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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| E4 Energy Com Npv | TSXV:EFE | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
Hot Features
Premium
E4 Energy Inc. ("E4" or the "Company") (TSX VENTURE:EFE) is pleased to report
today its financial and operating results for the second quarter of 2007.
President's Letter to Shareholders
Corporate Highlights for Q2 and Q3 to Date
- Production in the second quarter of 2007 averaged 1,029 boe/d, relatively flat
from the first quarter of 2007 production of 1,055 boe/d and an increase of 52%
from 675 boe/d for the same period of 2006.
- Funds generated from operations for the second quarter of 2007 were $2.3
million an increase of 83 percent over 2006 second quarter funds generated from
operations of $1.3 million.
- Field netbacks for the second quarter of 2007 were $32.07 per boe, an increase
of 16 percent over the second quarter of 2006 field netbacks of $27.68 per boe.
- Net debt including working capital deficit at the end of the second quarter
was approximately $13 million which is 1.2 times annualized second quarter
2007 funds generated from operations and below the $18 million demand revolving
operating credit facility available.
- Drilled two (2.0 net) wells in Northeast British Columbia during the quarter
resulting in one D&A and one well presently testing.
- Strong Q3 drilling results position the Company with a significant number of
new, development follow up drilling locations in these areas.
- The Company's undeveloped land base continues to grow with over 81,000 net acres.
Second Quarter Operating Review and Third Quarter Update
During the second quarter of 2007, E4 drilled two (2.0 net) exploration wells
resulting in one D&A and the second well currently being tested. The Company was
originally scheduled to drill three (3.0 net) additional higher risk/higher
reward wells in the second quarter but due to weather constraints these wells
were rescheduled and drilled in the third quarter.
In the greater Fort St. John area of Northeast British Columbia, E4 recently
drilled two (2.0 net) higher risk, exploration wells in the third quarter. Both
wells have now been cased and are presently being tested. With favourable test
results, production adds would be expected to be on by the fourth quarter and
have additional follow up drilling locations. An additional well in the area
that had been re-entered in the first quarter of 2007 and resulted in a new pool
discovery was scheduled to be tied-in during the second quarter. Due to weather
and approval delays the well is now expected to be on production by the end of
the third quarter adding more than 100 boe/d.
In the Richdale area of Alberta, E4 recently drilled and cased one (1.0 net)
exploration well in the third quarter. The well resulted in a new pool discovery
and is expected to be tied-in at rates exceeding 150 boe/d during the fourth
quarter. The Company has already identified additional drilling locations based
upon this new discovery.
In the Chain/Mikwan area of Alberta, E4 has drilled 3 (1.6 net) successful wells
during the third quarter for Horseshoe Canyon CBM gas potential. These wells
will be tied-in and on stream by the fourth quarter adding approximately 50
boe/d net to E4.
In the Provost East area of Alberta, E4 is presently at the initial stages of
constructing a new water handling facility for the Company's recent oil
discovery. This facility is expected to be in place and operating by the fourth
quarter of 2007 at which time E4 can progress to further develop the two oil
pools with additional horizontal drilling.
Business Outlook
Presently the oil and gas industry and the overall equity markets are
experiencing a significant investor downturn phase. During this time, it is
essential that corporations maintain and execute a focused and strategic
business plan. Although E4 has encountered delays in being able to tie-in
successful exploration wells and build facilities, the Company has continued to
hold the course as to its overall business plan. As a direct result, corporate
cash flow and production adds have been delayed approximately one financial
quarter. Based on rescheduled timing of drilling, well tie-ins and facility
construction, E4 anticipates fourth quarter production to average 1,250 boe/d
with an exit rate of approximately 1,350 boe/d.
Through the second quarter and into the third quarter, E4 has been able to
execute on its exploration drilling program and presently has developed several
new follow up locations in these areas. Hence, the Company now has a development
risked drilling inventory of more than 50 locations. In addition, E4 continues
to add to its undeveloped land base thereby, continuing to build on future
exploration and development growth opportunities.
On behalf of the Board of Directors,
Paul Starnino
President and Chief Executive Officer
August 23, 2007
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements concerning the Company's
expectations of future production, cash flow, earnings and expansion of its oil
and gas property interests and concerning the Company's exploration and
development drilling, seismic operations, regulatory applications, payout
estimates, capital expenditures, number and drilling locations, seismic
acquisitions and facility upgrades. These statements are based on current
expectations that involve a number of risks and uncertainties, which could cause
actual results to differ from those anticipated. These risks include, but are
not limited to: the risks associated with the oil and gas industry (e.g.,
operational risks in development, exploration and production; delays or changes
in plans with respect to exploration or development projects or capital
expenditures; the uncertainty of reserve estimates; the uncertainty of estimates
and projections relating to production, costs and expenses, and health, safety
and environmental risks), acquisitions, commodity price, price and exchange rate
fluctuation and uncertainties resulting from competition from other producers
and ability to access sufficient capital from internal and external sources.
Additional information on these and other risk factors that could affect the
Company's operations and/or financial results are included in the Company's
reports on file with Canadian securities regulatory authorities.
The forward-looking statements or information contained in this news release are
made as of the date hereof and the Company undertakes no obligation to update
publicly or revise any forward-looking statements or information, whether as a
result of new information, future events or otherwise, unless so required by
applicable securities laws.
Oil and Gas Advisory
This press release contains disclosure expressed as "Boe/d". Boe means barrel of
oil equivalent and Boe/d means Boe per day. All oil and natural gas equivalency
volumes have been derived using the ratio of 6,000 cubic feet of natural gas to
1 barrel of oil. Boe equivalency measures may be misleading, particularly if
used in isolation. A conversion ratio of 6,000 cubic feet of natural gas to 1
barrel of oil is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
well head.
