First Calgary Petroleums Ltd. - First Quarter Report For the three
months ended March 31, 2003
CALGARY, May 30 /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 Ledjmet 405b and Yacoub 406a blocks in the
Berkine Basinwhich combined exceed 500,000 acres. In Yemen, FCP has an
interest in Block 43, that pursuant to a 2001 farmout, is presently being
funded and operated by DNO ASA ("DNO") of Norway.
Overview of Activities
In Algeria, FCP has completed its 2 well drilling program that commenced
in the fourth quarter. The first well, MLE-2, reached total depth in December
2002 and was completed and production tested in the first quarter 2003. The
well production tested 44,300 barrels of oil equivalent per day comprising
189 million cubic feet of gas per day and 12,874 barrels of condensate (light
oil) per day. The MLE-2 well was the first well drilled by FCP to appraise the
MLE structure which was initially discovered in 1995 with the MLE-1 well. The
MLE-1 well production tested 8,900 barrels of oil equivalent per day,
comprised of 43 million cubic feet of natural gas per day and 1,745 barrels of
condensate per day.
Capitalizing on 3D seismic data, MLE-2 is structurally higher than MLE-1
and encountered over 147 meters of hydrocarbon bearing sands (net pay) in the
Triassic TAGI, Carboniferous and Devonian zones. Based upon the Company's 3D
seismic interpretation, the MLE structure extends over more than 100 square
kilometers and involves multiple geologic horizons. Additional drilling is
required to fully determine the ultimate recoverable gas and condensate
reserves.
In addition to MLE, Block 405b contains a structure immediately to the
west known as MZL. The MZL-1 well was drilled in the 1980's and based upon the
well information, the Company and its independent engineers believe the MZL
structure is also hydrocarbon bearing. Independent engineers currently
estimate the combined structures contain a possible 5.7 trillion cubic feet of
natural gas equivalent. Accordingly, the continued appraisal and future
development of this reserve base into commercial production is now a major
priority for FCP. The next appraisal well, MLE-3, is scheduled to commence
drilling in June and engineering feasibility studies of the total field
development and production have been initiated.
With Block 405b covering 1,108 square kilometers, there exists a
significant land base to the west of MLE and MZL available to be explored. A
number of leads have been identified on this portion of the Block through the
interpretation of a grid of 2D seismic data. To supplement this data, a
600 square kilometer 3D seismic program has commenced in the second quarter.
On the Yacoub Block 406a, the Company drilled and abandoned its first
exploration well, YCB-1, during the first quarter. Analysis of the YCB-1 data
indicated that local geological variations led to the replacement of the
sandstone reservoir by non-prospective shales. Notwithstanding the YCB-1
abandonment, FCP remains optimistic on the exploration potential for the
Block. Towards the east side of the Block, reservoir thicknesses are expected
to increase and the seismic data indicates faulting and structures. Additional
seismic is currently being acquired prior to confirming the location for a
second exploration well to be drilled later this year.
In Yemen, DNO has commenced drilling the Zaboon-1 well, being the first
of three wells scheduled to be drilled on Block 43 this year. This well is
being funded and operated by DNO pursuant to a farmout concluded in 2001.
In February FCP completed a $35 million public share offering in Canada
and the UK priced at $2.35 (pnds stlg 0.95) per share. This financing
positions the Company to move ahead with an active 2003 seismic and drilling
program.
Management's Discussion and Analysis
Management's discussion and analysis ("MD&A") should be read in
conjunction with the unaudited interim consolidated financial statements for
the three months ended March 31, 2003 and 2002 and the audited consolidated
financial statements and MD&A for the year ended December 31, 2002.
Capital Expenditures and Operating Results
Capital expenditures in Algeria for the three months ended March 31, 2003
totaled $13 million. Of this total, $11.5 million related to drilling,
completion and testing activities, $0.5 million is attributed to annual
training bonuses, $0.1 million was spent on seismic data and $0.9 million
related to administrative and support services for the Algeria operations.
The Company's operating loss for the three months ended March 31, 2003
was $1.2 million compared with $0.7 million for the comparable 2002 period.
The increased loss in 2003 is attributable to foreign exchange losses and
increased general and administrative costs.
The Company's general and administrative expenses approximated
$0.7 million for the three months ended March 31, 2003 compared with
$0.5 million for the 2002 period. The increase is primarily attributed to
higher travel, investor communication costs and personnel costs.
