Attention Business/Financial Editors:
First Calgary Petroleums Ltd. Third Quarter Report to Shareholders
TSX: FCP
LSE: FPL
CALGARY, Nov. 28 /CNW/ - First Calgary Petroleums Ltd. ("FCP" or the
"Company"), an international exploration company with principle activities in
Algeria, operates the Ledjmet 405b and Yacoub 406a blocks in the Berkine
Basin. The Company was recently honored by the London Stock Exchange (AIM) as
the International Company of the Year and in September 2003 was included in
the S&P/TSX Composite Index.
Overview of Activities
Financing
In October 2003, FCP closed a $140 million prospectus offering in Canada
and the United Kingdom resulting in the issuance of 35 million common shares
priced at $4.00 (pnds stlg 1.79) per share. The issue was placed with
Canaccord Capital (Europe) Limited, Canaccord Capital Corporation and Octagon
Capital Corporation. With this financing completed, the Company is well
positioned to accelerate its drilling and seismic activities in Algeria.
Ledjmet Block 405b
The independent engineering firm of DeGolyer and MacNaughton has
estimated the Ledjmet Block 405b gross proved, probable and possible
recoverable reserves to be 5.7 trillion cubic feet of natural gas equivalent
(TCFe). Of this total, the estimated proved undeveloped reserves are 708
billion cubic feet of natural gas equivalent and the proved plus probable
reserves are 2.4 TCFe. Since these reserve estimates were prepared, FCP has
drilled two additional appraisal wells.
During the quarter ended September 30, 2003, FCP completed the third
successful gas well located on the Menzel Ledjmet East (MLE) field. The MLE-3
well, located 3.7 kilometres east of the MLE-2 appraisal well, was drilled and
cased to a total depth of 4,497 metres encountering 121 metres of hydrocarbon
net pay over multiple intervals. Production testing resulted in combined
production flow rates of 24,743 barrels of oil equivalent per day, comprised
of approximately 127 million cubic feet of gas per day and 3,643 barrels of
condensate per day. The three MLE wells production tested to date have
combined flow rates in excess of 77,000 barrels of oil equivalent per day. The
drilling and testing results continue to exceed management's expectations.
The Company then commenced the drilling of the MLE-4 appraisal well
(located 4.9 kilometres southwest of the MLE-3 well) and reached total depth
of 4,595 metres in the fourth quarter. The MLE-4 well encountered 56 metres of
hydrocarbon net pay over multiple intervals and a testing unit is scheduled to
move on location to commence production testing. FCP's interpretation of the
MLE-3 and MLE-4 well data indicates the field extends southward from the
current limits of proven and probable reserves. Moving forward with the MLE
appraisal, the Company plans to commence drilling the MLE-5 well in December.
After final results of the MLE-4 and MLE-5 wells are known, FCP expects
to have completed the appraisal stage of the MLE field and anticipates moving
to the development stage. Based upon the current DeGolyer and MacNaughton
reserves estimate and the anticipated results of the MLE-4 and MLE-5 wells,
FCP and Sonatrach, the Algerian National Oil Company, plan to jointly develop
the MLE gas and condensate field.
FCP's development planning is underway with respect to front-end
engineering. The awarding of the engineering, procurement and construction
contracts are anticipated in 2004 with first production targeted for 2007. The
development plan currently includes the construction of a 650 million cubic
feet per day plant for processing natural gas and natural gas liquids. The
total cost of the project development, including development wells, field
gathering, facilities and tie-ins is estimated to be in excess of
U.S.$700 million. As part of the development planning, Sonatrach and FCP have
agreed to jointly secure markets and Sonatrach has further agreed to allocate
sufficient pipeline capacity to deliver the product.
In addition to the drilling success experienced to date on Block 405b,
FCP has completed the acquisition of 600 square kilometres (km2) of 3D seismic
immediately adjacent to and west of the MLE field. While the seismic
interpretation is ongoing, the Company presently has eight exploration and
appraisal drilling locations identified and intends to accelerate the drilling
activity by contracting a second drilling rig in January 2004.