In this press release: (i) mmboe means million boe; (ii) boe/d means boe per
day; (iii) bbls/d means barrels per day; (iv) mcf means thousand cubic feet; (v)
mmcf means million cubic feet; (vi) mcf/d means thousand cubic feet per day; and
(vii) mmcf/d means million cubic feet per day.
The TSX Venture Exchange does not accept responsibility for the adequacy or
accuracy of this release.
Some of E4's achievements for the second quarter of 2007 include:
Three Months Six Months
Financial Highlights Ended June 30, Ended June 30,
------------------------- --------------------------
(all amounts in Cdn $
except common share
data) 2007 2006 2007 2006
----------- ------------ ------------ ------------
Petroleum and natural
gas revenue 4,966,786 2,891,654 9,664,073 6,703,464
Per share - basic 0.116 0.075 0.227 0.173
- diluted 0.116 0.075 0.226 0.173
Funds generated from
operations 1,886,166 1,251,754 4,814,218 3,089,881
Per share - basic 0.054 0.032 0.113 0.080
- diluted 0.054 0.032 0.113 0.080
Net earnings (loss) -231,471 826,320 -657,329 54,549
Per share - basic (0.005) 0.021 (0.015) 0.001
- diluted (0.005) 0.021 (0.015) 0.001
Capital expenditures 3,325,362 7,848,180 8,566,732 15,444,562
Net debt 12,967,183 12,693,344 12,967,183 12,693,344
Shareholders' equity 44,707,620 40,006,571 44,707,620 40,006,571
Total assets 69,445,621 64,048,624 69,445,621 64,048,624
Common share data:
Weighted average
basic 42,643,672 38,754,672 42,643,672 38,753,567
Weighted average
diluted 42,714,336 38,779,801 42,719,252 38,845,822
Issued and
outstanding 42,643,672 38,754,672 42,643,672 38,754,672
Three Months Six Months
Operating Highlights Ended June 30, Ended June 30,
------------------------- --------------------------
(6:1 boe conversion) 2007 2006 2007 2006
----------- ------------ ------------ ------------
Average daily production
Natural gas (mcf/d) 3,562 2,766 3,775 2,968
Liquids (Oil & NGLs)
(bbls/d) 435 214 413 245
Oil equivalent (boe/d) 1,029 675 1,042 739
Average sales price
(after hedging):
Natural gas ($/mcf) 7.80 6.15 7.61 6.99
Liquids (Oil & NGLs)
($/bbl) 61.56 68.94 59.73 66.52
Oil equivalent ($/boe) 53.04 47.08 51.25 50.07
Wells drilled - gross
(net):
Gas 2 (2.00) 4 (3.52) 10 (9.00) 6 (5.02)
Oil 0 (0.00) 6 (3.06) 1 (0.92) 7 (3.66)
Suspended 0 (0.00) 4 (3.55) 1 (1.00) 4 (3.55)
D & A 0 (0.00) 1 (1.00) 0 (0.00) 1 (1.00)
Total 2 (2.00) 15 (11.13) 12 (10.92) 18 (13.23)
----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
The following discussion is intended to assist the reader in understanding E4's
business and the results of operation and financial condition. The Company's
interim MD&A should be read in conjunction with E4's audited consolidated
financial statements for the year ended December 31, 2006 and E4's financial
statements for the interim period ended June 30, 2007.
Description of Company - E4 Energy Inc. is an independent, emerging crude oil
and natural gas company actively engaged in the exploration for, development and
production of natural gas and crude oil reserves in Alberta and British
Columbia, Canada. The Company is subject to the provisions of the Alberta
Business Corporations Act and its common shares are publicly listed and traded
on the TSX Venture Exchange under the symbol EFE.
Non-GAAP Measures- The MD&A contains the term "funds generated from operations",
"funds generated from operations per share" and "netbacks", all of which are
non-GAAP terms. The Company uses these measures to help evaluate its
performance. Management considers netbacks an important measure as it
demonstrates its profitability relative to current commodity prices. Management
uses funds generated from operations to analyze operating performance and
leverage and considers funds generated from operations to be a key measure as it
demonstrates the Company's ability to generate the cash necessary to fund future
capital investments and to repay debt. Funds generated from operations should
not be considered an alternative to, or more meaningful than cash flow from
operating activities as determined in accordance with GAAP as an indicator of
the Company's performance. Therefore references to funds generated from
operations or funds generated from operations per share (basic and diluted) may
not be comparable with the calculation of similar measures by other entities.
All references to funds generated from operations throughout this report are
based on cash flow from operating activities before changes in non-cash working
capital. Funds generated from operations per share are calculated using the
basic and diluted weighted average number of shares for the period.
Boe Presentation - Barrels of oil equivalent (boe) may be misleading,
particularly if used in isolation. A boe conversion ratio of six thousand cubic
feet (mcf) to one barrel (bbl) is based on an energy equivalency conversion
method primarily applicable at the burner tip and is not intended to represent a
value equivalency at the wellhead. All boe conversions in this report are
derived by converting natural gas to oil in the ratio of 6 mcf of natural gas to
1 bbl of oil.
Forward-Looking Information - Statements throughout this MD&A that are not
historical facts may be considered "forward-looking statements". These
forward-looking statements sometimes include words to the effect that management
believes or expects a stated condition or result. Forward-looking statements
included in the MD&A concern anticipated production and capital expenditures.
Forward-looking statements and information are based on the Company's current
beliefs as well as assumptions made by and information currently available to
the Company concerning anticipated financial performance, business prospects,
strategies and regulatory developments. Although management considers these
assumptions to be reasonable based on information currently available to it,
they may prove to be incorrect.
