We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Solana Res | LSE:SORL | London | Ordinary Share | CA8341281001 | COM SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 132.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
Hot Features
Premium
Solana Resources Limited - Financial report for the nine month period ended
September 30, 2008
CALGARY and LONDON, Nov. 13 /CNW/ - Solana Resources Limited (TSX-V:SOR;
AIM:SORL), the Colombia focused independent oil and gas exploration and
production company, today announces its results for the nine month period
ended September 30, 2008. These results should be read in conjunction with the
Company's unaudited interim consolidated financial statements and related
notes for the period and the audited consolidated financial statements,
related notes and MD&A for the years ended December 31, 2007 and 2006. All
numbers in this report are expressed in US dollars unless otherwise indicated.
Solana (www.solanaresources.com) is an international resource company
engaged in the acquisition, exploration, development and production of oil and
natural gas. The Company's properties are located in Colombia, South America
and are held through its wholly owned subsidiary, Solana Petroleum Exploration
(Colombia) Limited. The Company is headquartered in Calgary, Alberta, Canada.
Additional information (which does not form part of this announcement) is
available on the Company's website at www.solanaresources.com and the SEDAR
website at www.sedar.com.
HIGHLIGHTS
- Subsequent to Q3, the Joint Proxy Statement relating to the business
combination of Gran Tierra Energy Inc. and Solana Resources Limited
(announced on July 29, 2008) was filed via SEDAR on October 15, 2008,
and was mailed to all shareholders on October 20, 2008. The special
meeting of Solana securityholders to approve this business
combination is being held on November 14, 2008.
- Record quarterly cash flow from operating activities of $29.7 million
($0.23/share) and after tax net income of $23.8 million
($0.19/share).
- First nine months and third quarter 2008 average net of royalty
production of 3,163 boepd and 4,196 boepd respectively. Third quarter
2008 net of royalty exit rate of 5,471 boepd.
- First nine months of 2008 cash flow from operating activities of
$53.4 million ($0.42/share) and after tax net income of $51.1 million
($0.41/share).
- No debt and a cash balance of $87.5 million as at September 30, 2008.
- First nine months of 2008 capital expenditures of $43.4 million.
- The Company drilled the Los Aceites-1discovery well in August 2008.
Following excellent clean-up flow rates, a continuous 80 hour term
test was conducted in early October 2008, wherein during the last
48 hour period, Los Aceites-1 flowed 41 degrees API oil at an
average rate of 5,645 bopd gross, 3,160 bopd net of royalty to
Solana.
- During March to May 2008, Costayaco-4D was drilled, logged and cased.
A combination of drill stem testing, flow testing and production
testing was conducted on the two major reservoir sequences, the
Caballos and the Villeta T formations. The Caballos attained a
stabilized gross production rate of 3,042 bopd of 30 degrees API oil
with a 1% water cut on jet pump. The Villeta T attained a stabilized
natural flow gross production rate of 1,401 bopd of 30 degrees API
oil with a 2% water cut.
- During June to July 2008, Costayaco-5 was drilled, logged and cased.
In Q3 2008, a combination of drill stem testing and production
testing was conducted on the two major reservoir sequences, the
Caballos and the Villeta T formations with the Upper Villeta T
producing 30 degrees API oil at a gross rate of 1,152 bopd with a 1%
water cut using a jet pump.
OPERATIONAL UPDATE
LOWER MAGDALENA BASIN
The Lower Magdalena basin is located in northwest Colombia. It covers an
area of approximately 87,000 km(2) and contains Solana's Magangué block.
MAGANGUE BLOCK
The Magangué block is held pursuant to the Magangué Association Contract.
Solana is the operator of the block with a 37.8% working interest and has
partners, Ecopetrol with a 58% working interest, and Technopetrol, a Colombian
company, with a 4.2% working interest.
Solana operates the Guepajé gas field on the 84 km(2) Magangué block,
which borders the Pacific Rubiales La Creciente block where there was a
significant gas discovery, in the same productive formation as the Guepajé gas
field, in 2006. This field came on production in January 2008, greatly
increasing local line pressure and effectively backing out Guepajé gas
production. Guepajé restarted production on June 25, 2008, and was producing
at 282 mcf/d net of royalties on September 30, 2008. A new compressor has been
ordered and is expected to be installed in Q4, 2008.
CATATUMBO BASIN
The Catatumbo Basin is a 7,350 km(2) sub-basin, forming the southwest
flank of Venezuela's prolific Maracaibo Basin. Solana has one block in the
Catatumbo sub-basin.
CATGUAS BLOCK
Solana is the operator of the 1,591 km(2) Catguas block with a 100%
working interest. In the southern 70% of the block, Trayectoria Oil and Gas,
Sucursal Colombia, has a 15% beneficial interest, and a 50% beneficial
interest in the remainder. The block is held under an ANH contract.
Phase 1 (November 17, 2005 to May 17, 2007) commitments were fulfilled by
drilling the relatively shallow Tres Curvas-1 and Cocodrilo-1 wells.
Tres Curvas-1 tested a combined maximum 180 bopd from two Catatumbo
formation zones and was completed as a new oilfield discovery. The well
resumed production on July 10, 2008, and was producing 32 bopd on September
26, 2008, through a progressive cavity pump. The well is currently on Long
Term Test. The high operating costs for this lower productivity isolated well
make it a potential candidate for abandonment.
Cocodrilo-1 was abandoned after failing to identify oil in commercial
quantities. An extension to the phase1 deadline, to accomplish the required
activities, was requested and granted.
During phase 2 (May 17, 2007 to November 17, 2008) Solana must drill one
exploration well and re-enter one existing well. In the absence of a suitable
re-entry candidate the requirement is to drill a second exploration well.
Accordingly, two wells, testing deeper targets, are scheduled to be drilled
during Q2, 2009. At the end of this phase a certain portion of this block must
be relinquished. In view of the prospectivity of the block and to reduce the
relinquishment area to 15%, the Company has started the acquisition of 132
line-km of 2-D to assist in selection of the second well to be drilled from
the five prospects identified on a large anticlinal feature. Topgraphical,
infrastructure and security challenges have substantially delayed progress in
this block and combined with the poor performance of the Tres Curvas-1 well,
resulted in the cancellation of the planned 3-D seismic program. The Company
is receiving full co-operation from the Government.
LLANOS BASIN
The Llanos basin is located northeast of Bogota, the capital of Colombia,
on the east side of the Andes Mountains. This basin covers an area of
approximately 200,000 km(2) and holds Colombia's largest number of oil fields
and proved oil reserves.
Solana has working interests in six blocks in the Llanos Basin, covering
an area of 2,015 km(2). These blocks are from North to South: Guachiria Norte,
Colonia, San Pablo, Guachiria, Guachiria Sur and Garibay. These blocks are in
the part of the Llanos Basin where drilling and seismic activity is generally
restricted to a four-month weather window from December to March.
SAN PABLO BLOCK
On June 25, 2007, Solana acquired the 423 km(2) San Pablo block, situated
immediately to the west of the Guachiria Sur block and to the south of the
Colonia block. During the first phase (June 25, 2007 until June 25, 2008)
Solana had to acquire 50 km(2) of 3-D seismic data. This data was acquired in
December 2007 and has been processed. During Phase 2 (June 15, 2008 until June
25, 2009) the Company has to drill one exploration well. This block is subject
to an ANH contract.
The acquired seismic data indicates the extension of the significant
Carbonera C-3 channel prospect, identified on Guachiria Norte and Guachiria
Sur, into this block. The Amatista-1 (previously Ocarro-1 West) well is
scheduled to be drilled in Q1, 2009.
GUACHIRIA NORTE BLOCK
Solana is the Operator of the 412 km(2) Guachiria Norte block with a 100%
working interest. Lewis Energy Colombia has a 30% beneficial interest in this
block. The block is located approximately 250 km northeast of Bogota and is
subject to ANH contract.
During Phases 3 and 4 (March 21, 2007 to March 21, 2009) Solana is
required to drill two exploration wells and acquire 25 km(2) of 3-D seismic
data.
Reprocessing the existing 157 km(2) Onyx 3-D seismic survey has
identified the lithological composition of the channel sands, leading to the
optimisation of the location of the next wells. The first well, Zafiro-1,
spudded November 6, 2008, and will immediately be followed by Carnalina-1.
Both wells are targeting Carbonera C-3 channel sands.
