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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Trans America Industrial Com Npv | TSXV:TSA | 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
NuVista Energy Ltd. (TSX:NVA) is pleased to announce its financial and operating
results for the three months ended March 31, 2008 as follows:
----------------------------------------------------------------------------
Corporate Highlights
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Three Months ended March 31,
2008 2007 % Change
----------------------------------------------------------------------------
Financial
($ thousands, except per share)
Production revenue 97,064 54,822 77
Funds from operations (1) 53,434 27,811 92
Per share - basic 0.88 0.57 54
Per share - diluted 0.87 0.56 55
Net earnings 7,150 4,832 48
Per share - basic 0.12 0.10 20
Per share - diluted 0.12 0.10 20
Total assets 1,355,671 612,993 121
Long-term debt, net of working
capital 423,208 178,036 138
Shareholders' equity 720,033 303,172 137
Net capital expenditures 50,908 35,948 42
Corporate acquisition (non-cash) 594,944 - -
Weighted average common shares
outstanding (thousands):
Basic 60,678 49,023 24
Diluted 61,137 49,799 23
----------------------------------------------------------------------------
Operating
(boe conversion - 6:1 basis)
Production:
Natural gas (mcf/d) 85.5 66.2 29
Natural gas liquids (bbls/d) 1,105 208 431
Oil (bbls/d) 3,985 2,162 84
Total oil equivalent (boe/d) 19,339 13,409 44
Product prices: (2)
Natural gas ($/mcf) 7.83 7.50 4
Natural gas and
natural gas liquids ($/bbl) 77.74 55.22 41
Oil ($/bbl) 76.69 50.84 51
Operating expenses:
Natural gas and liquids ($/mcfe) 1.14 1.01 13
Oil ($/bbl) 10.53 15.84 (34)
Total oil equivalent ($/boe) 7.62 7.64 -
General and administrative expenses
($/boe) 1.25 0.88 42
Funds from operations netback
($/boe) (1) 30.37 23.05 32
----------------------------------------------------------------------------
NOTES:
(1) Funds from operations, funds from operations per share and funds from
operations netback are not defined by GAAP in Canada and are referred to
as non-GAAP measures. Funds from operations are based on cash flow from
operating activities before changes in non-cash working capital and
abandonment expenditures. Funds from operations per share is calculated
based on the weighted average number of common shares outstanding
consistent with the calculation of net income per share. Funds from
operations netback equals the total of revenues less royalties, realized
commodity derivative gains/losses, transportation, general and
administrative costs, interest and cash taxes calculated on a boe basis.
Total boe is calculated by multiplying the daily production by the
number of days in the period.
(2) Product prices include realized gains/losses on commodity derivatives.
MESSAGE TO SHAREHOLDERS
NuVista Energy Ltd. ("NuVista") is pleased to report to shareholders the
financial and operating results for the three months ended March 31, 2008. On
March 4, 2009 NuVista completed the most significant transaction in its history,
the business combination with Rider Resources Ltd. ("Rider") and the associated
financing with the Ontario Teachers' Pension Plan ("OTPP"). The business
combination solidifies NuVista's position as a premium intermediate oil and gas
company with a five year track record of adding value toshareholders, and adds a
high impact deep gas exploration component to existing shallow gas and heavy oil
opportunity inventory. NuVista's Board of Directors and management are pleased
with how NuVista completed the acquisition of Rider and the progress made on the
integration of the two companies.
The accretion resulting from this business combination, coupled with increasing
commodity prices, has resulted in record production levels of 19,339 boe/d for
the first quarter with a 74% natural gas weighting, and the highest reported
funds from operations per share in the Company's history. As the first quarter
results only include results from the Rider operations effective March 4, 2008,
production volumes are expected to increase further in the second quarter and
NuVista expects to realize additional accretion on a per share basis. Over the
past three months, the outlook for commodity prices has increased dramatically
with netbacks now forecast to increase by a further 15% for the remainder of
2008. NuVista's production for March and April 2008 was approximately 27,000
boe/d. NuVista has positioned itself to continue to grow profitably in the
future.
NUVISTA-RIDER BUSINESS COMBINATION
The business combination with Rider has resulted in NuVista becoming an
intermediate natural gas focused company with an asset base and technical teams
in place to continue to create shareholder value through production per share
and reserves per share growth. The Rider asset base is well suited to NuVista's
existing business strategy which emphasizes long-term sustainability and growth
based upon an acquire and develop business model in multi-zone areas with a
focus on low operating costs and high working interests. The business
combination added three new core areas in liquid rich, natural gas prone regions
of Alberta that are characterized by high netbacks and longer reserve life
production. The Rider assets also added a high impact deep natural gas drilling
inventory to the existing exploration and development program consisting
primarily of shallow gas and heavy oil.
NuVista's production is now balanced between the west of the third and fourth
meridian ("W3/4M"), and the west of the fifth and sixth meridian ("W5/6M")
producing regions. The Company is now poised for growth in these regions, both
organically and through acquisitions. With the business combination, NuVista
increased its undeveloped land inventory to over 750,000 acres while maintaining
a high working interest of 77% in the undeveloped lands and top quartile
operating costs targeting $7.50/boe. The asset base remains highly concentrated
with only 300 boe/d of production outside existing core areas. The combination
was completed at attractive acquisition metrics, at a time when natural gas was
out of favour, and is accretive to NuVista on net asset value, reserves,
production, and funds from operations on a per share basis.
FIRST QUARTER CAPITAL PROGRAM
NuVista completed a capital expenditure program of $50.9 million during the
first quarter of 2008. Approximately half of these expenditures were spent on a
property acquisition in the Provost Core area. The acquired properties are
currently producing over 700 boe/d net to NuVista and the asset acquisition is
forecast to result in recycle ratios in excess of 3:1. NuVista reduced its
exploration and development capital expenditures during the quarter in order to
maintain its financial flexibility following the business combination with
Rider. Exploration and development expenditures within NuVista totaled $25.5
million, and included participation in 19 wells resulting in 7 gas wells, 7 oil
wells and 5 dry wells. Prior to closing the business combination , Rider spent
approximately $24 million in 2008 primarily in the Wapiti and Waskahigan areas.
During this period Rider drilled 9 wells that resulted in 5 natural gas wells, 3
dry holes and 1 standing well. A significant portion of the combined capital
program was spent on tie-ins and facilities to connect behind pipe volumes.
For the remainder of 2008, NuVista has currently budgeted capital expenditures
of $115 million to $125 million, with all of the expenditures focused on
exploration and development activities. Approximately 40% of the capital will be
spent in the W5/6M region which will result in participation in approximately 20
wells, and the remaining 60% of capital expenditures will be focused in our
W3/4M region which is expected to result in participation in about 100 wells.
PRO FORMA RESERVES DISCLOSURE
NuVista's stand-alone reserves at December 31, 2007 were previously released in
the press release dated March 6, 2008 and in the Annual Information Form dated
March 28, 2008. As a result of the Rider business combination, along with the
Provost acquisition and the changing business outlook for commodity prices,
NuVista has provided additional pro forma reserves data disclosure with respect
to:
1. Pro forma reserves estimates from a third party reserve evaluator, GLJ
Petroleum Consultants Ltd. ("GLJ") for the sum of NuVista, Rider and the Provost
acquisition as at December 31, 2007.
2. The impact of rising commodity prices on valuation for the pro forma total
company.
3. The impact of the Alberta New Royalty Framework (the "NRF"), particularly in
light of higher commodity prices.
The following observations are apparent from a review of the pro forma reserves
data:
- NuVista continues to adopt a conservative booking philosophy as it pertains to
reserves. Proven reserves represent over 71% of total reserves and 78% of total
present value, and the majority of the probable reserves relate to producing
wells. On a relative basis the reserve report contains a small amount of future
capital.
- On a stand-alone basis the Rider business combination and Provost acquisition
were highly accretive to NuVista shareholders, with pro forma accretion of 23%
in proven plus probable reserves net present value per share at a discount rate
of 10% based upon GLJ's January 1, 2008 price forecast. On a debt adjusted
basis, accretion of approximately 19% was achieved with April 14, 2008 market
strip prices.
- The impact of commodity price increases over the past three months has a
significant impact on NuVista's present value. Average prices forecasted by GLJ
on January 1, 2008 in the 5 year period from 2008 to 2012 were US $85.60/bbl for
WTI oil and CDN $7.42/mmbtu for AECO natural gas. By April 14, 2008 the market
strip prices had climbed to US $104.75/bbl for WTI oil and CDN $8.77/mmbtu for
AECO natural gas. The net present value of NuVista's existing pro forma reserve
base utilizing the April 14, 2008 market strip prices, resulted in a 29%
increase in net present value per share (approximately $4.60/share).
- The impact of the proposed NRF on NuVista remains unclear at this time due to
the lack of formal legislation on the deep gas royalty adjustment as it pertains
to wells which are in existence prior to January 1, 2009. It is NuVista's
current view, based on communication with Government of Alberta representatives,
that wells existing prior to 2009 and deeper than 2,000 metres will receive a
deep gas adjustment to royalties (high case scenario). The overall impact of the
NRF on the net present value of reserves is not significant in the high case
scenario where grandfathering of the existing deep wells is adopted and less
than a 5% reduction in the less likely low case scenario where the deep gas
royalty adjustment applies only to wells drilled after 2009.
- Based on the April 14, 2008 market strip prices, the impact of the NRF on 2009
funds from operations for NuVista is estimated to be approximately $15 million
in the high case scenario and approximately $35 million in the low case
scenario.
FINANCIAL FLEXIBILITY
The maintenance of financial flexibility and the prudent stewardship of capital
have become hallmarks of NuVista's business plan over the past four and one half
years. At the time of announcing the Rider business combination, the outlook for
natural gas prices was uncertain. On January 7, 2008, NuVista announced the
business combination with Rider through a plan of arrangement. This transaction
featured the issuance of equity to reduce debt levels in the combined entity
through a private placement of units consisting of common shares and warrants
with the OTPP, for proceeds of $84 million. OTPP has become a significant
shareholder in NuVista and the Company looks forward to further developing the
relationship with this strategic long-term equity partner.
On March 4, 2008, concurrent with the closing of the business combination,
NuVista increased the maximum borrowing commitment of its credit facilities to
$450 million, and expanded its lending syndicate from four to seven financial
institutions. On March 5, 2008, NuVista repaid the US $99.5 million second lien
term loan assumed from the Rider acquisition and terminated the related
cross-currency interest rate swap, replacing this higher cost debt with bank
borrowings.
NuVista took advantage of the rising natural gas price environment in February
and March to hedge a significant portion of its natural gas production from
April to October 2008, at a level which would allow NuVista to return financial
flexibility to the balance sheet by the fourth quarter of 2008. In addition,
NuVista entered into crude oil hedges as part of its ongoing price risk
management program. Subsequent to entering into these hedges, natural gas and
crude oil prices have increased and while NuVista expects to achieve its debt
reduction target earlier than anticipated, it will also experience price and
risk management losses.