Yacoub Block 406a
On the Yacoub Block 406a, FCP drilled and abandoned its first exploration
well, YCB-1, during the first quarter of 2003. Subsequently, FCP acquired
240 kilometres of 2D seismic data extending over the central and eastern
portions of the Block where reservoir thicknesses appear to increase and the
seismic data indicates faulting and prospective structures. Encouraged by the
seismic, the Company has elected to enter into the second exploration period
through to November 10, 2005. FCP was initially required to drill a second
exploration well by November 11, 2003, the end of the first exploration
period. However, in conjunction with the election to commit to the second
exploration period, the drilling of this exploration well has been deferred to
2004. The Company plans to conduct a 470 km2 3D seismic acquisition program
commencing during the first quarter of 2004.
Block 43, Yemen
In Yemen, DNO ASA drilled and abandoned the Zaboon-1 well in the second
quarter of 2003. Being the first of three wells scheduled to be drilled on
Block 43, the well was funded and operated by DNO ASA pursuant to a farm out
concluded in 2001. The second exploration well, Meshat-1, is planned to
commence drilling in December 2003. A six month extension of the exploration
period through to August 2004 has been granted by the Yemen Ministry of Oil
and Minerals. DNO ASA has recently announced it has farmed out a portion of
its interest in the Block to Oil Search Limited, an Australian based oil
company.
Management's Discussion and Analysis
Management's discussion and analysis ("MD&A") should be read in
conjunction with the unaudited interim consolidated financial statements for
the nine months ended September 30, 2003 and 2002 and the audited consolidated
financial statements and MD&A for the year ended December 31, 2002.
Capital Expenditures and Operating Results
Capital expenditures in Algeria for the nine months ended September 30,
2003 totaled $40.6 million. Of this total, $29.0 million related to drilling,
completion and testing activities, $9.3 million to seismic, $1.8 million to
administrative and support services for the Algeria operations and
$0.5 million to annual training bonuses. During the third quarter ended
September 30, 2003, capital expenditures in Algeria totaled $15.1 million of
which approximately $10.1 million related to drilling, completion and testing
activities, $4.6 million to seismic and $0.4 million to administrative and
support services.
The Company's operating loss for the nine months ended September 30, 2003
was $4.8 million compared with $3.0 million for the 2002 period. The increased
loss in 2003 is attributable to an earthquake relief donation pledged to the
Government of Algeria, a foreign exchange loss and Canadian capital taxes. For
the quarter ended September 30, 2003, FCP incurred an operating loss of
$0.6 million versus $1.5 million for the comparable period in 2002. The
improvement in the 2003 third quarter operating loss results from a reduction
in AIM related costs, a foreign exchange gain and reduced stock-based
compensation expense.
The Company's general and administrative expenses were $2.3 million for
the nine months ended September 30, 2003 compared with $2.4 million for the
2002 period. For the three months ended September 30, 2003 and 2002, the
general and administrative expenses were $0.9 million and $1.2 million
respectively. The 2003 totals reflect increases in the Company's personnel,
travel, professional fees and office-related costs. The 2002 totals include
approximately $0.9 million of non-recurring AIM admission costs.
During the nine months ended September 30, 2003, the Company recorded a
foreign exchange loss of $1.3 million, including a gain of $0.3 million in the
third quarter. The year to date loss is attributable to the strengthening of
the Canadian dollar vis-a-vis the Company's holding British pounds received
from its equity financing as well as holding U.S. dollars to fund the
Company's U.S. dollar capital expenditures. The third quarter foreign exchange
gain principally related to U.S. denominated accounts payable.
Liquidity and Capital Resources
During the nine months ended September 30, 2003 the Company received
$36.0 million ($33.4 million net of costs) in exchange for 16.5 million common
shares issued pursuant to the February prospectus offering, exercise of share
purchase warrants and employee stock options. Substantially all of the
proceeds were derived from a $35 million prospectus offering in Canada and the
U.K. priced at $2.35 (pnds stlg 0.95) per share. In October 2003, the Company
received $139.1 million ($130.1 million net of costs) in exchange for
35 million common shares pursuant to a prospectus offering in Canada and the
U.K. priced at $4.00 (pnds stlg 1.79) per share. In conjunction with this
financing, 1,750,000 common share purchase warrants were issued to the
financial agents exercisable at $5.00 per share and expiring April 20, 2005.