GUACHIRIA BLOCK
Solana is the Operator of the 68 km(2) Guachiria block with a 100%
working interest. Lewis Energy Colombia has a 30% beneficial interest in this
block. The block adjoins the Guachiria Norte block immediately to the South.
This block was acquired from Empresa Colombiana de Petroleos SA (Ecopetrol),
and is subject to a standard ANH contract plus an additional 13% royalty
payable to Ecopetrol.
For Phase 3 (June 1, 2006 to June 1, 2007), Ecopetrol agreed that Solana
substitute its well commitment for a 100 km(2) 3-D seismic survey, covering
the block, and overlapping the southern part of the adjacent Guachiria Norte
3-D seismic survey. Data acquisition and processing were completed on time.
Solana's Yalea-1 well has been shut in due to excessive water production.
The well has reached the end of its production life and will be abandoned.
The commitment for Phase 4 (June 1, 2007 to June 1, 2008) was to drill an
exploration well. The Company drilled the Primavera-1 well during February,
2008. In May, this well was successfully tested at a pump constrained 24 hour
continuous maximum flow rate of 650 barrels of 40 degrees API oil per day,
gross, 365 bopd net of royalty to Solana, from eight feet of perforations in
the Carbonera C-7 formation. The well produced with a stable water cut of
approximately 58% during this maximum flow period. Primavera-1 was placed on
Long Term Test production in July, 2008 and was producing 527 bopd net of
royalties on September 23, 2008, just prior to being shut in for a pressure
build-up test.
The commitment for Phase 5 (June 1, 2008 to June 1, 2009) is to drill an
exploration well which the Company met with the Los Aceites-1 well that was
drilled during August 2008. After a short build up, the well flowed 41 degrees
API oil at an exceptional maximum rate of 5,328 bopd gross, 2,985 bopd net of
royalty to Solana, with a 5% water cut that was decreasing. The length of the
test was very short, only 4.5 hours, and was truncated due to limited onsite
tank storage capacity.
A continuous 80 hour flow test was conducted in early October, 2008. Fort
the last 48 hours of this test Los Aceites-1 flowed 41 degrees API oil at an
average rate of 5,645 bopd gross, 3,160 bopd net of royalty to Solana. The
well was producing on Long Term Test at 2,100 bopd net of royalties to Solana
on September 30, 2008.
GUACHIRiA SUR BLOCK
Solana is the Operator of the 366 km(2) Guachiria Sur block with a 100%
working interest. Lewis Energy Colombia has a 30% beneficial interest in this
block. The block is to the west and the south of the Guachiria block and to
the south of the Guachiria Norte block. This block is subject to an ANH
contract.
The commitment to drill a well during Phase 2 (October 25, 2006 to
October 25, 2007) was renegotiated with the ANH and was replaced by a 120
km(2) 3-D seismic survey and a commitment to drill one well during Phase 3
(October 25, 2007 to October 25, 2008). This survey was completed and covers
the northern part of the block, immediately west and south of the Guachiria
block.
The Company drilled the Palmitas-2 well during March, 2008 resulting in a
potential Carbonera structural play discovery. Although good oil shows were
observed during drilling and log analysis indicated potential oil pay in the
Carbonera C-7, the well tested water. A subsequent cement squeeze failed to
restore oil production and the well will be abandoned.
GARIBAY BLOCK
Solana holds a 50% working interest in the 307 km(2) Garibay block.
Cepcolsa is the operator and holds the other 50% working interest. The block
is located approximately 170 km east of Bogota. This block is subject to an
ANH contract.
During Phase 2 (October 25, 2006 to October 25, 2007) Solana is required
to drill one well. The ANH has approved the replacement of this program with
the acquisition of 100 km(2) (39 square miles) of 3-D seismic, subject to
relinquishment of 30% of the block area. This survey was completed in April
2007.
During Phase 3 (October 25, 2007 to October 25, 2008), the Company is
required to drill one exploration well. On November 17, 2007, Solana farmed
out a 50% working interest and operatorship to Cepsa Colombia SA. Pursuant to
this agreement, Solana was fully carried on the phase 3 commitment well,
Topocho-1. After extensive testing, Topocho-1 was abandoned.
During Phase 4 (October 25, 2008 to October 25, 2009), the Company is
required to drill one exploration well. As a result of the Topocho-1 dry hole,
Cepcolsa received approval to replace the exploration well with a 3-D seismic
data acquisition program. This is expected to be executed during Q1, 2009.
PUTUMAYO BASIN
The Putumayo basin is located in southwest Colombia and extends into
Ecuador, where it is called the Oriente (Ecuador)-Maranon (Peru) Basin. It
covers an area of approximately 320,000 km(2) and Solana holds interests in
the Guayuyaco block and the Chaza block totalling 536 km(2) in this basin.
GUAYUYACO BLOCK
Solana holds a 35% non-operated net working interest in the 212 km(2)
Guayuyaco block, located approximately 290 km southwest of Bogota. Gran Tierra
Energy Inc. is the Operator with a 35% working interest. Ecopetrol has a 30%
working interest in the Guayuyaco field which was producing 157 bopd net of
royalty to Solana, on September 30, 2008. All commitments have been fulfilled
and the block is being further developed under an Association Contract.
During the first quarter of 2007 Solana participated in drilling the
Juanambu-1 discovery well which was productive in the Caballos, Villeta T and
Rumiyaco Kg formations. The well has been completed with a jet pump and the
tubing string configured to allow for production from selected zones.
Juanambu-1 was producing 668 bopd gross, 215 bopd net of royalty to Solana, on
September 28, 2008.
Trucking operations have been replaced with a six kilometre six inch
flowline that went into operation on February 29, 2008. The line connects
Juanambu-1 into the nearby Toroyaco facility and from there into existing
infrastructure.
CHAZA BLOCK
Solana has a 50% working interest in the 325 km(2) Chaza block,
immediately west of the Guayuyaco block. Gran Tierra, the operator, holds the
other 50% in the block. The block is held under an ANH contract.
During Phase 2 (June 27, 2006 to June 26, 2007) the partners drilled the
Costayaco-1 discovery well which tested at a combined maximum rate of 5,906
bopd from four separate formations; the Caballos, Villeta T, Villeta U and the
Rumiyaco Kg. Since then four other wells have been drilled on the field.
Costayaco-1 was producing 1,374 bopd. Costayaco-2 was producing 1,517 bopd.
Costayaco-3 was producing 410 bopd. All net of royalty to Solana, on September
30, 2008. Costayaco-4 was shut in pending approval of long term testing on
September 30, 2008. A ten kilometre, eight inch pipeline, tying into existing
infrastructure at Uchupayaco, was commissioned in late July 2008 and has
replace trucking operations.
During March to May 2008, Costayaco-4D was drilled on a crestal location
approximately 540 metres north of Costayaco-2 and was subsequently completed
as an oil well. A combination of drill stem testing and production testing was
conducted in the two major reservoir sequences, the Caballos and the Villeta T
formations. The Caballos was perforated in the intervals 8,610 to 8,652 feet,
8,660 to 8,668 feet, 8,675 to 8,686 feet and 8,694 to 8,728 feet. A stabilized
gross production rate of 3,042 barrels of oil per day ("bopd") of 30 degrees
API oil with a 1% water cut was obtained with a jet pump. The Villeta T was
perforated in the intervals 8,463 to 8,472 feet and 8,475 to 8,514 feet. A
stabilized gross production rate of 1,401 bopd of 30 degrees API oil with a 2%
water cut was obtained from natural flow on a 92/64 inch choke.
Costayaco-5 is a vertical delineation well that was drilled to a total
measured depth of 8,703 feet on the west flank of the Costayaco field,
approximately 3,450 feet northwest of Costayaco-1, in July 2008. A combination
of drill stem testing and production testing was conducted on the two major
reservoir sequences, the Caballos and the Villeta T formations.
The Middle Caballos was perforated in the intervals 8,519 to 8,544 feet
and produced 100% water. The Upper Caballos was perforated in the intervals
8,480 to 8,498 feet and 8,502 to 8,504 feet, and produced 27 degrees API oil
at a rate of 20 bopd with a 5% water cut.
The Lower Villeta T was perforated in the intervals 8,376 to 8,381 feet,
8,384 to 8,388 feet and 8,390 to 8,396 feet. These zones produced 100% water.
