13 Nov 2009 07:51
Bankers Petroleum announces third quarter financial and operational results
Horizontal Drilling Update
CALGARY, November 13, 2009 /CNW/ - Bankers Petroleum Ltd. ("Bankers" or the "Company") is pleased to announce its financial and operating results for the period ended September 30, 2009.
------------------------------------------------------------------------- Q3 - 2009 Q2 - 2009 Q3 - 2008 ------------------------------------------------------------------------- Capital Expenditures ($000) 12,104 6,126 25,502 ------------------------------------------------------------------------- Brent Oil Price $/bbl 68.27 58.79 114.78 ------------------------------------------------------------------------- Patos Marinza Oil Price $/bbl 40.71 34.63 62.08 ------------------------------------------------------------------------- Operating Costs $/bbl 10.56 9.90 13.32 ------------------------------------------------------------------------- Transportation $/bbl 4.76 3.45 3.57 ------------------------------------------------------------------------- Royalties $/bbl 9.32 9.28 14.40 ------------------------------------------------------------------------- Netback $/bbl 16.07 12.00 30.79 ------------------------------------------------------------------------- HIGHLIGHTS - Production averaged 6,258 bopd, compared to second quarter production of 6,383 bopd. The slight drop in production was due to restricted production during July caused by water disposal infrastructure enhancements, which have since been completed. - Current production is 7,100 bopd with 350 bopd shut-in pending well servicing. - Revenue increased 17% to $23.4 million ($40,.71/bbl) in the third quarter of 2009 from $20.1 million ($34.63/bbl) during the second quarter. - Net operating income (netbacks) increased 33% to $9.3 million ($16.07/bbl) in the third quarter from $7.0 million ($12.00/bbl) during the second quarter of 2009. - Funds generated from operations increased 23% to $7.4 million in the third quarter of 2009 from $6.0 million in the second quarter of 2009. - In July 2009, International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) exercised their warrants generating total proceeds of $21.9 million. - Bankers maintained a strong balance sheet with working capital of $50.2 million at September 30, 2009 ($61.4 million in cash) as compared to working capital of $28.2 million at June 30, 2009. - In July 2009, Bankers commenced export operations from the new Port of Vlore export terminal. This facility significantly enhances the Company's export operations, provides 80,000 barrels of storage capacity and will play a key role in Bankers' production growth. - Subsequent to September 30, 2009, 2.7 million November 2009 series warrants were exercised generating total proceeds of CAD$6.8 million. Bankers expects to receive approximately $10.0 million from BNK Petroleum Inc. as payment on the note receivable from their expected November 13, 2009 equity issue. Results at a Glance ($000) Three months ended September 30 -------------------------------- 2009 2008 ------------------------------------------------------------------------- Oil revenue 23,441 33,543 Net operating income 9,251 16,318 Net income 1,708 4,876 Basic and diluted earnings per share 0.008 0.027/0.026 Funds generated from operations 7,371 14,795 Additions to property, plant and equipment 12,104 25,502 September 30 -------------------------------- 2009 2008 ------------------------------------------------------------------------- Cash and deposits 61,386 33,668 Working capital 50,188 17,543 Total assets 292,212 216,978 Bank loans 31,355 27,583 Other long-term liabilities 38,358 34,615 Shareholders' equity 203,007 131,262 Drilling Update
Commencing in July 2009, Bankers initiated its horizontal drilling program to follow up on its successful first horizontal well 5013 drilled in December 2008 that is currently producing at a steady rate of 135 bopd and has produced in excess of 42,000 barrels of oil.
Five horizontal wells have been drilled and completed during the quarter; four oil wells are currently producing at a combined total rate of 500 bopd. Well repairs to shut off crossflow problems adjacent to the fifth well have been completed and the well is currently producing at a rate of 24 bopd with high rates of water production. The Company expects that the oil cut will improve as the cross flow water dries up.
Upgrades on the current drilling rig have been completed and drilling operations resumed last month. Horizontal well 5015 (D4 zone - 440 metre lateral) was drilled and completed as an oil well and will be placed on production this week. The rig is currently drilling horizontal well 5021, moving northwards within the deeper part of the field where a recent vertical completion provided excellent production rates and indicated virgin reservoir pressures. After drilling well 5021, three additional horizontal wells are planned for the 4th quarter 2009. Due to the downtime necessary to upgrade the drilling rig, it is now anticipated that the vertical wells, planned to acquire core information to add in the thermal planning process, will be delayed until January 2010. The second drilling rig, Crosco Skytop 3, has been mobilized and is expected to be in Albania next month.
The Company will continue to drill test horizontal wells in different areas and zones to fully evaluate the field's reserves and production potential. In 2010, the horizontal development drilling program will focus on the highest productivity areas and zones in the field. Detailed mapping has outlined more than 400 horizontal drilling locations to be drilled at the Patos Marinza field over the next few years.
Bankers' third quarter results have now been incorporated into the corporate presentation and will be posted on Bankers' website by November 17, 2009.
Abby Badwi, President and Chief Executive Officer, will host a conference call and webcast on Friday, November 13, 2009 at 7:30 a.m. MDT. For complete details please go to www.bankerspetroleum.com.
--------- About Bankers Petroleum Ltd.
Bankers Petroleum Ltd. is a Canadian-based oil and gas exploration and production company focused on developing large oil and gas reserves. In Albania, Bankers operates and has the full rights to develop the Patos-Marinza heavy oil field and has a 100% interest in the Kucova oil field. Bankers' shares are traded on the Toronto Stock Exchange and the AIM Market in London, England under the stock symbol BNK.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis (MD&A) of Bankers Petroleum Ltd.'s (Bankers or the Company) operating and financial results for the three and nine months periods ended September 30, 2009 compared to the preceding quarter and the corresponding period in the prior year, as well as information and expectations concerning the Company's outlook based on currently available information. The MD&A should be read in conjunction with the unaudited interim financial statements for the three and nine months periods ended September 30, 2009 and the audited financial statements and MD&A for the year ended December 31, 2008. Additional information relating to Bankers, including its Annual Information Form, is on SEDAR at www.sedar.com and on the Company's website at www.bankerspetroleum.com. All dollar values are expressed in U.S. dollars, unless otherwise indicated, and are prepared in accordance with Canadian generally accepted accounting principles (GAAP).
The Company reports its heavy oil production in barrels. This report is prepared as of November 13, 2009. NON-GAAP MEASURES
Netback per barrel and its components are calculated by dividing revenue, royalties, operating and sales and transportation expenses by the gross production volume during the period. Netback per barrel is a non-GAAP measure and it is commonly used by oil and gas companies to illustrate the unit contribution of each barrel produced.
Net operating income is similarly a non-GAAP measure that represents revenue net of royalties and operating, sales and transportation expenses. The Company believes that net operating income is a useful supplemental measure to analyze operating performance and provides an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses.
