BNK.L Regulatory News (BNK)

15 May 2006 14:25

Bankers Petroleum increases revenue and production in first quarter of 2006 Record Production and Cash Flows Unless otherwise noted, all figures contained in this release are in U.S. dollars. CALGARY, May 15 /CNW/ - Bankers Petroleum Ltd. (TSX: BNK, AIM: BNK) todayannounced strong first quarter results. Revenue for the quarter more thandoubled to $5.7 million compared with $2.4 million in the first quarter of2005. Cash flow from operations was $723,000, compared to cash used inoperations of $526,000 for the comparable period in 2005. "We made good progress on both our resource projects this quarter," saidRichard Wadsworth, President. "In addition to adding substantially to ourunconventional shale gas land position in the United States, we acceleratedour development in Albania with strong gains in production. This brought ourMarch exit production to more than 2,900 barrels of oil per day (bopd), whichindicates that we are on track to exceed year-end exit production target of3,800 bopd." First Quarter Highlights: - Average production increased 107% to 2,579 bopd from 1,243 bopd for the same period in 2005, and 19% compared to 2,173 bopd for the fourth quarter of 2005. - Oil and gas revenue rose 136% to $5.7 million from $2.4 million in the comparable period in 2005. - Cash flow from operations increased to $723,000 from $650,000 for the three months ended December 31, 2005. The Company used $526,000 of cash in operations for the first quarter of 2005. - Bankers issued 50 million common shares at a price of CDN$1.00 per share, pursuant to a public offering. The net proceeds of the offering were $40.8 million (CAD $47.2 million). - In Albania, Bankers recompleted 15 of the 27 wells taken-over from Albpetrol during the quarter, with the remaining wells waiting for re-completion. At the end of March 2006, 78 wells were on production compared to 67 producing wells at the end of 2005. - In the United States, the Jones No. 1 well was spudded and has reached its total depth of 10,932 feet, which is the second well of the Company's appraisal program. - Subsequent to the quarter, Bankers entered into an agreement to acquire approximately 250,000 net acres of unconventional assets in the United States for $30 million. An additional $1.0 million cash payment, along with approximately 30,000 net acres, will be transferred to third parties to settle competing claims. Conference Call: A conference call to discuss these results will be held Monday, May 15 at9:00 a.m. Mountain time, 11:00 a.m. Eastern time. To participate in theconference call, please dial 1-866-250-3615 or 1-303-262-2052 approximately10 minutes prior to the call. A live and archived audio webcast of theconference call will also be available on Bankers' website atwww.bankerspetroleum.com. Annual General Meeting of Shareholders: Bankers' Annual General Meeting of Shareholders will be held on May 26,2006 at the Sheraton Eau Claire, Wild Rose Ballroom, 225 Barclay Parade S.W.in Calgary, Alberta. A webcast of the Annual General Meeting will be availableon Bankers' website at www.bankerspetroleum.com. About Bankers Petroleum Ltd. Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration andproduction company focused on opportunities in unconventional petroleumassets. Bankers holds interest in the Palo Duro Basin of west Texas, UnitedStates, where it is currently pursuing the exploration of Bend shale gas. Italso operates in the Patos-Marinza oilfield in Albania pursuant to a licenseagreement, producing heavy oil. Bankers' shares are traded on the TorontoStock Exchange and the AIM Market in London, England under the ticker symbolBNK. MANAGEMENT'S DISCUSSION AND ANALYSIS The following is management's discussion and analysis (MD&A) of BankersPetroleum Ltd's (Bankers or the Company) operating and financial results forthe quarter ended March 31, 2006, compared to the preceding quarter and thecorresponding period in the prior year, as well as information andexpectations concerning the Company's outlook based on currently availableinformation. The MD&A should be read in conjunction with the unaudited interimfinancial statements for the three month period ended March 31, 2006 and theaudited financial statements and MD&A for the year ended December 31, 2005.Additional information relating to Bankers, including its Annual InformationForm, is on SEDAR at www.sedar.com or on the Company's website atwww.bankerspetroleum.com. All dollar values are expressed in U.S. dollars,unless otherwise indicated. This report is prepared as of May 15, 2006. NON-GAAP MEASURES Cash flow from (used in) operations is a non-GAAP measure that representscash generated from (used in) operating activities before changes in non-cashworking capital. The Company considers this a key measure as it demonstratesits ability to generate the cash flow necessary to fund future growth. Net back per barrel and its components are calculated by dividingrevenue, royalties, operating, sales and transportation expenses by the grosssales volume during the period. Net back per barrel is a non-GAAP measure butit is commonly used by oil and gas companies to illustrate the unitcontribution of each barrel produced. Net operating income is similarly a non-GAAP measure that representsrevenue net of royalties and operating expenses. The Company believes that netoperating income is a useful supplemental measure to analyze operatingperformance and provide an indication of the results generated by theCompany's principal business activities prior to the consideration of otherincome and expenses. The non-GAAP measures referred to above do not have any standardizedmeaning prescribed by GAAP and therefore may not be comparable to similarmeasures used by other companies. CAUTION REGARDING FORWARD-LOOKING INFORMATION Certain information contained in this news release and MD&A respectingthe Company and the Company's properties constitute forward-lookingstatements. The use of any of the words "target", "plans", "anticipate","continue", "estimate", "expect", "may", "will", "project", "should","believe" and similar expressions are intended to identify forward-lookingstatements. Such forward-looking information, including but not limited tostatements as to production targets, timing of the Company's planned workprogram and management's belief as to the potential of certain properties,involve known and unknown risks, uncertainties and other factors which maycause the actual results of the Company and its operations to be materiallydifferent from estimated costs or results expressed or implied by suchforward-looking statements. Such factors include, among others general risks and uncertaintiesassociated with exploration, petroleum operations and risks associated withequipment procurement and equipment failure as well as those described under"Risk Factors" in the Company's Annual Information Form and in each managementdiscussion and analysis. Although the Company has attempted to take intoaccount important factors that could cause actual costs or results to differmaterially, there may be other factors that cause costs of the Company'sprogram or results not to be as anticipated, estimated or intended. There canbe no assurance that such statements will prove to be accurate as actualresults and future events could differ materially from those anticipated insuch statements. Accordingly, readers should not place undue reliance onforward-looking information. These statements speak only as of the datehereof. OVERVIEW Three months ended March 31 ------------------ Results at a Glance 2006 2005 % ------------------------------------------------------------------------- Financial ($000s, except as noted) Oil and gas revenue 5,689 2,412 136 Net operating income 1,896 379 400 Loss for the period (993) (1,073) 7 Cash flow from (used in) operations 723 (526) 237 Capital expenditures 14,285 9,522 50 Total assets 98,930 52,340 89 Shareholder equity 90,944 49,816 83 Operating Average daily production (bopd) 2,579 1,243 107 Average sales volume (bopd) 2,474 1,210 104 Average price ($/barrel) 25.55 22.15 15 Netback ($/barrel) 8.51 3.48 145 Bankers had record production and cash flows for the three months periodended March 31, 2006: - Average production was 2,579 bopd compared to 2,173 bopd for the fourth quarter of 2005 and 1,243 bopd for the same period in 2005, increases of 19% and 107% respectively. - Exit production for March 2006 was greater than 2,900 bopd. - Cash flow from operations increased to $723,000 from $650,000 for the three months ended December 31, 2005. The Company used $526,000 of its cash resources in operations for the same period in 2005. On March 6, 2006, Bankers completed a financing with a syndicate on abought-deal basis pursuant to which the underwriters purchased, for resale tothe public, an aggregate of 50,000,000 common shares of the Company at a priceof CDN$1.00 per Common Share. The net proceeds of the offering was$40.8 million (CAD $47.2 million). Albania Bankers' Plan of Development (Plan) submitted to the Albanian governmentwas approved in March 2006, which allows the Company to take-over theremaining wells in the Patos Marinza field on a defined basis. The Planprovides Bankers with the ability to produce and sell oil under Albpetrol'sexisting license for a period of 25 years with an option to extend for furtherfive year increments at the Company's election. Other significant events during the quarter included: - Bankers took-over 27 wells from Albpetrol and re-completed 15 of these wells. The remaining 12 wells were waiting for re-completion at quarter-end. - At the end of March 2006, Bankers had 78 wells on production compared to 67 producing wells at the end of 2005. - In February 2006, the Company entered into an export contract with an Italian refinery. During the quarter, the exports to this refinery made up 27% of its crude oil sales at an average price of $30.50. - Oil revenue was $5.7 million compared to $4.6 million for the fourth quarter of 2005 and $2.4 million for the same period in 2005, increases of 23% and 136% respectively. - Net operating income for the period was $1.9 million compared to $1.6 million for the immediately preceding quarter and $379,000 for the same period a year ago. - Albanian capital expenditures were $8.4 million for the quarter compared to $4.7 million for the same period in 2005. United States - The first well of Bankers' five well appraisal program on its Palo Duro play, the Misener No. 1, was spudded in December 2005. The well reached the total depth of 10,142 feet in February 2006 and was cased for completion and further evaluation. The original gas in place was estimated as 144 bcf per section in the Lower Bend Group interval based upon wireline log interpretation. - The second well of the program, Jones No. 1, was spudded on March 14, 2006 and has reached its total depth of 10,932 feet. - Preparation for drilling the third well at Palo Duro, Stansell No. 1, is expected to commence next week. - Capital expenditures were $5.0 million during the quarter compared to $5.1 million for the same period in 2005. - Subsequent to quarter end, the Company entered into an agreement to acquire 250,000 acres of unconventional lands in the Northern and Central regions of the United States. DISCUSSION OF OPERATING RESULTS Production and Revenue During the quarter, production continued to increase as more wells werereactivated in Albania, bringing the active well count to 78 compared to 67 inDecember 2005. Daily production increased 19% to 2,579 bopd from 2,173 bopdfor the quarter ended December 31, 2005 and 107% from 1,243 bopd from the sameperiod a year ago. The exit production rate was over 2,900 bopd at March 31,2006. Bankers exported approximately 27% of its crude oil to Italy during thequarter at an average price of $30.50 per barrel. The rest of the sales weremade to the Albanian Refining and Marketing Organization, Armo Sh.A (Armo) atan average price of $23.86 per barrel. The Company's average crude oil pricefor the quarter was $25.55 per barrel, up