RNS Number:6626A
First Calgary Petroleums Ltd
02 September 2002
FIRST CALGARY PETROLEUMS Ltd.
Second Quarter Report
For the six months ended June 30, 2002
Report to Shareholders
First Calgary Petroleums Ltd. ("FCP" or the "Company") is an international
exploration company with properties in Algeria and Yemen. In Algeria, FCP is the
operator of the Yacoub 406a and Ledjmet 405b blocks which combined exceed
500,000 acres in the Berkine Basin. In Yemen, FCP has an interest in Block 43,
that pursuant to a 2001 farmout, is presently being funded and operated by DNO
(ASA) of Norway.
Overview of Activities
In Algeria, operations continue to focus on identifying drilling locations on
both blocks for the second half of 2002. On the Ledjmet Block 405b, the Company
has selected the location for its first well, MLE-2. The MLE-2 location is based
on 3D seismic data that extends over the existing MLE discovery well. The MLE-2
location, which is approximately 2 km southwest of MLE, has been scouted and
surveyed. The lease preparation is scheduled for September and the well is
expected to spud in October.
On the Yacoub Block 406a, the 239 km2 3D seismic acquisition program has been
completed and the data is being interpreted to identify the first drilling
location, planned to commence drilling during the fourth quarter.
In Yemen, DNO is reviewing the geology and existing seismic data on Block 43
prior to commencing the work commitment that includes additional seismic
acquisition and drilling two wells.
To fund the ongoing and planned oil and gas activities, the Company has been
actively pursuing and evaluating financing opportunities. Stemming from these
efforts, the Company closed an equity financing on July 30 raising $25,018,592
in exchange for the issuance of 20,014,850 common shares. The equity was placed
primarily with institutional investors in Great Britain, Canada and the United
States. FCP continued its relationship with Canaccord Capital (Europe) which
served as the lead agent and advisor in this financing which was completed
during a period of very unsettled and negative capital markets. In conjunction
with the equity financing, the Company also was admitted to the Alternative
Investment Market (AIM) of the London Stock Exchange and commenced trading on
July 30 under the symbol "FPL". The AIM listing supplements the TSX listing and
provides FCP with excellent exposure to a significantly larger capital market in
the UK and Europe. Nabarro Wells in London was the Company's nominating advisor
in the AIM listing application and continues to serve in that capacity.
Capital Expenditures and Operating Results
Capital expenditures for the six months ended June 30, 2002 totaled $5,068,427
and relates primarily to the Algeria operations. Of this total, approximately
$4.0 million relates to the 3D seismic on the Yacoub Block 406a and costs
associated with the Ledjmet Block 405b seismic, $0.5 million is attributed to
annual training bonuses and $0.5 million relates to legal and support services
for the Algeria operating base. During the second quarter ended June 30, 2002,
capital expenditures totaled $2,593,002 of which approximately $2.1 million
relates to the Yacoub Block 406a 3D seismic costs associated with the Ledjmet
Block 405b seismic, $0.3 million is attributed to annual training bonuses and
$0.2 million relates to legal and support services for the Algeria operating
base.
The Company's operating loss for the six months ended June 30, 2002 was
$1,509,177 compared with $465,221 for 2001. For the second quarter ended June
30, 2002, FCP incurred an operating loss of $787,452 versus $170,473 for the
comparable period in 2001. The increased loss in 2002 for both the six months
and quarter ended June 30 is attributable to increased general and
administrative costs, the recognition of non-employee stock-based compensation
expense and a reduction in the net production income derived from the Company's
remaining Canadian properties.
The Company's general and administrative expenses were $1,261,192 for the six
months ended June 30, 2002 compared with $653,238 for the 2001 period.
Approximately $300,000 or 50% of the increase relates to professional fees
associated with the Company's application to list its shares on AIM. The
remaining difference is primarily attributed to higher travel and investor
relations costs and an increase in the Company's staff numbers. For the three
months ended June 30, 2002, the general and administrative expenses were
$742,533 versus $356,478 for the corresponding 2001 period. Approximately
$300,000 or 78% of the increase relates to professional fees associated with the
Company's application to list its shares on AIM. The remaining difference is
primarily attributed to higher travel and investor relations costs and an
increase in the Company's staff numbers.