By their very nature forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that predictions, forecasts,
projections and other forward-looking statements will not be achieved. We
caution readers not to place undue reliance on these statements as a number of
important factors could cause the actual results to differ materially from the
beliefs, plans, objectives, expectations and anticipations, estimates and
intentions expressed in such forward-looking statements. These factors include,
but are not limited to: the volatility of oil and gas prices; production and
development costs and capital expenditures; the imprecision of reserve estimates
and estimates of recoverable quantities of oil and gas reserves; environmental
claims and liabilities; incorrect assessments of value when making acquisitions;
increases in debt service charges; the loss of key personnel; the marketability
of production; defaults by third-party operators; fluctuations in foreign
currency and exchange rates; inadequate insurance coverage; compliance with
environmental laws and regulations; changes in tax laws; and the Company's
ability to access external sources of debt and equity capital.
The Company cautions that the foregoing list of factors that may affect future
results is not exhaustive. When relying on the Company's forward-looking
statements to make decisions with respect to the Company, investors and others
should carefully consider the foregoing factors and other uncertainties and
potential events. The forward-looking statements and information contained in
this MD&A are as of the date hereof and the Company undertakes no obligation to
update publicly or revise any forward-looking statements or information, whether
as a result of new information, future events or otherwise, unless so required
by applicable securities laws.
SELECTED QUARTERLY INFORMATION
The financial data presented below has been presented in accordance with GAAP,
with the exception of funds generated from operations. The reporting and the
measurement currency is the Canadian dollar.
------------------------------------------------------------
2007 2006 2005
------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Operational
Results
Production
- Natural gas
(mcf/d) 3,562 3,990 4,086 3,352 2,766 3,171 2,848 2,248
- Crude oil and
NGLs (bbls/d) 435 390 371 346 214 275 248 249
- Total
production
(boe/d) 1,029 1,055 1,052 905 675 804 723 624
Average
realized
pricing
- Natural gas
($/mcf) 7.80 7.44 7.38 6.10 6.15 7.74 12.28 9.79
- Crude oil
($/bbl) 61.56 57.67 55.36 70.30 68.94 64.74 67.63 71.78
- Combined
average
($/boe) 53.04 49.47 48.20 49.45 47.08 52.68 71.61 63.95
Selected
Financial
Results
($ thousands)
Petroleum and
natural gas
revenue 4,967 4,697 4,665 4,117 2,892 3,812 4,768 3,670
Royalties 851 793 852 656 521 840 880 592
Operating
expenses and
transportation 1,110 1,003 1,088 858 667 766 774 676
General and
administrative
expenses 549 271 505 462 714 752 775 968
Funds generated
from operations 2,296 2,518 2,191 2,221 1,252 1,838 2,752 1,500
Cash flow from
operating
activities 1,886 2,998 2,862 479 834 2,672 2,161 2,598
Depletion,
depreciation
and accretion
expense 3,053 2,897 2,838 2,433 1,875 2,287 2,254 1,563
Net earnings
(loss) (232) (426) (347) 173 826 (771) 409 (310)
- Basic per
share (0.01) (0.01) (0.01) 0.00 0.02 (0.02) 0.01 (0.01)
- Diluted per
share (0.01) (0.01) (0.01) 0.00 0.02 (0.02) 0.01 (0.01)
Capital
spending 3,325 5,241 4,482 3,617 7,848 7,596 4,458 2,310
Total debt and
working capital
deficiency
(surplus) 12,968 12,404 9,649 13,952 12,694 6,337 796 9,289
Shareholders'
Equity 44,707 44,751 47,103 40,543 40,006 38,557 40,446 29,067
Common shares
outstanding
(000's) 42,644 42,644 42,644 38,755 38,755 38,755 38,671 33,624
----------------------------------------------------------------------------
Petroleum and Natural Gas Production
The following table highlights E4's production profile:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Natural Gas (mcf/d) 3,562 2,766 29 3,775 2,968 27
Crude oil and NGLs (bbls/d) 435 214 103 413 245 69
Total production (boe/d) 1,029 675 52 1,042 739 41
---------------------- ----------------------
---------------------- ----------------------
During the second quarter of 2007 ("Q2 2007"), E4's total daily production
increased from the comparable quarterly period in 2006 ("Q2 2006") by 52
percent. On a year to date basis, the first six months of 2007 ("H1 2007") saw
total production increase by 41 percent from the first six months of 2006 ("H1
2006"). The increases in both Q2 2007 and H1 2007 compared to the same periods
of 2006 is mostly attributable to a successful drilling program throughout 2006
that brought new natural gas production in the Airport area and new crude oil
and natural gas liquids ("NGLs") production in the Provost area.
Revenue and Commodity Pricing
The following table highlights the composition of E4's revenue stream:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Natural Gas 2,528 1,549 63 5,202 3,759 38
Crude oil and NGLs 2,439 1,343 82 4,462 2,944 52
Total 4,967 2,892 72 9,664 6,703 44
---------------------- ----------------------
---------------------- ----------------------
The following table highlights E4's corporate realized wellhead prices and
select industry benchmark prices:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
E4 prices:
Natural gas ($/mcf) 7.80 6.15 27 7.61 6.99 9
Crude oil and NGLs ($/bbl) 61.56 68.94 (11) 59.73 66.39 (10)
Oil equivalent ($/boe) 53.04 47.08 13 51.25 50.11 2
WTI Cushing oil (US$/bbl) 65.00 70.70 (8) 61.56 67.09 (8)
Edmonton Par light oil ($/bbl) 71.92 78.60 (8) 69.48 73.80 (6)
Bow River medium oil ($/bbl) 50.87 62.16 (18) 50.46 51.69 (2)
WTI - Lloyd. differential
(US$/bbl) 20.02 17.16 17 18.41 21.47 (14)
Nymex Henry Hub (US$/mmbtu) 7.56 6.83 11 7.26 7.95 (9)
AECO gas - monthly index ($/mcf) 7.31 6.22 18 7.03 7.73 (9)
Currency Exchange rate (US$:C$) .9106 .8909 2 .8811 .8783 -
----------------------------------------------------------------------------
E4's petroleum and natural gas ("PNG") revenues for Q2 2007 and H1 2007 were 72
percent and 44 percent higher from the respective periods in 2006. This was due
to slightly higher per boe average prices but higher production volumes played a
much larger role in the revenue increases in both Q2 2007 and H1 2007.