from $23.13 per barrel for thefourth quarter of 2005. Bankers plans to continue to export one to twoshipments of crude oil per month through the remainder of the year. Oil and gas revenue for the quarter was $5.7 million up from $4.6 millionfor the last quarter of 2005 and $2.4 million for the corresponding quarter ayear ago, increases of 23% and 136% respectively. Royalties, Direct Expenses and Netbacks Royalties are calculated pursuant to the Petroleum Agreement withAlbpetrol in Albania, and consist of Albpetrol's pre-existing production and a1% gross overriding royalty on production. Royalties increased 10% to $3.05per barrel from $2.77 per barrel during the last quarter of 2005 and 56% from$1.95 for the corresponding quarter a year earlier. This was related to theincrease in Albpetrol's pre-existing production as more wells were taken-overand re-activated. During the quarter pre-existing production made upapproximately 12% of the total sales volume. Operating expenses on a unit basis were comparable to their fourthquarter 2005 levels. Higher well servicing costs of new wells were offset byeconomies of scale resulting from higher production. Certain costs related toexports such as over-time paid out to employees and additional energy usedadded to the unit operating cost. The unit operating cost for the quarter was$12.31 per barrel compared to $12.46 per barrel for the immediately precedingquarter and $15.68 per barrel for the same period in 2005. Sales and transportation expenses on a unit basis increased to $1.68 perbarrel from $1.20 per barrel during the fourth quarter of 2005 and $1.04 forthe same period in 2005. The increase in unit costs was directly related tothe incremental cost of export shipments which is estimated to beapproximately $2.00 per barrel. The Company's netback per barrel for the quarter increased to $8.51 perbarrel from $6.69 per barrel for the fourth quarter of 2005 and $3.48 perbarrel for the corresponding period in 2005. Management expects netbacks tobenefit from continued export shipments for the balance of the year, barringchanges that may affect the Company's ability to export. Three months ended March 31 ------------------ Netback ($/bopd) 2006 2005 % ------------------------------------------------------------------------- Average price ($/barrel) 25.55 22.15 15 Royalties 3.05 1.95 56 Sales and transportation 1.68 1.04 62 Operating 12.31 15.68 (21) ---------------------------- Netback ($/barrel) 8.51 3.48 145 ---------------------------- ---------------------------- General and Administrative Expenses General and administrative expenses were $972,000 for the quartercompared to $904,000 for the last quarter of 2005 and $751,000 for the sameperiod in 2005. The increase in general and administrative expenses reflectshigher personnel costs with the addition of new employees, higher travelexpenses related to the Company's operating and financing activities,increased public company compliance costs and the strengthening of Canadiandollar against the U.S. dollar. During the quarter, the Company capitalized general and administrativeexpenses of $232,000 compared to $47,000 for the same period in 2005 inAlbania and the United States. These expenses were directly related toacquisition, exploration and development activities. Loss and Cash Flows The Company incurred a loss of $993,000 ($0.00 per share) for the quartercompared to a loss of $755,000 ($0.00 per share) for the immediately precedingquarter and $1,073,000 ($0.00 per share) for the same period in 2005. Thelosses for the current and the preceding quarters were related to non-cashcharges of depletion, depreciation and accretion; share compensation expenseand future income taxes. Bankers generated cash flows of $723,000 and $650,000for the quarters ended March 31, 2006 and December 31, 2005, respectively. Bycomparison, the Company used $526,000 of its cash resources in operationsduring the quarter ended March 31, 2005. CAPITAL EXPENDITURES Three months ended March 31 March 31 ($000) 2006 2005 ------------------------------------------------------------------------- Oil and gas properties Albania 9,298 4,703 United States 4,961 4,795 Equipment, furniture and fixtures 26 24 ------------------------- 14,285 9,522 ------------------------- ------------------------- The Company incurred $9.0 million in capital expenditures in Albaniaduring the quarter for well re-completions. The balance of the expenditureswas related to miscellaneous asset acquisitions and capitalized general andadministrative expenses. The capital expenditures include prepayments tosuppliers of $3.7 million for equipment in transit to Albania. In the United States, the Company spent $4.0 million on drilling andevaluation costs of two wells. Lease acquisition costs including bonus andrental payments were $804,000. The balance of the capitalized expenditures wasrelated to seismic reprocessing costs and capitalized general andadministrative expenses. Capital expenditures during the first quarter of 2005 were $9.8 millionof which $4.7 million were incurred on well re-completions and facilities inAlbania and the balance on United States land acquisitions. ASSET RETIREMENT OBLIGATIONS The Company recorded a provision of $715,000 for asset retirementobligations effective January 1, 2006 with the approval of the Plan ofDevelopment in Albania. This amount was based on the estimated undiscountedobligation of $6.2 million which will be settled at the end of the Company's25-year license discounted at a credit-adjusted risk free rate of 9%. Assetretirement obligations were increased to $731,000 at March 31, 2006 as aresult of accretion. The Company had no assets subject to retirement in the United States asat March 31, 2006. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2006, Bankers had working capital of $41.2 million and nodebt. The capital expenditures for the balance of the year were estimated as$23.0 million for Albania and $18.0 million for the U.S. Subsequent to quarterend, the Company entered into an agreement to acquire four shale gas prospectsfrom Vintage Petroleum LLC for $31.0 million, of which $11.0 million will bepaid in cash and the balance in Bankers' common shares upon closing. The Company estimates its cash flow from operations will be $5.0 millionfor the balance of the year. Bankers also expects its $0.40 warrants will befully exercised before their expiry in August 2006 generating approximately$2.6 million in proceeds. Based on these figures, Bankers will have a short-fall of approximately $3.2 million in implementing its capital program forfiscal 2006. Bankers plans to fund $20.0 million of its capital expenditures inAlbania by a debt financing that is currently being negotiated with anAlbanian based financial institution. Should the Company fail to arrangecredit facilities on acceptable terms, it may be forced to raise funds throughequity financing and/or reduce or delay its capital program for the balance ofthe year. There is no assurance that Bankers will be able to raise fundsthrough either debt or equity financing. RELATED PARTY TRANSACTIONS The Company contracts with Simmons Drilling (Overseas) Limited (Simmons)for the provision of rigs and other oil well services at industry competitiverates. Victor Redekop, a Director of Bankers, is a principal shareholder andofficer of Simmons. During the period ended March 31, 2006, $1.8 million waspaid to Simmons for services provided as compared to $796,000 in 2005. Theservices of Simmons can be terminated upon 60 days notice at the election ofthe Company. During the periods ended March 31, 2006 and 2005, Bankers paid legal feesof $56,000 and $57,000 respectively to the firm of DuMoulin Black LLP, ofwhich the corporate secretary of the Company is a partner. COMMITMENTS In March 2006, the Company's Plan of Development for the Patos Marinzaheavy oilfield in Albania was approved by the National Petroleum Agency ofAlbania (NPA). Under the Plan of Development, the Company estimated theremaining capital expenditures as at January 1, 2006 between $155.0 million to$213.0 million during the life of the Patos Marinza project. The estimated capital expenditures during the next five years are asfollows: ($ millions) Low Case High Case ------------------------------------------------------------------------- 2006 30.2 29.7 2007 38.3 42.2 2008 31.6 29.4 2009 9.5 41.6 2010 10.9 15.5 Remaining 34.5 54.6 ------------------------------------------------------------------------- 155.0 213.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Under the Petroleum Agreement, Bankers is required to submit an annualprogram to NPA which includes the nature and the amount of capitalexpenditures to be incurred during that year. Significant deviations in thisannual program from the Plan of Development will be subject to NPA approval.The Petroleum Agreement provides that disagreements between the parties willbe referred to an independent expert whose decision will be binding. TheCompany has the right to relinquish a portion or all of the contract area. Ifonly a portion of the contract area is relinquished then the Company willcontinue to conduct petroleum operations on the portion it retains and thefuture capital expenditures will be adjusted accordingly. In the event thatBankers is not able to generate sufficient capital resources, it may berequired to renegotiate the Plan of Development or relinquish all or part ofthe contract area. The Company has no commitments under operating leases for office spaceand equipment. SUBSEQUENT EVENT On April 21, 2006, Bankers entered into a Purchase and Sale Agreementwith Vintage Petroleum LLC for four unconventional shale gas prospects in theNorthern and Central regions of the United States. The total consideration forthe transaction is $30.0 million of which $10.0 million will be paid in cashand the remainder in approximately 26 million Bankers' common shares at anascribed price of CAD $0.88 per share. The final price is subject to pre-closing adjustments. Completion of the transaction is subject to certainconditions, including TSX approval and the final receipt of a prospectusqualifying the share consideration. Upon completion of the transaction, anadditional $1.0 million cash payment, along with approximately 30,000 netacres, will be transferred to third parties to settle competing claims. QUARTERLY SUMMARY Below is a summary of Bankers' performance for the first quarter of 2006,with comparative data for the preceding four quarters. ($000s, except March 31 Dec 31 Sept 30 June 30 March 31 as noted)(1) 2006 2005 2005 2005 2005 ------------------------------------------------------------------------- Average daily production (bopd) 2,579 2,173 1,793 1,527 1,243 Average sales volume (bopd) 2,474 2,184 1,791 1,475 1,210 Average price ($/barrel) 25.55 23.13 22.28 22.23 22.15 Royalties 3.05 2.77 2.59 2.20 1.95 Sales and transportation 1.68 1.20 0.97 0.99 1.04 Operating 12.31 12.46 12.23 13.00 15.68 --------------------------------------------- Netback ($/barrel) 8.51 6.69 6.49 6.04 3.48 --------------------------------------------- --------------------------------------------- Oil and gas revenue 5,689 4,644 3,670 2,983 2,412 Royalties 679 564 426 295 213 Operating 2,741 2,246 1,946 1,744 1,707 Sales and transportation 373 241 161 132 113 --------------------------------------------- Net operating income 1,896 1,593 1,138 811 379 --------------------------------------------- --------------------------------------------- General and administrative 972 904 1,415 1,008 751 Cash flow from (used in) operations 723 650 (95) (200) (526) Loss for the period (993) (755) (314) (1,355) (1,073) Basic and diluted loss per share - - - - - Total assets 98,930 56,846 53,083 52,533 52,340 Note (1) The figures may not add due to rounding. OUTSTANDING SHARE DATA There were approximately 378 million shares outstanding on March 31,2006. In addition, the Company had approximately 39 million stock options,warrants and compensation warrants outstanding as of March 31, 2006. PRINCIPAL BUSINESS RISKS Bankers' business and results