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/FIRST AND FINAL ADD - TO299 - PrimeWest Energy Trust announces
first quarter 2004 results/
CALGARY, April 27 /PRNewswire-FirstCall/ --
Consolidated Balance Sheet
-------------------------
(Unaudited) (Audited)
Mar 31, Dec 31,
(millions of dollars) 2004 2003
-------------------------------------------------------------------------
(Restated
- Note 2)
ASSETS
Current assets
Cash and short term deposits $ 6.4 $ 2.5
Accounts receivable 67.3 65.4
Prepaid expenses 7.6 6.5
Inventory 2.5 2.1
-------------------------------------------------------------------------
83.8 76.5
Cash reserved for site restoration
and reclamation 8.7 8.2
Other assets and deferred charges 1.6 1.5
Deferred derivative loss (Note 4) 3.4 -
Property, plant and equipment 1,276.1 1,548.2
Goodwill 67.9 56.1
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$ 1,441.5 $ 1,690.5
-------------------------------------------------------------------------
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LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable $ 29.1 $ 26.7
Accrued liabilities 50.4 45.3
Accrued distributions to unitholders 10.1 10.3
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89.6 82.3
Derivative liabilities (Note 4) 15.9 -
Long-term debt (Note 6) 299.9 250.1
Future income taxes 231.1 313.2
Asset retirement obligation (Note 5) 19.7 19.7
-------------------------------------------------------------------------
656.2 665.3
UNITHOLDERS' EQUITY
Net capital contributions (Note 7) 1,584.7 1,565.9
Capital issued but not distributed 2.4 5.2
Long-term incentive plan equity 13.0 14.6
Accumulated income 5.9 219.1
Accumulated cash distributions (812.7) (771.6)
Accumulated dividends (8.0) (8.0)
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785.3 1,025.2
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$ 1,441.5 $ 1,690.5
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The accompanying notes form an integral part of these financial
statements.
Consolidated Statements of Unitholders' Equity (Unaudited)
-------------------------
For the three months ended Mar 31, Mar 31,
(millions of dollars) 2004 2003
-------------------------------------------------------------------------
(Restated
- Note 2)
Unitholders' equity, beginning of period $ 1,019.6 $ 847.2
Adjustment to Unitholders' equity at
beginning of period to adopt:
New Asset Retirement Obligation (Note 2) 5.6 -
New Oil and Gas Accounting Standard (Note 2) (233.3) -
Net income for the period 20.1 22.4
Net capital contributions 18.8 156.4
Capital issued but not distributed (2.8) 0.2
Long-term incentive plan equity (1.6) (0.2)
Cash distributions (41.1) (49.8)
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Unitholders' equity, end of period $ 785.3 $ 976.2
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Consolidated Statements of Cash Flow (Unaudited)
-------------------------
For the three months ended Mar 31, Mar 31,
(millions of dollars) 2004 2003
-------------------------------------------------------------------------
(Restated
- Note 2)
OPERATING ACTIVITIES
Net income for the period $ 20.1 $ 22.4
Add/(deduct):
Items not involving cash from operations
Depletion, depreciation and amortization 41.7 52.0
Non-cash general & administrative 0.4 0.4
Non-cash foreign exchange loss 1.9 -
Accretion on asset retirement obligation 0.3 0.3
Future income taxes recovery (18.2) (10.3)
Unrealized derivative loss 12.3 -
-------------------------------------------------------------------------
Cash flow from operations 58.5 64.8
Expenditures on site restoration and reclamation (0.9) (0.1)
Change in non-cash working capital 1.2 (11.0)
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$ 58.8 $ 53.7
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FINANCING ACTIVITIES
Proceeds from issue of Trust Units,
net of issue costs $ 2.8 $ 153.2
Net cash distributions to unitholders (29.9) (47.1)
Increase in bank credit facilities 38.1 75.0
Change in non-cash working capital (0.2) 2.7
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$ 10.8 $ 183.8
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INVESTING ACTIVITIES
Expenditures on property, plant & equipment $ (31.5) $ (22.0)
Corporate acquisitions (Note 3) (34.8) (200.9)
Acquisition of capital assets (3.7) (0.3)
Proceeds on disposal of property,
plant & equipment 3.5 0.2
Increase in cash reserved for future site
restoration and reclamation (0.5) (1.4)
Change in non-cash working capital 1.3 6.8
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$ (65.7) $ (217.6)
-------------------------------------------------------------------------
INCREASE IN CASH FOR THE PERIOD $ 3.9 $ 19.9
CASH (BANK OVERDRAFT) BEGINNING OF THE PERIOD 2.5 (3.1)
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CASH END OF THE PERIOD $ 6.4 $ 16.8