Based on current commodity price forecasts and the current capital budget,
NuVista forecasts the ratio of year end debt to fourth quarter annualized funds
from operations to be less than 1.0:1. NuVista is forecasting to exit 2008 with
over $150 million of available debt capacity on the existing credit lines and
the anticipated exercise of the warrants prior to March 5, 2009 will result in
net proceeds of $46.6 million. This creates significant financial flexibility to
expand NuVista's business plan through increased exploration and development
activities or strategic acquisitions.
PRO FORMA RESERVES DATA
NuVista closed the acquisition of Rider on March 4, 2008 and closed the
acquisition of heavy oil assets in the Provost core area on January 8, 2008.
Reserves data disclosure included in the Annual Information Form dated March 28,
2008 was as of December 31, 2007 and therefore did not include the reserves
associated with these acquisitions. The Annual Information Form is available on
SEDAR at www.sedar.com.
The pro forma reserves data set forth below is based on a compilation of GLJ's
evaluation of NuVista's reserves, Rider's reserves, and the reserves associated
with the Provost acquisition, all with an effective date of December 31, 2007
("GLJ Report"). The pro forma reserves data summarizes crude oil, natural gas
liquids and natural gas reserves and the net present values of future net
revenue for these reserves using forecast prices and costs, not including the
impact of any hedging activities. The GLJ Report has been prepared in accordance
with the standards contained in the Canadian Oil and Gas Evaluation ("COGE")
Handbook and the reserve definitions contained in NI 51-101.
All evaluations of future net revenue are after the deduction of royalties,
development costs, production costs and well abandonment costs but before
consideration of future income taxes, indirect costs such as administrative
overhead and other miscellaneous expenses. The estimated future net revenue
contained in the following tables does not necessarily represent the fair market
value of the reserves. There is no assurance that the forecast price and cost
assumptions contained in the GLJ Report or the market strip prices on April 14,
2008 will be attained and variations could be material. Other assumptions and
qualifications relating to costs and other matters are summarized in the notes
to or following the tables below. Readers should review the definitions and
information contained in "Definitions and Notes to Reserves Data Tables"
included in the Annual Information Form in conjunction with the following tables
and notes. The recovery and reserve estimates on the properties described herein
are estimates only. The actual reserves on the properties may be greater or less
than those calculated.
Due to uncertainties and lack of sufficient details to determine royalties for
some product types under the proposed NRF, the pro forma reserves data set forth
below has been prepared using the existing royalties. However, a high and low
sensitivity calculation with respect to the potential impact of the NRF is
provided in certain of the reserves data tables set forth below. Readers should
review "Industry Conditions - Provincial Royalties and Incentives - Alberta" and
"Risk Factors - New Alberta Royalty Regime" in the Annual Information Form.
The term "Boe" or barrels of oil equivalent may be misleading, particularly if
used in isolation. A Boe conversion ratio of six thousand cubic feet per barrel
(6 Mcf: 1 Bbl) of natural gas to barrels of oil equivalence is based on an
energy equivalency conversion method primarily applicable at the burner tip and
does not represent a value equivalency at the wellhead.
Pro Forma Total Company Interest Reserves Data
(Before Tax and at Forecast Prices and Costs)
SUMMARY OF OIL AND NATURAL GAS PRO FORMA TOTAL COMPANY INTEREST RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
AS OF DECEMBER 31, 2007
GLJ FORECAST PRICES AND COSTS AS AT JANUARY 1, 2008
RESERVES (1)(2)(3)
-------------------------------------------------
LIGHT AND MEDIUM
OIL HEAVY OIL
-------------------------------------------------
Total Total
Company Company
Interest(1) Net Interest(1) Net
RESERVES CATEGORY (Mbbls) (Mbbls) (Mbbls) (Mbbls)
----------------------------------------------------------------------------
PROVED:
Developed Producing 3,306 2,923 4,198 3,796
Developed Non-Producing 84 77 526 448
Undeveloped 40 36 566 481
-------------------------------------------------
TOTAL PROVED 3,430 3,036 5,291 4,725
PROBABLE 1,012 902 1,886 1,671
-------------------------------------------------
TOTAL PROVED PLUS PROBABLE 4,442 3,938 7,177 6,396
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
NATURAL GAS
NATURAL GAS LIQUIDS
-------------------------------------------------
Total Total
Company Company
Interest(1) Net Interest(1) Net
RESERVES CATEGORY (MMcf) (MMcf) (Mbbls) (Mbbls)
----------------------------------------------------------------------------
PROVED:
Developed Producing 201,085 157,954 4,565 3,204
Developed Non-Producing 24,459 19,373 674 471
Undeveloped 7,744 6,325 84 53
-------------------------------------------------
TOTAL PROVED 233,288 183,652 5,323 3,728
PROBABLE 98,879 79,262 2,202 1,542
-------------------------------------------------
TOTAL PROVED PLUS PROBABLE 332,167 262,914 7,525 5,270
-------------------------------------------------
NET PRESENT VALUES OF FUTURE NET REVENUE
BEFORE INCOME TAXES DISCOUNTED AT (%/year) (1)(2)(3)
-------------------------------------------------------
0% 5% 8% 10% 15%
RESERVES CATEGORY ($000s) ($000s) ($000s) ($000s) ($000s)
----------------------------------------------------------------------------
PROVED:
Developed Producing 1,324,850 1,031,220 919,160 859,770 746,018
Developed
Non-Producing 144,728 110,931 97,981 91,092 77,832
Undeveloped 45,210 33,974 29,397 26,873 21,819
-------------------------------------------------------
TOTAL PROVED 1,514,789 1,176,126 1,046,538 977,735 845,670
PROBABLE 668,267 395,580 314,139 275,420 209,034
-------------------------------------------------------
TOTAL PROVED PLUS
PROBABLE 2,183,055 1,571,706 1,360,678 1,253,155 1,054,703
-------------------------------------------------------
Notes:
(1) Total Company Interest reserves means total working interest and/or
royalty interest share before deducting the amounts attributable to
royalties owned by others.
(2) Undiscounted future development costs included in the evaluation for
total proved reserves were $35.0 million and for total proved plus
probable were $80.1 million.
(3) Numbers may not add due to rounding.
SUMMARY OF PRO FORMA TOTAL COMPANY INTEREST RESERVES AND OPERATING DATA
AS OF DECEMBER 31, 2007
FORECAST PRICES AND COSTS
Market Market Market
GLJ GLJ Strip at Strip at Strip at
January 1, April 1, April 14, April 14, April 14,
2008 2008 2008 2008 2008
-------------------------------------------------------
NRF High NRF
(2) Low (2)
---------------------
PRO FORMA TOTAL COMPANY
INTEREST
RESERVES (1) (MMBoe):
Total Proved 52.9 53.1 53.3 53.3 53.2
Total Proved plus
Probable 74.5 74.8 75.1 75.0 75.0
NET PRESENT VALUES OF
FUTURE
REVENUE BEFORE TAX AND
DISCOUNTED
AT 10% ($ million):
Total Proved 978 1,089 1,268 1,270 1,222
Total Proved plus
Probable 1,253 1,391 1,615 1,609 1,548
FORECAST PRODUCT PRICES:
WTI Crude Oil (US$/Bbl)
2007 72.39 72.39 72.39 72.39 72.39
2008 92.00 97.41 110.68 110.68 110.68
2009 88.00 90.00 105.93 105.93 105.93
AECO Natural Gas ($/mmbtu)
2007 6.65 6.65 6.65 6.65 6.65
2008 6.75 8.11 9.57 9.57 9.57
2009 7.55 8.20 9.04 9.04 9.04
OPERATING NETBACKS (3)
($/Boe)
2007 Actual 25.43 25.43 25.43 25.43 25.43
2008 Forecast (before
hedging activities) 29.77 36.02 42.19 42.19 42.19
2009 Forecast (before
hedging activities) 31.66 33.88 39.31 37.61 35.97
Notes:
(1) Total Company Interest reserves means total working interest and/or
royalty interest share before deducting the amounts attributable to
royalties owned by others.
(2) The methodology used to calculate the new royalties for the net present
value of future net revenue amounts was based on the following criteria:
(i) in the case of heavy oil, a heavy oil par price was used for the
high case and for the low case the light oil par price was used; (ii)
since we do not have a substantial volume of solution gas, application
of the new conventional gas royalty formula on solution gas production
will not be material to our overall net percent value so no changes
were made; and (iii) in the case of deep gas, GLJ assumed that the deep
gas royalty adjustment applies to all existing and future wells in the
high case and for the low case GLJ assumed that the deep gas royalty
adjustment only applies to wells drilled after 2008.
(3) Operating netbacks are equal to revenues less royalties and operating
costs.
Pricing Assumptions
(a) GLJ January 1, 2008 Pricing and Cost Assumptions
As stated in our Annual Information Form.