The Company has recognized a foreign exchange loss of $0.6 million during
the three months ended March 31, 2003. The loss resulted from the significant
strengthening of the Canadian dollar in the quarter. Following recent equity
issues, the Company held the net proceeds in Canadian dollars and British
pound term deposits. US dollars and Algerian dinars were bought, as required,
to fund the Algerian exploration program. The Company realized an exchange
loss on the British pound holdings during the quarter. As the US dollar
deposits were generally less than US dollar denominated liabilities, the
Company realized minor exchange gains on its US dollar positions. During the
quarter, the British pound has not declined significantly compared to the US
dollar. Accordingly, the Company's ability to fund its future US dollar
denominated expenditures in Algeria has not been eroded by holding British
pound deposits.
Liquidity and Capital Resources
During the quarter ended March 31, 2003 the Company received
$35.6 million ($33 million net of costs) for 15.9 million shares issued
pursuant to a public share offering, exercise of share purchase warrants and
employee stock options. Working capital at March 31, 2003 was $29 million. As
at May 26, 2003 there were outstanding 124.6 million common shares,
8.7 million stock options to purchase common shares and 1.9 million common
share purchase warrants.
FCP continues to operate in an exploration and development stage. The
proceeds from the recent common share financing provides the funds for ongoing
drilling and seismic on the Ledjmet 405b and Yacoub 406a blocks. However, the
Company's ability to complete its outstanding work commitments and the
development of any commercial discoveries remains dependent upon the Company
obtaining additional financing.
Outlook
The Company is focused on the Ledjmet 405b and Yacoub 406a Blocks which
cover in excess of 500,000 acres in the Berkine Basin. On Ledjmet 405b, FCP
has a major gas and condensate field to develop based upon the MLE well
results and the current geological picture of the structure. The Company will
continue its efforts to further appraise this field with the objective of
establishing a commercial development plan as soon as possible. In addition,
the Company is continuing its exploration activities on both Blocks with
seismic programs that commenced during the second quarter of this year.
Financing the exploration and development activity presents an ongoing
challenge as the Company must balance activity levels with its capital
resources. The Company is continually monitoring the availability and the cost
of new capital. With access to additional capital, the scope and timing of
both the exploration and development activities could be increased and
accelerated.
Consolidated Balance Sheets
March 31 December 31
2003 2002
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(Unaudited) (Audited)
ASSETS
Current assets:
Cash and short-term deposits (note 2) $ 38,928,778 $ 19,587,570
Accounts receivable 129,542 91,067
Deposits and prepaid expenses 134,895 143,180
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39,193,215 19,821,817
Property, plant and equipment 42,748,606 29,744,160
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$ 81,941,821 $ 49,565,977
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities (note 3) $ 9,838,726 $ 9,351,460
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Provision for future site restoration costs 35,491 35,491
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Shareholders' equity:
Capital stock (note 4) 96,679,354 63,664,285
Contributed surplus (note 4) 684,965 636,432
Deficit (25,296,715) (24,121,691)
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72,067,604 40,179,026
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Operations and commitments (note 1)
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$ 81,941,821 $ 49,565,977
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Consolidated Statements of
Operations and Deficit
Three months ended March 31
(Unaudited) 2003 2002
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Revenue:
Interest and other income $ 187,796 $ 10,521
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Expenses:
General and administrative 668,947 518,659
Stock-based compensation (note 4) 48,533 204,533
Foreign exchange losses 636,703 3,424
Depreciation 8,637 5,630
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1,362,820 732,246
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Loss for the period (1,175,024) (721,725)
Deficit, beginning of the period (24,121,691) (20,483,714)
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Deficit, end of the period $(25,296,715) $(21,205,439)
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Loss per share, basic and diluted (note 4) $ (0.01) $ (0.01)
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Consolidated Statements of Cash Flows
Three months ended March 31
(Unaudited) 2003 2002
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Operating activities:
Net income (loss) for the year $ (1,175,024) $ (721,725)
Foreign exchange loss 636,703 -
Items not involving cash:
Depreciation 8,637 5,630
Stock-based compensation expense 48,533 204,533
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(481,151) (511,562)
Change in non-cash working capital (93,228) 94,550
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(574,379) (417,012)
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Financing activities:
Proceeds from issuance of shares 34,946,889 -
Proceeds from exercise of warrants 464,514 260,000
Proceeds from exercise of options 181,166 38,500
Issue costs (2,577,500) -
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33,015,069 298,500
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Investing activities:
Capital expenditures (13,013,083) (2,475,426)
Change in non-cash working capital 550,304 911,619
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(12,462,779) (1,563,807)
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Increase (decrease) in cash 19,977,911 (1,682,319)
Cash and short-term deposits,
beginning of period 19,587,570 4,444,230
Effect of exchange rate changes
on cash and cash equivalents (636,703) -
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Cash and short-term deposits,
end of period $ 38,928,778 $ 2,761,911
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Notes to Consolidated Financial Statements
Three months ended March 31, 2003 (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. These interim consolidated
financial statements have been prepared following the same accounting policies
as the consolidated financial statements for the fiscal year ended
December 31, 2002. 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, 2002.
