15 November 2004
NELSON RESOURCES LIMITED REPORTS THIRD QUARTER RESULTS,
INCREASES IN PRODUCTION AND REVENUE
Nelson Resources Limited (TSX / AIM: NLG), a leading independent exploration and
production company operating in Kazakhstan, today reports its results for the
three and nine months ending 30 September 2004. All amounts are expressed in
U.S. dollars unless otherwise indicated.
HIGHLIGHTS
==========
Financial
---------
- Oil Revenue up 63% quarter-on-quarter to $81.5 million (Q2 2004 $50.0 million)
- Profit from operations increases nine-fold, year-on-year, to $38.0 million
(Q3 2003 $4.2 million)
- Net profit of $20.2 million, a year-on-year increase of 267%
(Q3 2003 $5.5 million)
- Cash flow from operating activities increases to $39.7 million
(Q3 2003 $5.9 million)
- Average price per barrel sold $35.71 (Q3 2003 $27.91)
- Successful $111 million placing and admission to trading on the Alternative
Investment Market of London Stock Exchange plc
Operational
-----------
- Average production over the quarter of 19,507 barrels of oil per day (bopd),
an increase of 26% quarter-on-quarter (Q2 2004 - 15,463 bopd) and 297%
year-on-year (Q3 2003 4,915 bopd)
- Kazakhoil Aktobe reaches production milestone - 1 million tonnes since start
of commercial production
- Development program involving 8 drilling and 7 work-over rigs across all
fields
- 14 new wells drilled during quarter (4 at Alibekmola, 6 at North Buzachi,
4 at Karakuduk)
- De-bottlenecking of existing facilities at Alibekmola completed, processing
capacity up 52% to 38,000 bopd
- Kazakhstan's Central Development Committee approves accelerated development
plan at North Buzachi
Nick Zana, Nelson's Chief Executive Officer, commented, "Our strong third
quarter results demonstrate the success of our acquisition strategy and
aggressive field development programs. High oil prices aside, our operating
achievements are testament to the robust strategy we have in place to grow
Nelson into a highly successful, large independent oil company. We are expanding
our relationships within the industry, we are being recognized as a experienced
and capable operator in Kazakhstan, and we are positioning ourselves to take
advantage of the significant opportunities that lie ahead as the Caspian basin
is explored."
FINANCIAL REVIEW
================
================================================================================
(in thousands of U.S. dollars, Three Months Ended Nine Months Ended
except per barrel and September 30 September 30
share amounts) 2004 2003 2004 2003
--------------------------------------------------------------------------------
Crude oil revenue $ 81,491 $ 15,451 $ 157,883 $ 27,280
Revenue per barrel 35.71 27.91 31.91 26.28
Profit from operations 38,017 4,205 46,194 3,070
Net Profit 20,202 5,499 16,145 3,676
Basic earnings per share 0.0242 0.0083 0.0209 0.0065
Diluted earnings per share 0.0234 0.0079 0.0202 0.0062
Cash flow from
operating activities 39,736 5,891 65,040 4,989
Net increase in cash and
cash equivalents 80,497 144 63,622 4,567
Shares outstanding
at end of period 857,458,095 664,554,751 857,458,095 664,554,751
================================================================================
All figures are for 50% of KOA, 50% of North Buzachi and 100% of Chaparral
The Company has a 50% interest in Kazakhoil Aktobe (KOA), operator of the
Alibekmola and Kozhasai fields, in partnership with the Kazakh state oil company
Kazmunaigas. Nelson also has a 50% interest in the North Buzachi field
(acquisition completed in February 2004), and a 36% interest in the Karakuduk
field through the purchase of a 60% shareholding in Chaparral Resources Inc.
(Chaparral) in May 2004.
Revenue and Expenses
--------------------
There has been a substantial increase in revenue and profit from operations in
the third quarter 2004, due to a combination of significant increases in crude
oil production, a higher number of producing wells, and rising oil export
prices. Average revenue per barrel sold during the quarter was $35.71, compared
with $29.60 for the previous quarter.