Proceeds from this financing will be used to continue the appraisal and
development of the MLE field, drill a number of exploration wells on
Block 405b and continue the exploration seismic and drilling activities on
Block 406a.
As at November 24, 2003, the Company's issued common shares totaled
160.9 million and outstanding stock options and warrants to purchase common
shares were 10.9 million and 2.7 million respectively.
In Algeria, the Company is required to complete certain minimum work
commitments over specified periods of time. On Yacoub 406a, the Company has a
remaining first exploration period work commitment to drill one exploration
well. FCP has elected to enter into the second exploration period thereby
committing to drill two additional exploration wells by November 2005. In
conjunction with this election, FCP has deferred the drilling of the first
exploration period well to 2004. While Sonatrach has agreed in principle to
the election and the deferment, the parties need to amend the joint venture
agreement. On Ledjmet 405b, FCP is required to drill one exploration well
prior to December 2004.
FCP continues to operate in an exploration and development stage. The
recently completed equity financing enables the Company to maintain active
drilling and seismic programs on the Ledjmet 405b and Yacoub 406a blocks
relating to both the minimum work commitments and the appraisal/development of
the Block 405b reserves. The planned MLE development through to commercial
production is projected to cost in excess of U.S.$700 million. To complete the
development, the Company will require additional financing in the form of
project debt financing, joint ventures, equity or some combination thereof.
Pending Accounting Change
The Company uses stock options as part of its remuneration package for
employees and does not currently recognize compensation expense on the
issuance thereof. During the fourth quarter of 2003, the Company is planning
to change its accounting policy, effective January 1, 2003, to recognize
stock-based compensation as an expense. This accounting policy change will
reduce future net earnings.
Outlook
The Company continues to focus on its major initiatives. The Ledjmet
Block 405b reserves provide the foundation for developing a significant gas
and condensate production base. Drilling activity to appraise and delineate
the existing reserve base and explore new prospects on Block 405b is being
accelerated. In addition, planning for the reserves development through to
production is underway. The Company remains optimistic about the hydrocarbon
potential of Block 406a and looks forward to exploring the block over the next
two years.
Consolidated Balance Sheets
September 30 December 31
2003 2002
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and short-term deposits
(note 2) $ 9,427,515 $ 19,587,570
Accounts receivable 87,214 91,067
Deposits and prepaid expenses 160,176 143,180
-------------------------------------------------------------------------
9,674,905 19,821,817
Property, plant and equipment 70,449,800 29,744,160
-------------------------------------------------------------------------
$ 80,124,705 $ 49,565,977
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities (note 3) $ 11,232,166 $ 9,351,460
Provision for future site restoration costs 35,491 35,491
Shareholders' equity:
Capital stock (note 4) 97,052,877 63,664,285
Contributed surplus (note 4) 719,631 636,432
Deficit (28,915,460) (24,121,691)
-------------------------------------------------------------------------
68,857,048 40,179,026
-------------------------------------------------------------------------
Operations and commitments (note 1)
Subsequent events (note 6)
-------------------------------------------------------------------------
$ 80,124,705 $ 49,565,977
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of
Operations and Deficit
Three Months ended Nine Months ended
September 30 September 30
(Unaudited) 2003 2002 2003 2002
-------------------------------------------------------------------------
Revenue:
Interest
and
other
income $ 111,484 $ 131,802 $ 464,484 $ 148,700
-------------------------------------------------------------------------
Expenses:
General
and
administ-
rative 909,718 1,160,935 2,333,201 2,422,127
Earthquake
relief
donation
- Algeria - - 1,347,500 -
Stock-based
compensation
(note 4) 17,333 334,833 83,199 587,899
Capital tax 32,225 - 154,696 -
Foreign
exchange
loss (gain) (265,021) 93,624 1,307,619 93,986