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-------------------------------------------------------------------------
CASH INTEREST PAID $ 1.2 $ 2.1
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CASH TAXES PAID $ 1.0 $ -
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Consolidated Statements of Income (Unaudited)
For the three months ended -------------------------
(millions of dollars, Mar 31, Mar 31,
except per Trust Unit amounts) 2004 2003
-------------------------------------------------------------------------
(Restated
- Note 2)
REVENUES
Sales of crude oil, natural gas and
natural gas liquids $ 110.5 $ 128.7
Transportation expenses (1.8) (1.9)
Crown and other royalties, net of ARTC (23.3) (32.7)
Other income 0.3 (0.1)
-------------------------------------------------------------------------
85.7 94.0
-------------------------------------------------------------------------
EXPENSES
Operating 19.7 20.6
Cash general and administrative 4.2 3.8
Non-cash general and administrative 0.4 0.4
Interest 3.2 3.6
Accretion on asset retirement obligation 0.3 0.3
Unrealized loss on derivatives 12.3 -
Foreign exchange loss 1.7 -
Depletion, depreciation and amortization 41.7 52.0
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83.5 80.7
-------------------------------------------------------------------------
Income before taxes for the period 2.2 13.3
-------------------------------------------------------------------------
Income and capital taxes 0.3 1.2
Future income taxes recovery (18.2) (10.3)
-------------------------------------------------------------------------
(17.9) (9.1)
-------------------------------------------------------------------------
Net income for the period $ 20.1 $ 22.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per Trust Unit - basic $ 0.40 $ 0.53
Net income per Trust Unit - diluted $ 0.40 $ 0.53
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Notes to Consolidated Financial Statements
For the three months ended March 31, 2004 (millions of dollars except per Trust
Unit/share amounts). All amounts are expressed in millions of Canadian dollars
unless otherwise indicated.
1. Significant Accounting Policies
-----------------------------------
These interim consolidated financial statements of PrimeWest Energy Trust
have been prepared in accordance with Canadian generally accepted
accounting principles. The specific accounting principles used are
described in the annual consolidated financial statements of the Trust
appearing on pages 69 through 91 of the Trust's 2003 annual report and
should be read in conjunction with these interim financial statements.
2. Changes in Accounting Policies
----------------------------------
Full Cost Accounting
The adoption of AcG-16 modifies how the ceiling test is performed
resulting in a two stage process. The first stage requires the carrying
amount of the cost centers to be tested for recoverability using
undiscounted future cash flows from proved reserves using management's
best estimate of forward indexed prices. When the carrying amount of a
cost center is not recoverable, the second stage of the process will
determine the impairment whereby the cost center would be written down to
its fair value. The second stage requires the calculation of discounted
future cash flows from proved plus probable reserves. The fair value is
estimated using accepted present value techniques, which incorporate
risks and other uncertainties when determining expected cash flows.
PrimeWest has performed the ceiling test under AcG-16 as of January 1,
2004. The impairment test was calculated using the consultant's average
prices at January 1 for the years 2004 to 2008 as follows:
Consultant's Average Price Forecasts
Year
-------------------------------------------------
2004 2005 2006 2007 2008
-------------------------------------------------------------------------
WTI ($U.S./bbl) 29.21 26.43 25.42 25.38 25.51
AECO ($Cdn/mcf) 5.90 5.33 4.98 4.95 4.92
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The ceiling test resulted in a before tax impairment of $308.9 million
and an after tax impairment of $233.2 million. This write down was
recorded to accumulated income in the first quarter of 2004 with the
adoption of AcG-16.
Asset Retirement Obligation
Effective January 1, 2004, the Trust retroactively adopted the CICA
Handbook section 3110, "Asset Retirement Obligations". The new standard
requires the recognition of the liability associated with the future site
reclamation costs of tangible long-lived assets. This liability would be
comprised of the Trust's net ownership interest in producing wells and
processing plant facilities. The liability for future retirement
obligations is to be recorded in the financial statements at the time the
liability is incurred.
