------------------------------
(4,088) (2,714)
Financing activities
Proceeds from exercise of options 48 139
-------------------------------------------------------------------------
Investing activities
Expenditures on property, plant and
equipment (31,465) (49,997)
Interest on restricted cash (19) -
Change in non-cash working capital 5,039 (4,553)
-------------------------------------------------------------------------
(26,445) (54,550)
-------------------------------------------------------------------------
Change in cash and cash equivalents (30,485) (57,125)
Exchange rate fluctuations on cash
and cash equivalents 270 (15)
Cash and cash equivalents, beginning
of period 275,270 108,489
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 245,055 $ 51,349
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008 (unaudited)
(in thousands of U.S. dollars unless otherwise indicated)
These interim consolidated financial statements of First Calgary
Petroleums Ltd. (First Calgary, FCP or the Company) have been prepared by
management in accordance with accounting principles generally accepted in
Canada following the same accounting policies as the consolidated
financial statements for the year ended December 31, 2007. The
disclosures included below are incremental to those included with the
annual consolidated financial statements. The interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto for the year ended
December 31, 2007.
1. Operations and commitments:
First Calgary currently has the rights to appraise and develop Ledjmet
Block 405b (Block 405b) in Algeria. The Company's rights and obligations
on Block 405b are set out in a Production Sharing Contract (PSC) with
Sonatrach, the national oil company of Algeria. The nature of current
operations and the terms or commitments under the PSC are summarized
below.
The five year exploration period of the PSC ended on December 29, 2006.
All exploration work commitments under the PSC were completed.
FCP has retained two main acreage parcels for further appraisal and
potential development, the MLE field and the Central Area Field Complex
(CAFC).
FCP received approval in February 2007 from the Algerian regulatory
authority ALNAFT for the development plan for the MLE oil and gas field
on Block 405b. The submission of a development plan for the remaining
appraisal areas is planned for second quarter 2008. Approval for the
development plan is expected prior to December 30, 2008 - the end of the
appraisal phase.
Phase 1 of the MLE development design includes construction of a gas
plant and field gathering system and facilities designed to produce up to
260 million cubic feet of sales gas per day (MMCF/D) and 20 thousand
barrels per day (MB/D) of associated natural gas liquids and oil, on a
gross basis. The initial gas sales volume agreed with Sonatrach is for
200 million cubic feet per day of sales gas. Three product pipelines are
required to transport sales gas, condensate and LPG products to the
national grid system that lies 140 km to the west of the block. A fourth
product pipeline to transport an oil stream will tie into existing
infrastructure within the Berkine basin. FCP and Sonatrach subsequently
agreed to modify the design of the product pipelines to accommodate
increased volumes from the planned second and third phases of development
in the CAFC as part of an integrated block development strategy. Current
development plans are targeting in excess of 300 MMCF/D sales of gas with
up to 65 MB/D of liquids.
Gas marketing terms were agreed with Sonatrach in November 2006 and were
attached to the MLE development plan. The gas terms specify and clarify
the provisions of the PSC relating to the long-term marketing of
quantities of dry gas from Block 405b. It is proposed that the gas terms
will be incorporated into the long form Gas Agreement entered into
between the Company and Sonatrach. FCP has entrusted the marketing of all
gas from the 405b block to Sonatrach and in return will receive a well
head price net of transportation costs based on a southern European gas
pricing formula. FCP is in discussions with Sonatrach for all liquids
production from Block 405b to be marketed by Sonatrach. Liquids are
anticipated to be sold at international product prices less a marketing
fee. The long term Gas Agreement will be subject to certain conditions
precedent, including securing financing satisfactory to FCP, the
arrangement by Sonatrach of firm pipeline capacity downstream of the
point of transmission and the execution of certain collateral agreements
such as project contracts and liquids and condensate sales agreements.
The Front End Engineering and Design (FEED) work for MLE gas plant,
pipeline and gathering systems was completed in December 2007. One of the
key deliverables of the FEED was to establish a cost estimate for the
plant facility and pipelines, currently estimated at about $1.0 billion
gross (not including development drilling).