(b) GLJ April 1, 2008 Pricing and Cost Assumptions
SUMMARY OF FORECAST PRICE AND COST ASSUMPTIONS
GLJ FORECAST AS AT APRIL 1, 2008
OIL
-----------------------------------------------------------
Edmonton Hardisty Cromer
WTI Par Price Heavy Medium
Cushing 40 degrees 12 degrees 29. 3 degrees
Oklahoma API API API
Year ($US/Bbl) ($Cdn/Bbl) ($Cdn/Bbl) ($Cdn/Bbl)
----------------------------------------------------------------------------
Forecast
2008 97.41 96.93 59.04 83.53
2009 90.00 89.10 52.82 76.63
2010 86.00 85.10 50.40 73.19
2011 85.00 84.10 49.80 72.33
2012 85.00 84.10 49.80 72.33
2013 85.00 84.10 50.89 72.33
2014 85.00 84.10 51.98 72.33
2015 86.15 85.25 53.82 73.32
2016 87.87 86.97 56.05 74.79
2017 89.63 88.73 57.21 76.31
2018+ +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr
NATURAL
NATURAL NATURAL GAS
GAS GAS LIQUIDS LIQUIDS
-------------------------------------
AECO Gas Edmonton Edmonton INFLATION EXCHANGE
Price Propane Butane RATES RATE
Year ($Cdn/MMBtu) ($Cdn/Bbl) ($Cdn/Bbl) %/ Year (1) ($US/$Cdn)(2)
----------------------------------------------------------------------------
Forecast
2008 8.11 60.41 78.42 2.0 0.998
2009 8.20 56.13 71.28 2.0 1.000
2010 8.10 53.61 68.08 2.0 1.000
2011 7.95 52.98 67.28 2.0 1.000
2012 8.01 52.98 67.28 2.0 1.000
2013 8.18 52.98 67.28 2.0 1.000
2014 8.36 52.98 67.28 2.0 1.000
2015 8.54 53.71 68.20 2.0 1.000
2016 8.72 54.79 69.58 2.0 1.000
2017 8.91 55.90 70.98 2.0 1.000
2018+ +2.0%/yr +2.0%/yr +2.0%/yr
(c) NuVista April 14, 2008 Market Strip Pricing and Cost Assumptions
SUMMARY OF FORECAST PRICE AND COST ASSUMPTIONS
NUVISTA MARKET STRIP AS AT APRIL 14, 2008
OIL
-----------------------------------------------------------
Edmonton Hardisty Cromer
WTI Par Price Heavy Medium
Cushing 40 degrees 12 degrees 29. 3 degrees
Oklahoma API API API
Year ($US/Bbl) ($Cdn/Bbl) ($Cdn/Bbl) ($Cdn/Bbl)
----------------------------------------------------------------------------
Forecast
2008 110.68 108.99 65.78 93.73
2009 105.93 107.96 64.21 92.85
2010 103.19 105.77 62.89 90.96
2011 102.16 104.91 62.37 90.22
2012 101.79 104.24 61.96 89.65
2013 103.83 106.32 64.60 91.44
2014 105.90 108.45 67.32 93.27
2015 108.02 110.62 70.13 95.13
2016 110.18 112.83 73.02 97.03
2017 112.38 115.09 74.50 98.98
2018 114.63 117.39 75.99 100.96
2019 +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr
NATURAL NATURAL
NATURAL GAS GAS
GAS LIQUIDS LIQUIDS
-------------------------------------
EXCHANGE
AECO Gas Edmonton Edmonton INFLATION RATE
Price Propane Butane RATES ($US/$Cdn)
Year ($Cdn/MMBtu) ($Cdn/Bbl) ($Cdn/Bbl) %/ Year (1) (2)
----------------------------------------------------------------------------
Forecast
2008 9.57 68.66 87.19 2.0 0.980
2009 9.04 68.02 86.37 2.0 0.974
2010 8.53 66.64 84.62 2.0 0.969
2011 8.36 66.09 83.93 2.0 0.967
2012 8.35 65.67 83.39 2.0 0.969
2013 8.52 66.98 85.06 2.0 0.969
2014 8.69 68.32 86.76 2.0 0.969
2015 8.86 69.69 88.50 2.0 0.969
2016 9.04 71.08 90.26 2.0 0.969
2017 9.22 72.51 92.07 2.0 0.969
2018 9.41 73.96 93.91 2.0 0.969
2019 +2.0%/yr +2.0%/yr +2.0%/yr
Notes:
(1) Inflation rate for costs.
(2) Exchange rate used to generate the benchmark reference prices in this
table.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis ("MD&A") of financial conditions and
results of operations should be read in conjunction with NuVista's interim
consolidated financial statements for the three months ended March 31, 2008 and
the audited consolidated financial statements for the year ended December 31,
2007. The following MD&A of financial condition and results of operations was
prepared at and is dated, May 8, 2008. Our audited consolidated financial
statements, Annual Report, Annual Information Form and other disclosure
documents for 2007 are available through our filings on SEDAR at www.sedar.com
or can be obtained from our website at www.nuvistaenergy.com.
Basis of Presentation - The financial data presented below has been prepared in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The
reporting and the measurement currency is the Canadian dollar. For the purpose
of calculating unit costs, natural gas is converted to a barrel of oil
equivalent ("boe") using six thousand cubic feet of natural gas equal to one
barrel of oil unless otherwise stated. In certain circumstances natural gas
liquid volumes have been converted to thousand cubic feet equivalent ("mcfe") on
the basis of one barrel of natural gas liquids to six thousand cubic feet. Boe's
and mcfe's may be misleading, particularly if used in isolation. A conversion
ratio of one barrel to six thousand cubic feet of natural gas is based on an
energy equivalency conversion method primarily applicable at the burner tip and
does not represent a value equivalency at the wellhead.
Forward-Looking Statements - Certain information set forth in this document,
including management's assessment of NuVista's future plans and operations,
contains forward-looking statements which are provided to allow investors to
better understand our business. By their nature, forward-looking statements are
subject to numerous risks and uncertainties, some of which are beyond NuVista's
control, including the impact of general economic conditions, industry
conditions, volatility of commodity prices, currency fluctuations, imprecision
of reserve estimates, environmental risks, competition from other industry
participants, the lack of availability of qualified personnel or management and
services, stock market volatility, changes in environmental regulations, tax
laws and royalties and the ability to access sufficient capital from internal
and external sources. Readers are cautioned that the assumptions used in the
preparation of such information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance should not
be placed on forward-looking statements. NuVista's actual results, performance
or achievement could differ materially from those expressed in, or implied by,
these forward-looking statements, or if any of them do so, what benefits that
NuVista will derive therefrom. NuVista disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
Non-GAAP Measurements - Within MD&A, references are made to terms commonly used
in the oil and natural gas industry. Management uses funds from operations to
analyze operating performance and leverage. Funds from operations as presented,
does not have any standardized meaning prescribed by Canadian GAAP and therefore
it may not be comparable with the calculation of similar measures for other
entities. Funds from operations as presented is not intended to represent
operating cash flow or operating profits for the period nor should it be viewed
as an alternative to cash flow from operating activities, net income or other
measures of financial performance calculated in accordance with Canadian GAAP.
All references to funds from operations throughout this report are based on cash
flow from operating activities before changes in non-cash working capital and
abandonment expenditures. Funds from operations per share is calculated based on
the weighted average number of common shares outstanding consistent with the
calculation of net income per share. Funds from operations netbacks equal total
revenue less royalties, transportation, operating costs, general and
administrative and interest expense and cash taxes. Total boe is calculated by
multiplying the daily production by the number of days in the period.
A reconciliation of funds from operations is presented in the following
table:
----------------------------------------------------------------------------
For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007
----------------------------------------------------------------------------
Cash provided by operating activities 35,166 16,998
Add back:
Asset retirement expenditures 54 310
Change in non-cash working capital 18,214 10,503
----------------------------------------------------------------------------
Funds from operations 53,434 27,811
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in presentation of MD&A disclosure - natural gas liquids - Historically,
in our MD&A disclosures we have combined crude oil volumes and natural gas
liquid volumes, as natural gas liquid volumes have not been significant. With
the Rider Acquisition, Nuvista has significantly increased its production of
natural gas liquids and has determined that it is more appropriate in certain
circumstances to include these volumes with natural gas volumes on a mcfe basis.
Comparative MD&A disclosure has been restated to reflect this change. This
change only impacts the classification of natural gas liquids and does not
impact reported results.
Plan of arrangement with Rider Resources Ltd.
On March 4, 2008, NuVista closed a business combination with Rider Resources
Ltd. ("Rider") (the "Rider Acquisition") and a private placement financing with
the Ontario Teachers' Pension Plan Board ("OTPP"). The Rider Acquisition
resulted in the combination of NuVista and Rider, pursuant to which all of the
issued and outstanding Rider shares were exchanged for common shares of NuVista.
Rider shareholders received, for each Rider share held, 0.3540 of a NuVista
share. The results of operations from the Rider assets have been included
effective March 4, 2008.
In connection with the Rider Acquisition, OTPP subscribed by way of private
placement for 6,000,000 units of NuVista ("Unit") at a price of $14.00 per Unit
for gross proceeds of $84,000,000. Each Unit consists of one NuVista share and
one-half of a warrant of NuVista ("NuVista Warrant"). Each NuVista Warrant
entitles the holder thereof to acquire, subject to adjustment, one NuVista share
for $15.50, prior to March 5, 2009.
Operating activities - For the three months ended March 31, 2008, NuVista
drilled 19 (13.8 net) wells, resulting in 7 natural gas wells, 7 oil wells, and
5 dry holes, for an overall success rate of 74%. NuVista operated 16 of the
wells drilled. During the first quarter, NuVista drilled 6 wells in our
Northwest Saskatchewan core area, 6 wells in our West Central Saskatchewan core
area and 4 gas wells in our Oyen core area. NuVista's exploration and
development activities were lower than the first quarter as of 2007 due to the
Rider Acquisition and the acquisition of heavy oil properties in our Provost
core area totaling approximately $25 million. NuVista expects to drill
approximately 20 wells in the second quarter of 2008.
In 2008, prior to the Rider Acquisition effective date of March 4, 2008, Rider
drilled 9 (8.75 net) wells, resulting in 5 natural gas wells, 3 dry holes and 1
standing well.
Production For the three months ended March 31,
----------------------------------------------------------------------------
2008 2007 % Change
----------------------------------------------------------------------------
Natural gas (mcf/d) 85,498 66,238 29
Liquids (bbls/d) 1,105 208 431
Oil (bbls/d) 3,985 2,162 84
-------------------------------------------------------------
Total oil equivalent (boe/d) 19,339 13,409 44
-------------------------------------------------------------
-------------------------------------------------------------
For the three months ended March 31, 2008 NuVista's average production was
19,339 boe/d, comprised of 85.5 mmcf/d of natural gas, 1,105 bbls/d of natural
gas liquids ("liquids") and 3,985 bbls/d of oil, which represents a 44% increase
over the same period in 2007. The 44% increase is due primarily to the
completion of the Rider Acquisition effective March 4, 2008, the completion of
the acquisition of approximately 650 bbls/d of heavy oil production in our
Provost core effective January 8, 2008 and the success of our drilling program,
offset by normal production declines.
Oil production increased 84% compared to the same period in 2007 primarily due
to increased production in heavy oil production at our Auburndale property and
the acquisition of heavy oil properties in our Provost core area and heavy oil
production in our West Central Saskatchewan core area. Liquids production
increased 431% due to liquids associated with our Fir property and Rider liquids
production. Our oil and liquids production weighting increased to 26% in the
first three months of 2008 compared to 18% for the same period in 2007.
Revenues For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007 % Change
----------------------------------------------------------------------------
Natural gas: $ $/mcf $ $/mcf $ $/mcf
Production revenue 60,898 7.83 44,043 7.39 38 6
Realized gains on
commodity derivatives - - 642 0.11 - -
--------------------------------------------------------------
Total 60,898 7.83 44,685 7.50 36 4
--------------------------------------------------------------
--------------------------------------------------------------
For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007 % Change
----------------------------------------------------------------------------
Oil: $ $/bbl $ $/bbl $ $/bbl
Production revenue 28,350 78.18 9,748 50.10 191 56
Realized gains (losses) on
commodity derivatives (540) (1.49) 145 0.74 (472) (300)
--------------------------------------------------------------
Total 27,810 76.69 9,893 50.84 181 51
--------------------------------------------------------------
--------------------------------------------------------------
For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007 % Change
----------------------------------------------------------------------------
Liquids: $ $/bbl $ $/bbl $ $/bbl
Production revenue 7,816 77.74 1,031 55.22 658 41
--------------------------------------------------------------
Total 7,816 77.74 1,031 55.22 658 41
--------------------------------------------------------------
--------------------------------------------------------------
For the three months ended March 31, 2008, revenues, before transportation costs
were $97.1 million, a 77% increase from $54.8 million, for the same period in
2007. The increase in revenues for the three months ended March 31, 2008
compared to the same period of 2007, is primarily due to the 44% increase in
production. These revenues were comprised of $60.9 million of natural gas
revenue, $7.8 million of liquids revenue, and $28.4 million of oil revenue. The
increase in average realized commodity prices is comprised of a 4% increase in
the natural gas price to $7.83/mcf from $7.50/mcf, an increase of 41% in the
liquids price to $77.74/bbl from $55.22/bbl, and a 51% increase in the oil price
to $76.69/bbl from $50.84/bbl. The increase in the average realized oil price
was due to both an increase in Edmonton par oil prices and a lower heavy oil
differential.
