First Calgary Petroleums Ltd. Third Quarter Report
For the nine months ended September 30, 2002
CALGARY, Nov. 29 /CNW/ -
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, FCP has commenced drilling operations with an initial 2 well
program. The first well, MLE-2, commenced drilling in November and offsets the
existing MLE discovery well on the Ledjmet Block 405b. The MLE-2 location is
based on 3D seismic data that extends over the MLE pool.
On the Yacoub Block 406a, the Company has selected the location for its
first well, YCB-1, based upon the 3D seismic program completed earlier this
year. Civil work has commenced building the access road and preparing the well
site. For economic and operating efficiencies, FCP has contracted the same
drilling rig for both wells. Accordingly, YCB-1 will be drilled immediately
following the rig release from the MLE-2 location.
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 drilling activity, the Company closed a public equity
financing in July raising approximately $25.7 million, before costs, in
exchange for the issuance of 20 million common shares. The equity was placed
primarily with institutional investors in Great Britain, Canada and the United
States. Canaccord Capital (Europe) served as the lead agent and advisor in
this financing which was completed during a period of very unsettled and
negative capital markets. Subsequent to September 30, 2002, FCP has received
an additional $2.8 million resulting primarily from the exercise of common
share purchase warrants.
In conjunction with the equity financing, the Company was granted
admission 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 exposure to the
significantly larger capital markets in the UK and Europe.
Capital Expenditures and Operating Results
Capital expenditures for the nine months ended September 30, 2002 totaled
$6.0 million and relates primarily to the Algeria operations. Of this total,
$4.3 million relates to the 239 km(2) 3D seismic acquired on the Yacoub Block
406a and 109 km(2) 3D seismic acquired with the Ledjmet Block 405b,
$0.2 million relates to drilling activities, $0.5 million is attributed to
annual training bonuses and $1.0 million relates to administrative and support
services for the Algeria operations. During the third quarter ended
September 30, 2002, capital expenditures totaled $0.9 million of which
$0.3 million relates to seismic costs, $0.2 million is attributed to
preliminary drilling activities and $0.4 million relates to administrative and
operating support services.
The Company's operating loss for the nine months ended September 30, 2002
was $3.0 million compared with $0.8 million for 2001. For the third quarter
ended September 30, 2002, FCP incurred an operating loss of $1.5 million
versus $0.3 million for the comparable period in 2001. The increased loss in
2002 for both the nine months and quarter ended September 30 is attributable
to increased general and administrative costs, which include costs associated
with the Company's admission to AIM, 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 $2.4 million for
the nine months ended September 30, 2002 compared with $1.0 million for the
2001 period. Approximately $0.9 million of the increase relates to costs
associated with the Company's AIM admission. The remaining increase is
primarily attributed to travel, investor relations costs and an increase in
the Company's staff numbers. For the three months ended September 30, 2002,
the general and administrative expenses were $1.2 million versus $0.4 million
for the corresponding 2001 period. Approximately $0.6 million of the increase
relates to AIM costs. The remaining increase is primarily attributed to
travel, 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. Ongoing, 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 nine months
ended September 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 nine months ended September 30, 2002 the Company has raised
new equity funding totaling $30 million ($27.1 million net of costs) in
exchange for 27.7 million shares issued pursuant to the exercise of share
purchase warrants, employee stock options and the July share offering. Of
these totals, $25.7 million ($23.1 million net of costs) was received during
the three months ended September 30, 2002 resulting in the issue of 20 million
common shares.
Subsequent to September 30, 2002, the Company received an additional
$2.8 million and issued 4.6 million commons shares following the exercise of
common share purchase warrants and employee stock options. As at November 20,
2002, the Company had outstanding 108,524,426 common shares, 1,718,000
warrants and 8,065,333 stock options.
FCP continues to operate as an exploration company. The recent equity
financing and subsequent exercise of common share purchase warrants provides
the funds for the initial wells on the Ledjmet 405b and Yacoub 406a blocks.
However, 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 remains dependent
upon the Company obtaining additional financing.
Outlook
FCP's 500,000 acres in Algeria's prolific Berkine Basin, which includes
rights to access and develop the MLE gas discovery, plus its Yemen property
provides an ideal foundation upon which to build a significant exploration and
production company. 2002 is proving to be a pivotal and exciting year in the
Company's development as it moves forward with its drilling program.