Funds generated from operations include all cash from operating activities and are calculated before change in non-cash working capital. Reconciliation to the GAAP measure is as follows:
Three months ended Nine months ended September 30 September 30 ------------------------------------------------ ($000s) 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash provided by (used in) operating activities 5,012 13,124 (326) 39,522 Change in non-cash working capital 2,359 1,671 14,960 1,852 ---------------------- ------------------------- Funds generated from operations 7,371 14,795 14,634 41,374 ---------------------- ------------------------- ---------------------- -------------------------
The non-GAAP measures referred to above do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures used by other companies. Management uses these non-GAAP measurements for its own performance measures and to provide its shareholders and investors with a measurement of the Company's efficiency and of its ability to fund a portion of its future growth expenditures.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This MD&A offers our assessment of the Company's future plans and operations as of November 13, 2009 and contains forward-looking information. Such information is generally identified by the use of words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. Statements relating to "reserves" or "resources" are also forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. All such statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Management believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this AIF should not be unduly relied upon. These statements speak only as of the date hereof.
In particular, this MD&A contains forward-looking statements pertaining to the following:
- performance characteristics of the Company's oil properties; - crude oil production estimates and targets; - the size of the oil reserves; - capital expenditure programs and estimates; - projections of market prices and costs; - supply and demand for oil; - expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development; and - treatment under governmental regulatory regimes and tax laws.
These forward looking statements are based on a number of assumptions, including but not limited to: those set out herein and in the Company's Form 51-101F1 Statement of Reserves Data and Other Oil and Gas Information (NI 51-101 Report), availability of funds for capital expenditures, a consistent and improving success rate for well re-completions at Patos Marinza, increasing production as contemplated by the Plan of Development (PoD), stable costs, availability of equipment and personnel when required, continuing favourable relations with Albanian governmental agencies and continuing strong demand for oil.
Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties set forth below:
- volatility in market prices for oil and natural gas; - risks inherent in oil and gas operations; - uncertainties associated with estimating oil and natural gas reserves; - competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; - the Company's ability to hold existing leases through drilling or lease extensions; - incorrect assessments of the value of acquisitions; - geological, technical, drilling and processing problems; - fluctuations in foreign exchange or interest rates and stock market volatility; - rising costs of labour and equipment; - changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.
The Company from time to time updates its forward-looking information based on the events and circumstances that occurred during the period. As a consequence of the recent sharp declines in oil prices the Company has adjusted its capital expenditure program to ensure the commitments are funded by cash provided by operations, cash on hand and available credit.
Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
OVERVIEW & SELECTED QUARTERLY INFORMATION Three months ended Nine months ended September 30 September 30 ------------------------------------------------ Results at a Glance ($000s, except as noted) 2009 2008(x) 2009 2008(x) ------------------------------------------------------------------------- Financial Oil revenue 23,441 33,543 56,600 92,377 Net operating income 9,251 16,318 18,846 47,463 Net income (loss) 1,708 4,876 (2,463) 6,420 Basic and diluted earnings (loss) per share 0.008 0.027/0.026 (0.012) 0.037/0.035 Funds generated from operations 7,371 14,795 14,634 41,374 Additions to property, plant and equipment 12,104 25,502 21,065 56,367 Operating Average production (bopd) 6,258 5,880 6,170 5,646 Average price ($/barrel) 40.71 62.08 33.60 59.71 Netback ($/barrel) 16.07 30.79 11.19 30.68 September 30 ------------------------- 2009 2008 ------------------------- Cash and deposits 61,386 33,668 Working capital 50,188 17,543 Total assets 292,212 216,978 Bank loans 31,355 27,583 Other long-term liabilities 38,358 34,615 Shareholders' equity 203,007 131,262 (x) Excludes results from discontinued U.S. operations. Highlights for the quarter ended September 30, 2009 are: - Production averaged 6,258 bopd, an increase of 6% over the third quarter of 2008. Production for the nine months ended September 30, 2009 averaged 6,170 bopd, a 9% increase from 5,646 bopd for the comparable 2008 period. - Revenue increased 17% to $23.4 million ($40.71/bbl) in the third quarter of 2009 from 20.1 million ($34.63/bbl) during the second quarter. - Net operating income (netbacks) increased 33% to $9.3 million ($16.07/bbl) in the 2009 third quarter from $7.0 million ($12.00/bbl) during the 2009 second quarter. - Funds generated from operations increased 23% to $7.4 million in the third quarter of 2009 from $6.0 million over the second quarter of 2009. - In July 2009, International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) collectively exercised warrants to purchase 16 million common shares of the Company, generating proceeds of $21.9 million. - The Company continues to maintain a strong balance sheet with cash of $61 million and working capital of $50.2 million at September 30, 2009 as compared to working capital of $28.1 million at June 30, 2009 and $17.5 million at September 30, 2008, respectively. - In July 2009, Bankers commenced export operations from the new Port of Vlore export terminal. This facility significantly enhances the Company's export operations, provides 80,000 barrels of storage capacity and will play a key role in Bankers' production growth. - Commencing in July 2009, Bankers recommenced its horizontal drilling program to follow up on its successful first horizontal well drilled in December 2008. Five new horizontal oil wells were drilled during the quarter. QUARTERLY SUMMARY
Below is a summary of Bankers' performance over the last eight quarters. This summary excludes results from discontinued U.S. operations.