Unrealized Gain on Commodity Contract
In January 2007, E4 entered into a fixed natural gas commodity contract as follows:
----------------------------------------------------------------------------
Daily Mark to
Fixed Forward Price Notional Market
Term Index Price at June 30, 2007 Volume ($000s)
----------------------------------------------------------------------------
April 1, 2007 to
October 31, 2007 AECO-C $7.40/GJ $5.87/GJ 1,500 $282
----------------------------------------------------------------------------
An unrealized gain of $0.3 million (nil - June 30, 2006) on the commodity
contract represents the fair value of the contract at June 30, 2007, as the
forward price is less then the contracted price.
Royalties
The following table highlights the composition of E4's royalty type:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Crown, net ARTC 762 444 72 1,450 1,114 30
Freehold and overrides 89 77 16 194 247 (21)
Total 851 521 63 1,644 1,361 21
---------------------- ----------------------
---------------------- ----------------------
Per unit ($/boe) 9.09 8.48 7 8.72 10.17 (14)
Effective royalty rate (%) 17.1 18.0 (5) 17.0 20.0 (15)
----------------------------------------------------------------------------
E4's petroleum and natural gas royalty rates for Q2 2007 were 5 percent lower
than Q2 2006. Although the Q2 2007 figure does not include any Alberta Royalty
Tax Credits, it does include credits relating to Gas Cost Allowance that brought
the royalty rates for Q2 2007 very close to what was experienced in Q2 2006.
On a year to date basis, E4's petroleum and natural gas royalties were 15
percent lower in H1 2007 compared to H1 2006. The H1 2006 figure, however, was
skewed due to royalty adjustments booked early on that year. On a go forward
basis, E4 still expects an average royalty rate of 18 to 19 percent.
Operating Expenses
The following table highlights E4's operating expenses:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Total ($000s) 915 563 63 1,798 1,196 50
Per unit ($/boe) 9.78 9.16 7 9.53 8.94 7
----------------------------------------------------------------------------
E4 had per unit of production field operating costs that were 7 percent
higher in both Q2 2007 and H1 2007 compared to the same periods of 2006.
This was due to the continued escalation of oil and gas service industry
costs.
Transportation Expenses
The following table highlights E4's transportation expenses by reporting
period:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Total ($000s) 195 104 88 315 237 33
Per unit ($/boe) 2.08 1.69 23 1.67 1.77 (6)
----------------------------------------------------------------------------
E4 reported transportation costs that were 23 percent higher in Q2 2007 compared
to Q2 2006. This was due to the higher costs associated with trucking oil out of
the Boundary area during spring break up in Q2 2007. On a year to date basis, H1
2007 transportation costs were marginally lower than H1 2006 as the new oil
production from the Provost area does not require to be trucked, thus lowering
the average corporate per unit transportation costs.
General & Administrative Expenses ("G&A")
The following table highlights E4's G&A expenses:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
($000s) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Cash costs 758 605 25 1,218 1,131 8
Capitalized cash costs (303) (274) 11 (560) (467) 20
Stock based compensation
(net of capitalization) 94 383 (75) 162 802 (80)
--------------- ---------------
Total 549 714 (23) 820 1,466 (44)
Per unit G&A ($/boe)
Cash costs 8.08 9.84 (18) 6.46 8.45 (24)
Capitalized cash costs (3.23) (4.46) (28) (2.97) (3.49) (15)
Stock based compensation
(net of capitalization) 1.00 6.24 (84) 0.86 6.00 (86)
--------------- ---------------
Total 5.85 11.62 (50) 4.35 10.96 (60)
----------------------------------------------------------------------------
E4's cash G&A expenses for Q2 2007 were 36 percent higher in Q2 2007 compared to
Q2 2006. This was due in large part to bonuses that were paid out to all E4
employees in Q2 2007. On a year to date basis, the cash component of G&A costs
were virtually unchanged from H1 2007 to H1 2006. On a per-unit of production
basis, however, E4's G&A expenses were slightly lower in both Q2 2007 and H1
2007 compared to Q2 2006 and H1 2006 due to the higher production volumes
discussed earlier.
The non-cash stock based compensation was also lower in both Q2 2007 and H1 2007
compared to Q2 2006 and H1 2006 as E4 amortizes more of its stock based
compensation earlier in the expected life of the stock option. As most of the
total stock options outstanding were issued some time ago, E4 expects its total
stock based compensation to be lower than in the past, until a large number of
new stock options are granted.
E4 uses the full cost method of accounting for its oil and gas operations.
Accordingly, the Company capitalized employee and associated direct overhead
costs of its technical personnel in the amount of $0.4 million during Q2 2007
and $0.3 million for Q2 2006. E4 currently employs 11 office personnel,
including six technical staff and engages the services of two consultants on a
part-time basis.
Financing Charges
The following table highlights E4's financing charges by reporting period:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
($000s) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Interest expense,
incl. Part XII.6 tax 255 88 190 435 123 254
Per unit ($/boe) 2.72 1.43 90 2.31 0.92 151
----------------------------------------------------------------------------
E4 incurred interest expenses that were higher in both Q2 2007 and H1 2007
compared to the same periods of 2006. This was due to a higher bank loan
outstanding at June 30, 2007 and interest associated with the federal
government's interest charges associated with E4's 2006 flow-through share
financing of November 30, 2006.