Report to Shareholders for the third quarter of 2002 should be read in
conjunction with the unaudited interim financial statements for the nine
months ended September 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
September 30 December 31
2002 2001
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(Unaudited) (Audited)
ASSETS
Current assets:
Cash and short-term deposits (note 3) $ 22,464,933 $ 4,444,230
Accounts receivable 111,084 23,340
Deposits and prepaid expenses 74,698 17,284
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22,650,715 4,484,854
Property, plant and equipment 15,869,288 9,892,628
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38,520,003 14,377,482
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities 623,629 1,242,973
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623,629 1,242,973
Provision for future site restoration costs 35,491 35,491
Shareholders' equity:
Capital stock (note 4) 60,729,962 33,582,732
Contributed surplus (note 4) 587,899 -
Deficit (23,456,978) (20,483,714)
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37,860,883 13,099,018
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Operations and commitments (note 1)
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38,520,003 14,377,482
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See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations and Deficit
(Unaudited)
Three Months ended Nine Months ended
September 30 September 30
2002 2001 2002 2001
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Revenue:
Petroleum and
natural gas sales,
less royalties $ 24,007 $ 10,593 $ 28,602 $ 249,921
Interest and other
income 111,171 26,986 130,465 31,369
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135,178 37,579 159,067 281,290
Expenses:
Production 3,376 410 10,367 46,025
General and
administrative 1,160,935 358,270 2,422,127 1,011,508
Stock-based
compensation
(note 4) 334,833 - 587,899 -
Foreign exchange loss 93,624 (471) 93,986 (392)
Depreciation 6,497 5,000 17,952 15,000
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1,599,265 363,209 3,132,331 1,072,141
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Loss for the period (1,464,087) (325,630) (2,973,264) (790,851)
Deficit, beginning
of the period (21,992,891) (19,620,543) (20,483,714) (19,155,322)
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Deficit, end of
the period $(23,456,978) $(19,946,173) $(23,456,978) $(19,946,173)
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Loss per share,
basic and
diluted $ (0.02) $ - $ (0.04) $ (0.01)
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-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended Nine Months ended
September 30 September 30
2002 2001 2002 2001
-------------------------------------------------------------------------
Operating activities :
Net loss for the
period $ (1,464,087) $ (325,630) $ (2,973,264) $ (790,851)
Items not involving cash:
Depreciation 6,497 5,000 17,952 15,000
Stock based
compensation
expense 334,833 - 587,899 -
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(1,122,757) (320,630) (2,367,413) (775,851)
Change in non-cash
working capital (295,864) (134,020) (56,568) (401,370)
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(1,418,621) (454,650) (2,423,981) (1,177,221)
Financing activities:
Proceeds from
issuance of
shares 25,676,016 - 25,676,016 -
Proceeds from
exercise of
warrants - - 4,180,000 3,110,500
Proceeds from
issuance of units - 3,500,000 - 7,200,000
Proceeds from
exercise of options 22,001 1,110 93,834 43,417
Issue costs (2,576,051) (245,000) (2,802,620) (1,063,245)
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23,121,966 3,256,110 27,147,230 9,290,672
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Investing activities:
Expenditures on
exploration
activities (926,185) (1,210,281) (5,994,612) (2,230,912)
Proceeds on sale
of property - - - 142,492
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(926,185) (1,210,281) (5,994,612) (2,088,420)
Change in non-cash
working capital (354,273) (99,259) (707,934) (995,992)
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(1,280,458) (1,309,540) (6,702,546) (3,084,412)
-------------------------------------------------------------------------
Increase in cash 20,422,887 1,491,920 18,020,703 5,029,039
Cash and short
term deposits,
beginning of period 2,042,046 3,548,603 4,444,230 11,484
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Cash and short
term deposits,
end of period $ 22,464,933 $ 5,040,523 $ 22,464,933 $ 5,040,523
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See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Nine months ended September 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.
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. Cash and short-term deposits
The Company considers deposits in banks, certificates of deposit and
short-term investments with original maturities of three months or less as
cash and cash equivalents. The major components of cash and cash equivalents
are as follows:
2002 2001
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Cash on deposits
Canadian dollar deposits 740,961 4,377,867
British pound deposits (pnds stlg 7,606) 18,746 -
U.S. dollar deposits (US$41,709) - 66,363
Bank term deposits at rates of interest
varying between 2.5% and 3.7%
Canadian dollar deposits 5,200,000 -
British pound deposits (pnds stlg 6,696,647) 16,505,226 -
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22,464,933 4,444,230
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4. 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 299,667 93,833
Issued on public offering (iii) 20,014,850 25,676,016
Share issue costs (iii) (2,802,619)
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Balance, September 30, 2002 103,924,426 $60,729,962
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(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) In July 2002, the Company issued 20,014,850 common shares for
gross proceeds of $25,676,016 (5,132,250 common shares at $1.25
per share and 14,882,600 common shares at pnds stlg 0.52 per
share) pursuant to a public offering of its shares in Canada
and the U.K. The share issue costs totalled $2,325,008, of
which the agent's 6% commission was $1,540,561 and other costs
were $784,447.