2008 2009 -------------- -------------------------------------------- ($000s, except Fourth First Second Third as noted) Quarter Quarter Quarter Quarter ---------------------------- -------------------------------------------- $/bbl $/bbl $/bbl $/bbl ---------------------------- -------------------------------------------- Average production (bopd) 6,561 5,864 6,383 6,258 ---------------------------- -------------------------------------------- Oil revenue 17,877 29.63 13,052 24.73 20,107 34.63 23,441 40.71 Royalties 4,163 6.69 3,486 6.61 5,389 9.28 5,368 9.32 Sales and transporta- tion 2,192 3.63 1,426 2.70 2,003 3.45 2,739 4.76 Operating expenses 7,843 13.54 5,512 10.44 5,748 9.90 6,083 10.56 --------------- -------------------------------------------- Net operating income 3,679 5.77 2,628 4.98 6,967 12.00 9,251 16.07 --------------- -------------------------------------------- --------------- -------------------------------------------- 2007 2008 -------------- -------------------------------------------- ($000s, except Fourth First Second Third as noted) Quarter Quarter Quarter Quarter ---------------------------- -------------------------------------------- $/bbl $/bbl $/bbl $/bbl ---------------------------- -------------------------------------------- Average production (bopd) 5,429 5,218 5,826 5,880 ---------------------------- -------------------------------------------- Oil revenue 21,398 42.84 24,676 51.96 34,157 64.36 33,543 62.08 Royalties 2,207 4.42 4,298 9.05 6,601 12.43 7,790 14.40 Sales and transporta- tion 1,332 2.67 1,664 3.50 1,727 3.27 1,932 3.57 Operating expenses 5,303 10.93 5,706 12.02 7,693 14.03 7,503 13.32 --------------- -------------------------------------------- Net operating income 12,556 24.82 13,008 27.39 18,136 34.63 16,318 30.79 --------------- -------------------------------------------- --------------- -------------------------------------------- 2008 2009 --------- ------------------------------------- ($000s, except Fourth First Second Third as noted) Quarter Quarter Quarter Quarter --------- ------------------------------------- Financial Funds generated from operations 339 1,265 5,998 7,371 Net income (loss) (8,007) (2,492) (1,679) 1,708 Basic/diluted earnings (loss) per share(1) (0.044) (0.014) (0.009) 0.008 General and administrative 1,089 1,204 2,079 1,410 Total assets 214,675 210,674 257,689 292,212 Capital expenditures 22,011 2,835 6,126 12,104 Bank loans 28,125 26,948 32,651 31,355 2007 2008 --------- ------------------------------------- ($000s, except Fourth First Second Third as noted) Quarter Quarter Quarter Quarter --------- ------------------------------------- Financial Funds generated from operations 9,358 9,488 16,753 14,795 Net income (loss) (2,126) 539 1,005 4,876 Basic/diluted earnings (loss) per share(1) (0.014) 0.003 0.006/0.005 2,157 General and administrative 2,667 2,091 2,034 0.027/0.026 Basic/diluted earnings (loss) per share(1) (0.014) 0.003 0.006/0.005 2,157 Total assets 115,039 177,127 201,093 216,978 Capital expenditures 8,357 13,764 17,100 25,502 Bank loans 30,850 30,218 29,004 27,583 (1) On July 30, 2008, the Company completed the consolidation of its shares on the basis of one (1) new post-consolidation share for each three (3) pre-consolidation shares. The computations of basic and diluted earnings (loss) per share for all the periods presented are based on the new number of shares after giving effect to the share consolidation. DISCUSSION OF OPERATING RESULTS Production, Revenue and Netback Three months ended Nine months ended September 30 September 30 ------------------------- ------------------------- 2009 2008 2009 2008 ----------------------------------------------- ------------------------- Average production (bopd) 6,258 5,880 6,170 5,646 Oil revenue ($000) 23,441 33,543 56,600 92,377 Netback ($/bbl) Average price 40.71 62.08 33.60 59.71 Royalties 9.32 14.40 8.46 12.08 Sales and transportation 4.76 3.57 3.66 3.44 Operating expenses 10.56 13.32 10.30 13.51 Netback 16.07 30.79 11.19 30.68
Active well counts increased 5% from 185 at the end of second quarter to 194 in September 2009. In addition, the Company took over 29 wells within the Company's areas of operations that were inactive and retained no pre-existing production burden as part of an area consolidation initiative. Average production increased 6% to 6,258 bopd during the third quarter of 2009 compared to 5,880 bopd during the same period in 2008. Production was 6,383 for the second quarter of 2009.
The Company received an average sale price of $40.71/bbl (60% of Brent) compared to $34.63/bbl (59% of Brent) for the second quarter of 2009 and $62.08/bbl (54% of Brent) for the same period in 2008. The benchmark Brent oil prices averaged $68.27/bbl for the third quarter of 2009, compared to $58.79/bbl for the second quarter and $114.78/bbl for the third quarter of 2008.
Oil revenue increased 17% from $20.1 million during previous quarter to $23.4 million in the third quarter of 2009, as a result of more favourable oil prices. Sales were $33.5 million for the third quarter of 2008.
The Company's netback (revenue less royalties, operating, sales and transportation expenses) increased 34% to $16.07/bbl ($40% of the wellhead price) compared to $12.00/bbl (35% of the wellhead price) in the second quarter of 2009. The netback for the third quarter of 2008 was $30.79. The changes in netback were primarily due to the fluctuation in commodity prices.
Royalties
Royalties in Albania are calculated pursuant to the Petroleum Agreement with Albpetrol and consist of a royalty based on Albpetrol's pre-existing production (PEP), a 1% gross overriding royalty (ORR) on new production and a 10% royalty tax on net production (RT). Overall royalties for the current quarter represented 23% of oil revenue, as compared to 27% for the preceding quarter and 19% for the third quarter of 2008. As a percent of revenue, the various royalty components currently represent 14% from PEP, 1% for the ORR and 8% for the RT. The average royalty rate declined during the quarter as more oil was produced from new production compared to the previous quarter. In addition, the increased capital program during the third quarter resulted in a higher capitalization level for the corresponding PEP royalty compared to the second quarter of 2009. Fluctuations in royalty on a per barrel basis are due to changes in the underlying oil prices.
Operating Expenses
Operating expenses increased to $10.56/bbl in the third quarter of 2009 from the preceding quarter of $9.90/bbl, and are significantly lower than $13.32/bbl in the same period of 2008. The fluctuations are mainly due to fluctuations in commodity prices for fuel consumption and well servicing activity levels.
Sales and transportation costs for the quarter increased to $4.76/bbl compared to $3.45/bbl in the second quarter and $3.57/bbl during the same period in 2008 due to increased export sales. Exports accounted for 97% of the total sales in the quarter as compared to 81% in the prior quarter and 52% for the third quarter of 2008. For the current quarter, trucking costs ($2.28/bbl) increased commensurate with the increase in exports, blending costs ($1.28/bbl) increased as a result of using diesel versus diluent, and port fees were ($1.20/bbl) reflective of the new fee structure associated with using the new export facility.
General and Administrative Expenses
General and administrative expenses (G&A) for the quarter were $1.4 million compared to $2.0 million in the preceding quarter and $2.2 million for the same period in 2008. The reduction in G&A resulted from the absence of employee restructuring costs that were incurred in the second quarter of 2009 and the same period in 2008, currency fluctuations and reclassification of bank commitment fees for the period ending September 30, 2009.
During the quarter, the Company capitalized $0.4 million of general and administrative expenses as compared to $0.7 million for the preceding quarter and $0.8 million for the same period in 2008. These expenses were directly related to acquisition, exploration and development activities in Albania.
Non-cash stock-based compensation expense pertaining to options vested and/or granted to officers, directors, employees and service providers was $1.3 million compared to $2.3 million for the preceding quarter and $1.4 million for the same period in 2008. Of this amount $0.9 million was charged to earnings during this quarter, compared to $1.6 million and $1.1 million that were charged to earnings for the preceding period and the period ending September 30, 2008, respectively. The remainder was capitalized.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expenses (DD&A) for the quarter ended September 30, 2009 were $3.9 million($6.79/bbl), consistent with $3.9 million ($6.81/bbl) for the preceding quarter and $3.3 million ($5.68/bbl) for the same period in 2008. DD&A expenses correspond to the respective production levels and the impact of capital expenditures relative to the depletable basis. The depletable base at September 30, 2009 includes a provision of $277.4 million for expected future capital programs.
Income Taxes
Future income tax liabilities result from the temporary differences between the carrying value and tax values of its Albanian assets and liabilities. As of September 30, 2009 the net book value of the Albania property, plant and equipment exceeded their tax value by $69.4 million, compared to $63.0 million on December 31, 2008. Applying a tax rate of 50%, the Company recorded a $34.7 million future income tax liability, compared to $31.5 million at the end of 2008. The Company recorded a future income tax expense of $2.6 million for the quarter compared to $1.7 million for the preceding quarter and $4.2 million for the quarter ended September 30, 2008. The fluctuation in future income taxes compared to the second quarter of 2009 and the same period in 2008 was mainly due to the change in net income incurred in the third quarter of 2009.