Depletion, Depreciation and Accretion on Asset Retirement Obligation
The following table highlights E4's depletion, depreciation and accretion on
asset retirement obligation by reporting period:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
Q2 Q2 % H1 H1 %
($000s) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Depletion & depreciation 3,019 1,844 64 5,886 $4,107 43
Accretion on ARO 34 31 10 64 54 19
Total 3,053 1,875 63 5,950 4,161 43
---------------------- ----------------------
---------------------- ----------------------
Per unit ($/boe) $32.60 $30.50 7 $31.54 $31.10 1
----------------------------------------------------------------------------
E4's depletion, depreciation and accretion expense was higher in both Q2 2007
and H1 2007 compared to Q2 2006 and H1 2006. This was due to decelerating E4's
2007 capital program until Q3 and Q4. The reserves added from this program
should modestly lower the depletion, depreciation and accretion rates in the
next few quarters.
Income and Capital Taxes
E4 is presently not subject to any current income tax exposures. The Company
currently has approximately $35.7 million in tax pools available for deduction
against future taxable income (net of any projected pool usage necessary to
offset taxable income for the six months ended June 30, 2007).
In February 2007, E4 renounced $7.0 million of qualifying expenditures in
relation to its November 30, 2006 flow-through common share financing. This
caused the future income tax liability to increase by $2.1 million over the
balance at December 31, 2006. In addition, for the six months ended June 30,
2007, E4 recorded a future income tax benefit of $0.4 million to reflect the
temporary differences between the net book value of the assets and the related
tax pools.
Cash Flow from Operating Activities, Funds Generated from Operations and Net
Earnings
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
(Except per share data) 2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Cash flow from operating
activities 1,886 834 126 4,885 3,506 39
Change in non-cash working
capital 410 418 (2) (71) (416) (83)
Funds generated from operations 2,296 1,252 83 4,814 3,090 56
Cash flow from operating
activities per share
- basic ($) 0.04 0.02 100 0.11 0.09 22
Cash flow from operating
activities per share
- diluted ($) 0.04 0.02 100 0.11 0.09 22
Funds generated from
operations per share
- basic ($) 0.05 0.03 67 0.11 0.08 38
Funds generated from
operations per share
- diluted ($) 0.05 0.03 67 0.11 0.08 38
Net earnings (loss) (232) 826 (128) (658) 55 (1,296)
Per share - basic ($) (0.01) 0.02 (150) (0.02) 0.00 n/a
Per share - diluted ($) (0.01) 0.02 (150) (0.02) 0.00 n/a
----------------------------------------------------------------------------
The higher production volumes and commodity prices discussed above contributed
to both higher cash flow from operating activities and funds generated from
operations in Q2 2007 and H1 2007 compared to Q2 2006 and H1 2006.
The Company recorded net losses in Q2 2007 and H1 2007 as opposed to net
earnings in the respective periods of 2006. This was in large part due to a
higher future income tax recovery in the 2006 periods compared to the 2007
periods.
Capital Expenditures
Outlined below, by category, is E4's capital program for the respective
periods:
----------------------------------------------------------------------------
Second Quarter First Half
----------------------------------------------------------------------------
($000s) Q2 Q2 % H1 H1 %
2007 2006 Change 2007 2006 Change
------- ------ ------- ------- ------ -------
Land 327 1,003 (67) 335 2,774 (88)
Seismic 66 110 (40) 262 1,121 (77)
Drilling & completions 2,010 6,069 (67) 5,159 9,608 (46)
Field facilities & equipment 523 151 246 2,089 956 119
Other (1) 305 276 11 571 469 22
Total cash capital expenditures 3,231 7,609 (58) 8,416 14,928 (44)
Non-cash capitalized stock
based compensation 94 239 (61) 151 517 (71)
Total capital expenditures 3,325 7,848 (58) 8,567 15,445 (45)
----------------------------------------------------------------------------
(1) Includes office equipment, computer hardware and direct G&A.
E4's Q2 2007 capital expenditure program consisted of drilling 2 wells in the
Airport area of British Columbia and completing 1 of those wells. In addition,
E4 finished the completion and tie-in of 6 CBM wells in the Chain area of
Central Alberta. Completing 1 well in the greater Fincastle area of Southern
Alberta and minor land purchases highlighted the remaining Q2 2007 capital
expenditure program.
Liquidity and Capital Resources
E4's primary sources of liquidity to meet operating expenses and fund its
exploration and development capital program are derived from the Company's
internally generated funds flow from operations and E4's revolving operating
bank credit facility. E4 utilizes this facility to fund daily operating
activities and acquisitions as needed. Because of the liquidity and capital
resource alternatives available to the Company, including internally generated
funds flow, E4 believes that its liquidity is sufficient to fund operating,
interest and general and administrative expenses, and planned spending on
exploration and development projects and undeveloped acreage necessary for
long-term, profitable growth. The Company anticipates that public capital
markets will serve as the principal source of capital to finance any future
corporate acquisitions and/or significant property purchases. E4 has issued
equity in the past, and expects that these sources of capital will continue to
be available to the Company in the future for potential acquisitions.
As at June 30, 2007, E4 was capitalized with $12.3 million of bank debt, a
working capital deficiency of $0.7 million and 42.6 million common shares with a
book capitalization of $45.4 million and a market capitalization of $47.8
million. In comparison, at June 30, 2006, the Company was capitalized with bank
debt of $9.6 million, a working capital deficiency of $3.1 million and 38.8
million common shares with a book capitalization of $40.8 million and a market
capitalization of $48.8 million.
----------------------------------------------------------------------------
($000s) Quarter-End (June 30)
-----------------------------
2007 2006 % Change
-----------------------------
Total assets $69,446 $64,049 8
Working capital deficiency (includes cash) 703 3,058 (77)
Bank debt 12,265 9,636 27
Shareholders' equity 44,707 40,006 9
----------------------------------------------------------------------------
Business Risks and Uncertainties
The Company's exploration and development activities are focused in the Western
Canada Sedimentary Basin within Alberta and British Columbia, which is
characterized as being highly competitive with competitors varying in size from
small junior producers to significantly larger, fully-integrated energy
companies possessing greater financial and personnel resources. The Company
recognizes certain risks inherent in the crude oil and natural gas industry,
such as finding and developing oil and natural gas reserves at economic costs,
drilling risks, producing oil and natural gas in commercial quantities,
environmental and safety risks, and commodity price and political risks and
uncertainties. E4 has engaged professional management and technical personnel
with many years of experience in the oil and natural gas business to address and
prudently manage and mitigate these risks.