2. Other assets
Cash was placed in an escrow account equal to the first year's interest
payments on the convertible debentures. The funds are required to be
released to the convertible debenture holders if the Company is unable to
meet its interest obligations, otherwise the cash will remain in escrow
for the life of the debentures. The Company does not expect to draw on
these funds in 2008.
3. Convertible debentures:
The following table sets forth a reconciliation of the convertible
debentures activity:
Liability Equity
Component Component
-------------------------------------------------------------------------
Balance, December 31, 2007 $ 222,589 $ 30,453
Accretion of non cash interest expense 2,072 -
-------------------------------------------------------------------------
Balance, March 31, 2008 $ 224,661 $ 30,453
-------------------------------------------------------------------------
No cash interest was paid during the period.
4. Capital stock:
(a) Issued share capital:
Number
of Shares Amount
-------------------------------------------------------------------------
Balance, December 31, 2007 254,619,030 $ 763,257
Issued on exercise of employee stock options 20,000 48
Transfer from contributed surplus on
exercise of stock options - 34
-------------------------------------------------------------------------
Balance, March 31, 2008 254,639,030 $ 763,339
-------------------------------------------------------------------------
(b) Employee stock options:
The Company has up to 10 percent of its issued and outstanding common
shares available for issuance pursuant to its Stock Option Plan. Stock
options granted under the plan have a term of five years and vesting
terms are determined at the discretion of the Board, ranging between two
and three years. The exercise price of each option is equal to the
closing market price of the shares on the date preceding the date of the
grant. The following table summarizes the changes in stock options
outstanding during the period ended March 31, 2008:
Weighted
Avg.
Number Exercise
of Options Price
-------------------------------------------------------------------------
Outstanding, December 31, 2007 16,806,747 C$ 4.90
Granted 835,000 2.82
Exercised (20,000) 2.36
Forfeited (866,667) 4.35
-------------------------------------------------------------------------
Outstanding, March 31, 2008 16,755,080 C$ 4.83
-------------------------------------------------------------------------
The following table summarizes information about the options outstanding
and exercisable at March 31, 2008:
Options Outstanding Options Exercisable
-------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Price Options Life Price Options Price
-------------------------------------------------------------------------
C$ 2.60 - 2.98 5,898,000 4.4 years 2.78 491,667 C$ 2.63
C$ 4.72 - 4.72 2,117,500 0.6 years 4.72 2,117,500 4.72
C$ 5.08 - 6.39 7,071,580 3.4 years 5.63 4,185,742 5.94
C$ 7.22 - 8.59 744,000 2.5 years 7.60 482,335 7.72
C$ 8.65 - 10.50 750,000 2.9 years 9.35 486,669 9.26
C$11.10 - 15.77 174,000 1.3 years 12.17 174,000 12.17
-------------------------------------------------------------------------
16,755,080 3.3 years C$ 4.83 7,937,913 C$ 5.86
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended March 31, 2008, the Company recorded
$2.3 million (2007 - $1.0 million) of stock-based compensation expense
with a corresponding increase in contributed surplus. Of the total
stock-based compensation expense, the Company has capitalized
$1.6 million for the three month period ended March 31, 2008
(2007 - $0.8 million).
The fair value of the options granted in the three months ended March 31,
2008 was estimated to be C$1.34 (2007 - C$2.50) per option, and was
determined using the Black-Scholes option pricing model with the
following assumptions: expected volatility of 63 percent
(2007 - 59 percent), risk-free interest rate of 3.1 percent
(2007 - 3.4 percent), and expected lives of 4 years (2007 - 4 years).
(c) Contributed surplus:
The changes in the contributed surplus balance are as follows:
($ thousands) 2008 2007
-------------------------------------------------------------------------
Balance, beginning of period $ 25,955 $ 19,186
Stock based compensation 2,317 1,014
Options exercised (34) -
-------------------------------------------------------------------------
Balance, end of period $ 28,238 $ 20,200
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(d) Per share amounts:
The loss per share is based on the weighted average shares outstanding
for the period. The basic and diluted weighted average shares outstanding
for the three months ended March 31, 2008 was 254,637,492
(2007 - 223,855,219).