The Upper Villeta T was perforated in the intervals 8,336 to 8,348 feet and
8,350 to 8,360 feet. These zones produced 30 degrees API oil at a gross rate
of 1,152 bopd with a 1% water cut using a jet pump. These results are the
first indication of a water leg in the Villeta T in the Costayaco Field. The
depth of the oil water contact is poorly defined but is interpreted to be
located at approximately 8,375 feet (-7,090 feet subsea). The Costayaco-6 and
Costayaco-7 wells are expected to be drilled in Q4, 2008.
An eight inch, ten kilometre pipeline from the Costayaco field to the
Uchupayaco Station was commissioned late July 2008, and is currently
transporting approximately 9,000 bopd gross. Work is underway to reduce
existing infrastructure production constraints beyond Uchupayaco. A second
stage of infrastructure expansion, to accommodate the anticipated increase in
production from the continuing Costayaco drilling program, is currently being
evaluated.
Mr. Glenn Van Doorne, Chief Operating Officer of Solana, a Petroleum
Geologist, is the qualified person who has reviewed the technical information
contained in this news release.
OPERATING RESULTS
Selected Quarterly Information
The following table summarizes selected financial data for Solana for
each of the two most recently completed financial three and nine month periods
ended September 30, 2008 and 2007.
Unless otherwise noted, all currency amounts are stated in US dollars.
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Three Nine Three Nine
Months Months Months Months
ended ended ended ended
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
Revenue
Production
Revenue, net of
Royalties 42,812,725 90,753,073 3,152,267 5,953,735
Operating costs 3,986,558 10,037,698 969,405 2,443,658
-------------------------------------------------------------------------
38,826,167 80,715,375 2,182,862 3,510,077
-------------------------------------------------------------------------
Expenses
General and
administrative 1,662,838 4,474,390 1,165,775 3,545,106
Depletion,
depreciation and
accretion 6,451,279 12,930,244 2,018,435 4,224,763
Foreign exchange loss
(gain) (1,371,923) (1,620,225) 237,775 463,999
Stock-based
compensation 527,131 4,008,123 1,302,779 4,134,068
----------------------------------------------------
7,269,325 19,792,532 4,724,764 12,367,936
Other income/(expenses)
Interest and other 537,573 1,537,347 193,397 663,796
Income taxes (8,226,396) (11,346,042) - (89,258)
----------------------------------------------------
(7,688,823) (9,808,695) 193,397 574,538
----------------------------------------------------
Net income (loss) 23,868,019 51,114,148 (2,348,505) (8,283,321)
Net income (loss)
per share, basic 0.19 0.41 (0.02) (0.08)
Net income (loss)
per share, diluted 0.18 0.39 (0.02) (0.08)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
September 30, December 31,
2008 2007
-------------------------------------------------------------------------
$ $
Share capital 197,179,178 187,223,652
Working capital 103,136,298 70,974,442
Petroleum and natural gas properties 112,670,663 81,963,075
Total assets 245,891,284 166,641,302
Total current liabilities 26,396,439 9,307,557
Shareholders' equity 216,741,206 155,359,807
Cash dividends per share NIL NIL
Results of operations for the three and nine month periods ending
September 30, 2008
This consolidated financial information includes the revenue and expenses
of the Company for the nine month periods ended September 30, 2008 and 2007.
During the nine month period ended September 30, 2008, revenue after royalties
from operations amounted to $90,753,073. In this same period, operating costs
were $10,037,698 resulting in an operating profit of $80,715,375. During the
nine month period ended September 30, 2007, the Company generated operating
revenue after royalties of $5,953,735. In this same period operating costs
were $2,443,658 resulting in an operating profit of $3,510,077. This
significant increase in operating profit in the period ending September 30,
2008, is mainly a consequence of additional production from the Costayaco and
Juanambu fields plus new production from the Primavera and Los Aceites
discoveries and higher oil prices.
The Company produced on average 3,163 boepd for the nine months ended
September 30, 2008 and 588 boepd for the nine months ended September 30, 2007.
The Company's revenue, realized after royalties, operating costs and net
backs for the three and nine month periods ended September 30, 2008 and 2007
are:
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Three Nine Three Nine
Months Months Months Months
ended ended ended ended
$ $ $ $
Oil
Bopd - Average 4,172 3,150 659 421
Revenue, net of
royalties per barrel $109.98 $107.61 $62.42 $53.77
Net operating costs
per barrel $7.64 $11.67 $14.59 $15.46
Gas
Mscf per day - Average 144 76 952 1,006
Revenue, net of
royalties per Mscf $2.86 $2.69 $2.42 $2.29
Net operating costs
per Mscf $6.32 $4.06 $0.91 $0.90
General and administrative expenses for the three and nine month periods
ended September 30, 2008, amounted to $1,662,838 and $ 4,474,390,
respectively, in comparison to the three and nine month period ended September
30, 2007, which were $1,165,775 and $3,545,106, respectively.
The substantial components of general and administrative expenses are as
follows:
September 30, 2008 September 30, 2007
-------------------------------------------------------------------------
Three Nine Three Nine
Months Months Months Months
ended ended ended ended
$ $ $ $
General office 282,370 286,703 252,076 790,271
Salaries & benefits 1,168,254 3,243,997 877,168 2,086,667
Professional fees 108,391 582,411 45,348 240,639
Public company cost 78,734 264,565 137,155 323,092
Consulting fees 25,089 96,714 (145,972) 104,437
---------------------------------------------------
1,662,838 4,474,390 1,165,775 3,545,106
---------------------------------------------------
---------------------------------------------------
Salaries and benefits increased as employees were added in response to a
growing level of activity across the organization. Professional fees and
public company costs are mainly comprised of consultancy and legal expenses,
which increased in accordance with the Company's activity levels.
Depletion, depreciation and accretion amounted to $6,451,279 and
$12,930,244 for the three and nine month periods ended September 30, 2008,
compared to the same periods in 2007, which were $2,018,435 and $4,224,763
respectively. The variance is due mainly to the impact of booking additional
reserves and higher production rates.
The foreign exchange gain amounted to $1,371,923 and $1,620,225 for the
three and nine month periods ended September 30, 2008, reflecting variations
of the Canadian dollar and the Colombian peso against the U.S. dollar during
these periods, compared with a loss of $237,775 and $463,999 for same periods
ended September 30, 2007.
Stock-based compensation amounted to $527,131 and $4,008,123 for the
three and nine month periods ended September 30 2008, respectively, as
compared to $1,302,779 and $4,134,068 for same periods ended September 30,
2007.
Other income and expenses relate to interest income amounting to $537,573
and $1,537,347 for the three and nine month periods ended September 30, 2008,
respectively, compared to $193,397 and $663,796 for the same periods ended
September 30, 2007. Even though interest rates were lower during 2008, in
comparison with the same periods of 2007, higher cash balances held throughout
the current period resulted in greater interest income.
The resulting net income, amounting to $23,868,019 and $51,114,148 for
the three and nine month periods ended September 30, 2008, respectively,
compared with losses of $2,348,505 and $8,283,321 for the same periods ended
September 30, 2007, reflect higher production levels in Colombia and
significantly higher oil prices in the current period.
Selected Quarterly Financial Information
The following table sets out selected unaudited quarterly financial
information of Solana and is derived from unaudited quarterly financial
statements prepared by management. Solana's interim financial statements are
prepared in accordance with Canadian generally accepted accounting principles
and are expressed in US dollars.
-------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS
QUARTERS ENDED
Sept 30, 2008 Jun 30, 2008 Mar 31, 2008 Dec 31, 2007
$ $ $ $
Additions to Petroleum
and Natural Gas
properties 16,117,242 14,046,819 13,255,246 8,336,394
Total revenues 43,350,298 31,938,849 17,001,273 12,768,179
General and
administrative
expenses 1,662,838 1,320,953 1,490,599 1,582,711
Depletion,
depreciation
and accretion 6,451,279 4,174,757 2,304,208(1) 1,558,115
Foreign exchange
(income) loss (1,371,923) (758,723) 510,421 (385,373)
Stock-based
compensation 527,131 872,983 2,608,009 9,512,159
Income (loss)
after taxes 23,868,019 19,517,473 7,728,656(1) (999,906)
Income (loss)
per share, basic 0.19 0.16 0.06(1) (0.01)
Income (loss)
per share, diluted 0.18 0.15 0.06(1) (0.01)
-------------------------------------------------------------------------
Sept 30, 2007 Jun 30, 2007 Mar 31, 2007 Dec 31, 2006
$ $ $ $
Additions to Petroleum
and Natural gas
properties 7,191,743 10,486,480 7,274,457 7,902,112
Total revenues 3,345,664 1,726,827 1,545,040 2,049,754
General and
administrative
expenses 1,165,775 1,319,363 1,061,304 2,042,166
Depletion,
depreciation
and accretion 2,018,435 945,635 1,266,908 2,441,325
Impairment - - - 29,822,544
Foreign exchange
(income) loss 237,775 199,233 25,655 160,105
Stock-based
compensation 1,302,779 1,207,881 1,617,193 2,300,703
Income (loss)
after taxes (2,348,505) (2,802,217) (3,132,598) (31,076,705)
Income (loss)
per share, basic
and diluted (0.02) (0.03) (0.03) (0.34)
-------------------------------------------------------------------------
(1) Amounts have been amended to correct an over depletion in the quarter
ended March 31, 2008 of $1.2 million.