The cost recovery pool represents deductions for income tax purposes in Albania at a 50% income tax rate. Bankers is presently not required to pay cash taxes in any jurisdiction.
Net Loss and Funds Generated from Operations
The Company recorded net income of $1.8 million ($0.008 per share) during the quarter compared to a net loss of $1.7 million ($0.009 per share) for the second quarter and net income of $4.9 million ($0.027 per share) for the same period in 2008. The net loss for the nine months ended September 30, 2009 was $2.5 million ($0.12 per share) as compared to net income of $6.4 million ($0.037 per share) for the corresponding period in 2008.
Funds generated from operations were $7.4 million for the third quarter compared to $6.0 million in the second quarter and $14.8 million the third quarter of 2008. For the nine months ended September 30, 2009, funds generated from operations were $17.6 million and $41.4 million for the same period in 2008.
OPERATIONS UPDATE Albania Patos Marinza Field -------------------
The Company's focus during the quarter shifted back to the capital development program as the oil price improved and stabilized at a Brent average level above $60 per barrel. Drilling operations were commenced in July with the first of five horizontal wells that were drilled in the quarter. The well re-activation program was initiated during the quarter with re-activation of 10 wells and workover of several other wells. The service rig fleet utilization was increased during the quarter to accommodate the increased activity level to seven service rigs with three of the rigs operating on twenty-four hours. Construction also commenced on the second train of the Central Treatment Facility in order to handle the extra throughput capacity projected for the 2010 development program.
The Company took over 29 in-active wells from Albpetrol during the quarter that did not have any associated pre-existing production burden. These wells are part of consolidation efforts to expand the Company's area of operations and enable focused development execution.
Capital expenditures were $12.1 million during the quarter, an increase of 98% from the previous quarter spending of $6.1 million, but still significantly less than the $25.5 million expenditure in the same quarter in 2008.
Operating expenditures increased marginally during the quarter by 6% to $6.1 million from $5.7 million in the previous quarter for an average production rate of 6,258 bopd. This is still 19% less than the $7.5 million operating expenditures for the same quarter in 2008 as the cost reduction initiatives undertaken in the first half of the year have carried forward into the third quarter of 2009.
In July 2009, Bankers commenced export operations from the new Port of Vlore export terminal. This facility significantly enhances the Company's export operations, provides 80,000 barrels of storage capacity and will play a key role in Bankers production growth. Additionally, utilizing this facility markedly improves the safety and environmental standards associated with exports.
Kucova Field
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Bankers has made a formal request to Albpetrol and the AKBN (the state regulatory agency) for revisions to the Kucova Licence and Petroleum Agreements to revise the scope of work to a pressure maintenance project and for a 12 month extension of the evaluation period. Approval for the proposed amendments was received from Albpetrol during the quarter, approval is pending from the AKBN.
During the third quarter, Bankers requested the takeover of the F-37 production satellite in the Ferma pool with 12 associated flowlined wells into that group for evaluation. Upon approval, expected in November, the work plan is to prepare one well for water injection, conducting operations to attain reservoir pressure data and conduct injectivity tests to establish reservoir permeability for secondary recovery application. Upon successful testing, injection facilities will be constructed, an injection pump will be ordered and about five wells will be prepared for production or as observation for a waterflood field trial, now likely to occur in early 2010.
Operations and health and safety personnel conducted two field visits of the intended start up area at Kucova Group F-37 in July to conduct a risk assessment of the proposed operations. The assessments included highway and field access routes to the Ferme field, well site assessments, safety and environmental issues, community impact and to provide initial logistics for planning field activity.
Fluid compatibility and fluid-reservoir rock compatibility evaluation work is complete, with acceptable water compatibility, and the core analysis showed good rock characteristic (additional clay mineralogy determination is required).
CAPITAL EXPENDITURES Three months ended Nine months ended September 30 September 30 ------------------------------------------------------------------------- ($000s) 2009 2008 2009 2008 ------------------------------------------------------------------------- Well re-activations 2,096 7,317 3,991 28,681 Drilling programs 6,876 8,854 9,752 10,208 Property acquisitions 98 1,472 216 3,740 Base program 3,505 5,040 7,940 10,923 Inventory change (471) 2,819 (834) 2,815 ------------------------- ------------------------- 12,104 25,502 21,065 56,367 ------------------------- ------------------------- ------------------------- -------------------------
Improvements in commodity prices and the Company's strong financial position, established confidence to re-commence drilling and increase the capital program. Overall, capital expenditures in the third quarter increased to $12.1 million from $6.1 million in the second quarter. During the quarter ended September 30, 2009, Bankers spent $2.1 million on well re-activations compared to $0.8 million during the preceding quarter and $7.3 million during the same period in 2008. The Company incurred $6.9 million on the drilling program (5 new wells) compared to $1.6 million on drilling operations during the second quarter of 2009 and $8.9 million incurred in the same period of 2008. In addition, during the third quarter, Bankers commenced production facility upgrades to accommodate future production increases. The balance represented maintenance-level capital projects and capitalized G&A. At September 30, 2009, the Company has capital inventory of $16.1 million for utilization in future drilling and reactivation programs.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2009, Bankers had working capital of $50.2 million (including cash, cash equivalents and deposits totalling $61.4 million) and long-term bank loans of $7.8 million. At December 31, 2008, the Company had a working capital deficiency of $7.4 million and long-term bank loan of $6.9 million.
Bankers has credit facilities totalling $141.8 million, of which only $31.4 million is currently being utilized. The majority represents a reserve-based long-term financing of $110.0 million from the IFC and EBRD, from which no advances have yet been drawn. The $31.4 million Raiffeisen facility includes a revolving operating loan of $19.6 million and term loans totalling $11.8 million. Repayments of $937,500 were made on the term loans during this quarter.
The Company's approach to managing liquidity is to ensure a balance between capital expenditure requirements and funds generated from operations, available credit facilities and working capital. In recognition of the improvement in the commodity prices and the Company's capital resources, the Company resumed its drilling program in July 2009.
During the nine months ended September 30, 2009, the Company has received total equity proceeds of $63.5 million, primarily from the equity financing in May 2009 ($38.3 million) along with $22.8 million from warrant and $2.3 million from option, exercises.
There were 225 million shares and 228 million shares outstanding as at September 30, 2009 and November 13, 2009 respectively. In addition, the Company has issued 12 million stock options as of September 30, 2009 and November 13, 2009. The outstanding warrants were 9 million and 6 million as of September 30, 2009 and November 13, 2009, respectively. Prior to their expiry on November 10, 2009, 2.7 million warrants (exercisable at CAD$2.49 per share) were exercised and generated proceeds of approximately CAD$6.8 million.
Directors and officers of the Company represent approximately nine percent ownership in the Company, on a fully diluted basis, as of September 30, 2009 and November 13, 2009. The strong ownership position of the directors and officers creates an alignment with shareholders and a team that is dedicated to activities that support future value creation.