FCP holds certain minor Canadian working and royalty interests carried over from
its former activities. These non operated properties generate an insignificant
amount of net production revenue or expense for the Company. The production
revenue and expenses reported for the six months ended June 30, 2001 relate
primarily to a property that was sold in 2001 and reflect adjustments reported
by the operator prior to the sale.
Liquidity and Capital Resources
During the six months ended June 30, 2002 the Company received gross proceeds of
$4,251,833 pursuant to the exercise of 7,400,000 share purchase warrants and
199,667 employee stock options in exchange for 7,599,667 common shares. Of these
totals, $3,953,333 was received in the three months ended June 30, 2002 pursuant
to the exercise of 7,000,000 share purchase warrants and 66,667 employee stock
options. Subsequent to June 30, 2002, the Company issued 20,014,850 common
shares for gross proceeds of $25,018,592. As at August 20, 2002, the Company's
issued common shares were 103,824,426.
FCP continues to operate as an exploration company. The recent $25 million
equity financing has provided the necessary funds to drill the initial wells on
each of the Ledjmet 405b and Yacoub 406a blocks. The Company's ability to
complete the total work commitments, details of which are set out in the
Operations and Commitments note to the unaudited financial statements, and earn
its interest in the blocks is dependent upon the Company obtaining additional
financing.
Outlook
2002 is proving to be an exciting year in the Company's bid to build an
international exploration and production company. The recently completed
financing will allow the Company to move forward with its plans to drill 2 wells
during the second half of the year. The MLE-2 well location has been selected on
the Ledjmet Block 405b and should spud during October. The first drill location
on Yacoub Block 406a should be selected during the third quarter and services
are being coordinated to spud this well during the fourth quarter.
Report to Shareholders for the second quarter of 2002 should be read in
conjunction with the unaudited interim financial statements for the six months
ended June 30, 2002 and 2001 and the audited financial statements and
management's discussion and analysis for the year ended December 31, 2001.
Consolidated Balance Sheets
June 30 December 31
2002 2001
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and short-term deposits $ 2,042,046 $ 4,444,230
Accounts receivable and deposits 73,955 40,624
2,116,001 4,484,854
Property, plant and equipment 14,949,600 9,892,628
$ 17,065,601 $ 14,377,482
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,161,940 $ 1,242,973
1,161,940 1,242,973
Provision for future site restoration costs 35,491 35,491
Shareholders' equity:
Capital stock (note 3) 37,607,995 33,582,732
Contributed surplus (note 3) 253,066 -
Deficit (21,992,891) (20,483,714)
15,868,170 13,099,018
Operations and commitments (note 1)
Subsequent events (note 4)
$ 17,065,601 $ 14,377,482
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations and Deficit
(Unaudited)
Three Months ended June 30 Six Months ended June 30
2002 2001 2002 2001
Revenue:
Petroleum and natural gas sales,
less royalties $ 2,005 $ 227,050 $ 4,595 $ 239,328
Interest and other income 9,118 4,383 19,294 4,383
11,123 231,433 23,889 243,711
Expenses:
Production 4,746 40,379 6,991 45,615
General and administrative 742,533 356,478 1,261,192 653,238
Stock-based compensation (note 48,533 - 253,066 -
3)
Foreign exchange losses (3,062) 49 362 79
Depreciation 5,825 5,000 11,455 10,000
798,575 401,906 1,533,066 708,932
Loss for the period (787,452) (170,473) (1,509,177) (465,221)
Deficit, beginning of the period (21,205,439) (19,450,070) (20,483,714) (19,155,322)
Deficit, end of the period $ (21,992,891) $ (19,620,543) $ (21,992,891) $ (19,620,543)
Loss per share, basic and diluted $ (0.01) $ - $ (0.02) $ (0.01)
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended June 30 Six Months ended June 30
2002 2001 2002 2001
Operating activities:
Net income (loss) for the year (787,452) (170,473) (1,509,177) (465,221)
Items not involving cash:
Depreciation 5,825 5,000 11,455 10,000
Stock-based compensation expense 48,533 - 253,066 -
(733,094) (165,473) (1,244,656) 455,221)
Change in non-cash working capital 144,746 89,187 239,296 (267,350)
(588,348) (76,286) (1,005,360) (722,571)
Financing activities:
Proceeds from exercise of warrants 3,920,000 - 4,180,000 110,500
Proceeds from issuance of special - 6,500,000 - 6,700,000
warrants and units
Proceeds from exercise of options 33,333 - 71,833 42,307
Issue costs (226,570) (801,007) (226,570) (818,245)
3,726,763 5,698,993 4,025,263 6,034,562
Investing activities:
Expenditures on exploration activities (2,593,002) (653,950) (5,068,427) (1,020,631)
Proceeds on sale of property - 142,492 - 142,492
(2,593,002) (511,458) (5,068,427) (878,139)
Change in non-cash working capital (1,265,278) (1,569,114) (353,660) (896,733)
(3,858,280) (2,080,572) (5,422,087) (1,774,872)
Increase (decrease) in cash (719,865) 3,542,135 (2,402,184) 3,537,119
Cash and short term deposits, beginning 2,761,911 6,468 4,444,230 11,484
of period
Cash and short term deposits, end of 2,042,046 3,548,603 2,042,046 3,548,603
period
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Six months ended June 30, 2002 (unaudited)
The interim consolidated financial statements of First Calgary Petroleums Ltd.("
the Company") have been prepared by management in accordance with accounting
principles generally accepted in Canada. Except as disclosed in Note 2, the
interim consolidated financial statements have been prepared following the same
accounting policies as the consolidated financial statements for the fiscal year
ended December 31, 2001. 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 in the Company's annual
report for the year ended December 31, 2001.