The asset retirement obligation is initially recorded at the estimated
fair value as a long-term liability with a corresponding increase to
property, plant and equipment. The depreciation of property, plant and
equipment is allocated to expense on the unit-of-production basis. The
liability is increased each reporting period for the fair value of any
new future site reclamation costs and the corresponding accretion on the
original provision. The accretion is charged to earnings in the period
incurred. The provision will also be revised for any changes to timing
related to cash flows or undiscounted reclamation costs. Actual
expenditures incurred for the purpose of site reclamation are charged to
the asset retirement obligation to the extent that the liability exists
on the balance sheet. Differences between the actual costs incurred and
the fair value of the liability recorded are recognized to earnings in
the period incurred.
The Trust previously estimated the costs of dismantlement, removal,
abandonment and site reclamation on a unit-of-production basis over the
remaining life of the estimated proved reserves. This estimate was
charged to earnings with a corresponding offset to the accumulated site
provision liability on the balance sheet. The adoption of CICA Handbook
section 3110 allows for the cumulative effect of the change in accounting
policy to be recorded to accumulated income with retroactive restatement
of prior period comparatives. At January 1, 2004, this resulted in an
increase to the asset retirement obligation of $19.7 million (2003 -
$15.3 million), an increase to PP&E of $10.6 million (2003 -
$9.0 million), a $5.6 million (2003 - $0.04 million) increase to
accumulated income, a decrease of site restoration provision of
$17.8 million (2003 - $6.2 million) and an increase to the future tax
liability of $3.1 million (2003 - $(0.03) million). See Note 5 for the
reconciliation of the asset retirement obligation.
Implementation of this accounting standard did not affect the Trust's
cash flow or liquidity.
Financial Derivatives
Effective January 1, 2004, the Trust has implemented CICA Accounting
Guideline (AcG-13), "Hedging Relationships", which is effective for
fiscal years beginning on or after July 1, 2003. AcG-13 addresses the
identification, designation, documentation and effectiveness of hedging
transactions for the purposes of applying hedge accounting. It also
established conditions for applying or discontinuing hedge accounting.
Under the new guideline, hedging transactions must be documented and it
must be demonstrated that the hedges are sufficiently effective in order
to continue accrual accounting for position hedges with derivatives. The
trust is not applying hedge accounting to its hedging relationships.
As of January 1, 2004, the Trust recorded $6.0 million for the mark-to-
market value of the outstanding hedges as a derivative liability and a
$6.0 million deferred derivative loss, to be realized upon settlement of
the corresponding derivative instrument. The deferred loss at January 1,
2004 was comprised of a $3.9 million loss for crude oil, $2.1 million
loss for natural gas, $0.6 million loss for interest rate swaps and a
gain of $0.6 million for electrical power. See Note 4 for the
reconciliation of the derivative liability and deferred derivative loss.
The guideline requires that all derivative instruments be measured at
fair value and recorded on the balance sheet as an asset or liability.
AcG-13 also requires all changes to fair value be recognized in earnings
in the period incurred, regardless of whether or not the contract has
been settled. All hedging contracts entered into by the Trust subsequent
to January 1, 2004 have been recorded as either a deferred derivative
asset or liability on the balance sheet with a corresponding unrealized
hedging gain or loss on the income statement, respectively.
3. Corporate Acquisition
-------------------------
a) On March 16, 2004, PrimeWest Gas Corp. completed the acquisition of
Seventh Energy Ltd. Subsequent to the acquisition, Seventh Energy was
amalgamated with PrimeWest Gas Corp. The acquisition was accounted
for using the purchase method of accounting with net assets acquired
and consideration paid as follows:
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Net Assets Acquired at Assigned Values Consideration Paid
($ millions) ($ millions)
-------------------------------------------------------------------------
Petroleum and natural
gas assets $ 46.5
Goodwill 11.8
Working capital (1.5)
Long-term debt assumed (9.9)
Office lease obligation (0.1) Cash $ 34.6
Asset retirement obligation (0.5) Costs associated
Future income taxes (11.5) with acquisition 0.2
-------------------------------------------------------------------------
$ 34.8 $ 34.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. Derivative Liabilities
--------------------------
-------------------------------------------------------------------------
Derivative Liability ($ millions)
-------------------------------------------------------------------------
Derivative Liability, January 1, 2004 (6.0)
Derivative instruments settled 3.3
Mark-to-market unrealized loss (13.2)
-------------------------------------------------------------------------
Derivative Liability, March 31, 2004 $ (15.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deferred Derivative Loss ($ millions)
-------------------------------------------------------------------------
Deferred Derivative Loss, January 1, 2004 (6.0)
Derivative instruments settled (2.6)
-------------------------------------------------------------------------
Deferred Derivative Loss, March 31, 2004 $ (3.4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Asset Retirement Obligations
--------------------------------
Management has estimated the total future asset retirement obligation
based on the Trust's net ownership interest in all wells and facilities.