In Albania, the Company considers any amounts greater than 60 days as past due. Of the total receivables of $27.1 million in Albania, approximately $14.0 million is due from one domestic customer of which $13.2 million is considered past due. In an effort to collect these receivables, the Company has regular dialogue with this customer; payments totalling $0.5 million were received during the quarter along with an additional $1.5 million in October. The Albanian government continues to own 15% of this customer; the remainder was privatized for $167 million in December 2008. The two refineries owned by this customer are the only ones in Albania and are strategically important to the country. Bankers' management has confidence that these amounts will be collected and has not recorded a loss provision. In the interim, Bankers, as the largest supplier of crude oil to these refineries, has reduced its delivery of oil to this customer and exported additional shipments to its foreign customers. Bankers has expanded its export capacity by way of the expanded shipping terminal completed during the quarter.
Plan of Development
Bankers has no capital expenditure commitment for the Patos Marinza oilfield under the Petroleum Agreement. Bankers annually submits a work program to AKBN which includes the nature and the amount of capital expenditures to be incurred during that year. Significant deviations in this annual program from the Plan of Development will be subject to AKBN approval. The Petroleum Agreement provides that 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 retains and the future capital expenditures will be adjusted accordingly.
Commitments
The Company has long-term lease commitments in Canada and Albania. The minimum lease payments for the next four years are $533,000 as follows:
($000s) Canada Albania Total ------------------------------------------------------------ 2009 48 40 88 2010 191 55 246 2011 191 - 191 2012 8 - 8 -------------------------------------- 438 95 533 -------------------------------------- --------------------------------------
The Company has two term loans with a European financial institution, totalling $11.8 million. The 2006 term loan is repayable in equal monthly instalments of $0.3 million ending on November 30, 2011. The principal payments for the 2009 term loan will commence in November 2009 in equal monthly instalments of $74,000 for a 54-month period. Of the amount outstanding, $4.6 million is classified as current and $7.2 million as long-term. Principal repayments of the term loan over the next five years are as follows:
($000s) ------------------------------------------------------------ 2009 1,086 2010 4,639 2011 4,014 2012 889 2013 889 2014 296 ------------ 11,813 ------------ ------------ PRINCIPAL BUSINESS RISKS
Bankers' business and results of operations are subject to a number of risks and uncertainties, including but not limited to the following:
Exploration, development, production and marketing of oil and natural gas involves a wide variety of risks which include but are not limited to the uncertainty of finding oil and gas in commercial quantities, securing markets for existing reserves, commodity price fluctuations, exchange and interest rate exposure and changes to government regulations, including regulations relating to prices, taxes, royalties and environmental protection. The oil and gas industry is intensely competitive and the Company competes with a large number of companies with greater resources.
Bankers' ability to increase its reserves in the future will depend not only on its ability to develop its current properties but also on its ability to acquire new prospects and producing properties. The acquisition, exploration and development of new properties also require that sufficient capital from outside sources will be available to the Company in a timely manner. The availability of equity or debt financing is affected by many factors many of which are beyond the control of the Company.
Bankers has a significant investment in Albania. There are a number of risks associated with conducting foreign operations over which the Company has no control, including political instability, potential and actual civil disturbances, ability to repatriate funds, changes in laws affecting foreign ownership and existing contracts, environmental regulations, oil and gas prices, production regulations, royalty rates, income tax law changes, potential expropriation of property without fair compensation and restriction on exports. Additional risks that may affect the Company and its operations are set out in its AIF filed under the Company's profile on www.sedar.com.
RELATED PARTY TRANSACTIONS
The Company has a note receivable from BNK Petroleum Inc. (BKX), a related party, in the amount of $11.3 million that is considered to be in the normal course of business. Bankers has no further obligation to increase the note, which is due on October 2012 and accrues interest at LIBOR plus 5.5%. At September 30, 2009, no principal or interest amounts were due. The Company is entitled to receive up to 50% of any future equity financing by BKX and 90% of any increase in BKX's borrowing base, as repayment of this note. During the quarter, the Company received $0.5 million in payment of accrued interest receivable of $0.2 million and principal on the note of $0.3 million. Subsequent to September 30, 2009, BKX expects to complete an equity financing and has agreed to repay approximately $10.0 million towards the note and accumulated interest.
NEW ACCOUNTING STANDARDS - Goodwill (Section 3064) - This section applies to goodwill subsequent to initial recognition and establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This new standard has not had a material impact on Bankers' consolidated financial statements. - Transition to International Financial Reporting Standards (IFRS) - In February 2008 the Canadian Accounting Standards Board confirmed January 1, 2011 as the effective date for the requirement to report under IFRS along with conversion of comparative 2010 periods. The impact of IFRS on our results of operations and future financial position is not reasonably determinable at this time. The Company has supported staff training programs, has engaged external advisors to plan the IFRS initiative and is in the process of completing a preliminary assessment of transitional requirements to identify expected impacts on the Company. Regular reports on the IFRS transition status will be made to Management and the Audit Committee. - Business combinations - In December 2008 the CICA issued the new accounting standard 1582, Business Combination replacing Section 1581. This Section establishes principles and requirements for accounting for business combinations. Significant changes include determination of the purchase price based on the fair value of shares exchanged at the market price on the acquisition or closing date. The new guidance also requires that all acquisition related costs be expensed as incurred and contingent liabilities are to be measured at fair value at acquisition date and re-measured to fair value at each reporting period through earnings until settled. In addition, negative goodwill is required to be recognized in earnings on the acquisition date. The new Section will be applied prospectively effective January 1, 2011. INTERNAL CONTROLS
The Company's President and Chief Executive Officer (CEO) and Vice President, Finance and Chief Financial Officer (CFO) are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting as defined in NI 52-109.
Disclosure controls and procedures have been designed to ensure that information to be disclosed by the Company is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. The Company's CEO and CFO have evaluated the effectiveness of the disclosure controls and procedures as at September 30, 2009 and have concluded that they provide reasonable assurance that all material information relating to the Company is disclosed in a timely manner.
Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of the Company's financial reporting and compliance with generally accepted accounting principles. The CEO and CFO have evaluated the Company's internal controls over financial reporting as at September 30, 2009 based on the framework in "Internal Control Over Financial Reporting - Guidance for Smaller Public Companies" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and have concluded they are designed and operating effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP. During the quarter ended September 30, 2009 there have been no changes to the Company's internal controls over financial reporting that will, or are reasonably likely to, materially affect the internal controls over financial reporting.
Because of their inherent limitations, disclosure controls and procedures and internal controls over financial reporting may not prevent or detect misstatements, errors or fraud. Control systems, no matter how well conceived or operated, can provide only reasonable and not absolute assurance that the objectives of the control systems are met.
OUTLOOK
By year-end 2009, Bankers expects to have 11 horizontal wells on production, ten of which were drilled in the second half of 2009. Based on this successful horizontal drilling program, a contract for the second drill rig has now been finalized. The second rig will arrive in mid-December and be ready to commence drilling in January 2010. Bankers expects to drill up to 50 horizontal wells and 4 vertical wells from utilization of both drill rigs in 2010. Discussions are ongoing for the addition of a third rig in mid-2010.