LIQUIDITY
Solana's working capital increased from $88,303,377 at June 30, 2008, to
$103,136,298 at September 30, 2008, largely due to the increase in accounts
receivable corresponding to crude sales from the Costayaco, Juanambu,
Primavera and Los Aceites fields.
The Company's cash balances at September 30, 2008, amounting to
$87,527,447 are committed to the Company's planned capital expenditure program
in Colombia. The Company does not currently require additional financing in
order to fund its ongoing exploration, appraisal and development programs.
The Company does not have any long term debt.
SUMMARY OF CASH INFLOWS AND OUTFLOWS
The company generated cash inflows from operations amounting to
$29,531,594 and $62,722,942 for the three and nine month periods ended
September 30, 2008, compared to the same periods in 2007 which incurred cash
inflows amounting to $1,124,692 and outflow of $111,319 respectively. This
difference is substantially due to the impact of higher production and higher
oil prices.
Solana's net cash inflow from financing activities amounted to $6,259,129
for the nine month period ended September 30, 2008, relating to proceeds
obtained from stock option and warrant exercises in May and June 2008,
compared to $Nil for the nine month period ended September 30, 2007.
The Company incurred cash outflows from its investing activities of
$15,575,490 and $43,652,480 for the three and nine month periods ended
September 30, 2008 as compared to $8,499,697 and $20,596,920 for the three and
nine month periods ended September 30, 2007. The bulk of the cash outflow for
the nine month period ended September 30, 2008 was attributable to
expenditures on petroleum and natural gas properties of $43,419,307.
RELATED PARTY TRANSACTIONS
The Company paid $45,920 (2007 - $41,598) in service fees in the current
nine month period ended September 30, 2008, to a company controlled by a
director of the Company. During this period $19,938 (2007 - Nil) was also paid
to a director of the Company for consulting services in Colombia. These fees
are included in general and administrative expense.
CAPITALIZATION
Authorized share capital consists of an unlimited number of common
shares.
Number of Amount
Continuity of common shares Shares $
-------------------------------------------------------------------------
Balance, December 31, 2007 123,176,792 187,223,652
Shares in escrow earned in period - 1,123,917
Exercise of performance warrants 2,500,000 6,621,780
Exercise of stock options 750,000 2,209,829
-------------------------------------------------------------------------
Balance, September 30, 2008 126,426,792 197,179,178
-------------------------------------------------------------------------
Continuity of warrants Number
-------------------------------------------------------------------------
Balance, December 31, 2007 10,000,000
Exercised in period (2,500,000)
-------------------------------------------------------------------------
Balance, September 30, 2008 7,500,000
-------------------------------------------------------------------------
Weighted
Average
Exercise
Number of Price
Continuity of stock options Options $
-------------------------------------------------------------------------
Balance, December 31, 2007 4,625,000 1.75
-------------------------------------------------------------------------
Issued in period 230,000 4.01
Exercised in period (750,000) 1.67
Expired or forfeited during period (160,000) 2.33
-------------------------------------------------------------------------
Balance, September 30, 2008 3,945,000 1.61
-------------------------------------------------------------------------
Performance warrant terms
-------------------------------------------------------------------------
Strike price Cdn$2.00/share
Expiry April 4, 2010
All performance warrants are fully vested as the Company shares traded at
a weighted average price exceeding Cdn$2.75 per share for a 45 consecutive day
period during Q1 2008.
SUBSEQUENT EVENT
On July 29, 2008, Solana announced that it had entered into a definitive
agreement providing for the business combination of Gran Tierra Energy
Inc.("Gran Tierra") and Solana.
Under the terms of the Agreement, each Solana shareholder will receive
either (i) 0.9527918 of a common shares of Gran Tierra or; (ii) 0.9527918 of a
common share of a Canadian subsidiary of Gran Tierra (an "Exchangeable Share")
for each common share of Solana held, which represents a premium of
approximately 14.1% to the 20 day weighted average trading price to July 28,
2008 of the Solana shares on the TSX Venture Exchange and Gran Tierra's July
28, 2008 closing price on the Toronto Stock Exchange of CAD $5.73. The shares
of the Canadian subsidiary of Gran Tierra: (i) will have the same voting
rights, dividend entitlements and other attributes as Gran Tierra common
stock; (ii) will be exchangeable, at each shareholder's option, on a
one-for-one basis, into Gran Tierra common stock; and (iii) subject to
compliance with the listing requirements of the Toronto Stock Exchange, will
be listed on the Toronto Stock Exchange. The Exchangeable Shares will
automatically be exchanged for Gran Tierra common shares five years from
closing, and in certain other events.
The transaction will be completed as an "arrangement" pursuant to the
Business Corporations Act (Alberta). Upon completion of the transaction,
Solana will become an indirect wholly-owned subsidiary of Gran Tierra. The
plan of arrangement will be accomplished on a tax-deferred basis in Canada,
but may be a taxable transaction for non-Canadian holders of Solana
securities. On a fully diluted basis, upon the closing of the plan of
arrangement, Solana securityholders will own approximately 49% of the combined
company and Gran Tierra securityholders will own approximately 51% of the
combined company.
The proposed transaction is subject to regulatory, stock exchange, court
and securityholder approvals. Gran Tierra and Solana will hold securityholder
meetings of their stockholders and securityholders on November 14, 2008. A
joint proxy statement and management information circular was mailed to
stockholders and securityholders of the companies on October 20, 2008. The
parties have agreed to pay each other a termination fee of $21 million in
certain circumstances and an expense reimbursement fee of $1.5 million in
certain other circumstances.
BUSINESS RISK AND UNCERTAINTIES
The Company's business is subject to risks inherent in oil and gas
exploration and development operations. In addition, there are risks
associated with the foreign jurisdiction in which the Company operates. The
Company has identified certain risks pertinent to its business, including:
exploration and reserve risks, drilling and operating risks, costs and
availability of materials and services, capital markets and the requirement
for additional capital, loss of or changes to production sharing, joint
venture or related agreements, economic and sovereign risks, possibly less
developed legal systems, reliance on strategic relationships, market risk,
volatility of future oil and gas prices and foreign currency risk.
Solana attempts to monitor, assess and mitigate certain of these risks by
retaining an experienced team of professionals and using modern technology.
Further, the Company has focused its activities in known hydrocarbon basins in
a jurisdiction that has previously established long-term oil and gas ventures
with foreign oil and gas companies, existing infrastructure of services and
oil and gas transportation facilities, and reasonable proximity to markets.
The Company also retains consultants resident in Colombia to monitor economic
and political developments and to assist with operating, administrative and
legal matters. There are certain risks, however, over which the Company has
little or no control.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Petroleum and Natural Gas Operations
The Company follows the full cost method of accounting for petroleum and
natural gas operations, whereby all costs of exploring for and developing
petroleum and natural gas reserves are capitalized in country-by-country cost
centres. Such costs include land acquisition costs, geological and geophysical
costs, carrying charges on non-producing properties, costs of drilling both
productive and non-productive wells, interest costs on major development
projects and overhead charges directly related to acquisition, exploration and
development activities.
The costs (including exploratory dry holes) in cost centres from which
there has been no commercial production are not subject to depletion until
commercial production commences. The capitalized costs are assessed to
determine whether it is likely such costs will be recovered in the future. To
the extent there are costs which are not likely to be recovered in the future,
they are written-off.