Depreciation 13,249 6,497 32,038 17,952
-------------------------------------------------------------------------
707,504 1,595,889 5,258,253 3,121,964
-------------------------------------------------------------------------
Loss for
the period (596,020) (1,464,087) (4,793,769) (2,973,264)
Deficit,
beginning
of the
period (28,319,440) (21,992,891) (24,121,691) (20,483,714)
-------------------------------------------------------------------------
Deficit,
end of
the
period $ (28,915,460) $ (23,456,978) $ (28,915,460) $ (23,456,978)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss per
share
(note 4) $ (0.01) $ (0.02) $ (0.04) $ (0.04)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Three Months ended Nine Months ended
September 30 September 30
(Unaudited) 2003 2002 2003 2002
-------------------------------------------------------------------------
Operating
activities:
Loss for
the
period $ (596,020) $ (1,464,087) $ (4,793,769) $ (2,973,264)
Foreign
exchange
loss
(gain) (265,021) - 1,307,619 -
Items not
involving
cash:
Depreci-
ation 13,249 6,497 32,038 17,952
Stock-
based
compen-
sation
expense 17,333 334,833 83,199 587,899
-------------------------------------------------------------------------
(830,459) (1,122,757) (3,370,913) (2,367,413)
Change in
non-cash
working
capital 1,263,542 (295,864) 964,135 (56,568)
-------------------------------------------------------------------------
433,083 (1,418,621) (2,406,778) (2,423,981)
Financing
activities:
Proceeds
from
issuance
of shares - 25,676,016 34,946,889 25,676,016
Proceeds
from
exercise
of
warrants 139,250 - 603,764 4,180,000
Proceeds
from
exercise
of options 92,806 22,001 439,189 93,834
Issue costs - (2,576,051) (2,601,250) (2,802,620)
-------------------------------------------------------------------------
232,056 23,121,966 33,388,592 27,147,230
-------------------------------------------------------------------------
Investing
activities:
Capital
expend-
itures (15,215,402) (926,185) (40,737,678) (5,994,612)
Change in
non-cash
working
capital (811,303) (354,273) 1,204,714 (707,934)
-------------------------------------------------------------------------
(16,026,705) (1,280,458) (39,532,964) (6,702,546)
-------------------------------------------------------------------------
Increase
(decrease)
in cash
and
short-term
deposits (15,361,566) 20,422,887 (8,551,150) 18,020,703
Cash and
short-term
deposits,
beginning
of period 24,754,690 2,042,046 19,587,570 4,444,230
Effect of
exchange
rate
changes on
cash and
cash
equivalents 34,391 - (1,608,905) -
-------------------------------------------------------------------------
Cash and
short-term
deposits,
end of
period $ 9,427,515 $ 22,464,933 $ 9,427,515 $ 22,464,933
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2003 (unaudited)
The interim consolidated financial statements of First Calgary Petroleums
Ltd. ("the Company") have been prepared by management in accordance with
accounting principles generally accepted in Canada. These interim consolidated
financial statements have been prepared following the same accounting policies
as the consolidated financial statements for the fiscal year ended December
31, 2002. The disclosures included below are incremental to those included
with the annual consolidated financial statements. The interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto in the Company's annual report for
the year ended December 31, 2002.
1 OPERATIONS AND COMMITMENTS
The principal operations include oil and gas exploration in Algeria and
Yemen. The Company has contracts with Sonatrach, the national oil company of
Algeria, to explore and develop two blocks, Yacoub Block 406a and Ledjmet
Block 405b. The Company also holds an interest in a contract with the Yemen
Ministry of Oil and Minerals to explore and develop Block 43. These contracts
are structured such that the Company has committed to conduct certain minimum
exploration activities over a period of time and in return earns an interest
in commercial discoveries. Failure to satisfy its minimum work commitments on
a timely basis could cause the Company to forfeit its interest in some or all
of its properties and subject it to financial penalties. The Company has
sufficient working capital to complete its minimum work obligations following
the recent equity financing (see note 6). The development of the Ledjmet Block
405b reserves through to commercial production will, however, require
additional funding in the form of equity, debt, joint ventures or some
combination thereof.