The Company will continue to drill test horizontal wells in different areas and zones to fully evaluate the field's reserves and production potential. In 2010, the horizontal development drilling program will focus on the highest productivity areas and zones in the field. Detailed mapping has outlined more than 400 horizontal drilling locations to be drilled at the Patos Marinza field over the next few years. Full details of Bankers' 2010 capital expenditure program are expected to be released when fully ratified, expected by mid-December 2009.
Bankers is well positioned financially to accommodate its growth plans. At September 30, 2009, the Company has available cash resources of $61 million and $142 million of credit facilities that, in conjunction with expected cash flow from operations, will more than adequately fund its 2009 and 2010 development programs. For 2009, the projected $44 million capital expenditure program is expected to yield an exit production rate of approximately 8,000 bopd. The cash position has recently been supplemented with $6.5 million from warrant proceeds and an expected $10 million from collection of a related-party note by mid-November. The Company will continue to monitor oil prices and is prepared to make adjustments to its capital program if deemed necessary.
BANKERS PETROLEUM LTD. CONSOLIDATED BALANCE SHEETS (Unaudited, expressed in thousands of United States dollars) ------------------------------------------------------------------------- ASSETS September 30 December 31 2009 2008 ------------------------- Current assets Cash and cash equivalents (Note 11) $ 54,886 $ 15,607 Short-term deposits 5,000 3,000 Restricted cash 1,500 1,500 Investments 571 134 Accounts receivable 27,349 17,591 Crude oil inventory 1,295 1,588 Deposits and prepaid expenses 3,186 1,231 ------------------------- 93,787 40,651 Note receivable (Note 3) 11,342 13,000 Deferred financing costs (Note 5) 14,776 - Property, plant and equipment (Note 4) 172,307 161,024 ------------------------- $ 292,212 $ 214,675 ------------------------- ------------------------- LIABILITIES Current liabilities Operating loan (Note 5) $ 19,542 $ 17,500 Accounts payable and accrued liabilities 19,492 26,788 Current portion of term loans (Note 5) 4,565 3,750 ------------------------- 43,599 48,038 Term loans (Note 5) 7,248 6,875 Asset retirement obligations (Note 6) 3,672 2,896 Future income tax liability (Note 7) 34,686 31,508 SHAREHOLDERS' EQUITY Share capital (Note 8) 198,785 121,907 Warrants (Note 8) 2,043 2,088 Contributed surplus (Note 8) 14,704 11,862 Deficit (12,962) (10,499) Accumulated other comprehensive income 437 - ------------------------- 203,007 125,358 ------------------------- $ 292,212 $ 214,675 ------------------------- ------------------------- Commitments (Note 10) See accompanying notes to consolidated financial statements. BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT, COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Unaudited, Expressed in thousands of United States dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 --------------------------------------------------- Deficit Balance, beginning of period $ (14,670) $ (9,404) $ (10,499) $ (8,324) Net income (loss) for the period 1,708 4,876 (2,463) 6,232 Discontinued operations - 2,396 - 2,396 Restructuring costs - (360) - (2,796) --------------------------------------------------- Balance, end of period $ (12,962) $ (2,492) $ (12,962) $ (2,492) --------------------------------------------------- --------------------------------------------------- Comprehensive income (loss) Net income (loss) for the period $ 1,708 $ 4,876 $ (2,463) $ 6,232 Unrealized gain (loss) on investments 432 (1,454) 437 (296) --------------------------------------------------- Comprehensive income (loss) $ 2,140 $ 3,422 $ (2,026) 5,936 --------------------------------------------------- --------------------------------------------------- Accumulated other comprehensive income (loss) Balance, beginning of period $ 5 $ 1,158 $ - $ - Unrealized gain (loss) on investments 432 (1,454) 437 (296) --------------------------------------------------- Balance, end of period $ 437 $ (296) $ 437 $ (296) --------------------------------------------------- --------------------------------------------------- See accompanying notes to consolidated financial statements. BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited, expressed in thousands of United States dollars, except per share amounts) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 --------------------------------------------------- Revenue Oil revenue $ 23,441 $ 33,543 $ 56,600 $ 92,377 Royalties (5,368) (7,790) (14,243) (18,689) Interest 216 541 697 1,141 --------------------------------------------------- 18,289 26,294 43,054 74,829 --------------------------------------------------- Expenses Operating 6,083 7,503 17,343 20,902 Sales and transportation 2,739 1,932 6,168 5,323 General and administrative 1,410 2,157 4,693 6,282 Interest and bank charges 685 361 1,283 897 Interest on term loans 205 184 552 812 Foreign exchange (gain) loss (2,638) 661 (3,670) 876 Stock-based compensation (Note 8) 923 1,137 3,083 5,922 Amortization of deferred financing costs (Note 5) 692 - 1,128 - Depletion, depreciation and accretion 3,877 3,327 11,759 9,367 --------------------------------------------------- 13,976 17,262 42,339 50,381 --------------------------------------------------- Income from continuing operations before income tax 4,313 9,032 715 24,448 Future income tax expense (Note 7) (2,605) (4,156) (3,178) (18,028) --------------------------------------------------- Income (loss) from continuing operations 1,708 4,876 (2,463) 6,420 Discontinued operations - - - (188) --------------------------------------------------- Net income (loss) for the period $ 1,708 $ 4,876 $ (2,463) $ 6,232 --------------------------------------------------- --------------------------------------------------- Basic earnings (loss) per share - continuing operations $ 0.008 $ 0.027 $ (0.012) $ 0.037 --------------------------------------------------- --------------------------------------------------- Diluted earnings (loss) per share - continuing operations $ 0.008 $ 0.026 $ (0.012) $ 0.035 --------------------------------------------------- --------------------------------------------------- Basic and diluted earnings (loss) per share - discontinued operations $ - $ - $ - $ (0.001) --------------------------------------------------- --------------------------------------------------- See accompanying notes to consolidated financial statements. BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, expressed in thousands of United States dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30 September 30 ------------------------------------------------------------------------- 2009 2008 2009 2008 --------------------------------------------------- Cash provided by (used in): Continuing operations: Net income (loss) from continuing operations $ 1,708 $ 4,876 $ (2,463) $ 6,420 Items not involving cash: Depletion, depreciation and accretion 3,877 3,327 11,759 9,367 Amortization of deferred financing costs 692 - 1,128 - Future income tax expense 2,605 4,156 3,178 18,028 Stock-based compensation 923 1,137 3,083 5,922 Unrealized foreign exchange (gain) loss (2,434) 1,299 (2,051) 1,637 --------------------------------------------------- 7,371 14,795 14,634 41,374 Change in non-cash working capital (Note 11) (2,359) (1,671) (14,960) (1,852) --------------------------------------------------- 5,012 13,124 (326) 39,522 --------------------------------------------------- Cash used in operating activities of discontinued operations - - - 10,470 --------------------------------------------------- Investing activities Additions to property, plant and equipment (12,104) (25,502) (21,065) (56,367) Additions to property, plant and equipment of discontinued operations - - - (25,465) Increase in restricted cash - - - (1,500) Change in non-cash working capital (Note 11) 1,140 2,564 (3,756) 4,540 --------------------------------------------------- (10,964) (22,938) (24,821) (78,792) --------------------------------------------------- Financing activities