The costs in cost centres from which there is production, together with
the cost of production equipment, are depleted and depreciated on the
unit-of-production method, based on the estimated proved reserves after
royalties. Petroleum and natural gas reserves and production are converted
into equivalent units, based upon estimated relative energy content. Costs of
acquiring and evaluating significant unproved properties are excluded from the
depletion calculations. These unproved properties are assessed to determine
whether impairment has occurred. When proved reserves are assigned or the
carrying value of the property is considered to be impaired, the cost of the
property or the amount of the impairment is added to costs subject to
depletion.
Petroleum and natural gas properties are subject to a ceiling test in
each reporting period to determine that the costs are not impaired and do not
exceed the fair value of the properties. The costs are assessed to be not
impaired if the sum of the undiscounted cash flows expected from the
production of proved reserves and the cost of unproved properties, net of
impairment allowances of unproved properties exceed the carrying value of the
petroleum and natural gas properties. If the carrying value of the petroleum
and natural gas properties is determined to be impaired, an impairment loss is
recognized to the extent that the carrying value exceeds an estimated fair
value. The fair value estimate is normally based on the sum of the discounted
cash flows expected from the production of proved and probable reserves plus
the cost of unproved properties, net of impairment allowances. The cash flows
are estimated using forecast product prices and costs and are discounted using
a risk-free interest rate.
Proceeds from the sale of petroleum and natural gas properties are
applied against capitalized costs, with no gain or loss recognized, unless
such a sale would alter the depletion rate by more than 20%.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A may constitute forward-looking
statements. These statements relate to future events or the Company's future
performance. All statements, other than statements of historical fact, may be
forward-looking statements. Forward-looking statements are often, but not
always, identified by the use of words such as "seek", "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project", "predict",
"propose", "potential", "targeting", "intend", "could", "might", "should",
"believe" and similar expressions. These statements involve known and unknown
risks, uncertainties and other factors that may cause actual results or events
to differ materially from those anticipated in such forward-looking
statements. The Company believes that the expectations reflected in those
forward-looking statements are reasonable but no assurance can be given that
these expectations will prove to be correct and such forward-looking
statements included in this MD&A should not be unduly relied upon by investors
as actual results may vary. These statements speak only as of the date of this
MD&A and are expressly qualified, in their entirety, by this cautionary
statement.
In particular, this MD&A contains forward-looking statements, pertaining
to the following:
- capital expenditure programs;
- development of resources;
- treatment under governmental regulatory and taxation regimes;
- expectations regarding the Company's ability to raise capital;
- expenditures to be made by the Company to meet certain work
commitments; and
- work plans to be conducted by the Company.
With respect to forward-looking statements listed above and contained in
this MD&A, the Company has made assumptions regarding, among other things:
- the legislative and regulatory environment;
- the impact of increasing competition;
- unpredictable changes to the market prices for oil and natural gas;
- that costs related to development of the oil and gas properties will
remain consistent with historical experiences;
- anticipated results of exploration activities; and
- the Company's ability to obtain additional financing on satisfactory
terms.
The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risk
factors set forth below and elsewhere in this MD&A:
- volatility in the market prices for oil and natural gas;
- uncertainties associated with estimating resources;
- geological, technical, drilling and processing problems;
- liabilities and risks, including environmental liabilities and risks,
inherent in oil and natural gas operations;
- fluctuations in currency and interest rates;
- incorrect assessments of the value of acquisitions;
- unanticipated results of exploration activities;
- competition for, among other things, capital, acquisitions of
reserves, undeveloped lands and skilled personnel;
- lack of availability of additional financing and farm-in or joint
venture partners; and
- unpredictable weather conditions.
The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of these risk
factors set forth above.
November 13, 2008
SOLANA RESOURCES LIMITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Month Periods Ended
September 30, 2008, and 2007
(Unaudited)
SOLANA RESOURCES LIMITED
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
Expressed in US dollars
September 30, December 31,
2008 2007
------------- -------------
$ $
Assets
Current
Cash and cash equivalents 87,527,447 71,537,827
Accounts receivable 36,941,187 7,954,162
Future income tax asset (Note 11) 4,000,375 -
Prepaid expenses 1,063,728 790,010
------------- -------------
129,532,737 80,281,999
Deposits (Note 3) 1,178,750 3,156,750
Petroleum and natural gas properties 112,670,663 81,963,075
Other capital assets 1,019,544 877,051
Other receivables 1,119,723 -
Investment (Note 4) 369,867 362,427
------------- -------------
245,891,284 166,641,302
------------- -------------
------------- -------------
Liabilities
Current:
Accounts payable and accrued liabilities 11,018,496 9,307,557
Income tax payable 15,377,943 -
------------- -------------
26,396,439 9,307,557
Asset retirement obligations (Note 5) 2,753,639 1,973,938
------------- -------------
29,150,078 11,281,495
------------- -------------
Shareholders'equity
Share capital (Note 6) 197,179,178 187,223,652
Contributed surplus (Note 6) 12,074,326 11,762,601
Accumulated other comprehensive income 5,791,923 5,791,923
Retained Earnings (Deficit) 1,695,779 (49,418,369)
------------- -------------
7,487,702 (43,626,446)
------------- -------------
216,741,206 155,359,807
------------- -------------
245,891,284 166,641,302
------------- -------------
------------- -------------
SOLANA RESOURCES LIMITED
INTERIM CONSOLIDATED STATEMENT OF INCOME (LOSS),
COMPREHENSIVE INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
(Unaudited)
Expressed in US Dollars
September 30, 2008 September 30, 2007
Three Nine Three Nine
months months months months
ended ended ended ended
$ $ $ $
------------- ------------- ------------- -------------
Revenue
Oil and gas
revenues, net
of royalties 42,812,725 90,753,073 3,152,267 5,953,735
Interest 537,573 1,537,347 193,397 663,796
------------- ------------- ------------- -------------
43,350,298 92,290,420 3,345,664 6,617,531
------------- ------------- ------------- -------------
Expenses
Operating 3,986,558 10,037,698 969,405 2,443,658
General and
administrative 1,662,838 4,474,390 1,165,775 3,545,106
Depletion,
depreciation
and accretion 6,451,279 12,930,244 2,018,435 4,224,763
Foreign exchange
loss (gain) (1,371,923) (1,620,225) 237,775 463,999
Stock-based
compensation
(Note 6) 527,131 4,008,123 1,302,779 4,134,068
------------- ------------- ------------- -------------
11,255,883 29,830,230 5,694,169 14,811,594
------------- ------------- ------------- -------------
Income (loss)
before income
taxes 32,094,415 62,460,190 (2,348,505) (8,194,063)
Income taxes
(Note 11)
- Current 8,226,396 15,346,417 - 89,258
- Future - (4,000,375) - -
------------- ------------- ------------- -------------
8,226,396 11,346,042 - 89,258
------------- ------------- ------------- -------------
Net income (loss)
and comprehensive
income (loss) 23,868,019 51,114,148 (2,348,505) (8,283,321)
Deficit, beginning
of period (22,172,240) (49,418,369) (46,069,959) (40,135,143)
------------- ------------- ------------- -------------
Retained Earnings
(Deficit), end
of period 1,695,779 1,695,779 (48,418,464) (48,418,464)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income (loss) per
share, basic
(Note 7) 0.19 0.41 (0.02) (0.08)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income (loss) per
share, diluted
(Note 7) 0.18 0.39 (0.02) (0.08)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SOLANA RESOURCES LIMITED
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Expressed in US Dollars
September 30, 2008 September 30, 2007
Three Nine Three Nine
months months months months
ended ended ended ended
$ $ $ $
------------- ------------- ------------- -------------
Operating activities
Net Income
(loss) 23,868,019 51,114,148 (2,348,505) (8,283,321)
Items not
involving cash:
Unrealized
foreign
exchange
loss (gain) (1,314,835) (1,329,198) 151,983 (186,829)
Depletion,
depreciation
and accretion 6,451,279 12,930,244 2,018,435 4,224,763
Future income
tax - (4,000,375) - -
Stock-based
compensation 527,131 4,008,123 1,302,779 4,134,068
------------- ------------- ------------- -------------
29,531,594 62,722,942 1,124,692 (111,319)
Changes in non-cash
working capital 206,494 (9,317,415) (52,071) (732,628)
------------- ------------- ------------- -------------
29,738,088 53,405,527 1,072,621 (843,947)
------------- ------------- ------------- -------------
Financing
activities
Proceeds from
the exercise
of options - 4,999,963 - -
Proceeds from
the exercise
of warrants - 1,259,166 - -
------------- ------------- ------------- -------------
- 6,259,129 - -
------------- ------------- ------------- -------------
Investing
activities
Additions to
petroleum and
natural gas
properties (16,117,242) (43,419,307) (7,191,743) (24,941,360)
Additions to
investments 8,769 (7,440) (26,163) (117,957)
Additions to
capital assets (129,846) (361,018) (156,082) (179,793)
Sale of capital
assets - - - 23,711
Deposits - 1,978,000 250,000 244,759
Changes in non-cash
working capital 662,829 (1,842,715) (1,375,709) 4,373,720
------------- ------------- ------------- -------------
(15,575,490) (43,652,480) (8,499,697) (20,596,920)
------------- ------------- ------------- -------------
Foreign exchange
on cash balances (36,918) (22,556) 4,765 20,337
------------- ------------- ------------- -------------
Net increase
(decrease)
in cash 14,125,680 15,989,620 (7,422,311) (21,420,530)
Cash and cash
equivalents,
beginning of
period 73,401,767 71,537,827 19,185,211 33,183,430
Cash and cash
equivalents, end
of period
(Note 9) 87,527,447 87,527,447 11,762,900 11,762,900
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SOLANA RESOURCES LIMITED
Notes to the Interim Consolidated Financial Statements
For the Three and Nine Month Periods Ended September 30, 2008 and 2007
(Unaudited)
Note 1. Basis of presentation
The interim consolidated financial statements of Solana Resources
Limited ("Solana" or the "Company") for the three and nine month
periods ended September 30, 2008 and 2007 have been prepared by
management in accordance with accounting principles generally
accepted in Canada on the same basis as the audited consolidated
financial statements as at and for the year ended December 31, 2007,
except for new standards adopted as described in Note 2. These
unaudited interim consolidated financial statements do not include
all of the disclosures required by Canadian GAAP applicable to the
annual consolidated financial statements; therefore, they should be
read in conjunction with the December 31, 2007, audited consolidated
financial statements.