Cost of production for the quarter has increased year-on-year from $1.33 million
to $7.92 million, while sales and transportation costs have increased from $3.00
million to $11.32 million over the same period. The increases are due to the
acquisition of North Buzachi and Chaparral and increased production and sales at
KOA.
Total quarterly general and administration costs (G&A) have increased,
year-on-year, from $3.78 million to $6.98 million due to the acquisitions of
North Buzachi and Chaparral. At the corporate level, quarterly G&A costs have
increased by $1.22 million year-on-year, largely due to annual performance
bonuses paid to management and senior employees pursuant to the executive
compensation plan as approved by the board. Oil and gas G&A costs have decreased
year-on-year from $3.00 per barrel to $1.06 per barrel for the third quarter
2004 due to significant increases in production.
In 2003, KOA entered into a risk management program where it is utilizing
derivative instruments to manage the exposure to fluctuations in the price of
crude oil. The program includes two zero-cost collar contracts with BNP Paribas
with an average price floor of $18.00/bbl and average price ceiling of
$29.72/bbl. The contracts cover 270,000 barrels per month (approximately 37% of
KOA's third quarter production) and expire in August 2006. From July 1, 2004 the
Company decided to designate these instruments as hedges, and as a result the
change in the fair value of these hedges will be recorded as other comprehensive
income and not charged or credited to the profit and loss account. The previous
amount charged to the profit and loss to June 2004 is being credited to the
profit and loss account over the remaining life of the contracts.
Other compensation costs, relating to changes in value of stock options granted
to employees, have increased from $1.54 million for the third quarter 2003, to
$3.90 million for the same period in 2004. The increase is due to the rising
share price, new options granted in 2004 and a strengthening of the Canadian
dollar relative to the U.S. dollar.
Capital Expenditure
-------------------
Capital expenditure over the quarter totalled $29.4 million. The majority of the
oil and gas properties and property, plant and equipment expenditure for both
the three months and nine months ended September 30, 2004 was due to the
development of the Alibekmola and Kozhasai fields at KOA.
KOA's capital expenditure budget for 2004 is $124 million. The capital
expenditure is expected to be financed with an increase in current bank
financing and through cash flow from operations. Nelson's share of the projected
capital expenditure budget at North Buzachi is expected to be funded from
operating cash flow, bank borrowings and existing cash resources. Capital
expenditure at Chaparral is expected to be funded from operating cash flow.
Admission to trading on the Alternative Investment Market (AIM)
of London Stock Exchange plc
---------------------------------------------------------------
On July 19, 2004, Nelson was admitted to trading on AIM with the successful
placing of 112,144,128 shares (13% of the enlarged issued share capital) at a
price of 57.25p. Proceeds from the listing were $110.7 million (net of expenses)
which the Company intends to use to fund growth, through development of existing
fields and acquisition opportunities. Trading on AIM also significantly
broadened the Company's institutional shareholder base. Joint brokers for the
placing were Canaccord Capital (Europe) Limited (also acting as nominated
adviser) and Hoare Govett Limited (also acting as financial adviser).
MANAGEMENT DISCUSSION AND ANALYSIS
----------------------------------
A full Management Discussion and Analysis document is available on the Company's
website, www.nelsonresources.com, and on SEDAR, www.sedar.com. The document can
also be obtained on application from the Company.
REVIEW OF OPERATIONS
====================
As detailed above, the Company has interests in four onshore producing fields
in western Kazakhstan.
For the first nine months of 2004, Nelson's share of production from its three
operating entities continued to grow. During the third quarter, production of
crude oil net to Nelson averaged 19,507 barrels of oil per day (with the
Chaparral share taken as 36%). This represents a 26% increase over the second
quarter 2004 of 15,463 bopd and a 297% increase over the third quarter 2003 of
4,915 bopd.
Nelson is pursuing an ambitious development programs for all its operating
properties, which currently involves the use of 8 drilling and 7 work-over rigs.