Issue of shares 24,952 6,852 63,475 79,914 Share issue costs - (5) (2,220) (1,490) Note receivable 323 (2,465) 1,658 (13,000) Short-term deposits 2,000 - (2,000) - Restructuring costs - (360) - (2,796) Deferred financing costs (222) - (1,768) - Increase (decrease) in operating loan (359) (484) 2,042 215 Increase (decrease) in term loans (937) (937) 1,188 (3,437) Change in non-cash working capital (Note 11) - (1,836) - 600 --------------------------------------------------- 25,757 765 62,375 60,006 --------------------------------------------------- Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies 2,434 (1,299) 2,051 (1,637) --------------------------------------------------- Increase (decrease) in cash and cash equivalents 22,239 (10,348) 39,279 29,569 Cash and cash equivalents, beginning of period 32,647 42,516 15,607 2,599 --------------------------------------------------- Cash and cash equivalents, end of period (Note 11) $ 54,886 $ 32,168 $ 54,886 $ 32,168 --------------------------------------------------- --------------------------------------------------- See accompanying notes to consolidated financial statements. Notes to the Consolidated Financial Statements (Unaudited, Expressed in U.S. dollars) ------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Certain information and note disclosures normally included in financial statements prepared in accordance with Canadian GAAP have been condensed or omitted. These interim consolidated financial statements should be read together with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2008. 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 preparation of interim financial statements is based on accounting principles and practices consistent with those used in the preparation of annual financial statements, except for the following changes in accounting policies: Goodwill (Section 3064) - This section applies to goodwill subsequent to initial recognition and establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This new standard does not have an impact on Bankers' consolidated financial statements. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned operating subsidiaries - Bankers Petroleum Albania Ltd. (BPAL), Bankers Petroleum International Ltd. and Sherwood International Petroleum Ltd. Unless where otherwise noted, the unaudited interim consolidated financial statements are presented in thousands of United States dollars. 2. FUTURE ACCOUNTING CHANGES International Financial Reporting Standards In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011 as the effective date for the requirement to report under International Financial Reporting Standards (IFRS) with comparative 2010 periods converted as well. In order to meet the requirement to transition to IFRS the Company has appointed internal staff to lead the conversion project along with sponsorship from an executive steering committee. The Company involves the external auditors and external consultants, as required, during the conversion project. The Company has provided training to key employees, completed a preliminary analysis of the accounting differences and is monitoring the impact of the transition on its business practices, information systems and internal control over financial reporting. During the Company's preliminary analysis, accounting implementation for certain areas was identified as having the greatest potential impact to the Company's consolidated statements in terms of complexity and effort. The Company has determined that accounting for property, plant and equipment, impairment testing, asset retirement obligations, stock-based compensation and income taxes will be significantly impacted by the conversion to IFRS. The precise impact of IFRS on the Company's consolidated financial statements is not reasonably determinable at this time. 3. NOTE RECEIVABLE The note receivable of $11.3 million (December 31, 2008 - $13.0 million) represents the amount due from BNK Petroleum Inc. (BKX). The note, which is due in October 2012, accrues interest at London InterBank Offered Rate (LIBOR) plus 5.5% and is secured by a floating charge debenture and a general security agreement. At September 30, 2009 no principal or interest amounts were due. The outstanding accrued interest receivable pertaining to this note was $0.2 million (December 31, 2008 - $0.4 million) and is included in accounts receivable as at September 30, 2009. The Company is entitled to receive up to 50% of any future equity financing by BKX and 90% of any increase in BKX's borrowing base as repayment of this note. The Company has no further obligation to increase the note. BKX is considered a related party as BKX and the Company have common directors. Subsequent to September 30, 2009, BKX announced an equity financing, expected to close on November 13, 2009 and expects to repay approximately $10.0 million of the subordinated loan and interest outstanding. The above transaction is considered to be in the normal course of business and has been measured at the exchange amount being the amounts agreed to by both the parties. 4. PROPERTY, PLANT AND EQUIPMENT The following table summarizes the Company's property, plant and equipment as at September 30, 2009 and December 31, 2008: September 30, 2009 --------------------------------------------------------------------- Accumulated Depletion and Net Book ($000s) Cost Depreciation Value --------------------------------------------------------------------- Oil properties $ 209,260 $ 38,963 $ 170,297 Equipment, furniture and fixtures 3,611 1,601 2,010 ---------------------------------------- $ 212,871 $ 40,564 $ 172,307 ---------------------------------------- ---------------------------------------- December 31, 2008 --------------------------------------------------------------------- Accumulated Depletion and Net Book ($000s) Cost Depreciation Value --------------------------------------------------------------------- Oil properties $ 186,650 $ 27,812 $ 158,838 Equipment, furniture and fixtures 3,400 1,214 2,186 ---------------------------------------- $ 190,050 $ 29,026 $ 161,024 ---------------------------------------- ---------------------------------------- The depletion expense calculation for the three months ended September 30, 2009, excluded $4.0 million (2008 - $2.0 million) relating to undeveloped and non-producing properties in Albania. Depletable assets for the depletion calculation for the three months ended September 30, 2009 included $277.4 million (2008 - $183.0 million) for estimated future development costs associated with proved undeveloped reserves in Albania. The Company capitalized general and administrative expenses and stock- based compensation of $0.8 million and $2.6 million during the three and nine months periods ended September 30, 2009, respectively ($0.8 million and $2.6 million for the corresponding periods in 2008) that were directly related to exploration and development activities in Albania. 5. LONG TERM AND OPERATING LOAN FACILITIES The Company has credit facilities with three international banks, including Raiffeisen Bank, the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), as summarized below: Facility ($000s) Amount Outstanding Amount --------------------------------------------------------------------- September 30, December 31, 2009 2008 ----------------------------- Raiffeisen Bank --------------- Operating loan (a) $ 20,000 $ 19,542 $ 17,500 Term loan - 2006 (b) 7,813 7,813 10,625 Term loan - 2009 (c) 4,000 4,000 - EBRD and IFC(x) --------------- Environmental term loan (d) 10,000 - - Revolving loan - Tranche 1 (e) 50,000 - - Revolving loan - Tranche 2 (e) 50,000 - - ---------------------------------------- $ 141,813 $ 31,355 $ 28,125 ---------------------------------------- ---------------------------------------- (x) all facilities are equally funded These facilities are secured by all of the assets of BPAL, assignment of proceeds from the Albanian domestic and export crude oil sales contracts, a pledge of the common shares of BPAL and a guarantee by the Company. The credit facilities are subject to certain covenants requiring the maintenance of certain financial ratios, all of which were met as at