5. Financial instruments and capital
Fair Value
At March 31, 2008 and December 31, 2007 the carrying values of cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate their fair values due to their short terms to
maturity. The fair value of the convertible debentures at March 31, 2008
was approximately $267.0 million.
Foreign Currency Risk
The Company is exposed to foreign currency fluctuations as it holds
Canadian dollar, British pound, Euro and Algerian Dinar cash and
short-term deposits and accounts payable. In addition, a portion of the
Company's operating activities are conducted in Canadian dollars and the
Algerian Dinar. There are no exchange rate contracts in place.
The following balances are denoted in foreign currencies:
Canadian Algerian Pounds
(thousands) dollar dinar Euro sterling
-------------------------------------------------------------------------
March 31, 2008
Cash and cash
equivalents 3,449 149,246 127 749
Accounts payable 264 71,862 4 27
---------------------------------------------------
Net foreign exchange
exposure 3,185 77,384 123 722
December 31, 2007
Cash and cash
equivalents 10,365 238,369 145 310
Accounts payable 539 367,921 5 123
---------------------------------------------------
Net foreign exchange
exposure 9,826 (129,552) 140 187
A change in the U.S. dollar compared to the currency in which the above
items are denominated results in an increase or decrease in foreign
exchange gains or losses. A change in the exchange rates would affect the
loss, holding all other variables constant, as follows:
Effect of a $0.01 exchange rate change:
U.S.-Canadian U.S.-Dinar U.S.-Euro U.S.-Pounds
-----------------------------------------------------
Change in the
foreign exchange
gain (loss)
2008 $ 32 $ 23 $ 1 $ 4
Commodity Risk
FCP's net income (loss) is not currently exposed to commodity risk, as
the Company is in the pre-production phase. The overall development of
Block 405b is exposed to oil, gas and NGL price risks as a significant
decrease in prices would affect the economic returns of the Company in
the long run.
Interest Rate Risk
A significant portion of cash and cash equivalents is held in interest
bearing investments; a 100 basis point drop in interest rates would
decrease interest income in the quarter by approximately $61,000.
The convertible debentures bear fixed interest and therefore earnings are
not exposed to interest risk. The fair value of the debentures is
affected by changes in interest rates.
Credit Risk
Cash and cash equivalents and accounts receivable, which is predominantly
interest earned on cash and cash equivalents, are held in credit rated
institutions. Credit risk is assessed to be low given the financial
institutions that hold the funds.
Liquidity Risk
FCP maintains sufficient cash on hand to meet current and forecasted
commitments. Spending is increased or decreased to match available funds.
Capital Management
FCP's capital consists of funds raised through share and debenture
issues, and is used to fund the current operations of the Company. The
Company monitors forecasted spending, and will raise additional funds as
required. FCP is actively seeking project financing to complete the
development of Block 405b.
6. Segmented Information
The Company's activities are conducted in two geographic segments: Canada
and Algeria. All activities relate to exploration and development of
petroleum and natural gas in Algeria.
Three months ended March 31, 2008
($ thousands) Canada Algeria Total
-------------------------------------------------------------------------
Capital Expenditures
-------------------------------------------------------------------------
2008 $ 104 $ 31,361 $ 31,465
2007 169 49,828 49,997
-------------------------------------------------------------------------
Total Assets
-------------------------------------------------------------------------
2008 $ 270,629 $ 763,970 $ 1,034,599
2007 52,989 590,653 643,642
For further information: Patricia Lew-Lapointe, Manager, Investor Relations,
Tel: (403) 450-2030; Other Contacts: James Henderson, Pelham Public Relations,
Tel: +44 (0)20 7743 6673; Carina Corbett, 4C - Burvale Limited, Tel: +44 (0)
20 7559 6710; Nominated Advisers: Richard Swindells, David Nabarro, Nabarro
Wells & Co. Limited, Tel: +44 (0)20 7634 4705
(FPL)
END
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