This includes all estimated costs to dismantle, remove, reclaim and
abandon the wells and facilities and the estimated time period during
which these costs will be incurred in the future.
The following table reconciles the asset retirement obligation associated
with the retirement of oil and gas properties:
-------------------------------------------------------------------------
Asset Retirement Obligation ($ millions)
-------------------------------------------------------------------------
Asset Retirement Obligation, January 1, 2003 $ 15.3
Liabilities incurred 5.4
Liabilities settled (2.2)
Accretion expense 1.2
-------------------------------------------------------------------------
Asset Retirement Obligation, December 31, 2003 $ 19.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities incurred 0.1
Liabilities settled (0.9)
Accretion expense 0.3
Acquisition of Seventh Energy 0.5
-------------------------------------------------------------------------
Asset Retirement Obligation, March 31, 2004 $ 19.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The undiscounted amount of estimated cash flows required to settle the
obligation is $121.2 million (2003 - $118.9 million). The estimated cash
flow has been discounted using a credit-adjusted risk free rate of 7.0
percent and an inflation rate of 1.5 percent. Although the expected
period until settlement ranges from a minimum of 7 years to a maximum of
50 years, the costs are expected to be paid over an average of 34 years.
These future asset retirement costs will be funded from the cash reserved
for site restoration and reclamation. This cash reserve is currently
funded at $0.50 per boe from PrimeWest's operating resources.
6. Long-Term Debt
------------------
-------------------------
Mar 31, Dec 31,
($ millions) 2004 2003
-------------------------------------------------------------------------
Bank credit facilities $ 136.0 $ 88.0
Senior secured notes 163.9 162.1
-------------------------------------------------------------------------
$ 299.9 $ 250.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Unitholders' Equity
-----------------------
PrimeWest Energy Trust
The authorized capital of the Trust consists of an unlimited number of
Trust Units.
-------------------------------------------------------------------------
Number
Trust Units of Units ($ millions)
-------------------------------------------------------------------------
Balance, December 31, 2003 48,751,883 $ 1,537.9
Issued on exchange of exchangeable shares 732,575 15.0
Issued pursuant to Distribution Reinvestment Plan 83,999 2.1
Issued pursuant to the Premium Distribution Plan 478,516 12.0
Issued pursuant to Long-Term Incentive Plan 61,720 1.9
Issued pursuant to Optional Trust Unit
Purchase Plan 114,430 2.8
-------------------------------------------------------------------------
Balance, March 31, 2004 50,223,123 $ 1,571.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The weighted average number of Trust Units and exchangeable shares
outstanding at March 31, 2004 was 50,483,218 (2003 - 42,124,111). For
purposes of calculating diluted net income per Trust Unit, 335,341 Trust
Units (2003 - 366,238) issuable pursuant to the Long-Term Incentive Plan
were added to the weighted average number. The per unit cash distribution
amounts paid or declared reflects distributions paid or declared to Trust
Units outstanding on the record dates.
PrimeWest Exchangeable Class A Shares
The exchangeable shares are exchangeable into PrimeWest Trust Units at
any time up to March 29, 2010 based on an exchange ratio that adjusts
each time the Trust makes a distribution to its unitholders. The exchange
ratio, which was 1:1 on the date that the exchangeable shares were first
issued, is based on the total monthly distribution, divided by the
closing unit price on the distribution payment date. The exchange ratio
effective March 15, 2004 was 0.45885:1 and December 31, 2003 was
0.44302:1.