1. Operations and commitments
The Company's principal operations include oil and gas exploration in
Algeria and Yemen. The Company has contracts with Sonatrach, the national
oil company of Algeria, to explore and develop two blocks, Yacoub Block
406a and Ledjmet Block 405b. The Company holds an interest in a contract
with the Yemen Minister of Mineral Resources to explore and develop Block
43. These contracts are structured such that the Company commits to conduct
certain exploration activities, as a minimum, over a period of time and in
return the Company earns an interest in the properties. To complete the
work obligations, the Company will require additional funding in the form
of equity, debt, joint ventures or some combination thereof.
(a) Algeria
Effective November 2000, the Company entered into a joint venture agreement
with Sonatrach to explore Yacoub Block 406a in the Berkine Basin. The
Company's minimum work obligation is to conduct a seismic program and drill
two exploration wells prior to November 2003, the end of the first
exploration period. The estimated cost of this work is US$18,250,000. The
joint venture agreement also provides the Company with the option to enter
a second exploration period that would extend through to November 2005. The
minimum work obligation for the second exploration period is to conduct a
seismic program and drill two exploration wells. The estimated cost of this
work is US$12,750,000. In addition to the minimum work commitments, the
Company is obligated to pay an annual training bonus in the amount of
US$150,000 for the duration of the contract.
Effective December 2001, the Company entered into a production sharing
contract with Sonatrach to explore and appraise Ledjmet Block 405b, also
situated in the Berkine Basin. The Company's minimum work obligation is to
conduct a seismic program and drill three wells prior to December 2004, the
end of the first exploration period. The estimated cost of this work is
US$20,000,000. The contract provides the Company with the right to
appraise, and if commercial, develop a prior discovery on the block. Should
the Company exercise this right, a reserve based access fee of US$0.25 per
barrel oil equivalent will be payable to Sonatrach on the commercialization
of the field. The contract also provides the Company with the option to
enter a second exploration period that would extend through to December
2006. The minimum work obligation for the second exploration period is to
conduct a seismic program and drill one exploration well. The estimated
cost of this work is US$6,250,000. In addition to the minimum work
commitments, the Company is obligated to pay an annual training bonus in
the amount of US$150,000 for the duration of the contract.
If the Company fails to satisfy the minimum work obligations, the rights
(other than for areas for which an exploitation permit has been granted or
requested) will be returned and the Company will be liable to pay Sonatrach
a sum equal to the minimum work program cost estimates referred to above
for each block.
(b) Yemen
Effective July 1998, the Company entered into a production sharing contract
with the Yemen Ministry of Minerals to explore Block 43 in Yemen. The
Company completed the first exploration work and expenditure commitments by
way of a farmout with an industry partner. Effective August 2001, the
Company entered a farmout agreement with another industry partner and the
companies have entered the second exploration period which extends to
January 2004.
The minimum expenditure commitment for the second exploration period is
US$7,500,000 and must include a seismic program and the drilling of two
exploration wells. The production sharing contract also requires an
irrevocable letter of credit be lodged in the amount of US$7,500,000.