Production is summarized in the following table:
================================================================================
(in bbls) Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
--------------------------------------------------------------------------------
Production
KOA 1,085,261 452,198 2,624,454 1,006,965
North Buzachi 434,664 - 1,077,105 -
Chaparral 762,993 - 1,120,932 -
--------- -------- --------- ---------
Total 2,282,918 452,198 4,822,491 1,006,965
Sales
KOA 1,047,839 553,620 2,610,795 1,038,106
North Buzachi 559,551 - 1,233,272 -
Chaparral 674,445 - 1,102,947 -
--------- -------- --------- ---------
Total 2,281,835 553,620 4,947,014 1,038,106
================================================================================
All figures are for 50% of KOA, 50% of North Buzachi and 100% of Chaparral
Kazakhoil Aktobe Operations
---------------------------
Kazakhoil Aktobe has licenses to develop the Alibekmola and Kozhasai oil fields
located in the Aktiubinsk Oblast. Four drilling rigs are being used in the
Alibekmola field, and a fifth rig is being deployed to the Kozhasai field. Four
new wells were drilled during the quarter, each well averaging 67 days from spud
to release, instead of the 82 days required during the early part of the year.
In addition, two work-over rigs were providing completion and re-entry services
in both fields.
At the end of June there were 22 wells on line, gross combined quarterly average
production was 18,000 bopd and the processing capacity was 25,000 bopd, whilst
at the end of September there were 27 wells (plus one injector well) on line,
gross combined quarterly average production had increased to 23,000 bopd and the
processing capacity had been de-bottlenecked to 38,000 bopd.
Activities during the quarter at Alibekmola and Kozhasai fields included:
- De-bottlenecking of Phase 3 of existing surface facilities in Alibekmola
completed
- Infield gathering system for new wells and potable water pipeline in
Alibekmola completed
- Construction for new Alibekmola surface facilities, gas processing and water
injection systems started
- Pilot water injection complete and functioning with 2 injection wells online
in Alibekmola
- Field camp facilities in Alibekmola and Kozhasai nearing completion
- Road infrastructure in Alibekmola and Kozhasai completed
North Buzachi Operations
------------------------
The North Buzachi oil field is located in the Mangistau Oblast of western
Kazakhstan, approximately 180 kilometres north of the Caspian Sea port of Aktau.
Drilling of six new wells was completed during the quarter. The average time it
took from spud to release was 12 days for these shallow wells. In addition there
were three work-over rigs providing completion, repair, maintenance and re-entry
services in the field.
At the end of June there were 42 wells on line, gross quarterly average
production was 7,300 bopd and the processing capacity was 10,500 bopd, whilst at
the end of September there were 47 wells on line, and gross quarterly average
production had increased to 9,300 bopd. The processing capacity remained
unchanged at 10,500 bopd.
Activities and events during the quarter at the field included:
- Central Development Committee of the Republic of Kazakhstan approved the
revised and accelerated field development plan
- New processing facility, gathering and pumping stations and infrastructure
construction started
- In-field lines, pads, access roads and power to new wells nearing completion
Karakudukmunai Operations
-------------------------
Karakudukmunai (KKM), the operator of the Karakuduk field, which is located 340
kilometres north east of Aktau, finished drilling 4 new wells during the
quarter. The average time it took from spud to release was 12 days, with well
depths averaging approximately 3,000 metres. In addition there was a work-over
rig providing completion and maintenance services in the field.
At the end of June there were 47 wells on line, gross quarterly average
production was 7,900 bopd and the processing capacity was 12,500 bopd, whilst at
the end of September there were 49 wells (plus 7 injector wells) on line, gross
quarterly average production had increased to 8,300 bopd while the processing
capacity remained unchanged at 12,500 bopd.