(a) Algeria
In 2000 the Company entered into a joint venture agreement with Sonatrach
to explore Yacoub Block 406a in the Berkine Basin. At September 30, 2003, the
remaining first exploration period minimum work obligation is to drill one
exploration well at an estimated cost of U.S.$5,000,000. The Company has
elected to enter the second exploration period extending the exploration
rights for two years through to November 2005. The minimum work obligation for
the second exploration period is to conduct a seismic program and drill two
exploration wells. The estimated cost of this work is U.S.$11,000,000. In
conjunction with this election, the Company has deferred the drilling of the
first exploration period well to 2004. While Sonatrach has agreed in principle
to the election and the deferment, the parties need to amend the joint venture
agreement. If the Company fails to satisfy the minimum work obligations, the
right, other than for areas for which an exploration permit has been granted
or requested, could be forfeited and the Company will be liable to pay
Sonatrach penalties. The penalties for failure to complete the first or second
exploration period work obligations are U.S.$18,250,000 and U.S.$12,750,000,
respectively. In addition to the minimum work commitments, the Company is
obligated to pay an annual training bonus in the amount of U.S.$150,000 for
the duration of the contract.
In 2001 the Company entered into a production-sharing contract with
Sonatrach to explore and appraise Ledjmet Block 405b in the Berkine Basin. At
September 30, 2003 the remaining minimum work obligation is to drill one
exploration well at an estimated cost of U.S.$7,000,000. This work must be
completed prior to December 2004, the end of the first exploration period. If
the Company fails to satisfy the minimum work obligation, the rights, other
than for areas for which an exploitation permit has been granted or requested,
will be forfeited and the Company will be liable to pay Sonatrach a penalty of
U.S.$20,000,000. In addition, the contract provides the Company with the right
to appraise and develop the MLE field previously discovered on the block.
Should the Company exercise this right, a reserve-based access fee of
U.S.$0.25 per barrel oil equivalent will be owed to Sonatrach on the
commercialization of the field. The contract also provides the Company with
the option to enter a second exploration period that would extend through to
December 2006. The minimum work obligation for the second exploration period
is to conduct a seismic program and drill one exploration well. The estimated
cost of this work is U.S.$8,000,000. In addition to the minimum work
commitments, the Company is obligated to pay an annual training bonus in the
amount of U.S.$150,000 for the duration of the contract.
(b) Yemen
In 1998 the Company entered into a production-sharing contract with the
Yemen Ministry of Oil and Minerals to explore Block 43 in Yemen. The Company
completed the first exploration work commitments through a farmout. In 2001
the Company entered a farmout with another industry partner and the companies
have entered the second exploration period which, as amended, extends to
August 2004.
The minimum expenditure commitment is U.S.$7,500,000 for the second
exploration period and pursuant to a 2002 revision, includes a seismic program
and the drilling of three exploration wells. As at September 30, 2003, the
operator had drilled the first of the three well commitment. The production-
sharing agreement requires an irrevocable letter of credit be lodged in the
amount of U.S.$7,500,000.
Pursuant to the farmout, the partner assumed operatorship of the block
and is responsible for funding all exploration expenditures until such time as
it has incurred U.S.$7,500,000 in expenditures or made a commercial discovery.
In addition to the work commitment, the production-sharing contract requires
bonus payments totaling U.S.$600,000 per annum during the second exploration
period and U.S.$500,000 per annum for the duration of the contract.