The Company also incurred commissions on the exercise of common
share purchase warrants during the period totalling $477,611.
(iv) As at November 20, 2002, there were 108,524,426 common shares
issued (see note 5(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 September 30, 2002 the Company had employee stock options
outstanding to purchase 7,115,333 common shares at prices
ranging from $0.22 to $1.30 per share. The options expire at
various times from October 2002 to August 2007.
Weighted
Number of average
options exercise price
---------------------------------------------------------------------
Outstanding, December 31, 2001 6,185,000 $ 0.76
Granted 1,230,000 1.18
Exercised (299,667) 0.31
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Outstanding, September 30, 2002 7,115,333 $ 0.85
---------------------------------------------------------------------
Exercisable, September 30, 2002 4,760,333 $ 0.89
---------------------------------------------------------------------
---------------------------------------------------------------------
The following table summarizes information about the employee stock
options outstanding and exercisable at September 30, 2002:
Options outstanding Options exercisable
-------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
Range of Common remaining exercise Common exercise
exercise prices shares contractual life price shares price
-------------------------------------------------------------------------
$ 0.22 - 0.25 280,000 0.8 years $ 0.24 280,000 $ 0.24
$ 0.50 - 0.77 3,680,333 3.6 years $ 0.63 2,145,333 $ 0.67
$ 0.85 - 1.06 1,255,000 2.6 years $ 1.01 1,101,667 $ 1.03
$ 1.23 - 1.30 1,900,000 3.6 years $ 1.27 1,233,333 $ 1.28
-------------------------------------------------------------------------
7,115,333 3.3 years $ 0.85 4,760,333 $ 0.89
-------------------------------------------------------------------------
(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 onethird on each of the
first and second anniversary dates of the grant.
(c) Common share purchase warrants
At September 30, 2002 the Company had 6,118,000 common share purchase
warrants outstanding exercisable into an equal number of common
shares as follows (see note 5(a) ):
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
350,000 $ 1.11 June 9, 2007
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6,118,000
--------------------------------------------------------------------
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(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.
In addition, as partial compensation for the Company's nominating and
broker advisors respecting services rendered to list the Company's
common shares on the Alternate Investment Market ("AIM") of the
London Stock Exchange, the Company issued warrants to purchase
350,000 common shares at $1.11 per share exercisable until June 9,
2007.
The Company recognized $587,899 of stock-based compensation expense
in the nine months ended September 30, 2002 ($334,833 for the three
months ended September 30, 2002) with a corresponding increase in
contributed surplus. The expense represents the estimated fair value
of the securities that have vested and the value for the unvested
securities 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 Nine months ended
September 30, 2002 September 30, 2002
--------------------------------------------------------------------
Loss for the period As reported $ (1,464,087) $ (2,973,264)
Pro forma $ (1,880,773) $ (3,466,141)
Loss per share (basic and
fully diluted) As reported $ (0.02) $ (0.04)
Pro forma $ (0.02) $ (0.04)
--------------------------------------------------------------------
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 95%, 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
$0.86 per share to employees.
The fair value of each warrant issued is estimated on the date of
issue using the Black-Scholes option pricing model with the following
assumptions: expected volatility of 94%, risk-free interest rate of
4% and expected life of 5 years. The fair value of the warrants
issued in the period is $0.82 per share.
(e) Per share amounts
The weighted average number of shares outstanding are as follows:
Nine months ended September 30, 2002 84,283,273
Three months ended September 30, 2002 97,751,428
Nine months ended September 30, 2001 55,443,101
Three months ended September 30, 2001 63,899,213
The warrants and options had no dilutive effect for the periods. In
computing the dilutive effect of the warrants and options, 4,929,072
shares (2001 - 510,522) were added to the weighted average number of
shares outstanding for the nine months ended September 30, 2002;
1,451,570 shares (2001 - 596,336) were added to the weighted average
number of shares outstanding for the three months ended September 30,
2002.
5. Subsequent events
(a) Issued share capital
Subsequent to September 30, 2002, the Company issued 4,600,000 common
shares for a total cash consideration of $2,824,000 pursuant to the
exercise of 3,000,000 common share purchase warrants at $0.65 per
share, 1,400,000 common share purchase warrants of $0.56 per share
and 200,000 employee stock options at prices ranging from $0.22 to
$0.77 per share.
For further information: Richard G. Anderson, President and CEO,
Telephone: (403) 264-6697, European Contact: 4C Communications, Carina
Corbett, Telephone: +44(0)20 7907 4761
(FPL)
END
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