Pursuant to the August 2001 farmout, the Company's partner assumed
operatorship of the block and is responsible for funding all exploration
expenditures until such time as it has incurred US$7,500,000 in
expenditures or made a commercial discovery. Thereafter, the Company will
be responsible for funding 11.76% of the ongoing costs, if any. In addition
to the work and expenditure commitment, the production sharing contract
requires bonus payments totaling US$600,000 per annum during the second
exploration period and US$500,000 per annum for the duration of the
contract.
(c) Other commitments
The Company has entered into an agreement with a nominated advisor to
provide advice and services relating to the listing of the Company's common
shares on the Alternate Investment Market ("AIM") of the London Stock
Exchange. In accordance with the terms of the agreement, as amended, and in
addition to the fees paid prior to June 30, 2002, the Company is committed
to pay the nominated advisor $108,000 (#45,000) upon the Company's
admission to AIM in July 2002. In addition, upon the Company's admission to
AIM, the Company is committed to issue the nominated advisor warrants to
subscribe for 200,000 common shares at an exercise price of $1.11 per share
exercisable until June 9, 2007. The nominated advisor has also been
retained to provide its services in that capacity on an ongoing basis
following admission in return for an annual fee of $60,000 (#25,000).
Also relating to the AIM listing, the Company has entered into an agreement
with an investment bank to provide broker advisory services to the Company.
In accordance with the terms of the agreement and in addition to the fees
paid prior to June 30, 2002, the Company is committed to pay the broker
advisor $156,000 (#65,000) upon the Company's admission to AIM in July
2002. In addition, upon the Company's admission to AIM, the Company is
committed to issue the broker advisor warrants to subscribe for 150,000
common shares at an exercise price of $1.11 per share exercisable until
June 9, 2007. The broker advisor has also been retained to provide its
services in that capacity on an ongoing basis following admission in return
for an annual fee of $60,000 (#25,000).
2. Change in accounting policy
Effective January 1, 2002 the Company adopted Section 3870, Stock-Based
Compensation and Other Stock-Based Payments. This new standard of the
Canadian Institute of Chartered Accountants requires the recognition,
measurement and disclosure of stock-based compensation and other
stock-based payments in exchange for goods and services.
3. Capital stock
(a) Issued share capital
Number of shares Amount
Common shares:
Balance, December 31, 2001 76,209,909 $ 33,582,732
Issued on exercise of share purchase warrants (i) 400,000 260,000
Issued on exercise of share purchase warrants (ii) 7,000,000 3,920,000
Issued on exercise of stock options 199,667 71,833
Share issue costs (226,570)
Balance, June 30, 2002 83,809,576 $ 37,607,995
(i) In January 2002, a related party shareholder exercised 400,000 common
share purchase warrants at $0.65 per share and the Company paid $260,000
for settlement of an outstanding claim of the shareholder in the amount of
US$185,000.
(ii) In June 2002, 7,000,000 common shares were issued on the exercise of
7,000,000 common share purchase warrants exercisable at a purchase price of
$0.56 per share. In conjunction with this issuance, the Company issued to
the financial agent 700,000 common share purchase warrants exercisable at a
purchase price of $0.56 per share until December 13, 2003.
(iii)As at August 20, 2002, there were 103,824,426 common shares issued (see
note 4(a)).
(b) Stock options
(i) Employee stock options
Pursuant to the Stock Option Plan, the Company can reserve for issuance
and grant stock options to a maximum of 9,202,027 common shares on a
cumulative basis. Stock options granted under the plan have a term of five
years and generally vest one-third on the date of grant and one-third on
each of the first and second anniversary dates of the grant. The exercise
price of each option is equal to the market price of the shares on the date
of the grant.
At June 30, 2002 the Company had employee stock options outstanding to
purchase 6,215,333 common shares at prices ranging from $0.22 to $1.30 per
share. The options expire at various times from October 2002 to March 2007.