Activities during the quarter at the field included:
- Works on in-field lines, pipelines, gathering & pumping stations and
processing facility completed
- Construction of new camp and office facilities started
- Construction of gas utilization system (pipeline) started
****
For further information, please contact:
----------------------------------------
Fred Hodder, CFO Tel: 020 7495 8908
Nelson Resources Limited fhodder@nelsonresources.co.uk
S.A. (Al) Sehsuvaroglu,
Senior Vice President Tel: +7 3272 58 25 81/2/3
Nelson Resources Limited sas@nelsonresources.com
Investor Relations
------------------
Ann-marie Wilkinson /
Nick Lambert Tel: 020 7861 3232
Bell Pottinger Corporate & Financial (London)
Notes
-----
Nelson Resources Limited is an oil production and development holding company
with operations in the Republic of Kazakhstan. The Company established its
presence in the Kazakhstan oil sector in 2000 and its management team,
comprising both international and Kazakh executives, has extensive experience of
the Kazakh operating and regulatory environment. The Company owns 50% of
Kazakhoil Aktobe LLP (KOA), a 50/50 joint venture between Nelson and
Kazmunaigas, the national oil company of Kazakhstan, which is developing the
Alibekmola and Kozhasai fields. The Company owns a 50% participatory interest
in the North Buzachi oil field located in western Kazakhstan (50% Nelson, 50%
CNPC International (Buzachi) Inc.). In May 2004, Nelson purchased 60% of
Chaparral Resources Inc., which has a 60% interest in the joint stock company
Karakudukmunai, with the remaining 40% being held by Kazmunaigas. The Company
also holds an option to acquire a minimum 25% participatory interest in two
Caspian Sea offshore blocks, Zhambai South and South Zaburunye. With its
financing and administrative offices in London, the Company maintains its
operational office in Almaty, Kazakhstan, which oversees the field joint
ventures in western Kazakhstan. Nelson and its affiliated companies employ
approximately 800 people. Common shares of Nelson are listed on the Toronto
Stock Exchange and London's Alternative Investment Market under the symbol NLG.
Readers are cautioned that the preceding statements and information may include
certain estimates, assumptions and other forward-looking information. The actual
future performance, developments and/or results of the Company may differ
materially from any or all of the forward-looking statements, which include
current expectations, estimates and projections, in all or part attributable to
general economic conditions and other risks, uncertainties and circumstances
partly or totally outside the control of the Company, including oil prices,
imprecision of reserve estimates, drilling risks, future production of gas and
oil, rates of inflation, changes in future costs and expenses related to the
activities involving the exploration, development, production and transportation
of oil, hedging, financing availability and other risks related to financial
activities, and environmental and geopolitical risks. Discussion of the various
factors that may affect future results is contained in the Company's recent
filings with Canadian securities regulatory authorities. The Company disclaims
any intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
THIS PRESS RELEASE IS NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR
FOR DISSEMINATION IN THE UNITED STATES. This news release does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities of the
Company in the United States. The securities of the Company have not been and
will not be registered under the United States Securities Act of 1933, as
amended (the "U.S. Securities Act") or any state securities laws and may not be
offered or sold within the United States or to U.S. persons unless registered
under the U.S. Securities Act and applicable state securities laws or an
exemption from such registration is available.
The following financial statements should be read in conjunction with the full
financial statements and accompanying notes as filed on SEDAR, www.sedar.com.
The statements can also be found on the Company's website,
www.nelsonresources.com.