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Exchangeable Shares No. of shares ($ millions)
-------------------------------------------------------------------------
Balance, December 31, 2003 3,041,123 $ 28.0
Exchanged for Trust Units (1,633,766) (15.0)
-------------------------------------------------------------------------
Balance, March 31, 2004 1,407,357 $ 13.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. Long-Term Incentive Plan
----------------------------
Under the terms of the Long Term Incentive Plan, a maximum of 1,800,000
Trust Units are reserved for issuance pursuant to the exercise of Unit
Appreciation Rights (UARs) granted to employees of PrimeWest. Payouts
under the plan are based on total unitholder return, calculated using
both the change in the Trust Unit price as well as cumulative
distributions paid. The plan requires that a hurdle return of 5% per
annum be achieved before payouts accrue. UARs have a term of up to six
years and vest equally over a three-year period, except for the members
of the Board, whose UARs vest immediately. The Board of Directors has the
option of settling payouts under the plan in PrimeWest Trust Units or in
cash. To date, all payouts under the plan have been in the form of Trust
Units.
As at March 31, 2004
-------------------------------------------------------------------------
Current
return per
UARs "in the Trust
issued & UARs money" Total Unit
Year of Grant outstanding vested UARs equity dilution
-------------------------------------------------------------------------
1998 grants 4,630 4,630 $ 49.87 $ 0.2 8,665
1999 grants 39,574 39,574 34.51 1.4 51,242
2000 grants 112,271 111,941 15.43 1.7 64,775
2001 grants 357,138 264,098 7.39 2.7 71,846
2002 grants 883,196 458,472 5.55 4.3 90,753
2003 grants 1,030,985 263,195 4.52 2.7 48,060
2004 grants 622,852 68,592 $ 0.11 - -
-------------------------------------------------------------------------
Total grants 3,050,646 1,210,502 $ 13.0 335,341
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9. Cash Distributions
----------------------
For the three months ended -------------------------
(millions of dollars, except for per Mar 31, Mar 31,
Trust Unit and number of units) 2004 2003
-------------------------------------------------------------------------
Net income for the period $ 20.1 $ 22.4
Add back (deduct) amounts to reconcile to
distribution:
Depletion, depreciation and amortization 41.7 52.0
Cash retained from cash available
for distribution (15.9) (13.0)
Contribution to reclamation fund (1.5) (1.5)
Non-cash general and administrative 0.4 0.4
Unrealized loss on derivatives 12.3 -
Non-cash foreign exchange loss 1.9 -
Accretion on asset retirement obligation 0.3 0.3
Future income taxes recovery (18.2) (10.3)
-------------------------------------------------------------------------
$ 41.1 $ 50.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Distributions to Trust Unitholders $ 41.1 $ 49.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Distributions per Trust Unit $ 0.82 $ 1.20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Subsequent Event
--------------------
On April 5, 2004 PrimeWest announced that it had entered into a Canadian
bought deal equity financing to sell 5.4 million units at a price of
$26.30 per unit, raising gross proceeds of $142 million. The transaction
closed on April 22, 2004.
Trading Performance
For the quarter
ended Mar 31/04 Dec 31/03 Sep 30/03 Jun 30/03 Mar 31/03
-------------------------------------------------------------------------
TSX Trust Unit prices
($ per Trust Unit)
High 28.35 28.15 26.80 27.75 27.34
Low 22.70 23.40 25.19 23.40 24.48
Close 26.65 27.56 25.19 25.04 24.51
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Average daily traded
volume 256,922 202,661 149,148 234,477 184,428
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For the quarter
ended Mar 31/04 Dec 31/03 Sep 30/03 Jun 30/03 Mar 31/03
-------------------------------------------------------------------------
NYSE Trust Unit
prices ($U.S. per
Trust Unit)
High 22.14 21.48 19.29 20.60 17.96
Low 17.31 18.67 18.08 15.97 16.05
Close 20.31 21.27 18.68 18.53 16.73
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Average daily
traded volume 469,694 243,921 151,813 166,722 111,605
-------------------------------------------------------------------------
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Number of Trust
Units outstanding
including
exchangeable shares
(millions of units) 50.87 50.10 49.52 45.99 45.43
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distribution paid
per Trust Unit $0.82 $0.96 $0.96 $1.20 $1.20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Compound Annual Return (%)(1)
Year to Date One Year Three Year Five Year
-------------------------------------------------------------------------
PrimeWest -0.2% 28.0% 12.9% 30.4%
TSX S&P 4.9% 26.7% -1.0% 6.5%
S&P 500 1.7% 5.8% -8.6% -3.9%
S&P TSX Canadian
Energy Trust Index 2.1% 45.7% - -
(1) Total return (equal sign) unit price plus distributions re-invested
END FIRST AND FINAL ADD
DATASOURCE: PrimeWest Energy Trust
CONTACT: PRNewswire - April 27