Commodity price risk management
For the three months ended March 31,
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
($ thousands) Realized Unrealized Total Realized Unrealized Total
Gains Gains Gains Gains Gains Gains
(Losses) (Losses) (Losses) (Losses) (Losses) (Losses)
----------------------------------------------------------------------------
Natural gas - (3,884) (3,884) 642 125 767
Oil (540) (5,860) (6,400) 145 (200) (55)
----------------------------------------------------------------------------
Total gains
(losses) (540) (9,744) (10,284) 787 (75) 712
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As part of our financial management strategy, NuVista has adopted a disciplined
commodity price risk management program. The purpose of this program is to
reduce volatility in the financial results, protect acquisition economics and
stabilize cash flow against the unpredictable commodity price environment.
NuVista's Board of Directors has approved a price risk management limit of up to
60% of forecast production, net of royalties, using fixed price and costless
collar contracts. To achieve NuVista's price risk management objectives, we
enter into both commodity derivative and physical sale contracts. NuVista's
Board of Directors has approved an increase to the limit of 60% for the period
April 2008 to October 2008. For this period the Board has approved natural gas
hedges in the amount of 70,000 gj/day.
For the three months ended March 31, 2008, the commodity derivative price risk
management program resulted in a loss of $10.3 million consisting of realized
losses of $0.5 million and unrealized losses of $9.7 million. The gain of $0.7
million for 2007 consisted of $0.8 million of realized gains and $0.1 million of
unrealized losses. The unrealized losses only include losses related to our
financial derivative price risk management program and do not include
mark-to-market losses related to physical sale price risk management activities.
The following is a summary of commodity price risk management contracts in place
as at March 31, 2008:
a) Financial instruments
As at March 31, 2008, NuVista has entered into the following crude oil price
risk management contracts:
Volume Average Price (Cdn$/bbl) Term
----------------------------------------------------------------------------
April 1, 2008 -
500 bbls/d CDN. $66.50 - Bow River December 31, 2008
April 1, 2008 -
1,000 bbls/d CDN. $70.47 - CDN. $90.61 - WTI June 30, 2008
July 1, 2008 -
750 bbls/d CDN. $70.01 - CDN. $86.68 - WTI December 31, 2008
January 1, 2009 -
1,000 bbls/d CDN. $64.00 - Bow River December 31, 2009
As at March 31, 2008, NuVista has entered into the following natural gas
price risk management contracts:
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
April 1, 2008 -
20,000 gj/d CDN. $7.50 - $8.42 - AECO October 31,2008
November 1, 2008 -
5,000 gj/d CDN. $7.50 - $9.25 - AECO March 31,2009
As at March 31, 2008, the mark-to-market value of the financial instruments
was a loss of approximately $11.5 million.
(b) Physical sale contracts
As at March 31, 2008, NuVista has entered into direct sale costless collars
to sell natural gas as follows:
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
April 1, 2008 -
50,000 gj/d CDN. $7.27 - $7.43 - AECO October 31, 2008
November 1, 2008 -
25,000 gj/d CDN. $7.85 - $9.81 - AECO March 31, 2009
Royalties
For the three months ended March 31,
----------------------------------------------------------------------------
Royalty rates (%) 2008 2007
----------------------------------------------------------------------------
Natural gas and liquids 26 29
Oil 14 13
Weighted average rate 23 26
----------------------------------------------------------------------------
Royalties of $22.2 million for the three months ended March 31, 2008 were 54%
higher than the $14.4 million for the same period of 2007. The increase in
royalties for the three months ended March 31, 2008 resulted from revenues that
were 77% higher compared to the same period of 2007. Royalty rates by product
for the three months ended March 31, 2008 were 26% for natural gas and liquids
and 14% for oil compared to 29% for natural gas and 13% for oil and liquids for
the same period in 2007.
Netbacks - The following table summarizes field netbacks by product for the
three months ended March 31, 2008:
Natural gas
and liquids Oil Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
92,127 mmcfe/d 3,985 bbls/d 19,339 boe/d
----------------------------------------------------------------------------
($ thousands) $ $/mcfe $ $/bbl $ $/boe
----------------------------------------------------------------------------
Production revenue 68,714 8.20 28,350 78.18 97,064 55.16
Realized losses on
commodity derivatives - - (540) (1.49) (540) (0.31)
----------------------------------------------------------------------------
68,714 8.20 27,810 76.69 96,524 54.85
Royalties (18,171) (2.17) (4,056) (11.18) (22,227) (12.63)
Transportation costs (940) (0.11) (500) (1.38) (1,440) (0.82)
Operating expenses (9,599) (1.14) (3,818) (10.53) (13,417) (7.62)
----------------------------------------------------------------------------
Field netbacks 40,004 4.78 19,436 53.60 59,440 33.78
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes funds from operations netbacks for the three
months ended March 31, 2008, compared to the three months ended March 31, 2007:
For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007 % Change
----------------------------------------------------------------------------
$ $/boe $ $/boe $ $/boe
Production revenues 97,064 55.16 54,822 45.43 77 21
Realized gains
(losses) on commodity (540) (0.31) 787 0.65 (169) (147)
derivatives
----------------------------------------------------------------------------
96,524 54.85 55,609 46.08 74 19
Royalties (22,227) (12.63) (14,420) (11.95) 54 6
Transportation costs (1,440) (0.82) (1,084) (0.90) 33 (9)
Operating costs (13,417) (7.62) (9,223) (7.64) 45 -
----------------------------------------------------------------------------
Field netbacks 59,440 33.78 30,882 25.59 92 32
General and
administrative (2,205) (1.25) (1,065) (0.88) 107 42
Restricted stock units (254) (0.14) - - - -
Interest (3,547) (2.02) (2,006) (1.66) 77 22
----------------------------------------------------------------------------
Funds from operations
netbacks 53,434 30.37 27,811 23.05 92 32
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Field netbacks for the three months ended March 31, 2008 increased 32% to
$33.78/boe from $25.59/boe compared to the same period in 2007. This increase
was primarily due to higher realized oil prices and the increased weighting of
oil production in our production mix.
Transportation - For the three months ended March 31, 2008, transportation costs
were $1.4 million ($0.82/boe) compared to $1.1 million ($0.90/boe) for the same
period in 2007. The increase in transportation costs in 2008 compared to 2007 is
primarily due to the 44% increase in production volumes.
Operating - Operating expenses were $13.4 million for the three months ended
March 31, 2008 compared to $9.2 million for the same period in 2007, an increase
of 45%. This increase resulted from 44% higher production volumes offset by a
slight decrease in per unit costs in 2008 compared to 2007. For the three months
ended March 31, 2008, natural gas and liquids operating expenses averaged
$1.14/mcfe and oil operating expenses were $10.53/bbl compared to $1.01/mcfe and
$15.84/bbl respectively for the same period of 2007. On a boe basis, operating
costs decreased slightly to $7.62/boe for the year ended March 31, 2008 as
compared to $7.64/boe for the same period of 2007. Operating costs are typically
higher in the first quarter of the year due to weather related costs. NuVista is
forecasting 2008 operating costs to average approximately $7.50/boe.
General and administrative - General and administrative expenses, net of
overhead recoveries, for the three months ended March 31, 2008 were $2.2 million
($1.25/boe), an increase of 107% over the $1.1 million ($0.88/boe) for the same
period in 2007. This increase is primarily attributable to the higher production
base in NuVista and increased staffing levels. General and administrative
expenses increased on a boe basis due to increased compensation related costs
and general cost increases experienced by the energy industry.
For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007
----------------------------------------------------------------------------
Gross general and administrative expenses 3,827 2,466
Overhead recoveries (1,622) (1,401)
----------------------------------------------------------------------------
Net general and administrative expenses 2,205 1,065
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per boe $ 1.25 $ 0.88
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock-based compensation - NuVista recorded a stock-based compensation charge of
$1.3 million for the three months ended March 31, 2008 compared to $0.7 million
for the same period in 2007. The increase in the expense in 2008 relates
primarily to stock options granted in the year and the increase in the
cumulative number of stock options outstanding, and the institution of the
Restricted Stock Unit ("RSU") Incentive Plan. NuVista's Board of Directors
approved a RSU Incentive Plan in January, 2008. Each RSU entitles participants
to receive cash equal to the market value of the equivalent number of shares of
NuVista. The RSU's become payable as they vest, typically over three years. For
the three months ended March 31, 2008, the RSU related stock-based compensation
expense was $0.3 million.
Interest - Interest expense for the three months ended March 31, 2008 was $3.5
million ($2.02/boe) compared to $2.0 million ($1.66/boe) for the same period of
2007, primarily due to higher average debt levels associated with the Rider
Acquisition. Cash paid for interest during the three months ended March 31, 2008
was $2.2 million compared to $2.0 million for the same period in 2007.
Currently, NuVista's borrowing rate is 5%.
Depreciation, depletion and accretion - Depreciation, depletion and accretion
expenses for the three months ended March 31, 2008, were $32.7 million, an
increase of 68% over the $19.4 million for the three months ended March, 31,
2007. This increase is attributable to a 44% increase in production volumes and
higher per unit costs. The average cost per unit was $18.58/boe for the three
months ended March 31, 2008 compared to $16.11/boe in the same period in 2007.
Per unit costs have increased in the first quarter of 2008 compared to the same
period in 2007, due to the cost of the Rider acquisition completed in March 2008
coupled with higher industry exploration and development costs.
Income taxes - For the three months ended March 31, 2008 income taxes were $2.8
million as compared to $2.7 million for the same period in 2007. This increase
reflects higher earnings that were partially offset by lower corporate tax
rates. The effective tax rate for the three months ended March 31, 2008 was 28%
compared to 33% in the same period of 2007.
Capital expenditures - Capital expenditures were $50.9 million for the three
months ended March 31, 2008 consisting of exploration and development spending
of $25.2 million and $25.7 million of acquisitions. This compares to $35.9
million spent on exploration and development activities for the three months
ended March 31, 2007. 2008 acquisitions included the purchase of properties in
our Provost core area.