2 CASH AND SHORT-TERM DEPOSITS
The Company considers deposits in banks, certificates of deposit and
short-term investments with original maturities of three months or less as
cash and cash equivalents. The major components of cash and cash equivalents
are as follows:
September 30 December 31
2003 2002
-------------------------------------------------------------------------
Cash on deposit
Canadian dollars $ 71,774 $ 156,709
British pounds 710,285 259,992
U.S. dollars - 27,955
Algerian dinars 335,820 368,064
Bank term deposits at
rates of interest
varying between 0.5% and 1.95%
Canadian dollars 1,731,897 4,710,500
British pounds - 6,550,545
U.S. dollars 6,577,739 7,513,805
-------------------------------------------------------------------------
$ 9,427,515 $ 19,587,570
-------------------------------------------------------------------------
-------------------------------------------------------------------------
3 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
September 30 December 31
2003 2002
-------------------------------------------------------------------------
Trade payables
U.S. dollars $ 7,040,050 $ 6,489,579
Algerian dinars 558,393 101,320
Canadian dollars 378,308 359,880
British pounds 80,592 100,903
Capital accrual
U.S. dollars 3,120,613 2,069,350
Algerian dinars 54,210 230,428
-------------------------------------------------------------------------
$ 11,232,166 $ 9,351,460
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4 CAPITAL STOCK
(a) Issued share capital
Number of
shares Amount
-------------------------------------------------------------------------
Common shares:
Balance, December 31, 2002 108,629,726 $ 63,664,285
Issued on public offering (i) 14,893,620 34,946,889
Issued on exercise of share purchase
warrants (ii) 924,472 603,764
Issued on exercise of stock options 634,466 439,189
Share issue costs (2,601,250)
-------------------------------------------------------------------------
Balance, September 30, 2003 125,082,284 $ 97,052,877
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) In February 2003, the Company issued 14,893,620 common shares for
gross proceeds of $34,946,889 (10,807,620 common shares at $2.35
per share and 4,086,000 common shares at pnds stlg 0.95 per share)
pursuant to a public offering of its shares in Canada and the U.K.
In conjunction with the financing, the Company issued to the
agents 893,617 common share purchase warrants exercisable at a
purchase price of $2.60 per share until February 12, 2004.
(ii) The Company issued 924,472 common shares pursuant to the exercise
of 768,000 share purchase warrants at $0.56 per share and 156,472
share purchase warrants at $1.11 per share.
(b) Employee stock options
Pursuant to the Stock Option Plan, the Company can reserve for issuance
and grant stock options to a maximum of 11,162,261 common shares on a
cumulative basis. Stock options granted under the plan have a term of five
years and generally vest one-third on the date of grant and one-third on each
of the first and second anniversary dates of the grant. The exercise price of
each option is equal to the market price of the shares on the date of the
grant.
At September 30, 2003 the Company had employee stock options outstanding
to purchase 7,568,867 common shares at prices ranging from $0.50 to $2.95 per
share. The options expire at various times from September 2004 to July 2008.
Number of Weighted average
Options exercise price
-------------------------------------------------------------------------
Outstanding, December 31, 2002 7,110,033 $ 0.88
Granted 1,280,000 2.59
Exercised (634,466) 0.69
Cancelled (186,700) 1.04
-------------------------------------------------------------------------
Outstanding, September 30, 2003 7,568,867 $ 1.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exercisable, September 30, 2003 5,806,646 $ 1.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table summarizes information about the employee stock
options outstanding and exercisable at September 30, 2003:
Options outstanding Options exercisable
-------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining average average
Range of Common contractual exercise Common exercise
exercise prices shares life price shares price
-------------------------------------------------------------------------
$0.50-0.65 1,602,666 3.1 years $0.51 1,127,111 $0.52
$0.67-0.85 1,911,201 2.5 years 0.75 1,844,534 0.75
$0.95-1.06 925,000 1.2 years 1.04 925,000 1.04
$1.23-1.90 1,850,000 2.7 years 1.29 1,483,333 1.28
$2.36-2.95 1,280,000 4.4 years 2.59 426,668 2.59
-------------------------------------------------------------------------
7,568,867 2.8 years $1.18 5,806,646 $1.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(c) Common share purchase warrants
At September 30, 2003 the Company had 1,687,145 common share purchase
warrants outstanding exercisable into an equal number of common shares as
follows:
Warrants Outstanding Exercise Price Expiry Date
-------------------------------------------------------------------------
600,000 $ 0.56 December 13, 2003
893,617 2.60 February 12, 2004
193,528 1.11 June 9, 2007
-------------------------------------------------------------------------
1,687,145
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(d) Stock-based compensation and payments
In January 2002, the Company entered into agreements with two consultants
to provide services relating to its ongoing operations. Pursuant to the
agreements, the Company granted the consultants options to acquire 900,000
common shares at a price of $0.70 per share. The fair value of the options was
estimated at the time of the grant to be $0.52 per share. The options vest as
to one-third on each of January 24, 2002, 2003 and 2004 and expire January 24,
2007.