1. Operations and commitments
The 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 also 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 has committed to conduct certain minimum
exploration activities over a period of time and in return earns an interest
in commercial discoveries. The Company does not have a sustainable revenue
base and therefore will require additional funding in the form of equity,
debt, joint ventures or some combination thereof to complete the work
obligations. Failure to satisfy its minimum work commitments on a timely basis
could cause the Company to forfeit its interest in some or all of its
properties and subject it to financial penalties.
(a) Algeria
In 2000 the Company entered into a joint venture agreement with Sonatrach
to explore Yacoub Block 406a in the Berkine Basin. The remaining minimum work
obligation at March 31, 2003 is to drill one exploration well prior to
November 2003, the end of the first exploration period. The estimated cost of
this well is U.S.$4,500,000. If the Company fails to satisfy the minimum work
obligation, the rights will be forfeited and the Company will be liable to pay
Sonatrach a penalty of U.S.$18,250,000. The joint venture agreement also
provides the Company with the option to enter a second exploration period that
would extend for two years 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 current estimated cost of this work is
U.S.$11,000,000. In addition to the minimum work commitments, the Company is
obligated to pay an annual training bonus in the amount of U.S.$150,000 for
the duration of the contract.
In 2001 the Company entered into a production sharing contract with
Sonatrach to explore and appraise Ledjmet Block 405b in the Berkine Basin. The
remaining minimum work obligation at March 31, 2003 is to conduct a seismic
program and drill two wells at an estimated cost of U.S.$18,000,000. This work
must be completed prior to December 2004, the end of the first exploration
period. If the Company fails to satisfy the minimum work obligation, the
rights, other than for areas for which an exploitation permit has been granted
or requested, will be forfeited and the Company will be liable to pay
Sonatrach a penalty of U.S.$20,000,000. In addition, the contract provides the
Company with the right to appraise and develop the MLE field previously
discovered on the block. Should the Company exercise this right, a reserve
based access fee of U.S.$0.25 per barrel oil equivalent will be owed 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 current estimated cost of this work is U.S.$8,000,000. In addition
to the minimum work commitments, the Company is obligated to pay an annual
training bonus in the amount of U.S.$150,000 for the duration of the contract.
(b) Yemen
In 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 commitments through a farmout. In 2001 the Company
entered a farmout with another industry partner and the companies have entered
the second exploration period which extends to February 2004.
The minimum expenditure commitment is U.S.$7,500,000 for the second
exploration period and pursuant to a 2002 revision, includes a seismic program
and the drilling of three exploration wells. The production sharing agreement
requires an irrevocable letter of credit be lodged in the amount of
U.S.$7,500,000.
Pursuant to the farmout, the partner assumed operatorship of the block
and is responsible for funding all exploration expenditures until such time as
it has incurred U.S.$7,500,000 in expenditures or made a commercial discovery.
In addition to the work commitment, the production sharing contract requires
bonus payments totaling U.S.$600,000 per annum during the second exploration
period and U.S.$500,000 per annum for the duration of the contract.
2. 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:
March 31 December 31
2003 2002
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Cash on deposit
Canadian dollars $ 462,247 $ 156,709
British pounds 205,913 259,992
U.S. dollars 462,818 27,955
Algerian dinars 202,712 368,064
Bank term deposits at rates of interest
varying between 0.375% and 3.44%
Canadian dollars 24,234,387 4,710,500
British pounds 8,246,860 6,550,545
U.S. dollars 5,113,841 7,513,805
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$ 38,928,778 $ 19,587,570
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3. Accounts payable and accrued liabilities
March 31 December 31
2003 2002
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Trade payables
Canadian dollars $ 426,811 $ 359,880
British pounds 57,631 100,903
U.S. dollars 7,065,748 6,489,579
Algerian dinars 349,435 101,320
Capital accrual
U.S. dollars 1,750,705 2,069,350
Algerian dinars 188,396 230,428
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$ 9,838,726 $ 9,351,460
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At March 31, 2003 a bank has issued letters of credit totaling
U.S.$500,000 to guarantee payment for services.
The Company pledged cash as security for the letters of credit.