of operations are subject to a number ofrisks and uncertainties, including but not limited to the following: Exploration, development, production and marketing of oil and natural gasinvolves a wide variety of risks which include but are not limited to theuncertainty of finding oil and gas in commercial quantities, securing marketsfor existing reserves, commodity price fluctuations, exchange and interestrate exposure and changes to government regulations, including regulationsrelating to prices, taxes, royalties and environmental protection. The oil andgas industry is intensely competitive and the Company competes with a largenumber of companies with greater resources. Bankers' ability to increase its reserves in the future will depend notonly on its ability to develop its current properties but also on its abilityto acquire new prospects and producing properties. The acquisition,exploration and development of new properties also require that sufficientcapital from outside sources will be available to the Company in a timelymanner. The availability of equity or debt financing is affected by manyfactors many of which are beyond the control of the Company. Bankers has a significant investment in Albania. There are a number ofrisks associated with conducting foreign operations over which the Company hasno control, including political instability, potential and actual civildisturbances, ability to repatriate funds, changes in laws affecting foreignownership and existing contracts, environmental regulations, oil and gasprices, production regulations, royalty rates, income tax law changes,potential expropriation of property without fair compensation and restrictionon exports. Additional risks that may affect the Company and its operationsare set out in its AIF filed under the Company's profile on www.sedar.com. OUTLOOK The 2006 target for average production from the Patos Marinza field inAlbania is 3,000 bopd, which represents an increase of 78% over the averageproduction of 1,687 bopd in 2005. This target is based on the Company's 2006work program which contemplates the take-over of between 80 to 120 wells fromAlbpetrol and the historical 75% success rate on well re-completions. Thetarget exit production for December 2006 is estimated at 3,800 bopd. In the United States, the Company plans to incur capital expenditures of$18.0 million during the remainder of 2006 primarily on drilling, evaluatingand completing new wells in the Palo Duro basin. No revenue is estimated to begenerated from the U.S. operations during the year. BANKERS PETROLEUM LTD. CONSOLIDATED BALANCE SHEETS (Unaudited, expressed in United States dollars) ------------------------------------------------------------------------- ASSETS March 31 December 31 2006 2005 ---------------------------- Current assets Cash and cash equivalents $ 40,061,976 $ 13,528,576 Accounts receivable 6,253,339 3,846,288 Crude oil inventory 411,831 335,687 Deposits and other 909,042 1,015,631 ---------------------------- 47,636,188 18,726,182 ---------------------------- Property, plant and equipment (Note 4) 51,293,379 38,119,538 ---------------------------- $ 98,929,567 $ 56,845,720 ---------------------------- ---------------------------- LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 6,430,203 $ 5,766,188 ---------------------------- Asset retirement obligations (Note 5) 730,910 - ---------------------------- Future income tax liability 824,000 282,000 ---------------------------- SHAREHOLDERS' EQUITY Share capital (Note 6) 94,120,755 53,204,325 Contributed surplus (Note 6) 2,237,480 2,013,928 Deficit (5,413,781) (4,420,721) ---------------------------- 90,944,454 50,797,532 ---------------------------- $ 98,929,567 $ 56,845,720 ---------------------------- ---------------------------- Commitments (Note 9) Subsequent event (Note 11) APPROVED BY THE BOARD "Robert Cross" Director ------------------------ "Richard Wadsworth" Director ------------------------ BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT FOR THE THREE MONTHS ENDED MARCH 31 (Unaudited, expressed in United States dollars) ------------------------------------------------------------------------- 2006 2005 ---------------------------- Revenue Oil and gas revenue $ 5,688,977 $ 2,412,303 Royalties (678,904) (212,548) ---------------------------- 5,010,073 2,199,755 ---------------------------- Expenses Operating 2,740,653 1,707,314 Sales and transportation 373,034 113,259 General and administrative 972,046 750,657 Stock-based compensation expense (Note 6) 223,552 363,346 Depletion, depreciation and accretion 950,732 292,643 ---------------------------- 5,260,017 3,227,219 ---------------------------- (249,944) (1,027,464) ---------------------------- Other income (Expenses) Interest 145,554 63,040 Foreign exchange loss (346,670) (340,635) Gain on sale of investment (Note 3) - 131,710 ---------------------------- (201,116) (145,885) ---------------------------- Loss before income taxes (451,060) (1,173,349) Future income taxes (recovery) 542,000 (100,654) ---------------------------- Loss for the period (993,060) (1,072,695) Deficit, beginning of period (4,420,721) (923,427) ---------------------------- Deficit, end of period $ (5,413,781) $ (1,996,122) ---------------------------- ---------------------------- Basic and diluted loss per share $ (0.00) $ (0.00) ---------------------------- ---------------------------- BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 (Unaudited, expressed in United States dollars) ------------------------------------------------------------------------- Cash provide by (used in) 2006 2005 ---------------------------- Operating activities Loss for the period $ (993,060) $ (1,072,695) Items not involving cash: Depletion, depreciation and accretion 950,732 292,643 Foreign exchange loss - 123,100 Future income tax expense (recovery) 542,000 (100,654) Stock-based compensation expense (Note 6) 223,552 363,346 Gain on sale of investment (Note 3) - (131,710) ---------------------------- 723,224 (525,970) Change