Changes in Accounting Policies
On January 1, 2007 E4 adopted the new accounting standards regarding the
recognition, measurement, disclosure and presentation of financial instruments.
The new standard requires all financial instruments to be recognized on the
balance sheet initially at fair market value. Subsequent measurement of all
financial assets and liabilities except those held-for-trading and available for
sale are measured at amortized cost determined using the effective interest rate
method. Held-for-trading financial assets are measured at fair value with
changes in fair value recognized in earnings. Available-for-sale financial
assets are measured at fair value with changes in fair value recognized in
comprehensive income until the investment is de-recognized or impaired at which
time the amounts would be recorded in net earnings. At June 30, 2007, the fair
value of the Company's financial instruments approximate their carrying amounts
due to their short-term maturities and, in the case of the derivative commodity
contract, because it has been re-measured to its fair value using available
market data.
The Company may utilize financial derivatives and non-financial derivatives,
such as commodity sales contracts requiring physical delivery, to manage the
price risk attributable to anticipated sale of petroleum and natural gas
production as described in note 5. The Company has elected not to account for
its sole natural gas sales contract, which was entered into in 2007 and is held
for the purpose of receipt or delivery of the underlying natural gas in
accordance with its expected sale requirements, as executory contract on an
accrual basis. Accordingly, this natural gas sales contract has been treated as
a non-financial derivative, which is measured at fair value at each balance
sheet with changes in fair value recognized in earnings each period.
The new standards require a new statement of comprehensive income, which is
comprised of net earnings and other comprehensive income. The Company had no
components of "other comprehensive income (or loss)" during the three months
ended June 30, 2007 and no opening or closing balances for the accumulated other
comprehensive income (or loss).
Two new Canadian accounting standards have been issued which will require
additional disclosure in the Company's financial statements commencing January
1, 2008 about the Company's financial instruments as well as its capital and how
it is managed.
Changes in Internal Control Over Financial Reporting
During the most recent interim period, there have been no changes in E4's
policies and procedures that compromise its internal controls over financial
reporting, that have materially affected, or are reasonably likely to affect,
E4's control over financial reporting. For further discussion of internal
controls over financial reporting, refer to E4's 2006 Annual Report.
Off-Balance Sheet Arrangements and Related Party Transactions
The Company has not entered into any off-balance sheet transactions or into any
related party transactions.
A director of the Company is a partner at a law firm that provides legal
services to the Company. During the six month period ended June 30, 2007, the
Company paid and accrued a total of $66,000 to this firm for legal fees and
disbursements.
The Company files an Annual Information Form and certain related documentation
applicable Canadian securities regulators, which provides additional information
relating to the Company. This information can be retrieved electronically from
the SEDAR system by accessing E4's public filings under "Search for Public
Company Documents" at www.sedar.com
E4 Energy Inc.
Balance Sheets
(in thousands of Canadian dollars) (unaudited)
June 30, December 31,
2007 2006
ASSETS
Current
Cash $ 42 $ 42
Accounts receivable 2,839 4,863
Prepaid expenses and deposits 202 251
Derivative commodity contract 282 -
-------------------------
3,365 5,156
Property, plant and equipment 57,572 54,640
Goodwill 8,509 8,509
-------------------------
$ 69,446 $ 68,305
-------------------------
-------------------------
LIABILITIES
Current
Bank facility $ 12,265 $ 7,925
Accounts payable and accrued liabilities 4,068 6,880
-------------------------
16,333 14,805
Asset retirement obligations 1,866 1,613
Future income tax liability 6,540 4,784
-------------------------
24,739 21,202
-------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 3 (b)) $ 45,413 $ 47,464
Contributed surplus (Note 3 (c)) 3,684 3,371
Deficit (4,390) (3,732)
-------------------------
44,707 47,103
-------------------------
$ 69,446 $ 68,305
-------------------------
-------------------------
Commitments (Note 3 (d))
See accompanying notes to the interim consolidated financial statements.
E4 Energy Inc.
Statements of Operations and Deficit
(in thousands of Canadian dollars, except per share amounts) (unaudited)
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------
Revenue
Petroleum and natural gas $ 4,967 2,892 $ 9,664 $ 6,703
Royalties (851) (521) (1,644) (1,361)
Unrealized gain on commodity
contract 372 - 282 -
--------- ------- --------- ---------
4,488 2,371 8,302 5,342
Expenses
Operating 915 563 1,798 1,196
Transportation 195 104 315 237
General and administrative
(Note 3 (e)) 549 714 820 1,466
Financing charges 255 88 435 123
Depletion, depreciation and
accretion 3,053 1,875 5,950 4,161
--------- ------- --------- ---------
4,967 3,344 9,318 7,183
Loss before taxes (479) (973) (1,016) (1,841)
Future income tax reduction (247) (1,799) (358) (1,896)
--------- ------- --------- ---------
Net earnings (loss) and
comprehensive earnings (loss) (232) 826 (658) 55
Settlement of stock options - - - 165
Deficit, beginning of period (4,158) (4,384) (3,732) (3,778)
--------- ------- --------- ---------
Deficit, end of period $ (4,390) $(3,558) $ (4,390) $ (3,558)
--------- ------- --------- ---------
--------- ------- --------- ---------
Earnings (loss) per share
Basic and diluted $ (0.01) $ 0.02 $ (0.02) $ 0.00
--------- ------- --------- ---------
See accompanying notes to the interim consolidated financial statements.
E4 Energy Inc.
Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------
Cash provided from (used in):
Operating activities
Net earnings (loss) $ (232) $ 826 $ (658) $ 55
Items not affecting cash:
Unrealized gain on derivative
commodity contract (372) - (282) -
Stock-based compensation 94 383 162 803
Depletion, depreciation and
accretion 3,053 1,875 5,950 4,161
Future income tax reduction (247) (1,799) (358) (1,896)
Asset retirement costs - (33) - (33)
Change in non-cash working capital (410) (418) 71 416
--------- ------- --------- ---------
1,886 834 4,885 3,506
--------- ------- --------- ---------
Financing activities
Issuance of bank facility 2,053 5,071 4,340 9,636
Proceeds from stock options
exercised - - - 108
Settlement of stock options - - - (168)
Repayment of capital lease
obligation - - - (35)
--------- ------- --------- ---------
2,053 5,071 4,340 9,541
Investing activities
Property, plant and equipment
additions (3,231) (7,609) (8,416) (14,928)
Change in non-cash working capital (708) 716 (809) 1,110
--------- ------- --------- ---------
(3,939) (6,893) (9,225) (13,818)
--------- ------- --------- ---------
Decrease in cash - (988) - (771)
Cash, beginning of period 42 1,026 42 809
--------- ------- --------- ---------
Cash, end of period $ 42 $ 38 $ 42 $ 38
--------- ------- --------- ---------
--------- ------- --------- ---------
Supplemental cash flow information (Note 4)
See accompanying notes to the interim consolidated financial statements.
E4 Energy Inc.
Notes to the Interim Consolidated Financial Statements
For the 6 month period ended June 30, 2007 and 2006
(Unaudited)
1. Incorporation and Nature of Operations
E4 Energy Inc. ("E4" or "the Company") is in the business of exploration and
development of petroleum and natural gas in Western Canada.
2. Accounting Policies
The interim consolidated financial statements of the Company have been prepared
in accordance with Canadian generally accepted accounting principles and
following the same accounting policies and methods of computation as the annual
consolidated financial statements of the Company as at and for the year ended
December 31, 2006. The interim consolidated financial statements contain
disclosures, which are supplemental to the Company's annual consolidated
financial statements. Certain disclosures, which are normally required to be
included in the notes to the annual financial statements, have been condensed or
omitted. The interim consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto for the year ended December 31, 2006.
On January 1, 2007 E4 adopted new Canadian standards regarding the recognition,
measurement, disclosure and presentation of financial instruments. The new
standard requires all financial instruments to be recognized on the balance
sheet initially at fair market value. Subsequent measurement of all financial
assets and liabilities except those held-for-trading and available for sale are
measured at amortized cost determined using the effective interest rate method.
Held-for-trading financial assets are measured at fair value with changes in
fair value recognized in earnings. Available-for-sale financial assets are
measured at fair value with changes in fair value recognized in comprehensive
income until the investment is de-recognized or impaired at which time the
amounts would be recorded in net earnings. At June 30, 2007, the fair value of
the Company's financial instruments approximate their carrying amounts due to
their short-term maturities and, in the case of the derivative commodity
contract, because it has been re-measured to its fair value using available
market data.
The Company may utilize financial derivatives and non-financial derivatives,
such as commodity sales contracts requiring physical delivery, to manage the
price risk attributable to anticipated sale of petroleum and natural gas
production as described in note 5. The Company has elected not to account for
its sole natural gas sales contract, which was entered into in 2007 and is held
for the purpose of receipt or delivery of the underlying natural gas in
accordance with its expected sale requirements, as executory contract on an
accrual basis. Accordingly, this natural gas sales contract has been treated as
a non-financial derivative, which is measured at fair value at each balance
sheet with changes in fair value recognized in earnings each period.
The new standards require a new statement of comprehensive income, which is
comprised of net earnings and other comprehensive income. The Company had no
components of "other comprehensive income (or loss)" during the six months ended
June 30, 2007 and no opening or closing balances for the accumulated other
comprehensive income (or loss).
Two new Canadian accounting standards have been issued which will require
additional disclosure in the Company's financial statements commencing January
1, 2008 about the Company's financial instruments as well as its capital and how
it is managed.
3. Share Capital
a) Authorized
Unlimited number of common shares.
Unlimited number of cumulative redeemable convertible non-voting
Class A preferred shares.
Unlimited number of non-cumulative redeemable convertible non-voting
Class B preferred shares.
Unlimited number of preferred shares issued in series.
b) Issued and outstanding
Common Shares Continuity:
($ thousands) # of shares Amount
Balance, December 31, 2006 42,643,672 $ 47,464
Tax effect on flow-through shares renounced (2,051)
------------ ---------
Balance, June 30, 2007 42,643,672 45,413
---------------------------------------------------------------------------
c) Contributed surplus
Contributed Surplus Continuity:
($ thousands) Amount
Balance, December 31, 2006 3,371
Stock based compensation 313
---------
Balance, June 30, 2007 3,684
---------------------------------------------------------------------------
d) Flow-through shares
On November 30, 2006, the Company issued 3,889,000 flow-through common shares at
a price of $1.80 per share for gross proceeds of $7.0 million. These
expenditures were renounced to investors of this financing in 2006. Under the
terms of the flow-through share agreement, the Company is committed to spend the
gross proceeds on qualifying exploration expenditures prior to December 31,
2007. As at June 30, 2007, the Company had incurred approximately $3.1 million
of qualifying expenditures.
e) Stock options
Under the Company's stock option plan, the Company may grant options to its
directors, officers, employees and consultants to purchase common shares from
the Company at a fixed price not less than the fair market value of the stock on
the day preceding the grant date. The options vest at a rate of one-third on the
six-month anniversary of the date of grant and a further one-third on each of
the one-year and two-year anniversaries from the date of grant. The option's
maximum term is five years.