4. Capital stock
(a) Issued share capital
Number of
shares Amount
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Common shares:
Balance, December 31, 2002 108,629,726 $ 63,664,285
Issued on public offering (i) 14,893,620 34,946,889
Issued on exercise of share purchase
warrants(ii) 749,472 464,514
Issued on exercise of stock options 274,333 181,166
Share issue costs - (2,577,500)
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Balance, March 31, 2003 124,547,151 $ 96,679,354
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(i) In February 2003, the Company issued 14,893,620 common shares for
gross proceeds of $34,946,889 (10,807,620 common shares at $2.35 per
share and 4,086,000 common shares at pnds stlg 0.95 per share)
pursuant to a public offering of its shares in Canada and the U.K. In
conjunction with the financing, the Company issued to the agents
893,617 common share purchase warrants exercisable at a purchase
price of $2.60 per share until February 12, 2004.
(ii)The Company issued 749,472 common shares pursuant to the exercise of
668,000 share purchase warrants at $0.56 per share and 81,472 share
purchase warrants at $1.11 per share.
(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 8,522,394 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 March 31, 2003 the Company had employee stock options outstanding to
purchase 7,779,000 common shares at prices ranging from $0.25 to $2.60 per
share. The options expire at various times from November 2003 to February
2008.
Number of Weighted average
options exercise price
------------------------------------------------------------------------
Outstanding, December 31, 2002 7,110,033 $ 0.88
Granted 1,130,000 2.57
Exercised (274,333) 0.66
Cancelled (186,700) 1.04
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Outstanding, March 31, 2003 7,779,000 $ 1.13
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Exercisable, March 31, 2003 5,612,889 $ 0.98
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The following table summarizes information about the employee stock
options outstanding and exercisable at March 31, 2003:
Options outstanding Options exercisable
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Weighted
Weighted average Weighted
average remaining average
Range of Common contractual exercise Common exercise
exercise prices shares life price shares price
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$0.25-0.50 1,655,999 3.4 years $0.48 1,222,666 $0.46
$0.60-0.85 2,068,001 3.0 years $0.75 1,738,556 $0.74
$0.95-1.06 975,000 1.7 years $1.04 1,025,000 $1.04
$1.23-1.90 1,950,000 3.2 years $1.28 1,250,000 $1.29
$2.36-2.60 1,130,000 4.8 years $2.57 376,667 $2.57
------------------------------------------------------------------------
7,779,000 3.2 years $1.13 5,612,889 $0.98
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(c) Common share purchase warrants
At March 31, 2003 the Company had 1,862,145 common share purchase
warrants outstanding exercisable into an equal number of common shares as
follows:
Warrants Outstanding Exercise Price Expiry Date
-------------------------------------------------------------
700,000 $ 0.56 December 13, 2003
893,617 $ 2.60 February 12, 2004
268,528 $ 1.11 June 9, 2007
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1,862,145
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(d) Stock-based compensation and payments
In January 2002, 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 the two consultants 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 $48,533 of stock-based compensation expense in the
three months ended March 31, 2003 (2002 - $204,533) with a corresponding
increase in contributed surplus. The expense represents the estimated fair
value of the securities being 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 March 31
2003 2002
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Loss for the period As reported $ (1,175,024) $ (721,725)
Pro forma $ (2,864,030) $ (783,304)
Loss per share
(basic and diluted) As reported $ (0.01) $ (0.01)
Pro forma $ (0.02) $ (0.01)
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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 fair value of options granted in the period ranged from $1.74
to $1.92 (2002 - $0.52 to $0.63) per share.
(e) Per share amounts
The loss per share is based on the weighted average number of shares
outstanding for the period. The weighted average number of shares outstanding
for the period were 116,669,210 (2002 - 76,610,342).
The warrants and options had no dilutive effect for the periods. In
computing the dilutive effect of the warrants and options, 1,540,722 shares
(2002 - 2,614,004) were added to the weighted average number of shares
outstanding.
5. Segmented information
The Company's activities are conducted in three geographic segments:
Canada, Algeriaand Yemen. All activities relate to exploration and
development of petroleum and natural gas.
2003 Canada Algeria Yemen Total
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Revenue $ 187,796 $ - $ - $ 187,796
Expenses (1,332,820) (30,000) - (1,362,820)
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Loss for the period $(1,145,024) $ (30,000) $ - $(1,175,024)
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Capital expenditures $ 12,297 $13,000,786 $ - $13,013,083
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Assets $39,120,525 $41,763,921 $1,057,375 $81,941,821
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At March 31, 2003 petroleum and natural gas properties include costs of
proven and unproven properties of $41,561,209 in Algeria and unproven
properties of $1,057,375 in Yemen.
In the three months ended March 31, 2003 the Company capitalized $948,324
of overhead charges relating directly to the exploration and development
activities in Algeria.
For further information: Richard G. Anderson, President and CEO, Tel:
(403) 264-6697; European Contact, 4C Communications, Carina Corbett, Tel:
+44 (0) 20 7907 4761
(FCP.)
END