****
================================================================================
NELSON RESOURCES LIMITED
Unaudited Consolidated Statements of Operations
--------------------------------------------------------------------------------
Expressed in thousands of Three Months Ended Nine Months Ended
U.S. dollars, except September 30 September 30
share amounts 2004 2003 2004 2003
--------------------------------------------------------------------------------
Revenues
Crude oil $ 81,491 $ 15,451 $ 157,883 $ 27,280
Expenses
Cost of production 7,915 1,334 17,719 2,560
Sales and transportation 11,319 3,004 25,071 7,132
Depreciation and amortization 10,679 1,590 23,822 3,298
General and administration 6,983 3,779 18,194 9,817
Derivative instruments 2,680 - 20,126 -
Other compensation costs 3,898 1,539 6,757 1,403
-------- -------- -------- --------
43,474 11,246 111,689 24,210
--------------------------------------------------------------------------------
Profit from operations 38,017 4,205 46,194 3,070
--------------------------------------------------------------------------------
Other income/(expenses)
Foreign exchange gain/(loss) (192) (6) 1,756 2,324
Interest and financing costs (5,281) (2,039) (15,316) (6,382)
Interest and other income 1,788 608 3,846 1,942
Profit on sale of investment - 2,731 - 2,731
Minority interest (2,983) - (4,490) -
-------- -------- -------- --------
(6,668) 1,294 (14,204) 615
--------------------------------------------------------------------------------
Profit before income taxes 31,349 5,499 31,990 3,685
--------------------------------------------------------------------------------
Income taxes (11,147) - (15,845) (9)
--------------------------------------------------------------------------------
Net profit $ 20,202 $ 5,499 $ 16,145 $ 3,676
--------------------------------------------------------------------------------
Basic earnings per share 0.0242 0.0083 0.0209 0.0065
Diluted earnings per share 0.0234 0.0079 0.0202 0.0062
Weighted average common 834,097,895 658,667,200 774,209,619 564,402,376
shares outstanding
Diluted weighted average 864,057,760 693,677,736 800,396,191 589,098,946
common shares outstanding
================================================================================
****
================================================================================
NELSON RESOURCES LIMITED
Consolidated Balance Sheets
--------------------------------------------------------------------------------
Expressed in thousands of September 30 December 31
U.S. dollars, except 2004 2003
share amounts (unaudited) (audited)
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 106,868 $ 43,246
Accounts receivable and prepaid expenses 37,613 19,546
Inventories 6,545 2,242
-------- --------
Total current assets 151,026 65,034
Oil and gas properties, full cost 257,630 108,963
Property, plant and equipment 25,172 11,750
Advances to oil and gas limited partnership 26,088 23,318
Derivative instruments 2,563 -
Inventory 3,942 -
Other non-current assets 980 384
--------------------------------------------------------------------------------
Total assets $ 467,401 $ 209,449
--------------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable $ 21,786 $ 18,765
Accrued liabilities 8,168 6,295
Income taxes payable 12,571 924
Derivative instruments 38,116 3,887
Bank loan - 58,000
Note payable to affiliate 23,912 -
Current portion of long-term debt 59,189 3,550
-------- --------
Total current liabilities 163,742 91,421
Long-term liabilities 109,851 67,115
Minority interest 29,244 -
--------------------------------------------------------------------------------
Total liabilities 302,837 158,536
--------------------------------------------------------------------------------
Shareholders' equity
Common Shares, par value $0.01 per share
Authorized 1,500,000,000 Issued and outstanding
857,458,095 at September 30, 2004 and 739,160,835
at December 31, 2003
Preferred Shares, par value $0.01
Authorized 50,000,000 with none outstanding 8,575 7,392
Additional paid in capital 291,743 176,247
Other compensation costs 12,512 9,161
-------- --------
312,830 192,800
Accumulated deficit (124,510) (140,655)
Other comprehensive income/(loss) (23,756) (1,232)
--------------------------------------------------------------------------------
Total shareholders' equity 164,564 50,913
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 467,401 $ 209,449
--------------------------------------------------------------------------------
================================================================================
****
================================================================================
NELSON RESOURCES LIMITED