For the three months ended March 31,
----------------------------------------------------------------------------
($ thousands) 2008 2007
----------------------------------------------------------------------------
Exploration and development:
Land and retention costs 672 1,888
Seismic 2,601 5,572
Drilling and completion 11,712 17,877
Facilities and equipment 10,108 10,229
Corporate and other 152 382
----------------------------------------------------------------------------
Subtotal 25,245 35,948
Acquisitions:
Property(1) 25,663 -
----------------------------------------------------------------------------
Subtotal 25,663 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capital expenditures 50,908 35,948
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate acquisition - non-cash 594,944 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes a $2.6 million deposit paid in the fourth quarter of 2007
Funds from operations and net earnings - For the three months ended March 31,
2008, NuVista's funds from operations were $53.4 million ($0.88/share, basic), a
92% increase from $27.8 million ($0.57/share, basic) for the three months ended
March 31, 2007. Funds from operations for the three months ended March 31, 2008
were higher than the same period in 2007 primarily due to the acquisition of
Rider and higher commodity prices.
For the three months ended March 31, 2008, net earnings increased 48% to $7.1
million ($0.12/share, basic) from $4.8 million ($0.10 share, basic) for the same
period in 2007. 2008 net earnings were higher when compared to 2007 net earnings
due to the acquisition of Rider and higher commodity prices as well higher
depletion, depreciation and accretion costs and unrealized losses on commodity
derivatives.
Liquidity and capital resources - As at March 31, 2008, bank debt (including
working capital) was $423.2 million, resulting in a debt to annualized first
quarter funds from operations ratio of 1.98:1. At March 31, 2008, NuVista had a
working capital deficiency of $7.9 million. This deficiency is due to increased
accounts payable and accrued liabilities and will be funded through available
bank lines. At March 31, 2008, NuVista had approximately $35 million of unused
bank borrowing capability based on the current line of credit of $450 million.
On March 4, 2008, NuVista completed the business combination with Rider and the
private placement of units for proceeds of $84.0 million. On March 5, 2008,
Nuvista repaid the US $99.5 million second lien term loan that Rider had
outstanding with bank borrowings. NuVista also terminated the cross-currency
interest swap related to the second lien term loan.
NuVista anticipates that 2008 funds from operations will provide NuVista with
the flexibility to fund its planned 2008 capital program and provide for debt
reduction. NuVista is targeting a year end 2008 debt to annualized fourth
quarter funds from operations of less than 1.0 times. NuVista's capital program
and debt reduction targets will be monitored and adjusted based on the outlook
for commodity prices and funds from operations.
As at March 31, 2008, there were 78.7 million common shares and 3.0 million
common share purchase warrants outstanding. In addition, there were 5.6 million
stock options outstanding, with an average exercise price of $14.07 per share.
Subsequent events
(a) Commodity price risk management
Subsequent to March 31, 2008, the following commodity contracts have been
entered into:
(i) Financial instruments - natural gas
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
November 1, 2008 -
5,000 gj/d CDN. $7.50 - $9.25 - AECO March 31,2009
(ii) Physical sale contracts - natural gas
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
November 1, 2008 -
10,000 gj/d CDN. $9.25 - $11.50 - AECO March 31,2009
(b) Office lease
In April 2008, the Company entered into a 4.5 year lease commitment for office
space in downtown Calgary. The offices of NuVista and Rider will both relocate
to this new office space in June 2008. Annual lease obligations are estimated to
be $2.1 million per year. The lease expires in October 2012.
Related party activities - In 2003, as part of the Plan of Arrangement with
Bonavista Petroleum Ltd. ("Bonavista"), NuVista entered into a Technical
Services Agreement ("TSA"). Under the TSA, Bonavista received payment for
certain services provided by it to NuVista. Effective January 1, 2007, the terms
of the TSA were amended to reflect the reduced level of services provided by
Bonavista. On August 31, 2007, the TSA was terminated and replaced with a new
services agreement that reflects the remaining ongoing services that will be
provided by Bonavista. NuVista and Bonavista are considered related as two
directors of NuVista, one of whom is NuVista's chairman, are also directors and
officers of Bonavista and a director and an officer of NuVista are also officers
of Bonavista. For the three months ending March 31, 2008, NuVista paid Bonavista
$0.4 million (2007 - $0.3 million) in fees relating to general and
administrative services provided by Bonavista. In 2008, NuVista charged
Bonavista management fees for jointly owned partnerships totaling $0.3 million
(2007 - $0.3 million). In addition, during, in the first quarter of 2008,
Bonavista charged NuVista $8,500 (2007 - $62,500) for costs that are outside of
the new services agreement relating to NuVista's share of direct charges from
third parties. As at March 31, 2008, the amount receivable from Bonavista was
$5.6 million.
Contractual obligations and commitments - NuVista enters into many contractual
obligations as part of conducting day-to-day business. As NuVista continues to
spend money as part of its capital program we will draw on our bank facility and
will have the related contractual obligation. In the event that NuVista's credit
facility is not extended at any time before the maturity date, the loan balance
of $415.3 million will become payable on the maturity date which is March 4,
2010.
Quarterly financial information - The following table highlights NuVista's
performance for the eight quarterly reporting periods from June 30, 2006 to
March 31, 2008:
2008 2007 2006
----------------------------------------------------------------------------
March December September June March December September June
31 31 30 30 31 31 30 30
----------------------------------------------------------------------------
Production
(boe/d) 19,339 14,251 13,590 14,147 13,409 12,612 12,577 11,357
($ thousands,
except per
share
amounts)
Production
revenue 97,064 53,790 48,138 56,832 54,822 49,195 47,530 45,375
Net
earnings 7,150 11,063 754 9,678 4,832 5,765 4,082 15,986
Net
earnings
per share:
Basic 0.12 0.21 0.01 0.19 0.10 0.12 0.08 0.33
Diluted 0.12 0.21 0.01 0.18 0.10 0.12 0.08 0.32
----------------------------------------------------------------------------
NuVista has seen growth in quarterly production volumes over the prior eight
quarters except for a slight decline experienced in the quarter ended September
30, 2007. This decline was primarily due to plant turnarounds that occured
during the summer months. Over the prior eight quarters, quarterly revenue has
been in a range of $45 million to $97 million with revenue influenced by
production volumes and natural gas prices in the quarter. Production volumes and
revenues increased significantly in the quarter ended March 31, 2008 primarily
due to increased production volumes associated with the Rider Acquisition. Net
earnings have been in a range of $1 million to $16 million primarily influenced
by production volumes and natural gas prices but also higher operating costs,
depletion, depreciation and accretion and unrealized losses on commodity
derivatives. Net earnings were higher in the second quarters of 2006 and 2007,
and the fourth quarter of 2007 due to the recognition of reductions in corporate
income tax rates.
Critical accounting estimates - The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles.
Certain accounting policies are critical to understanding the financial
condition and results of operations of NuVista.
(a) Proved oil and natural gas reserves - Proved oil and natural gas reserves,
as defined by the Canadian Securities Administrators in National Instrument
51-101 with reference to the Canadian Oil and Natural Gas Evaluation Handbook,
are those reserves that can be estimated with a high degree of certainty to be
recoverable. It is likely that the actual remaining quantities recovered will
exceed the estimated proved reserves.
An independent reserve evaluator using all available geological and reservoir
data as well as historical production data has prepared NuVista's oil and
natural gas reserve estimates. Estimates are reviewed and revised as
appropriate. Revisions occur as a result of changes in prices, costs, fiscal
regimes, reservoir performance or a change in the Company's development plans.
The effect of changes in proved oil and natural gas reserves on the financial
results and position of the Company is described below.
(b) Depreciation and depletion expense - NuVista uses the full cost method of
accounting for exploration and development activities whereby all costs
associated with these activities are capitalized, whether successful or not. The
aggregate of capitalized costs, net of certain costs related to unproved
properties, and estimated future development costs is amortized using the
unit-of-production method based on estimated proved reserves. Changes in
estimated proved reserves or future development costs have a direct impact on
depreciation and depletion expense.
Certain costs related to unproved properties and major development projects may
be excluded from costs subject to depletion until proved reserves have been
determined or their value is impaired. These properties are reviewed quarterly
to determine if proved reserves should be assigned, at which point they would be
included in the depletion calculation, or for impairment, for which any
writedown would be charged to depreciation and depletion expense.
(c) Full cost accounting ceiling test - The carrying value of property, plant
and equipment is reviewed at least annually for impairment. Impairment occurs
when the carrying value of the assets is not recoverable by the future
undiscounted cash flows. The cost recovery ceiling test is based on estimates of
proved reserves, production rates, petroleum and natural gas prices, future
costs and other relevant assumptions. By their nature, these estimates are
subject to measurement uncertainty and the impact on the financial statements
could be material. Any impairment would be charged as additional depletion and
depreciation expense.
(d) Asset retirement obligation - The asset retirement obligations are estimated
based on existing laws, contracts or other policies. The fair value of the
obligation is based on estimated future costs for abandonments and reclamations
discounted at a credit adjusted risk free rate. The costs are included in
property, plant and equipment and amortized over its useful life. The liability
is adjusted each reporting period to reflect the passage of time, with the
accretion charged to earnings and for revisions to the estimated future cash
flows. By their nature, these estimates are subject to measurement uncertainty
and the impact on the financial statements could be material.
(e) Income taxes - The determination of income and other tax liabilities
requires interpretation of complex laws and regulations often involving multiple
jurisdictions. All tax filings are subject to audit and potential reassessment
after the lapse of considerable time. Accordingly, the actual income tax
liability may differ significantly from that estimated and recorded.
Update on regulatory matters
(a) On October 25, 2007, the Government of Alberta announced the New Alberta
Royalty Framework ("NRF") which proposes changes to the current royalty regime
in Alberta effective January 1, 2009. The proposed NRF includes new royalty
formulas for conventional oil and natural gas that will operate on sliding
scales that are determined by commodity prices and well productivity. On April
10, 2008, the Government of Alberta provided some further clarification on the
NRF and introduced two new royalty programs related to the development of deep
oil and natural gas reserves. Substantial legislative, regulatory and systems
updates will be introduced before the changes become fully effective in 2009.
NuVista continues to monitor the impact of the NRF on its business plan and does
not expect a significant impact at this time.
(b) On April 18, 2008, the Canadian Securities Administrators published the
notice and request for comments for the proposed repeal and replacement of
Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual
and Interim Filings. The proposed changes would include the requirement to
provide certification of the effectiveness of internal controls over financial
reporting for years ending after December 15, 2008.
Update on financial reporting matters
(a) Capital disclosures - Effective January 1, 2008, the Company adopted the new
CICA accounting standard Section 1535, Capital Disclosures. Section 1535
specifies the disclosure of an entity's objectives, policies and processes for
managing capital, quantitative data about what it manages as capital, any
externally imposed capital requirements, and the consequences of non-compliance.
Refer to note 7 of the consolidated financial statements.
(b) Financial instruments - Effective January 1, 2008, the Company adopted the
new CICA accounting standard Section 3862, Financial Instruments Disclosures and
Section 3863, Financial Instrument Presentation. These Sections require the
Company to increase disclosure on the nature, extent and risk arising from the
financial instruments and how the entity manages those risks. Refer to note 8 of
the consolidated financial statements.