Note 2. Changes in accounting policies
Effective January 1, 2008, the Company adopted the new Canadian
Institute of Chartered Accountants ("CICA") standards related to
Section 3251, "Equity" and Section 1506, "Accounting Changes."
Section 3251 replaces Section 3250, "Surplus," and describes
standards for the presentation of equity and changes in equity for
reporting periods as a result of the application of Section 1530,
"Comprehensive Income." The only impact of Section 1506, "Accounting
Changes," on Solana's financial statements is to provide disclosure
of when an entity has not applied a new source of GAAP that has been
issued but is not yet effective.
On January 1, 2008, the Company also adopted standards related to
Section 3862, "Financial Instruments-Disclosures", Section 3863,
"Financial Instruments-Presentations" and Section 1535, "Capital
Disclosures". Sections 3862 and 3863 require additional disclosures
regarding the significance of financial instruments to the entity's
financial position and performance; and the nature, extent and
management of risks arising from financial instruments to which the
entity is exposed. Section 1535 establishes standards for disclosing
information about the Company's capital and how it is managed. It
requires disclosures of the Company's objectives, policies and
processes for managing capital, the quantitative data about what the
Company regards as capital, whether the Company has complied with any
capital requirements and if it has not complied, the consequences of
such non-compliance. The disclosures required pursuant to the
adoption of these sections are included in Note 13.
Note 3. Deposits
The Company had funds on deposit totaling $1,178,750 as of September
30, 2008, and $3,156,750 as of December 31, 2007, equal to 10% of
work commitments on the Company's Agencia Nacional de Hidrocarburos
("ANH") acreage. These funds will be returned to the Company upon
completion of the work commitments on the Guachiria Norte, Catguas,
Guachiria Sur, Garibay, Colonia and San Pablo blocks. The average
interest rate received on these deposits is 4.5% pa.
Note 4. Investment
The Company has invested, as at the end of September 2008, $369,867
(December 31, 2007 - $362,427) in the Colombian Hydrocarbon
Investment Fund ("Fund"), and expects to invest a maximum amount of
$500,000. The Fund is managed by a US based fund manager who
specializes in South American natural resources sector investments.
The Fund is expected to have an investment period of four years.
After this period, it is expected that the Fund will be wound up, and
any remaining capital and any earned profits will be distributed to
the investors over a maximum period of seven years.
Note 5. Asset retirement obligations
The following table shows the reconciliation of the Company's
obligations associated with the retirement of oil and gas properties:
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2007 $1,973,938
Liabilities incurred during period 665,757
Liabilities settled during period -
Accretion 113,944
---------------------------------------------------------------------
Asset retirement obligations, September 30, 2008 $2,753,639
---------------------------------------------------------------------
These obligations will be settled at the end of the useful lives of
the underlying assets, which currently extend up to 7 years into the
future. This amount has been computed using a credit-adjusted risk-
free discount rate of 10% per annum and an inflation rate of 2.5% per
annum.
Note 6. Share capital
Authorized share capital consists of an unlimited number of common
shares.
Continuity of common shares Number of Amount
Shares $
---------------------------------------------------------------------
Balance, December 31, 2007 123,176,792 187,223,652
Shares in escrow earned in period - 1,123,917
Exercise of performance warrants 2,500,000 6,621,780
Exercise of stock options 750,000 2,209,829
---------------------------------------------------------------------
Balance, September 30, 2008 126,426,792 197,179,178
---------------------------------------------------------------------
Continuity of warrants Number
---------------------------------------------------------------------
Balance, December 31, 2007 10,000,000
Exercised in period (2,500,000)
---------------------------------------------------------------------
Balance, September 30, 2008 7,500,000
---------------------------------------------------------------------
Warrant terms
---------------------------------------------------------------------
Strike price Cdn$2.00/share
Expiry April 4, 2010
All warrants are fully vested as the Company's shares traded at a
weighted average price greater than Cdn$2.75 per share for a 45
consecutive day period in the first quarter of 2008.
Contributed surplus:
Balance, December 31, 2007 11,762,601
Stock-based compensation expense - stock options 2,120,997
Performance warrants earned in period 763,208
Stock options exercised in period (950,663)
Performance warrants exercised in period (1,621,817)
---------------------------------------------------------------------
Balance, September 30, 2008 12,074,326
---------------------------------------------------------------------
Stock-based compensation
September 30, 2008 December 31, 2007
Number Weighted Number Weighted
of Average of Average
Options Price Options Price
(Cdn$ Per (Cdn$ Per
Option) Option)
Outstanding, beginning
period 4,625,000 1.75 4,350,000 1.64
Granted during period 230,000 4.01 1,965,000 2.14
Exercised during period (750,000) 1.67 - -
Expired or forfeited
during period (160,000) 1.94 (1,690,000) 1.92
------------ ------------
Outstanding, end
of period 3,945,000 1.89 4,625,000 1.75
------------ ------------
Exercisable, end
of period 1,514,999 1.61 1,873,333 1.55
------------ ------------
As at September 30, 2008
Exercise Number Weighted Number Weighted
Price of Average of Average
(Cdn$) Options Remaining Options Exercisable
Outstanding Contractual Exercisable Option
Life Price
(years) (Cdn$)
4.13 200,000 4.66 66,666 3.03
3.25 30,000 4.50 - -
2.75 290,000 1.17 290,000 2.13
2.50 75,000 4.07 - -
2.25 1,515,000 4.20 - -
2.11 30,000 2.53 20,000 1.64
1.70 25,000 3.87 8,333 1.28
1.67 300,000 1.91 300,000 1.30
1.19 200,000 3.47 100,000 0.90
1.15 1,000,000 3.04 450,000 1.01
0.60 280,000 0.18 280,000 0.46
---------------------------------------------------------------------
1.90 3,945,000 3.20 1,514,999 0.78
---------------------------------------------------------------------
For the nine month period ended September 30, 2008, stock based
compensation expense of $2,120,997 (2007 - $738,267) related to
options has been recorded in the Consolidated Statement of Income
(Loss). Additional stock-based compensation expense of $1,123,918
(2007 - $3,395,801) related to shares in escrow and $763,208 (2007 -
Nil) related to performance warrants was recognized as part of the
Breakaway acquisition. The fair values of all common share options
and warrants granted are estimated on the date of grant using the
Black-Scholes option-pricing model. The assumptions used in the
determination of the fair value of options and warrants granted are:
Nine Nine
months months
ended ended
September September
30, 2008 30, 2007
-----------------------
Risk-free interest rate (percent) 4.14% 4.28%
Expected life (years) 3.2 3.5
Volatility (percent) 98% 70%
Weighted average fair value of options granted 4.01 1.25
Expected annual dividend per share - -
Note 7. Per-Share Amounts
The weighted average number of common shares outstanding used for the
computation of per-share amounts is:
September 30, 2008 September 30, 2007
For the For the For the For the
three nine three nine
months months months months
ended ended ended ended
----------------------------------------------------
Weighted average
number of common
shares
outstanding 126,426,792 124,697,488 95,876,792 95,876,792
Shares issuable
pursuant to
stock options 1,220,708 2,054,700 - -
Shares issuable
pursuant to
performance
warrants 1,859,726 5,191,174 - -
----------------------------------------------------
Weighted average
number of
diluted common
shares
outstanding 129,507,226 131,943,362 95,876,792 95,876,792
----------------------------------------------------
----------------------------------------------------