in non-cash working capital (Note 10) (821,203) (1,352,196) ---------------------------- (97,979) (1,878,166) ---------------------------- Investing activities Additions to oil and gas properties net of change in non-cash working capital related to capital expenditures of $891,387 (Note 10) (14,258,813) (9,497,601) Additions to equipment, furniture and fixtures (26,238) - Proceeds from the sale of investment - 963,100 Purchase of investments - (123,690) Restricted cash - 409,032 ---------------------------- (14,285,051) (8,249,159) ---------------------------- Financing activities Issue of common shares for cash, net of share issue expenses (Note 6) 40,916,430 29,579,359 ---------------------------- Increase in cash and cash equivalents 26,533,400 19,452,034 Cash and cash equivalents, beginning of period 13,528,576 14,520,606 ---------------------------- Cash and cash equivalents, end of period (Note 10) $ 40,061,976 $ 33,972,640 ---------------------------- ---------------------------- Notes to the Consolidated Financial Statements (unaudited, expressed in U.S. dollars) ------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The interim period consolidated financial statements have been prepared by Bankers Petroleum Ltd. (Bankers or the Company) in accordance with Canadian generally accepted accounting principles (GAAP). The preparation of interim financial statements is based on accounting principles and practices consistent with those used in the preparation of annual financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with Canadian GAAP have been condensed or omitted. These interim period statements should be read together with the audited financial statements and the accompanying notes for the year ended December 31, 2005. In the opinion of the Company, its unaudited interim consolidated financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented. The unaudited consolidated financial statements include the accounts of the Company, Saxon International Energy Ltd., and Bankers Petroleum (U.S.) Inc., its wholly-owned subsidiaries. Unless where otherwise noted, the unaudited consolidated financial statements and their accompanying notes are presented in United States dollars. Certain of prior period figures have been re-classified to conform to the current period's presentation. 2. NATURE OF OPERATIONS The Company is engaged in the exploration for and development and production of oil and natural gas in Albania and the United States. In Albania, the Company operates in the Patos Marinza oilfield pursuant to a petroleum agreement with Albpetrol Sh.a (Albpetrol), the state owned oil company, under Albpetrol's existing license with the National Petroleum Agency (NPA). The license has a 25 year term with an option to extend at the Company's election for further five year increments. In the United States, the Company holds approximately 260,000 net acres of land in the Palo Duro Basin, Texas. 3. INVESTMENT In October 2004, the Company purchased 1,666,600 units of Transeuro Energy Corporation comprised of one common share and one-half common share purchase warrants for $831,390. In March 2005, the Company sold the common shares for proceeds of $963,100, resulting in a gain of $131,710. 4. PROPERTY, PLANT AND EQUIPMENT The following tables summarize the Company's property, plant and equipment as at March 31, 2006 and December 31, 2005: 2006 2005 ---------------------------------------- Depletion, Oil and Depreciation Net Book Net Book Gas Properties Cost and Accretion Value Value --------------------------------------------------------------------- Patos Marinza $ 32,674,275 $ 2,914,346 $ 29,759,929 $ 21,542,685 Palo Duro 21,023,089 - 21,023,089 16,062,080 Equipment, furniture and fixtures 628,511 118,150 510,361 514,773 ------------------------------------------------------- $ 54,325,875 $ 3,032,496 $ 51,293,379 $ 38,119,538 ------------------------------------------------------- ------------------------------------------------------- a) Patos Marinza Project In Albania, the Company's wholly owned subsidiary Saxon International Energy Ltd. (Saxon) operates in the Patos Marinza oilfield pursuant to a petroleum agreement entered into in 2004 with Albpetrol, under Albpetrol's existing license with the NPA. The Patos Marinza heavy oilfield is located in southern Albania. In March 2006, the Company's Plan of Development for Patos Marinza was approved by the NPA. This approval allows Bankers to take-over the remaining wells in the field on a defined basis consistent with the Plan of Development and produce and sell oil under the existing license agreement for a period of 25 years with an option to extend at the Company's election for further five year increments. b) Palo Duro Project The Company holds approximately 260,000 net acres of land in the Palo Duro Basin, Texas. The costs incurred in the Palo Duro project were excluded from depletable assets as the project is still in the exploration phase. c) Capitalized General and Administrative Costs The Company capitalized general and administrative expenses of $232,346 during the period (2005 - $47,334) in Albania and the United States that were directly related to exploration and development activities. 