(c) Goodwill - The CICA issued the new accounting standard; Section 3064
Goodwill and Intangible Assets replacing Section 3062, Goodwill and Other
Intangible Assets. This new Section will be effective on January 1, 2009. This
Section applies to goodwill subsequent to initial recognition and establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill and intangible assets. This new standard is not expected to have a
material impact on NuVista's consolidated financial statements.
(d) International financial reporting standards ("IFRS") - In February 2008, the
Canadian Accounting Standards Board confirmed January 1, 2011 as the effective
date for the requirement to report under IFRS with comparative periods 2010
converted as well. Canadian generally accepted accounting principles as we
currently know them, will cease to exist for all publicly reporting entities.
Currently, the application of IFRS to the oil and gas industry in Canada
requires considerable clarification. The Canadian Securities Administrators are
in the process of examining changes to securities rules as a result of this
initiative. We have not yet determined the effect of IFRS on our accounting
policies and reporting standards.
Internal control reporting
NuVista's President and Chief Executive Officer ("CEO") and Vice President,
Finance and Chief Financial Officer ("CFO") are responsible for establishing and
maintaining disclosure controls and procedures and internal controls over
financial reporting as defined in Multilateral Instrument 52-109. NuVista's CEO
and CFO have designed disclosure controls and procedures, or caused them to be
designed under their supervision, to provide reasonable assurance that
information to be disclosed by NuVista is accumulated and communicated to
management as appropriate to allow timely decisions regarding required
disclosure. The CEO and CFO have also designed internal controls over financial
reporting, or caused them to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. During the quarter ended March 31,
2008 there have been no changes to NuVista's internal controls over financial
reporting that have materially, or are reasonably likely to, materially affect
the internal controls over financial reporting. During the quarter, management
began to integrate Rider's internal controls over financial reporting into
NuVista's internal control environment.
Because of their inherent limitations, disclosure controls and procedures and
internal controls over financial reporting may not prevent or detect
misstatements, error or fraud. Control systems, no matter how well conceived or
operated, can provide only reasonable, not absolute assurance, that the
objectives of the control system are met.
Assessment of business risks
The following are the primary risks associated with the business of NuVista.
These risks are similar to those affecting others in the conventional oil and
natural gas sector. NuVista's financial position and results of operations are
directly impacted by these factors:
Operational risk associated with the production of oil and natural gas:
- Reserve risk with respect to the quantity and quality of recoverable reserves;
- Market risk relating to the availability of transportation systems to move the
product to market;
- Commodity risk as crude oil and natural gas prices fluctuate due to market forces;
- Financial risk such as volatility of the Canadian/US dollar exchange rate,
interest rates and debt service obligations;
- Environmental and safety risk associated with well operations and production
facilities;
- Changing government regulations relating to royalty legislation, income tax
laws, incentive programs, operating practices and environmental protection
relating to the oil and natural gas industry; and
- Continued participation of NuVista's lenders.
NuVista seeks to mitigate these risks by:
- Acquiring properties with established production trends to reduce technical
uncertainty as well as undeveloped land with development potential;
- Maintaining a low cost structure to maximize product netbacks and reduce
impact of commodity price cycles;
- Diversifying properties to mitigate individual property and well risk;
- Maintaining product mix to balance exposure to commodity prices;
- Conducting rigorous reviews of all property acquisitions;
- Monitoring pricing trends and developing a mix of contractual arrangements for
the marketing of products with creditworthy counterparties;
- Maintaining a hedging program to hedge commodity prices and foreign exchange
currency rates with creditworthy counterparties;
- Ensuring strong third-party operators for non-operated properties;
- Adhering to NuVista's safety program and keeping abreast of current operating
best practices;
- Keeping informed of proposed changes in regulations and laws to properly
respond to and plan for the effects that these changes may have on our
operations;
- Carrying industry standard insurance to cover losses; and
- Establishing and maintaining adequate cash resources to fund future
abandonment and site restoration costs.
OUTLOOK
NuVista continues to believe in the long term favourable outlook for natural gas
prices due to the improving supply and demand fundamentals and the relative
valuation of natural gas compared to crude oil, although this will be offset by
higher royalties in 2009 and beyond. The current market strip pricing, should it
materialize, will result in an increase of 40% to 50% in funds from operations
netbacks in 2009, compared to 2007, even after giving effect to the NRF.
The completion of the business combination with Rider on March 4, 2008 creates a
premium intermediate natural gas focused company with a track record of meeting
expectations, prudent capital management and profitable per share growth.
NuVista will continue to employ the same disciplined approach to its business in
2008 as it has over the past four and one half years. With the successful
integration of the Rider assets, NuVista now has eight core areas with shallow
natural gas, deep natural gas and heavy oil and high working interest
multi-horizon opportunities. NuVista will continue to pursue growth through its
exploration and development program and complementary acquisitions that meet its
criteria.
For 2008, NuVista's Board of Directors has approved a capital program, in
addition to the business combination with Rider, ranging from $155 million to
$175 million. With the recent increase in commodity prices, the acquisition
market has become increasingly competitive. As a result, NuVista has reallocated
the remaining $30 million of acquisition capital budgeted for 2008 to
exploration and development activities, increasing exploration and development
capital by approximately 25%. For the balance of 2008, the exploration and
development program will see the Company participating in 20 wells in the W5/6M
core region and over 100 wells in the W3/4M core region. In light of the current
commodity price environment and increased financial flexibility in its business
model, NuVista may consider expanding its capital program.
NuVista's financial and operating results for 2008 include the business
combination of Rider effective March 4, 2008. NuVista is currently forecasting
2008 average production of 24,300 boe/d to 24,800 boe/d and is forecasting
combined production of 26,500 boe/d for the remainder of the year. Production
for the second quarter of 2008 will be reduced by approximately 1,000 boe/d due
to known scheduled turnarounds in June at the Wapiti and Nordegg facilities.
Based on current commodity price assumptions of CDN $8.90/mcf AECO for natural
gas and US $105.00/bbl for WTI, and incorporating price risk management
contracts, NuVista is forecasting funds from operations of $290 million to $310
million for 2008 ($3.90/share to $4.15/share). NuVista is targeting operating
costs to average approximately $7.50/boe. With the increase in natural gas
prices and funds from operations, and lower capital expenditures during spring
break-up, NuVista forecasts absolute debt levels to decrease throughout the
remainder of 2008. NuVista is forecasting to exit 2008 with a year end ratio of
debt to fourth quarter annualized funds from operation of less than 1.0:1.
The results are due to a team effort and NuVista wants to express its
appreciation for the extraordinary commitment received from the entire NuVista
team. NuVista will continue to focus on its core strategy of cost control and
applying the expertise of its technical staff to its current operating regions,
through both the exploration and development program and strategic acquisitions.
The execution of these strategies will enable NuVista to continue to grow its
production and funds from operations on a per share basis consistently and
profitably. NuVista has the team, land base and prospect generation ability to
continue to create value for shareholders. The Company is poised for continued
growth and is well positioned to post strong operational and financial results
for the balance of 2008 and beyond. NuVista remains unwavering in its commitment
to enhance shareholder value over the long-term in a diligent and prudent manner
by accessing the broad depth and expertise of its team.
Sincerely,
Alex G. Verge Robert F. Froese
President & CEO Vice-President, Finance & CFO
May 8, 2008
Consolidated Balance Sheets
($ thousands) March 31, December 31,
2008 2007
----------------------------------------------------------------------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 885 $ -
Accounts receivable and prepaids 66,877 30,463
----------------------------------------------------------------------------
67,762 30,463
Oil and natural gas properties and
equipment 1,212,684 598,263
Goodwill 75,225 54,439
----------------------------------------------------------------------------
$ 1,355,671 $ 683,165
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 64,208 $ 31,972
Commodity derivative financial
instruments (note 8) 11,473 1,704
----------------------------------------------------------------------------
75,681 33,676
Bank loan (note 5) 415,289 177,109
Other liabilities (note 6) 174 -
Asset retirement obligations (note 4) 38,256 26,574
Future income taxes 106,238 75,514
Shareholders' equity
Share capital (note 6) 578,337 240,245
Warrants (note 6) 3,454 -
Contributed surplus (note 6) 6,029 4,967
Accumulated other comprehensive
income (note 6) - 17
Retained earnings 132,213 125,063
----------------------------------------------------------------------------
Subsequent events (note 11) 720,033 370,292
----------------------------------------------------------------------------
$ 1,355,671 $ 683,165
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings and Retained Earnings
($ thousands, except per share amounts) Three Months ended March 31,
2008 2007
----------------------------------------------------------------------------
(unaudited)
Revenues
Production $ 97,064 $ 54,822
Royalties (22,227) (14,420)
Realized and unrealized gains (losses) on
commodity derivatives (note 8) (10,284) 712
----------------------------------------------------------------------------
64,553 41,114
----------------------------------------------------------------------------
Expenses
Operating 13,417 9,223
Transportation 1,440 1,084
General and administrative 2,205 1,065
Interest 3,547 2,006
Stock-based compensation (note 6) 1,259 724
Depreciation, depletion and accretion 32,701 19,439
----------------------------------------------------------------------------
54,569 33,541
----------------------------------------------------------------------------
Earnings before income and other taxes 9,984 7,573
Future income taxes 2,834 2,741
----------------------------------------------------------------------------
Net earnings 7,150 4,832
Other comprehensive income
Amortization of fair value of financial
instruments (note 6) (17) -
----------------------------------------------------------------------------
Comprehensive income 7,133 4,832
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, beginning of period 125,063 98,736
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained earnings, end of period $ 132,213 $ 103,568
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share -- basic $ 0.12 $ 0.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings per share -- diluted $ 0.12 $ 0.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
($ thousands) Three Months ended March 31,
2008 2007
----------------------------------------------------------------------------
(unaudited)
Cash provided by (used in)
Operating Activities
Net earnings $ 7,150 $ 4,832
Items not requiring cash from operations
Depreciation, depletion and accretion 32,701 19,439
Stock-based compensation 1,005 724
Unrealized losses on commodity
derivatives (note 8) 9,744 75
Future income taxes 2,834 2,741
Asset retirement expenditures (54) (310)
Decrease (increase) in non-cash working
capital items (18,214) (10,503)
----------------------------------------------------------------------------
35,166 16,998
----------------------------------------------------------------------------
Financing Activities
Issue of share capital and warrants, net of
share issuance costs 84,814 710
Increase in long-term debt 236,134 20,381
Repayment of long-term debt (303,538) -
----------------------------------------------------------------------------
17,410 21,091
----------------------------------------------------------------------------
Investing Activities
Oil and natural gas properties and equipment (25,238) (35,709)
Transaction costs on Rider acquisition (4,130) -
Property acquisition (23,063) -
Deposit on capital acquisition - (3,608)
Decrease (increase) in non-cash working
capital items 740 1,228
----------------------------------------------------------------------------
(51,691) (38,089)
----------------------------------------------------------------------------
Change in cash and cash equivalents 885 -
Cash and cash equivalents,
beginning of period - -
----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 885 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
NUVISTA ENERGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2008.