Note 8. Segmented Information
Three month period ended September 30, 2008
Canada Colombia Total
$ $ $
---------------------------------------
Revenue - 42,812,725 42,812,725
Operating costs - (3,986,558) (3,986,558)
---------------------------------------
- 38,826,167 38,826,167
---------------------------------------
General and administrative
expenses 1,116,139 546,699 1,662,838
Depletion, depreciation
and accretion 35,938 6,415,341 6,451,279
Foreign exchange gain (250,588) (1,121,335) (1,371,923)
Stock-based compensation 527,131 - 527,131
Interest income (418,336) (119,237) (537,573)
---------------------------------------
1,010,284 5,721,468 6,731,752
---------------------------------------
Income (loss) before taxes (1,010,284) 33,104,699 32,094,415
Income taxes - 8,226,396 8,226,396
---------------------------------------
Net income (loss) (1,010,284) 24,878,303 23,868,019
---------------------------------------
---------------------------------------
Identifiable assets 136,070,377 109,820,907 245,891,284
---------------------------------------
---------------------------------------
Capital expenditures - 16,247,088 16,247,088
---------------------------------------
---------------------------------------
Nine month period ended September 30, 2008
Canada Colombia Total
$ $ $
---------------------------------------
Revenue - 90,753,073 90,753,073
Operating costs - (10,037,698) (10,037,698)
---------------------------------------
- 80,715,375 80,715,375
---------------------------------------
General and administrative
expenses 2,600,138 1,874,252 4,474,390
Depletion, depreciation
and accretion 60,209 12,870,035 12,930,244
Foreign exchange gain (380,442) (1,239,783) (1,620,225)
Stock-based compensation 4,008,123 - 4,008,123
Interest income (1,135,059) (402,288) (1,537,347)
---------------------------------------
5,152,969 13,102,216 18,255,185
---------------------------------------
Income (loss) before taxes (5,152,969) 67,613,159 62,460,190
Income taxes - 11,346,042 11,346,042
---------------------------------------
Net income (loss) (5,152,969) 56,267,117 51,114,148
---------------------------------------
---------------------------------------
Identifiable assets 136,070,377 109,820,907 245,891,284
---------------------------------------
---------------------------------------
Capital expenditures - 43,780,325 43,780,325
---------------------------------------
---------------------------------------
Three month period ended September 30, 2007
Canada Colombia Total
$ $ $
---------------------------------------
Revenue - 3,152,267 3,152,267
Operating costs - 969,405 969,405
---------------------------------------
- 2,182,862 2,182,862
---------------------------------------
General and administrative
expenses 750,505 415,270 1,165,775
Depletion, depreciation
and accretion 10,118 2,008,317 2,018,435
Foreign exchange loss 19,830 217,945 237,775
Stock-based compensation 1,302,779 - 1,302,779
Interest income (160,891) (32,506) (193,397)
---------------------------------------
1,922,341 2,609,026 4,531,367
---------------------------------------
Income (loss) before taxes (1,922,341) (426,164) (2,348,505)
Income taxes - - -
---------------------------------------
Net income (loss) (1,922,341) (426,164) (2,348,505)
---------------------------------------
---------------------------------------
Identifiable assets 31,157,773 65,613,413 96,771,186
---------------------------------------
---------------------------------------
Expenditures on petroleum
and natural gas properties - 7,191,743 7,191,743
---------------------------------------
---------------------------------------
Nine month period ended September 30, 2007
Canada Colombia Total
$ $ $
---------------------------------------
Revenue - 5,953,735 5,953,735
Operating costs - 2,443,658 2,443,658
---------------------------------------
- 3,510,077 3,510,077
---------------------------------------
General and administrative
expenses 1,798,506 1,746,600 3,545,106
Depletion, depreciation
and accretion 14,404 4,210,359 4,224,763
Foreign exchange (gain) loss 31,256 432,743 463,999
Stock-based compensation 4,134,068 - 4,134,068
Interest income (587,231) (76,565) (663,796)
---------------------------------------
5,391,003 6,313,137 11,704,140
---------------------------------------
Income (loss) before taxes (5,391,003) (2,803,060) (8,194,063)
Income taxes - 89,258 89,258
---------------------------------------
Net Income (loss) (5,391,003) (2,892,318) (8,283,321)
---------------------------------------
---------------------------------------
Identifiable assets 31,157,773 65,613,413 96,771,186
---------------------------------------
---------------------------------------
Expenditures on petroleum
and natural gas properties - 24,941,360 24,941,360
---------------------------------------
---------------------------------------
Note 9. Supplemental cash flow information
At September 30, 2008, cash and cash equivalents includes $87,527,447
(December 31, 2007 - $71,537,827) in term deposits earning an average
interest rate of 2.22% (2007 - 4.34%).
Six months ended Six months ended
September 30, September 30,
2008 2007
Cash interest paid - -
------------------ ------------------
Cash taxes paid - -
------------------ ------------------
Note 10. Related party transactions
In the nine month period ended September 30, 2008, service fees in
the amount of $45,920 (2007 - $41,598) were paid to a company
controlled by a director of the Company and are included in general
and administrative expenses. Additionally $19,938 (2007 - Nil) was
paid to a director of the Company for consulting services in
Colombia. These fees are for services rendered in the normal course
of operations and are measured at the exchange amount, which is the
amount of consideration established and agreed to by the related
parties.
Note 11. Income taxes
Subject to confirmation by taxation authorities, the Company has
approximately Cdn$12.3 million ($11.6 million) of Canadian non-
capital loss carry forwards which are available to be carried forward
and which expire between 2008 and 2027. The consolidated financial
statements do not reflect the potential tax benefit of these losses,
as they do not meet the "more likely than not" criteria for
recognition.
Subject to confirmation by taxation authorities, the Company has
approximately Col$98 billion ($49.6 million) of Colombian loss carry
forwards which have no expiration term and are available to offset
future taxable income. The consolidated financial statements reflect
the potential tax benefit of these losses, as with the currently
expected taxable income they meet the "more likely than not"
criteria. Accordingly, a future tax asset of $4,000,375 was
recognized at June 30, 2008.
Note 12. Commitments
The Company estimates remaining 2008 commitments are $28,029,192
which relate mainly to seismic campaign costs and the drilling of two
exploration wells and one development well.
Note 13. Financial and capital risk management
The Company undertakes transactions in a range of financial
instruments including the following categories:
September 30, December 31,
2008 2007
$ $
Held for trading(a):
Cash and cash equivalents 87,527,447 71,537,827
Loans & receivables(b):
Accounts receivable 36,941,187 7,954,162
Deposits 1,178,750 3,156,750
Other receivables 1,119,723 -
Available for sale(c):
Investment 369,867 362,427
Other financial liabilities(b):
Accounts payable 11,018,496 9,307,557
(a) Measured at fair value which equals the carrying value.
(b) Measured at amortized cost using the effective interest method
which is not significantly different from the fair values due
to the short term to maturity of these financial instruments.
(c) Measured at cost as the fair value is not readily available
(Note 4).
The Company's activities result in exposure to a number of financial
risks, including the following:
Credit risk
A substantial portion of the Company's accounts receivable are with
the Colombian state oil company, Ecopetrol. Crude oil production is
sold to Ecopetrol as determined by market based prices which are
denominated in U.S. dollars and adjusted for quality differentials.
Typically, the Company's maximum credit exposure is revenue from two
months' sales. The Company monitors, on a continuous basis, the
ageing profile of its receivables.