5. ASSET RETIREMENT OBLIGATIONS Prior to the approval of its Plan of Development, the Company did not make a provision for asset retirement obligations in Albania as there was no legal requirement during the evaluation period. Subsequent to approval, the Company estimated the total undiscounted amount required to settle the asset retirement obligations as $6,164,000. These obligations will be settled at the end of the Company's 25-year license. The undiscounted liability has been discounted using a credit-adjusted risk-free interest rate of 9%. The Company had no assets subject to retirement in the United States. --------------------------------------------------------------------- Asset retirement obligations, December 31, 2005 $ - Liabilities incurred during the period 714,826 Accretion 16,084 ------------- Asset retirement obligations, March 31, 2006 $ 730,910 ------------- ------------- 6. CAPITAL STOCK AND CONTRIBUTED SURPLUS Authorized Unlimited number of common shares with no par value. Issued Number of Common Contributed Shares Amount Surplus --------------------------------------------------------------------- Balance, December 31, 2004 286,295,739 $ 20,956,255 $ 592,908 Shares issued pursuant to private placement 31,000,000 29,588,466 - Share issuance costs - (1,556,846) - Exercise of warrants and options 9,219,248 3,281,594 (246,813) Exercise of compensation options 1,071,546 678,856 (155,483) Finder's fee 400,000 256,000 - Stock-based compensation - - 1,823,316 -------------------------------------------- Balance, December 31, 2005 327,986,533 53,204,325 2,013,928 Shares issued pursuant to private placement 50,000,000 43,200,276 - Share issuance costs - (2,417,701) - Exercise of warrants 387,307 133,855 - Stock-based compensation - - 223,552 -------------------------------------------- Balance, March 31, 2006 378,373,840 $ 94,120,755 $ 2,237,480 -------------------------------------------- -------------------------------------------- Weighted average number of common shares used in the calculation of basic and diluted loss per share was 342,470,218 in 2006 (2005 - 295,830,340). As at March 31, 2006, 559,500 (2005 - 559,500) common shares were held in escrow. Pursuant to the escrow agreements, these shares will be released from escrow over time through August 2008. On March 6, 2006, the Company completed a financing with a syndicate on a bought-deal basis pursuant to which the Underwriters purchased for resale to the public, an aggregate of 50,000,000 common shares of the Company at a price of CDN$1.00 per common share. The net proceeds of the offering were $40,782,575 (CAD $47,201,753). Warrants A summary of the changes in warrants is presented below. Weighted Average Number of Exercise Warrants Price (CAD $) --------------------------------------------------------------------- Balance, December 31, 2005 23,554,705 0.76 Warrants exercised 387,307 0.40 ----------------------------- Balance, March 31, 2006 23,167,398 0.76 ----------------------------- ----------------------------- The following table summarizes the outstanding and exercisable warrants at March 31, 2006. Weighted Average Exercise Number of Warrants Expiry Date Price (CAD $) --------------------------------------------------------------------- 7,657,693 August 19, 2006 0.40 15,509,705 November 10, 2009 0.95 ------------ 23,167,398 ------------ ------------ Stock Options A summary of the changes in stock options is presented below: Weighted Average Number of Exercise Options Price (CAD $) --------------------------------------------------------------------- Balance, December 31, 2004 8,500,000 0.25 Options granted 8,025,000 1.10 Options cancelled 150,000 1.15 Options exercised 1,770,000 0.28 ----------------------------- Balance, March 31, 2006 and December 31, 2005 14,605,000 0.70 ----------------------------- ----------------------------- The following table summarizes the outstanding and exercisable options at March 31, 2006: Weighted Average Remaining Exercise Contractual Outstanding Exercisable Price (CAD $) Expiry Date Life (years) --------------------------------------------------------------------- 6,150,000 5,816,667 0.22 June 4, 2009 3.2 500,000 500,000 0.50 August 4, 2009 3.3 100,000 33,334 0.50 September 1, 2009 3.4 2,480,000 1,666,671 0.80 February 11, 2010 3.9 425,000 141,667 1.47 April 14, 2010 4.0 2,650,000 883,336 1.15 May 25, 2010 4.2 150,000 50,000 1.15 June 1, 2010 4.2 650,000 216,667 1.15 June 24, 2010 4.2 150,000 50,000 1.47 September 7, 2010 4.4 250,000 83,334 1.34 November 3, 2010 4.6 350,000 116,668 1.34 November 22, 2010 4.6 750,000 250,000 1.39 December 16, 2010 4.7 -------------------------- 14,605,000 9,808,344 -------------------------- -------------------------- Compensation Options In connection with the November 10, 2004 private placement, the brokers were issued 1,856,182 compensation options exercisable to purchase units of the Company at a price of $0.55 per unit. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at $0.95 until November 10, 2009. As at March 31, 2006, 784,636 of the compensation options issued were outstanding. Stock-based Compensation Using the fair value method for stock-based compensation, the Company recorded a charge to earnings of $223,552 (2005 - $363,346) for the stock options vested and/or granted to officers, directors, employees and service providers during the period ended March 31, 2006. This amount was determined using a Black-Scholes model assuming no dividends were paid, a weighted average volatility of 28% (2005 - 28%), a weighted average annual risk free interest rate of 3.62% (2005 - 3.65%) and an average expected life of 5 years (2005 - 5 years) and is included in the consolidated statement of operations as stock-based compensation expense. 7. SEGMENTED INFORMATION (a) Operating segment - The Company's operations are primarily directed towards the acquisition, exploration and development of resource properties in Albania and the United States. (b) Geographic segments - The Company's assets, revenues and expenses by geographic areas are as follows: Quarter ended United March 31, 2006 Albania States Canada Total --------------------------------------------------------------------- Revenue Oil and gas revenue, net of royalties $ 5,010,073 $ - $ - $ 5,010,073 Expenses Operating 2,740,653 - - 2,740,653 Sales and transportation 373,034 - - 373,034 General and administrative 440,265 78,195 453,586 972,046 Share compensation expense 22,098 85,799 115,655 223,552 Depletion, depreciation and accretion 941,716 826 8,190 950,732 --------------------------------------------------- 4,517,766 164,820 577,431 5,260,017 --------------------------------------------------- Segment earnings (loss) 492,307 (164,820) (577,431) (249,944) -------------------------------------- Other expenses (201,116) Future income tax expense (542,000) --------------------------------------------------- Loss for the period $ (993,060) --------------------------------------------------- --------------------------------------------------- Assets, March 31, 2006 $36,462,719 $22,913,440 $39,553,408 $98,929,567 --------------------------------------------------- --------------------------------------------------- Additions to oil and gas properties $ 9,297,805 $ 4,961,008 $ - $14,258,813 --------------------------------------------------- --------------------------------------------------- Quarter ended United March 31, 2005 Albania States Canada Total --------------------------------------------------------------------- Revenue Oil and gas revenue, net of royalties $ 2,199,755 $ - $ - $ 2,199,755 Expenses Operating 1,707,314 - - 1,707,314 Sales and transportation 113,259 - - 113,259 General and administrative 329,397 - 421,260 750,657 Share compensation expense 77,925 215,072 70,349 363,346 Depletion, depreciation and accretion 292,643 - - 292,643 --------------------------------------------------- 2,520,538 215,072 491,609 3,227,219 --------------------------------------------------- Segment loss (320,783) (215,072) (491,609) (1,027,464) --------------------------------------- Other expenses 145,885 Future income tax recovery (100,654) --------------------------------------------------- Loss for the period $(1,072,695) --------------------------------------------------- --------------------------------------------------- Assets, March 31, 2006 $12,790,262 $ 6,814,589 $32,735,042 $52,339,893 --------------------------------------------------- --------------------------------------------------- Additions to oil and gas properties $ 4,702,502 $ 4,795,099 $ - $ 9,497,601 --------------------------------------------------- --------------------------------------------------- 8. RELATED PARTY TRANSACTIONS During the periods ended March 31, 2006 and 2005, the Company incurred the following expenses with companies related by way of directors and/or officers in common: 2006 2005 --------------------------------------------------------------------- Legal fees $ 55,845 $ 57,191 Rent and office services 16,019 - Oil well servicing 1,775,909 796,472 At March 31, 2006 and 2005, included in accounts payable and accrued liabilities are the following amounts which are payable to companies related by way of directors and/or officers in common: ($) 2006 2005 --------------------------------------------------------------------- Legal fees $ 25,705 $ 57,467 Oil well servicing - 324,125 These transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 9. COMMITMENT In March 2006, the Company's Plan of Development for the Patos Marinza heavy oilfield in Albania was approved by the NPA. Under the Plan of Development submitted to NPA, the Company estimated the remaining capital expenditures as at January 1, 2006 between $155 million to $213 million during the life of the Patos Marinza project. The estimated capital expenditures during the next five years are as follows: ($ millions) Low Case High Case --------------------------------------------------------------------- 2006 30.2 29.7 2007 38.3 42.2 2008 31.6 29.4 2009 9.5 41.6 2010 10.9 15.5 Remaining 34.5 54.6 --------------------------------------------------------------------- 155.0 213.0 --------------------------------------------------------------------- --------------------------------------------------------------------- The Petroleum Agreement stipulates that the Company submit to NPA each year an annual program which includes the nature and the amount of capital expenditures to be incurred in that year. Significant deviations in this annual program from the Plan of Development will be subject to NPA approval. Disagreements between the parties will be referred to an independent expert whose decision will be binding. The Company has the right to relinquish a portion or all of the contract area. If only a portion of the contract area is relinquished then the Company will continue to conduct petroleum operations on the portion it retained and the future capital expenditures will be adjusted accordingly. 10. SUPPLEMENTAL CASH FLOW INFORMATION March 31 March 31 2006 2005 --------------------------------------------------------------------- Operating activities Decrease (increase) in current assets Accounts receivable $(2,407,051) $ (997,029) Crude oil inventory (76,144) - Deposit and prepaid expenses 106,589 (534,066) Increase in current liabilities Accounts payable 1,555,403 178,899 ------------------------- $ (821,203) $(1,352,196) ------------------------- ------------------------- Investing activities Decrease in current liabilities Accounts payable $ (891,387) $ - ------------------------- ------------------------- Cash and cash equivalents Cash $ 7,406,033 $ 9,172,600 Fixed income investments 32,655,943 24,800,040 ------------------------- $40,061,976 $33,972,640 ------------------------- ------------------------- 11. SUBSEQUENT EVENT On April 21, 2006, the Company entered into a Purchase and Sale Agreement with Vintage Petroleum LLC for four unconventional shale gas prospects in the Northern and Central regions of the United States. The total consideration for the transaction is $30 million of which $10 million will be paid in cash and the remainder in approximately 26 million Bankers' common shares at an ascribed price of CAD $0.88 per share. The final price is subject to pre-closing adjustments. Completion of the transaction is subject to certain conditions, including TSX approval and final receipt of a prospectus qualifying the share consideration. Upon completion of the transaction, an additional $1.0 million cash payment, along with approximately 30,000 net acres, will be transferred to third parties to settle competing claims. For further information: Susan J. Soprovich, VP, Investor Relations andCorporate Governance, Ph: (403) 541-5313; Email:investorrelations(at)bankerspetroleum.com; Website: www.bankerspetroleum.com (BNK. BNK.WT.) ENDBANKERS PETROLEUM LIMITED