The unaudited consolidated financial statements of NuVista Energy Ltd.
("Nuvista" or "the Company") have been prepared by management in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"), using the same
accounting policies as those set out in note 1 to the consolidated financial
statements for the year ended December 31, 2007, except as noted below. The
consolidated financial statements for the three months ended March 31, 2008
should be read in conjunction with the consolidated financial statements for the
year ended December 31, 2007. Certain amounts have been reclassified to conform
with the current year's presentation. All tabular amounts are in thousands,
except per share amounts unless otherwise stated.
1. Adoption of new accounting policies
(a) Capital disclosures
Effective January 1, 2008, the Company adopted the new CICA accounting standard
Section 1535, Capital Disclosures. Section 1535 specifies the disclosure of an
entity's objectives, policies and processes for managing capital, quantitative
data about what it manages as capital, any externally imposed capital
requirements, and the consequences of non-compliance. Refer to note 7, Capital
risk management.
(a) Financial instruments
Effective January 1, 2008, the Company adopted the new CICA accounting standard
Section 3862, Financial Instruments Disclosures and Section 3863, Financial
Instrument Presentation. These Sections require the Company to increase
disclosure on the nature, extent and risk arising from the financial instruments
and how the entity manages those risks. Refer to note 8, Risk management
activities.
(c) Restricted stock units
The Company has established a Restricted Stock Unit ("RSU") Incentive Plan for
employees, and officers. Compensation expense associated with the RSU is
determined based on the intrinsic value, considered to be the market value, at
each reporting period which is recognized in earnings over the vesting period
with a corresponding increase or decrease in liabilities.
2. Future accounting changes
(a) The CICA issued the new accounting standard, Section 3064 Goodwill and
Intangible Assets replacing Section 3062, Goodwill and Other Intangible Assets.
This new Section will be effective on January 1, 2009. This Section applies to
goodwill subsequent to initial recognition and establishes standards for the
recognition, measurement, presentation and disclosure of goodwill and intangible
assets. This new standard is not expected to have a material impact on the
Company's consolidated financial statements.
(b) International Financial Reporting Standards
In February 2008, the Canadian Accounting Standards Board confirmed January 1,
2011 as the effective date for the requirement to report under International
Financial Reporting Standards ("IFRS") with comparative 2010 periods converted
as well. Canadian generally accepted accounting principles as we currently know
them, will cease to exist for all public reporting entities. Currently, the
application of IFRS to the oil and gas industry in Canada requires considerable
clarification. The Canadian Securities Administrators are in the process of
examining changes to securities rules as a result of this initiative. The
Company has not yet determined the effect of IRFS on accounting policies and
reporting standards.
3. Acquisitions
Business combination
In March 2008, the Company completed the acquisition of all of the issued and
outstanding common shares of Rider Resources Ltd. ("Rider") for net
consideration of $260.3 million. The purchase price was based on Rider
shareholders receiving 0.3540 common shares of the Company
for each Rider share owned. The Company issued approximately 19.8 million common
shares in exchange for 56.0 million common shares of Rider. The acquisition was
accounted for using the purchase method. Operating results for Rider have been
consolidated with the results of the Company effective from March 4, 2008, the
date of acquisition. The preliminary allocation of the net purchase price is
subject to change as actual amounts are determined. The preliminary allocation
of the net purchase price to assets acquired and liabilities assumed based on
their fair values was as follows:
Amount
----------------------------------------------------------------------------
Purchase price:
19.8 million NuVista common shares issued $ 256,195
Transaction costs 4,130
----------------------------------------------------------------------------
260,325
----------------------------------------------------------------------------
Allocation of purchase price:
Property, plant and equipment 594,944
Working capital (deficiency) (10,803)
Bank loan (288,901)
Financial instrument (19,251)
Asset retirement obligation (8,505)
Future income taxes (27,945)
Goodwill 20,786
----------------------------------------------------------------------------
$ 260,325
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. Asset retirement obligations
Total asset retirement obligations are based on estimated costs to reclaim and
abandon ownership interests in oil and natural gas assets including well sites,
gathering systems and processing facilities. At March 31, 2008, the estimated
total undiscounted amount of cash flows required to settle its asset retirement
obligations is $148.5 million (2007 - $127.4 million), which will be incurred
over the next 51 years. The majority of the costs will be incurred between 2010
and 2036. A credit-adjusted risk-free rate of 8% (2007 - 8%) and an inflation
rate of 2% (2007 - 2%) were used to calculate the fair value of the asset
retirement obligations.
A reconciliation of the asset retirement obligations is provided below:
March 31, 2008 2007
----------------------------------------------------------------------------
Balance, beginning of period $ 26,574 $ 22,683
Accretion expense 551 438
Liabilities incurred 2,680 828
Liabilities acquired (see note 3) 8,505 -
Liabilities settled (54) (310)
----------------------------------------------------------------------------
Balance, end of period $ 38,256 $ 23,639
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Bank loan
On March 4, 2008, the Company increased the revolving credit facility to $450
million (2007 - $210 million). Borrowing under the credit facility may be made
by prime loans, bankers' acceptances and/or US libor advances. These advances
bear interest at the bank's prime rate and/or at money market rates plus a
stamping fee. The credit facility is secured by a first floating charge
debenture, general assignment of book debts and the Company's oil and natural
gas properties and equipment. The credit facility is subject to an annual review
by the lenders, at which time a lender can request conversion to a term loan for
one year. Under the term period, no principal payments would be required until
March 4, 2010. As such, this credit facility is classified as a long-term
liability. Cash paid for interest was $2.2 million for the three months ended
March 31, 2008 (2007 - $2.0 million).
6. Share capital
(a) Authorized
Unlimited number of voting Common Shares and 1,200,000 Class B Performance
Shares.
(b) Common shares issued
Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 52,704 $ 240,245
Issued for cash 6,000 80,546
Issued on Rider acquisition 19,844 256,195
Exercise of stock options 131 1,324
Stock-based compensation - 337
Cost associated with shares issued, net of future
tax benefit of $199 - (310)
----------------------------------------------------------------------------
Balance, March 31, 2008 78,679 $ 578,337
----------------------------------------------------------------------------
----------------------------------------------------------------------------
On March 4, 2008, the Company issued 6.0 million units of NuVista ("Unit")
at a price of $14.00 per Unit for gross proceeds of $84.0 million by way of
a private placement. Each Unit consists of one common share and one-half of
a warrant.
(c) Warrants
Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 - $ -
Issued 3,000 3,454
----------------------------------------------------------------------------
Balance, March 31, 2008 3,000 $ 3,454
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At March 31, 2008, there were 3.0 million common share purchase warrants
outstanding. Each warrant entitles the holder thereof to acquire, subject to
adjustment, one common share for $15.50, prior to March 4, 2009. The Company has
estimated a fair value of $3,454,000 for the Warrants using a Black - Scholes
pricing model. The pricing model used the following parameters: a risk free
interest rate of 3.76%; an expected life of 1 year; and a volatility of 30%.
(d) Contributed surplus
Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 $ 4,967
Stock-based compensation 1,399
Exercise of stock options (337)
----------------------------------------------------------------------------
Balance, March 31, 2008 $ 6,029
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(e) Accumulated other comprehensive income
Amount
----------------------------------------------------------------------------
Balance, December 31, 2007 $ 17
Reclassification to net earnings during the period,
net of tax of $8 (17)
----------------------------------------------------------------------------
Balance, March 31, 2008 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(f) Per share amounts
During the three months ended March 31, 2008, there were 60,677,847 (2007 -
49,022,746) weighted average shares outstanding. On a diluted basis, there were
61,137,409 (2007 - 49,799,168) weighted average shares outstanding after giving
effect for dilutive stock options. The number of anti-dilutive options totaled
2,187,664 at March 31, 2008 (2007 - 1,882,917). In addition, there were 3.0
million warrants outstanding at March 31, 2008 which were anti-dilutive.
(g) Stock options
The Company has established a stock option plan whereby officers, directors,
employees and service providers may be granted options to purchase common
shares. Options granted vest at the rate of 25% per year and expire two years
after the date of vesting to a maximum term of six years. The total stock
options outstanding plus the Class B Performance Shares cannot exceed 10% of the
outstanding common shares. The summary of stock options transactions for the
three months ended March 31, 2008 and 2007 is as follows:
2008 2007
----------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
----------------------------------------------------------------------------
Outstanding, beginning of period 4,046,400 $ 13.46 3,653,711 $ 11.94
Granted 1,648,960 $ 15.37 1,373,100 $ 14.38
Exercised (130,575) $ 10.14 (707,961) $ 6.35
Cancelled - $ - (272,450) $ 14.34
----------------------------------------------------------------------------
Outstanding, end of period 5,564,785 $ 14.07 4,046,400 $ 13.46
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company uses the fair value based method for the determination of the
stock-based compensation costs. The fair value of each option granted was
estimated on the date of grant using the Black-Scholes option pricing model. In
the pricing model, the risk free interest rate was 4.5%; average volatility of
33%; an expected life of 4.5 years; an estimated forfeiture rate of 10%; and
dividends of nil. The weighted average fair value of stock options granted for
the three months ended March 31, 2008 was $5.06 per share (2007 - $5.00 per
share).
(h) Restricted stock units
In January 2008, the Board of Directors approved a RSU Incentive Plan for
employees and officers. Each RSU entitles participants to receive cash equal to
the market value of the equivalent number of shares of the Company. The RSU's
become payable as they vest over their lives, typically three years.
For the three months ended March 31, 2008, the Company recorded compensation
expense of $0.3 million to general and administrative expense and capitalized
$0.1 million to property, plant and equipment with a corresponding offset
recorded in liabilities. The compensation expense was based on the trading price
of the Company's shares on March 31, 2008.
The following table summarizes the change in RSU for the three months ended
March 31, 2008:
Number of RSU's
----------------------------------------------------------------------------
Balance, beginning of period -
Granted 208,843
----------------------------------------------------------------------------
Balance, end of period 208,843
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes the change in long-term compensation
liability relating to the RSU's:
March 31, 2008
----------------------------------------------------------------------------
Balance, beginning of period $ -
Change in liabilities during the period 352
----------------------------------------------------------------------------
Balance, end of period $ 352
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current portion of compensation liability $ 178
Long-term portion of compensation liability $ 174
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. Capital risk management
The Company's objectives when managing capital are: (i) to deploy capital to
provide an appropriate return on investment to its shareholders; (ii) to
maintain financial flexibility in order to preserve its ability to meet
financial obligations; and (iii) to maintain a capital structure that provides
financial flexibility to execute on strategic opportunities.