The cash credit risk is considered by management to be limited
because the counterparties are financial institutions with high
credit ratings assigned by international credit rating agencies.
The maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet. On a quarterly
basis, the Company assesses if there should be any impairment of the
financial assets. There are no material financial assets that the
Company considers past due and there is no impairment of financial
assets as at September 30, 2008.
Market risk
Foreign currency exchange risk
Currency risk is the risk that the value of financial instruments
will fluctuate due to changes in foreign exchange rates. Currency
risk arises when future commercial transactions and recognized assets
and liabilities are denominated in a currency that is not the
Company's measurement currency. The Company is exposed to foreign
exchange risk mainly with respect to certain expenditures and
expenses from various currencies primarily the Colombian pesos and
Canadian dollars in relation to the U.S. dollars. However, the
revenues received by the Company for the production of crude oil are
primarily in U.S. dollars thereby the Company's cash flow from
commodity sales would not be materially impacted by fluctuations in
foreign currency.
The Company's management monitors the exchange rate fluctuations on a
regular basis. The Company does not use currency derivative
instruments to manage the Company's exposure to foreign currency
fluctuations.
At September 30, 2008, the carrying amount of the Company's foreign
currency denominated net monetary assets was approximately $9 million
and net monetary liabilities were $17 million. Assuming all other
variables remain constant, a fluctuation of one cent in the exchange
rate of the Canadian dollar to the U.S. dollar would result in a a
change in income of approximately $50,000. As well, a fluctuation of
one cent in the exchange rate of the Colombian peso to the U.S.
dollar would result in a change in income of approximately $177,000.
Liquidity Risk
Liquidity risk is the risk that Solana will not be able to meet its
financial obligations as they come due.
The Company's cash requirements and balances are projected based on
forecasted operations and capital expenditures. The Company plans to
meet these requirements through the mix of available funds, equity
and project debt financing on a required basis and cash to be
provided by the exercise of warrants and share options in the future.
The Company also mitigates liquidity risk by maintaining an insurance
program to minimize exposure to insurable losses.
Interest rate risk
Interest rate risk refers to the risk that the value of a financial
instrument or cash flows associated with the instrument will
fluctuate due to changes in market interest rates. The Company does
not have any debt nor has it drawn on its credit facility as at
September 30, 2008. The Company believes that it has no significant
concentration of interest risk related to its cash equivalents as
most of these are invested in financial institutions with high credit
ratings.
Capital risk
The Company considers its capital structure to include shareholder's
equity, bank debt and working capital. In order to maintain or adjust
its capital structure, the Company may from time to time issue shares
and adjust its capital spending to manage current and projected debt
levels targeted at a maximum of 30% during a given period. As at
September 30, 2008, the Company has available cash of $87 million to
fund its current and future operations and an undrawn credit facility
of $100 million.
The Company is not subject to any externally imposed capital
requirements other than the covenants on its undrawn credit facility
with its lender to maintain its ratio of current assets to current
liabilities (working capital) at a 1:1 level. The Company is
currently in compliance with all its financial covenants as at
September 30, 2008.
Note 14. Subsequent events
On July 29, 2008, Solana announced that it had entered into a
definitive agreement providing for the business combination of Gran
Tierra Energy Inc.("Gran Tierra") and Solana.
Under the terms of the Agreement, each Solana shareholder will
receive either (i) 0.9527918 of a common shares of Gran Tierra or;
(ii) 0.9527918 of a common share of a Canadian subsidiary of Gran
Tierra (an "Exchangeable Share") for each common share of Solana
held, which represents a premium of approximately 14.1 % to the 20
day weighted average trading price to July 28, 2008 of the Solana
shares on the TSX Venture Exchange and Gran Tierra's July 28, 2008
closing price on the Toronto Stock Exchange of CAD $5.73. The shares
of the Canadian subsidiary of Gran Tierra: (i) will have the same
voting rights, dividend entitlements and other attributes as Gran
Tierra common stock; (ii) will be exchangeable, at each shareholder's
option, on a one-for-one basis, into Gran Tierra common stock; and
(iii) subject to compliance with the listing requirements of the
Toronto Stock Exchange, will be listed on the Toronto Stock Exchange.
The Exchangeable Shares will automatically be exchanged for Gran
Tierra common shares five years from closing, and in certain other
events.
The transaction will be completed as an "arrangement" pursuant to the
Business Corporations Act (Alberta). Upon completion of the
transaction, Solana will become an indirect wholly-owned subsidiary
of Gran Tierra. The plan of arrangement will be accomplished on a
tax-deferred basis in Canada, but may be a taxable transaction for
non-Canadian holders of Solana securities. On a fully diluted basis,
upon the closing of the plan of arrangement, Solana securityholders
will own approximately 49% of the combined company and Gran Tierra
securityholders will own approximately 51% of the combined company.
The proposed transaction is subject to regulatory, stock exchange,
court and shareholder approvals. Gran Tierra and Solana will hold
shareholder meetings on November 14, 2008. A joint proxy statement
and management information circular was mailed to shareholders of the
companies on October 20, 2008. The parties have agreed to pay each
other a termination fee of $21 million in certain circumstances and
an expense reimbursement fee of $1.5 million in certain other
circumstances.
Abbreviations
Cdn Canadian
U.S. United States
Col. Colombian Pesos
WTI West Texas Intermediate
bbl barrel
bopd barrels of oil per day
mbbls thousand barrels
mmbbls million barrels
mcf thousand cubic feet
mcfpd thousand cubic feet per day
mmcf million cubic feet
mmcfpd million cubic feet per day
boe (x)barrel of oil equivalent
boepd (x)barrel of oil equivalent per day
NGL natural gas liquids
$mm million dollars
TSX-V TSX Venture Exchange
LSE London Stock Exchange
AIM Alternative Investment Market
Of the London Stock Exchange
MD&A Management's Discussion and Analysis
GAAP Generally Accepted Accounting Principles
G&A General and Administrative Expenses
(x) A boe conversion ratio of 6 mcf (equal sign) 1 bbl has been used.
Boe's may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 mcf to 1 bbl is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
Corporate Information
Directors Nominated Adviser
Raymond P. Antony, Chair(1)(2)(4) Ambrian Capital plc
Luis Miguel Morelli, Director(3)(4)
Grant Howard, Director(1)(2)(4) UK Broker
Roy H. Hudson, Director(3)(4) Tristone Capital Limited
Keith J. Jackson, Director(1)(4)
J. Scott Price, Director,
President & CEO(2)(3)(4)
(1) Audit Committee
(2) Reserves Committee
(3) Corporate Governance and Compensation Committee
(4) Health, Environment and Safety Committee
Management
J. Scott Price, President & CEO
Glenn Van Doorne, COO
Ricardo Montes, CFO
Trading Symbols
TSX-V: SOR
LSE (AIM): SORL
Transfer Agents
Valiant Trust Company
Auditor
Deloitte & Touche LLP
Legal Counsel
Davis LLP
Banker
Royal Bank of Canada
Offices
Head Office: Subsidiary:
Suite 100, 522 - 11th Avenue S.W. Solana Petroleum Exploration
Calgary, Alberta, T2R OC8 (Colombia) Limited
Canada Regatta Office Park, West Bay Road,
Tel.: 403-770-1822 P.O.Box 1106
Fax.: 403-770-1826 Gran Cayman, KYl-1205,
Cayman Islands
Fax: 345-945-7566
Tel.: 345-949-3977
Branch:
Solana Petroleum Exploration
Colombia Limited
Calle 113 No. 7-21, Of 706
Torre A, Edificio Teleport
Bogota, D.C. Colombia
Tel: 011 571 629 1636
Fax: 011 571 629 1704
www.solanaresources.com
For further information: Solana Resources Limited, Scott Price,
jsp(at)solanaresources.com, (403) 770-1822; Ricardo Montes,
rmontes(at)solanaresources.com, (403) 770-1822; Nabarro Wells & Co. Limited
(Nominated Adviser), Marc Cramsie, marccramsie(at)ambrian.com, +44 20 7634
4705; Tristone Capital Limited (UK Broker), Nick Morgan,
nmorgan(at)tristonecapital.com, +44 207 355 5800; Pelham Public Relations,
Philip Dennis, philip.dennis(at)pelhampr.com, +44 207 743 6363; James
MacFarlane, james.macfarlane(at)pelhampr.com, +44 207 743 6375
(SORL)
END
1 Year Solana Res Chart |
1 Month Solana Res Chart |
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