Unaudited Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
Expressed in thousands of Three Months Ended Nine Months Ended
U.S. dollars, except September 30 September 30
share amounts 2004 2003 2004 2003
--------------------------------------------------------------------------------
Cash Flows from continuing operating activities
Net profit $ 20,202 $ 5,499 $ 16,145 $ 3,676
Adjustments to reconcile net
loss to net cash provided by/
(used in) operating activities:
Deferred income taxes 2,360 - (861) -
Profit on sale of investment - (2,731) - (2,731)
Other compensation costs 3,898 1,539 6,757 1,403
Exchange rate (gain)/loss 1,113 (386) 9 (2,098)
Depreciation and amortization 10,679 1,590 23,822 3,298
Discount accretion 347 308 1,012 893
Debenture cost amortized - 72 - 117
Derivative instruments (2,106) - 12,152 -
Asset retirement
obligation accretion 25 - 59 -
Interest on shareholders'
equity advance - - - 431
Amortization of note discount 129 - 188 -
Loan arrangement fee amortized 106 - 1,267 -
Minority interest 2,983 - 4,490 -
-------- -------- -------- --------
Net cash flow from
operating activities 39,736 5,891 65,040 4,989
(Increase)/decrease
in working capital (591) (3,227) (16,103) 2,055
--------------------------------------------------------------------------------
Net cash provided by
operating activities 39,145 2,664 48,937 7,044
--------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditure on
oil and gas properties (31,969) (6,509) (60,094) (13,074)
Proceeds from sale of investment - 6,337 - 6,337
Acquisition of participatory
interest in North Buzachi - - (32,250) -
Acquisition of Chaparral
(net of cash acquired) - - 3,153 -
Purchase of property, plant
and equipment 2,565 (775) (8,591) (1,408)
Advances to oil and gas
limited partnership (558) (274) (2,770) (2,107)
--------------------------------------------------------------------------------
Net cash used in
investing activities (29,962) (1,221) (100,552) (10,252)
--------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from exercise of
stock options 46 5 2,494 2,178
Proceeds from equity offering
(net of fees) 110,774 - 110,774 -
Net proceeds from exercise of
warrants less shareholders
equity advances - - - 6,661
Bank loans received 4,780 - 136,780 730
Bank loans repaid (44,229) - (134,229) -
Other non-current assets (57) (1,304) (582) (1,794)
--------------------------------------------------------------------------------
Net cash provided by/(used in)
financial activities 71,314 (1,299) 115,237 7,775
--------------------------------------------------------------------------------
Net increase in cash
and cash equivalents 80,497 144 63,622 4,567
Cash and cash equivalents
at beginning of period 26,371 11,930 43,246 7,507
--------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 106,868 $ 12,074 $ 106,868 $ 12,074
================================================================================
****
NELSON RESOURCES LIMITED
Notes to Third Quarter 2004
Interim Unaudited Consolidated Financial Statements
Note 1 Basis of Presentation and Significant Accounting Policies
The accompanying consolidated financial statements as of September 30, 2004 and
for the nine month periods ended September 30, 2004 and 2003 are unaudited but
include all adjustments (consisting of normal recurring adjustments) that the
Company considers necessary for a fair presentation of the consolidated
financial information set forth therein and in accordance with generally
accepted accounting principles. The accompanying consolidated financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) and have not been reviewed by an auditor.
All amounts are stated in U.S. dollars unless otherwise indicated.
The accounting policies followed are consistent with those outlined in the
annual audited financial statements. These unaudited consolidated financial
statements do not include all disclosures normally provided in annual financial
statements and should be read in conjunction with the Company's audited annual
consolidated financial statements for the year ended December 31, 2003.
The consolidated financial statements of the Company include the accounts of the
Company and its wholly owned subsidiaries, Aktobe Munai Services LLP (AMS),
Commonwealth & British Services Limited (CBS), NRL Acquisition Corp. (NRLAC),
Nelson Petroleum Buzachi Holdings B.V. (NPBH BV), Nelson Petroleum Buzachi B.V.
(NPB BV), Nelson Buzachi Holdings Limited (NBHL) and Nelson Buzachi Limited
(NBL). NPB BV holds a 50% participatory interest in the license to the North
Buzachi field.
Interest in Kazakhoil Aktobe LLP (KOA), an oil and gas limited partnership, in
which the Company has a 50% interest, is reported using the proportional
consolidation method.