The Company's strategy is designed and formulated to maintain a flexible capital
structure consistent with the objectives as stated above and to respond to
changes in economic conditions and the risk characteristics of the underlying
assets. The Company considers its capital structure to include share capital,
bank loan, and working capital. In order to maintain or adjust its capital
structure, the Company may issue new shares, raise debt, refinance existing debt
and adjust capital spending.
A key measure the Company utilizes in evaluating its capital structure is the
ratio of net debt to annualized funds from operations. The ratio is calculated
as net debt, defined as outstanding bank loan plus or minus working capital,
divided by cash flow from operations before asset retirement expenditures and
changes in non-cash working capital for the most recent calendar quarter. The
Company's strategy is to maintain a net debt to annualized funds from operations
ratio of less than 2.0:1. At March 31, 2008, the Company had a ratio of net debt
to annualized cash flow of 1.98:1 (2007 - 1.60:1).
The Company's share capital is not subject to external restrictions; however the
credit facility borrowing commitment is based on the lender's semi-annual review
of the Company's petroleum and natural gas reserves. There were no changes to
the Company's approach to capital management during the quarter.
8. Risk management activities
(a) Financial instruments
The Company's financial instruments recognized in the consolidated balance sheet
consist of cash and cash equivalents, accounts receivable, financial derivative
contracts, substantially all current liabilities, and long term debt. Unless
otherwise noted, carrying values reflect the current fair value of the Company's
financial instruments due to their short-term maturities. The estimated fair
values of recognized financial instruments have been determined based on the
Company's assessment of available market information and appropriate
methodologies, through comparisons to similar instruments, or third party
quotes.
(i) As at March 31, 2008, Nuvista has entered into the following crude oil
contracts:
Volume Average Price (Cdn$/bbl) Term
----------------------------------------------------------------------------
500 bbls/d CDN. $66.50 - Bow River April 1, 2008
- December 31, 2008
1,000 bbls/d CDN. $70.47 - CDN. $90.61 - WTI April 1, 2008
- June 30, 2008
750 bbls/d CDN. $70.01 - CDN. $86.68 - WTI July 1, 2008
- December 31, 2008
1,000 bbls/d CDN. $64.00 - Bow River January 1, 2009
- December 31, 2009
As at March 31, 2008, NuVista has entered into the following natural gas
contracts:
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
20,000 gj/d CDN. $7.50 - $8.42 - AECO April 1, 2008
- October 31, 2008
5,000 gj/d CDN. $7.50 - $9.25 - AECO November 1, 2008
- March 31, 2009
As at March 31, 2008, the mark to market value of the financial instruments
was a loss of $11.5 million.
(ii) Physical sale contracts
As at March 31, 2008, Nuvista has entered into direct sale natural gas
contracts as follows:
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
50,000 gj/d CDN. $7.27 - $7.43 - AECO April 1, 2008
- October 31, 2008
25,000 gj/d CDN. $7.85 - $9.81 - AECO November 1, 2008
- March 31, 2009
(iii) Realized and unrealized gains (losses) on financial commodity
derivatives
March 31, 2008 2007
----------------------------------------------------------------------------
Realized gains (losses) $ (540) $ 787
Unrealized (losses) (9,744) (75)
----------------------------------------------------------------------------
Total realized and unrealized gains (losses) on
commodity derivatives $(10,284) $ 712
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a
financial instrument fails to meet its contractual obligation. The Company is
exposed to credit risk with respect to its accounts receivables. Most of the
Company's accounts receivable arise from transactions with joint venture
partners and oil and natural gas sales with petroleum and natural gas marketers.
The Company mitigates its credit risk by entering into contracts with
established counterparties and reviewing its exposure to individual
counterparties on a regular basis.
As at March 31, 2008, the accounts receivable balance was $59.5 million of which
$4.0 million of accounts receivable were past due. The Company considers all
amounts greater than 90 days past due. These past due accounts receivable are
considered to be collectible. When determining whether past due accounts are
uncollectible, the Company factors in the past credit history of the
counterparties. As at March 31, 2008, the Company had an allowance for doubtful
accounts of $0.1 million.
The carrying amount of accounts receivable and cash and cash equivalents
represents the maximum credit exposure risk to the Company. The Company did not
have accounts receivable balances owing from counterparties that constituted
more than 10% of the total revenue during the first quarter of 2008.
(c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they become due. The company manages its liquidity
through continuously monitoring cash flows from operating activities, review of
actual capital expenditure program against budget, managing maturity profiles of
financial assets and financial liabilities, maintaining a revolving credit
facility with sufficient capacity, and managing its commodity price risk
management program. These activities ensure that the Company has sufficient
funds to meet its financial obligations when due.
The timing of cash flow relating to financial liabilities as at March 31,
2008 are as follows:
2012
2008 2009 2010 2011 Thereafter
----------------------------------------------------------------------------
Accounts payable and
accrued liabilities $64,030 $ 178 $ - $ - $ -
Commodity derivative
financial instrument 11,473 - - - -
Bank loan - - 415,289 - -
Other liabilities - 164 10 -
----------------------------------------------------------------------------
Total $75,503 $ 178 $415,453 $ 10 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(d) Market risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in commodity price risk, currency risk,
and interest rate risk. The objective of market risk management is to manage the
Company's exposure to these risks to within acceptable parameters, while
optimizing returns.
(i) Commodity price risk
The Company is engaged in exploration, development and production activities in
Canada and as a result has exposure to commodity price risk. Commodity price
risk is the risk that the fair value of financial instruments or future cash
flows will fluctuate as a result of changes in commodity prices. Commodity
prices are impacted by global economic, political and environmental factors
which affect the levels of supply and demand. The Company sells all of its crude
oil, natural gas and natural gas liquids in Canada with sales prices denominated
in Canadian dollars.
The Company had adopted a disciplined commodity price risk management program as
part of its overall financial management strategy. The Board of directors has a
commodity price risk management limit of up to a maximum of 60% of forecast
production volumes, net of royalties. For the period April 2008 to October 2008,
the Board has approved an increase to the limit for natural gas contracts up to
70,000 gj/day. The Company manages the risks associated with changes in
commodity prices through the use of various financial derivative and physical
delivery sales contracts. The price risk management contracts are considered
economic hedges and the change in the fair value of these contracts is offset by
an equal and opposite change in the fair value of the Company's future cash
flows. The Company's financial derivative and physical delivery price risk
management contracts currently outstanding are summarized in notes 8 and 11.
(ii) Currency risk
Currency risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate as a result of changes in foreign exchange
rates. The Company is exposed to currency risk as the underlying commodity
prices in Canada for petroleum and natural gas are impacted by changes in
exchange rate between the Canadian and United States dollars. The Company
manages this exposure through its commodity price risk management.
(iii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest rates.
The Company is exposed to interest rate fluctuations on its bank loan which
bears a floating rate of interest. If interest rates had been 0.5% higher, the
impact to net earnings after tax for the three months ended March 31, 2008 would
have been $0.2 million due to higher interest expense. Conversely, if interest
rates had been 0.5% lower, an equal and opposite impact would have occurred to
net earnings. The Company had no interest rate swap or financial contracts in
place as at or during the three months ended March 31, 2008.
9. Relationship with Bonavista Petroleum Ltd.
In 2003, as part of the Plan of Arrangement with Bonavista Petroleum Ltd., the
Company entered into a Technical Services Agreement ("TSA"). Under the TSA,
Bonavista received payment for certain services provided by it to the Company.
On August 31, 2007, the TSA was terminated and replaced with a new services
agreement that reflects the remaining ongoing services that will be provided by
Bonavista. These services are accounted for at the exchange value. The Company
and Bonavista are considered related as two directors of the Company, one of
whom is the Company's chairman, are also directors and officers of Bonavista and
a director and an officer of the Company are also officers of Bonavista. For the
three months ended March 31, 2008, the Company paid Bonavista $0.4 million (2007
- $0.3 million) in fees relating to general and administrative services provided
by Bonavista. In 2008, the Company charged Bonavista management fees for jointly
owned partnerships totalling $0.3 million (2007 - $0.3 million). In addition,
during the first three months of 2008, Bonavista charged the Company $8,500
(2007 - $62,500) for costs that are outside of the new services agreement
relating to the Company's share of direct charges from third parties. As at
March 31, 2008, the amount receivable from Bonavista was $5.6 million.
10. Commitments
The following is a summary of the Company's contractual obligations and
commitments as at March 31, 2008:
2012
Total 2008 2009 2010 2011 Thereafter
----------------------------------------------------------------------------
Transportation $1,245 $ 644 $ 444 $ 123 $ 34 -
----------------------------------------------------------------------------
11. Subsequent events
(a) Commodity price risk management
Subsequent to March 31, 2008, the following commodity contracts have been
entered into:
(i) Financial instruments - natural gas
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
5,000 gj/d CDN. $7.50 - $9.25 - AECO November 1, 2008
- March 31, 2009
(ii) Physical sale contracts - natural gas
Volume Average Price (Cdn$/gj) Term
----------------------------------------------------------------------------
10,000 gj/d CDN. $9.25 - $11.50 - AECO November 1, 2008
- March 31, 2009
(b) Office lease
In April 2008, the Company entered into a 4.5 year lease commitment for office
space in downtown Calgary. The offices of NuVista and Rider will both relocate
to this new office space in June 2008. Annual lease obligations are estimated to
be $2.1 million per year. The lease expires in October 2012.
Corporate Information
Directors
Keith A. MacPhail, Chairman
W. Peter Comber, Barrantagh Investment Management Inc.
Pentti O. Karkkainen, KERN Partners
Ronald J. Poelzer, Bonavista Energy Trust
Alex G. Verge, President and CEO
Clayton H. Woitas, Range Royalty Management Ltd.
Grant A. Zawalsky, Burnet, Duckworth & Palmer LLP
Craig W. Stewart, Director
Management
Keith A. MacPhail, Chairman
Alex G. Verge, President and CEO
Robert F. Froese, Vice President, Finance and CFO
D. Chris McDavid, Vice President, Operations
Daniel B. McKinnon, Vice President, Engineering
Patrick Miles, Vice President, Exploration
Steven J. Dalman, Vice President, Business Development
Glenn A. Hamilton, Corporate Secretary
Auditors
KPMG LLP
Chartered Accountants
Calgary, Alberta
Bankers
Canadian Imperial Bank of Commerce
Bank of Montreal
Royal Bank of Canada
Toronto-Dominion Bank
Bank of Nova Scotia
Alberta Treasury Branches
Union Bank of California, Canada Branch
Calgary, Alberta
Engineering Consultants
GLJ Petroleum Consultants Ltd.
Calgary, Alberta
Legal Counsel
Burnet, Duckworth & Palmer LLP
Registrar and Transfer Agent
Valiant Trust Company
Calgary, Alberta
Stock Exchange Listing
Toronto Stock Exchange
Trading Symbol "NVA"
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