The Company recognized $83,199 of stock-based compensation expense in the
nine months ended September 30, 2003 ($17,333 in the three months ended
September 30, 2003) with a corresponding increase in contributed surplus. The
expense represents the estimated fair value of the securities that have vested
and the value for the unvested securities accrued over the vesting period.
The Company continues with its policy of not recognizing compensation
expense on the issuance of employee stock options and recording consideration
received from employees or directors on the exercise of stock options as a
capital transaction. If the Company had elected to use the fair value method
of accounting for employee stock options, the Company's loss and loss per
share would have been the pro forma amounts indicated below:
Three Months ended September 30
2003 2002
-------------------------------------------------------------------------
Loss for the period As reported $ (596,020) $ (1,464,087)
Pro forma (1,007,254) (1,880,773)
Loss per share
(basic and fully
diluted) As reported (0.01) (0.02)
Pro forma (0.01) (0.02)
-------------------------------------------------------------------------
Nine Months ended September 30
2003 2002
-------------------------------------------------------------------------
Loss for the period As reported $ (4,793,769) $ (2,973,264)
Pro forma (6,648,131) (3,466,141)
Loss per share
(basic and fully
diluted) As reported (0.04) (0.04)
Pro forma (0.05) (0.04)
-------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
expected volatility of 95%, risk-free interest rate of 5% and expected lives
of 5 years. The average fair value of the employee options granted during the
nine months ended September 30, 2003 was $1.90 (2002 - $0.86) per option.
(e) Per share amounts
The loss per share is based on the weighted average number of shares
outstanding for the periods as follows:
Three Months ended September 30 Nine Months ended September 30
2003 2002 2003 2002
-------------------------------------------------------------------------
124,867,108 97,751,428 122,066,578 84,283,273
-------------------------------------------------------------------------
The warrants and options had no dilutive effect for the periods.
5 SEGMENTED INFORMATION
The Company's activities are conducted in three geographic segments:
Canada, Algeria and Yemen. All activities relate to exploration and
development of petroleum and natural gas.
Three Months
ended September
30, 2003 Canada Algeria Yemen Total
-------------------------------------------------------------------------
Revenue $ 111,484 $ - $ - $ 111,484
Expenses $ 677,504 $ 30,000 $ - $ 707,504
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss for
the period $ (566,020) $ (30,000) $ - $ (596,020)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
expenditures $ 82,322 $ 15,133,080 $ - $ 15,215,402
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine Months
ended September
30, 2003 Canada Algeria Yemen Total
-------------------------------------------------------------------------
Revenue $ 464,484 $ - $ - $ 464,484
Expenses $ 3,820,753 $ 1,437,500 $ - $ 5,258,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss for
the period $ (3,356,269) $ (1,437,500) $ - $ (4,793,769)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
expenditures $ 157,410 $ 40,580,268 $ - $ 40,737,678
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets $ 9,590,821 $ 69,476,509 $ 1,057,375 $ 80,124,705
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At September 30, 2003 petroleum and natural gas properties include costs
of proven and unproven properties of $69,140,690 in Algeria and unproven
properties of $1,057,375 in Yemen.
In the nine months ended September 30, 2003 the Company capitalized
$1,875,266 (three months ended September 30, 2003 - $433,333) of overhead
charges relating directly to the exploration and development activities in
Algeria.
6 SUBSEQUENT EVENTS
In October 2003 the Company issued 35 million common shares for gross
proceeds of $139.1 million (13,838,500 common shares at $4.00 per share and
21,161,500 common shares at pnds stlg 1.79 per share). The share issue costs
are estimated to be $9.0 million, including the agents' 6% commission. In
conjunction with the financing, the Company issued to the agents 1,750,000
common share purchase warrants exercisable at a purchase price of $5.00 per
share until April 20, 2005.
In addition, subsequent to September 30, 2003, the Company issued 860,394
common shares for a total cash consideration of $726,809 pursuant to the
exercise of 600,000 common share purchase warrants at $0.56, 75,000 common
share purchase warrants at $1.11, 84,894 common share purchase warrants at
$2.60 and 100,500 employee stock options at prices ranging from $0.67 to $1.06
per share.
For further information: First Calgary Petroleums Ltd., Tel:
(403) 264-6697
(FCP.)
END