The following table summarizes the information about the Company's stock options:
------------------------------
Weighted Average
Options Exercise Price
------------------------------
$
Balance, December 31, 2006 3,209,000 1.58
Granted 738,000 1.13
Expired (40,000) 1.72
Forfeited (53,333) 1.39
------------------------------
Balance, June 30, 2007 3,853,667 1.50
------------------------------
------------------------------
Number of options currently exercisable 2,423,659 1.52
------------------------------
------------------------------
The following table summarizes stock options outstanding and exercisable
under the plan at June 30, 2007.
---------------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of Number remaining average Number average
exercise outstanding contractual exercise exercisable at exercise
price at period end life (years) price ($) period end price ($)
---------------------------------------------------------------------------
$1.00 to 1,641,000 3.58 1.11 928,000 1.10
$1.49
---------------------------------------------------------------------------
$1.50 to 2,212,667 3.31 1.78 1,495,659 1.78
$1.82
---------------------------------------------------------------------------
3,853,667 3.42 1.50 2,423,659 1.52
---------------------------------------------------------------------------
The fair-value of options granted during the period was estimated on the date of
grant using the Black-Scholes option pricing model with weighted average
assumptions and resulting values for grants as follows:
---------------------------------------------------------------------------
Assumptions Three months Three and six
ended months ended
June 30, 2007 June 30, 2006
---------------------------------------------------------------------------
Risk free interest rate (%) 4.70 3.80
---------------------------------------------------------------------------
Expected life (years) 5.00 5.0
---------------------------------------------------------------------------
Expected volatility (%) 72 75
---------------------------------------------------------------------------
Weighted average fair value of
options granted $0.71 $1.01
---------------------------------------------------------------------------
The Company recognized in the first six months of 2007, $0.2 million of stock
based compensation expense (2006 - $0.8 million). In addition, the Company
capitalized $0.2 million of stock based compensation expense in the first six
months of 2007 (2006 - $0.5 million). The expensed portion of stock based
compensation is reflected on the Company's consolidated statement of operations.
In January of 2006, the Company settled and cancelled an aggregate of 550,001
outstanding vested stock options with a weighted average strike price of $1.44,
with its former employees. Total proceeds of $168,167 were paid to the former
employees with respect to this settlement. The excess of the grant date fair
value over the cash settlement has been recorded as a decrease to the deficit.
f) Loss per share
The weighted average number of common shares outstanding used in computing basic
and diluted loss per share during the three and six month period ended June 30,
2007 was 42,643,672. The weighted average number of common shares outstanding
used in computing basic earnings per share was 38,754,672 for and 38,753,567,
respectively, during the three-month and six-month period ended June 30, 2006.
The weighted average number of common shares outstanding used in computing
diluted earnings per share was 38,779,801 and 38,845,822, respectively, during
the three-month and six-month period ended June 30, 2006.
4. Supplemental Cash Flow Information
a) Increase (decrease) in non-cash
working capital items Six Months Ended June 30,
($ thousands) 2007 2006
---------------------------------------------------------------------------
Change in non-cash working capital:
Accounts receivable and other current assets 2,074 (95)
Accounts payable and accrued liabilities (2,812) 1,621
------------------
(738) 1,526
------------------
------------------
Changes in non-cash working capital related to:
Operating activities 71 416
Investing activities (809) 1,110
------------------
(738) 1,526
------------------
------------------
b) Other cash flow information Six Months Ended June 30,
($ thousands) 2007 2006
---------------------------------------------------------------------------
Interest paid 285 85
5. Derivative Commodity Contracts
The Company has a price risk management program whereby the commodity price
associated with a portion of its future production can be fixed. The Company is
able to sell forward a portion of its future production through a combination of
fixed price sale contracts with customers and commodity swap agreements with
financial counter parties. The forward and future contracts are subject to
market risk from fluctuating commodity prices and exchange rates; however, gains
or losses on the contracts are offset by changes in the value of the Company's
production and recognized in income in the same period and category as the
derivative commodity contract item.
The Company uses derivative instruments to reduce its exposure to fluctuations
in commodity prices. The following table outlines the derivative contract
in-place as at June 30, 2007:
---------------------------------------------------------------------------
Physical / Daily notional
Product Financial Term volume Price received
---------------------------------------------------------------------------
Natural gas:
Fixed price Physical Jul 07 - Oct 07 1,500 GJ $7.40 per GJ
---------------------------------------------------------------------------
CORPORATE INFORMATION
E4 Energy Inc. is a junior oil and gas company engaged in the exploration for,
and development and production of natural gas and crude oil reserves primarily
in the provinces of Alberta and British Columbia. E4's common shares trade on
the TSX Venture Exchange under the symbol "EFE".
DIRECTORS Transfer Agent and Registrar
Jim Brown Computershare Trust Company
Vice President, Finance and of Canada
Chief Financial Officer
Fording Canadian Coal Trust
Evaluation Engineers
John Brussa
Partner, Burnet Duckworth Paddock Lindstrom
& Palmer LLP & Associates Ltd.
Glenn Downey Legal Counsel
Senior Vice President
Heenan Blaikie LLP
James Pasieka
Partner, Heenan Blaikie LLP Banker
Scott Saxberg Scotiabank
President and Chief Executive Officer
Crescent Point Energy Trust Auditors
Paul Starnino KPMG LLP
President and Chief Executive Officer
Stock Exchange Listing
TSX Venture Exchange
Symbol: EFE
OFFICERS
Paul Starnino
President and Chief Executive Officer
Glenn Downey, P.Geol.
Senior Vice President HEAD OFFICE
Franco Civitarese, CMA Suite 540, 840 - 6th Avenue S.W.
Vice President, Finance and Calgary, Alberta T2P 3E5
Chief Financial Officer Tel: (403) 266-6747
Fax: (403) 266-6740
Graham Cormack, P.Eng. Website: www.e4energyinc.ca
Vice President, Engineering
and Operations
Randy Bergmann, B.Comm.
Vice President, Land
Felicia Bortolussi
Corporate Secretary,
Heenan Blaikie LLP
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