Chaparral Resources, Inc. (Chaparral) in which the Company bought a 60%
controlling interest on May 17, 2004 is fully consolidated. The consolidated
financial statements of Chaparral include the accounts of Chaparral and its
greater than 50% owned subsidiaries, Closed Type JSC Karakudukmunai (KKM),
Central Asian Petroleum (Guernsey) Limited (CAP-G), Korporatsiya Mangistau Terra
International (MTI), Road Runner Services Company (RRSC), Chaparral Acquisition
Corporation (CAC) and Central Asian Petroleum, Inc. (CAP-D). Chaparral owns 80%
of the common stock of CAP-G directly and 20% indirectly through CAP-D.
Chaparral owns, through its subsidiaries a 60% interest in KKM, a Kazakhstan
Joint Stock Company of Closed Type. KKM was formed to engage in the
exploration, development, and production of oil and gas properties in the
Republic of Kazakhstan. KKM's only significant investment is in the Karakuduk
Field, an onshore oil field in the Mangistau region of the Republic of
Kazakhstan.
All material intercompany balances and transactions are eliminated.
Note 2 Economic and Operating Environments
The Company's continued business activities are located in Kazakhstan. As an
emerging market, Kazakhstan does not possess a well-developed business and
regulatory infrastructure that would generally exist in a more mature market
economy. Furthermore, the Government of Kazakhstan has not yet fully implemented
the reforms necessary to create judicial, taxation and regulatory systems that
function with the effectiveness often achieved in more developed markets. As a
result, operations in transitional countries involve risks that are not
typically associated with those in developed markets.
Uncertainties regarding the political, legal, tax or regulatory environment,
including the potential for adverse changes in any of these factors could
significantly affect the Company's ability to operate commercially. It is
difficult for management to estimate what changes may occur or the resulting
effect of any such changes on the Company's financial position or future results
of operations.
The accompanying consolidated financial statements do not include any
adjustments that may result from the future clarification of these
uncertainties. Such adjustments, if any, will be reported in the Company's
consolidated financial statements in the period when they become known and
estimable.
Note 3 Short-term and Long-term debt
At September 30, 2004 and December 31, 2003 short-term debt comprised:
2004 2003
----------------------------------------------------------------
BNP Paribas loan 25,000 3,333
Vitol loan 18,333 -
Kazkommerts bank loan (net of discount) 15,639 -
Obligations of KOA 217 217
------ ------
59,189 3,550
----------------------------------------------------------------
At September 30, 2004 and December 31, 2003 long-term debt comprised:
2004 2003
----------------------------------------------------------------
Due to the Republic of Kazakhstan 11,817 10,805
Vitol loan 51,667 -
Kazkommerts bank loan at Chaparral 14,000 -
BNP Paribas loan 22,917 16,667
Halyk Savings bank loan 4,781 22,653
Kazkommerts bank loan - 16,798
Deferred tax 2,966 -
Accrued production bonus 279 -
Asset retirement obligations 1,424 192
------ ------
109,851 67,115
----------------------------------------------------------------
Note 4 Shareholders' Equity
As of September 30, 2004 the Company had 857,458,095 shares outstanding. As of
such date, the Company had the following contingently issuable shares:
Number Exercise Price
Share options outstanding 36,280,333 Average exercise price Cdn $0.80
Note 5 Commitments and Contingencies
Under the license for the Alibekmola and Kozhasai oil and gas fields, KOA is
required to invest a minimum of $47.5 million and $24.5 million, respectively,
during the term of the licenses. The minimum investment requirement for
Alibekmola has been met. The licenses expire on October 19, 2023.
Under the license for the North Buzachi field, the minimum capital expenditure
requirement for the North Buzachi field over the first five years (1997 - 2001)
was $103.5 million. The minimum requirement for the North Buzachi field has been
met.
Under the license for the Karakuduk field, the minimum capital expenditure
requirement for the Karakuduk field over the first three years (1997 - 1999) was
$56 million. The minimum requirement for the Karakuduk field has been met.
****
END
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