Number of options Weighted average exercise price
Outstanding, December 31, 2001 $ 6,185,000 0.76
Granted 230,000 0.88
Exercised (199,667) 0.36
Outstanding, June 30, 2002 6,215,333 $ 0.78
Exercisable, June 30, 2002 3,959,333 $ 0.86
The following table summarizes information about the employee stock options
outstanding and exercisable at June 30, 2002:
Options outstanding Options exercisable
Weighted Weighted Weighted
average average average
Range of Common remaining exercise Common exercise
exercise prices shares contractual price shares price
life
$ 0.22 - 0.25 380,000 0.8 years $ 0.23 380,000 $ 0.23
$ 0.50 - 0.77 3,680,333 3.9 years $ 0.63 1,602,666 $ 0.65
$ 0.85 - 1.06 1,255,000 2.8 years $ 1.01 1,076,667 $ 1.03
$ 1.23 - 1.30 900,000 2.4 years $ 1.29 900,000 $ 1.29
6,215,333 3.3 years $ 0.78 3,959,333 $ 0.86
(ii) Other stock options
On January 24, 2002, the Company granted options to acquire 900,000 common
shares at a price of $0.70 per share to two consultants. The stock options
have a five year term and vest as to one-third on the date of grant and
one-third on each of the first and second anniversary dates of the grant.
(c) Common share purchase warrants
At June 30, 2002 the Company had 5,768,000 common share purchase warrants
outstanding exercisable into an equal number of common shares as follows:
Warrants Outstanding Exercise Price Expiry Date
3,000,000 $ 0.65 November 8, 2002
700,000 $ 0.56 December 29, 2002
700,000 $ 0.56 March 13, 2003
668,000 $ 0.56 June 29, 2003
700,000 $ 0.56 December 13, 2003
5,768,000
Subsequent to June 30, 2002, the Company issued 350,000 common share purchase
warrants to acquire an equal number of common shares at an exercise price of
$1.11 per share until June 9, 2007.
(d) Stock-based compensation and payments
The Company entered into agreements with two consultants to provide
services relating to the financing of its ongoing operations. Pursuant to
the agreements, the Company granted options to acquire 900,000 common
shares at a price of $0.70 per share. The options vest as to one third on
each of January 24, 2002, 2003 and 2004 and expire January 24, 2007. The
Company recognized $253,066 of stock-based compensation expense in the six
months ended June 30, 2002 ($48,533 for the three months ended June 30,
2002) with a corresponding increase in contributed surplus. The expense
represents the estimated fair value of the options that have vested and the
value for the unvested options accrued over the vesting period.
The Company continues with its policy of not recognizing compensation
expense on the issuance of employee stock options and recording
consideration received from employees or directors on the exercise of stock
options as a capital transaction. If the Company had elected to use the
fair value method of accounting for employee stock options, the Company's
loss and loss per share would have been the pro forma amounts indicated
below:
Three months ended Six months ended
June 30, 2002 June 30, 2002
Loss for the period As reported $ (787,452) $ (1,509,177)
Pro forma $ (802,064) $ (1,585,368)
Loss per share (basic and As reported $ (0.01) $ (0.02)
fully diluted)
Pro forma $ (0.01) $ (0.02)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: expected
volatility of 96%, risk-free interest rate of 5% and expected lives of 5 years.
The weighted average fair value of options granted to non-employees in the
period is $0.52 per share and $0.61 per share to employees.
(e) Per share amounts
The weighted average number of shares outstanding are as follows:
Six months ended June 30, 2002 77,437,581
Three months ended June 30, 2002 78,255,730
Six months ended June 30, 2001 51,829,497
Three months ended June 30, 2001 54,559,876
The warrants and options had no dilutive effect for the periods. In computing
the dilutive effect of the warrants and options, 3,522,698 shares (2001 -
157,466) were added to the weighted average number of shares outstanding for the
six months ended June 30, 2002; 2,013,574 shares (2001 - 316,964) were added to
the weighted average number of shares outstanding for the three months ended
June 30, 2002.
4. Subsequent events
(a) Equity financing
Pursuant to an agency agreement dated July 15, 2002, the agent agreed to
offer for sale, on a best efforts basis, a minimum of 20,000,000 and a
maximum of 32,000,000 common shares at a price of $1.25 per share. On July
30, 2002, the Company issued 20,014,850 common shares for gross proceeds of
$25,018,592 (5,132,250 common shares at $1.25 per share and 14,882,600
common shares at #0.52 per share). The agent was paid a commission of
$1,501,116 being 6% of the gross proceeds. Other issuance costs are
estimated to total $765,000.
(b) Admission to Alternate Investment Market (AIM) - London Stock Exchange
On July 30, 2002, the Company was admitted to the AIM market of the London
Stock Exchange. In connection therewith, the Company paid the fees and
issued the common share purchase warrants to its nominating advisor and
broker advisor, respectively, as described in notes 1(c) and 3(c).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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