September 30, 2009. (a) Operating Loan The operating loan consists of a one year facility, renewable annually (March), bearing interest at a rate relative to the bank's refinancing rate plus 3.5%. (b) Term Loan - 2006 This term loan bears interest at the bank's financing rate plus 4.5% and is repayable in equal monthly instalments of $0.3 million ending on October 31, 2011. As at September 30, 2009 the entire term loan was utilized. Of the amount outstanding, $3.8 million is classified as current and $4.0 million as long-term. Principal repayments of the term loan over the next three years are: ($000s) --------------------------------------------------------------------- 2009 $ 938 2010 3,750 2011 3,125 ------------ $ 7,813 ------------ ------------ (c) Term Loan - 2009 In March 2009, the Company obtained a new $4.0 million five-year term facility bearing interest at the bank's refinancing rate plus 4.65%. Principle repayments commence in November 2009 in equal monthly instalments of $74,000 for a 54-month period. As at September 30, 2009, the entire facility was utilized. Of the amount outstanding, $0.8 million is classified as current and $3.2 million as long-term. Principal repayments of the term loan over the next six years are: ($000s) --------------------------------------------------------------------- 2009 $ 148 2010 889 2011 889 2012 889 2013 889 2014 296 ------------ $ 4,000 ------------ ------------ (d) Environmental Term Loan An eight-year $10.0 million term loan commenced in May 2009 and is available for environmental and social programs pertinent to the Company's activities in Albania. The interest rate is based on LIBOR plus 4.5%. A standby fee of 0.5% is charged on the unutilized portion. At September 30, 2009 none of the facility was drawn. Principal repayments commence in April 2013 in bi-annual instalments of $0.5 million with maturity on October 15, 2017. (e) Revolving loans In May 2009, the Company finalized a six-year revolving facility, funded equally by EBRD and IFC, that consists of two $50.0 million tranches. Tranche I became available to the Company during the third quarter of 2009 and Tranche II becomes available subject to mutual agreement among the Company, IFC and EBRD, when production exceeds 10,000 barrels of oil per day and the Brent oil price exceeds $62 per barrel for twenty consecutive trading days. The interest rate is based on LIBOR plus 4.5%. A standby fee of 2.0% is charged on the unutilized Tranche I portion and Tranche II portion, when it becomes available. At September 30, 2009 none of the facility was drawn. For each of Tranche I and Tranche II, the amounts decline to $16.5 million on October 15, 2013, $8.3 million on October 14, 2014 with final repayment due on October 15, 2015. Setup costs of $15.9 million (December 31, 2008 - nil) pertaining to these facilities, including the value attributed to the share purchase warrants (Note 8(b)), have been recorded as deferred financing costs and are amortized over the life of the revolving facilities. 6. ASSET RETIREMENT OBLIGATIONS In Albania, the Company estimated the total undiscounted amount required to settle the asset retirement obligations at September 30, 2009 at $23.9 million (December 31, 2008 - $21.4 million). These obligations will be settled at the end of the Company's 25-year license of which 22 years are remaining. The liability has been discounted using a credit-adjusted risk-free interest rate of 10% (December 31, 2008 - 10%) and an inflation rate of 2.5% (December 31, 2008 - 2.5%) to arrive at asset retirement obligations of $3.7 million as at September 30, 2009. ($000s) --------------------------------------------------------------------- Asset retirement obligations, December 31, 2008 $ 2,896 Liabilities incurred during the period 556 Accretion 220 ------------ Asset retirement obligations, September 30, 2009 $ 3,672 ------------ ------------ 7. INCOME TAXES Future income tax expense relates to the Albanian operations and results from the following: September 30 December 31 ($000s) 2009 2008 --------------------------------------------------------------------- Net book value of property, plant and equipment, net of asset retirement obligations $ 164,692 $ 151,972 Cost recovery pool (95,320) (88,956) ----------------------------- Timing difference $ 69,372 $ 63,016 ----------------------------- ----------------------------- Future income tax liability at 50% $ 34,686 $ 31,508 ----------------------------- ----------------------------- The cost recovery pool represents deductions for income tax purposes in Albania at 50% income tax rate. The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before tax provision due to the following: Three months ended Nine months ended September 30 September 30 --------------------------------------------------------------------- 2009 2008 2009 2008 --------------------------------------------------------------------- Income before income taxes 4,313 9,032 715 24,448 Statutory tax rate 29.00% 29.50% 29.00% 29.50% ------------------------------------------ 1,251 2,664 207 7,212 Difference in tax rates between Albania and Canada 855 2,440 697 6,937 Non-deductible expenses 268 335 894 1,902 Valuation allowance and other 231 (1,283) 1,380 1,977 ------------------------------------------ Future income tax expense 2,605 4,156 3,178 18,028 ------------------------------------------ ------------------------------------------ 8. SHAREHOLDERS' EQUITY (a) Share Capital Authorized Unlimited number of common shares with no par value. Issued Number of Common Shares Amount ($000) --------------------------------------------------------------------- Balance, December 31, 2007 452,509,492 $ 136,513 Consolidation adjustment(x) (301,672,997) - Discontinued operations - (97,472) Prospectus issue 22,222,222 59,749 Stock options exercised 6,179,624 15,038 Warrants exercised 3,301,838 9,569 Share issuance costs - (1,490) --------------------------------------- Balance, December 31, 2008 182,540,179 121,907 Prospectus issue 25,143,800 38,349 Warrants exercised 16,407,924 36,979 Stock options exercised 1,291,239 3,770 Share issuance costs - (2,220) --------------------------------------- Balance, September 30, 2009 225,383,142 $ 198,785 --------------------------------------- --------------------------------------- (x) On July 30, 2008, the Company's shares, warrants and options were consolidated on a one-for-three (1:3) basis, as approved by the shareholders In May 2009, the Company completed an equity offering with a syndicate of underwriters and issued an aggregate of 25,143,800 common shares at a price of CAD$1.75 per common share on a bought- deal basis, resulting in proceeds of $36.1 million net of commissions and share issue expenses. In July 2009, EBRD and IFC exercised warrants to purchase 16 million common shares of the Company at a price of CAD$1.50 per share, generating proceeds of approximately $21.9 million. The following table summarizes the calculation of basic and diluted weighted average number of common shares: Three months ended Nine months ended September 30 September 30 --------------------------------------------------------------------- 2009 2008 2009 2008 --------------------------------------------------------------------- Weighted-average number of common shares outstanding - basic 220,615,444 182,237,294 200,225,147 174,250,384 Dilution effect of stock options(xx) 4,452,078 3,063,227 - 3,286,036 Dilution effect of warrants(xx) 2,449,106 3,812,929 - 4,131,498 ---------------------------------------------------- Weighted-average number of common shares outstanding - diluted 227,516,628 189,113,450 200,225,147 181,667,918 ---------------------------------------------------- ---------------------------------------------------- (xx) Due to net loss for the nine months period ended September 30, 2009, the effect is anti-dilutive. (b) Warrants A summary of the changes in warrants is presented below: Amount Number of Warrants ($000) --------------------------------------------------------------------- Balance, December 31, 2007 38,323,452 $ 2,539 Consolidation adjustment(x) (25,548,968) - ------------------------------------- 12,774,484 2,539 Issued 240,729 255 Transferred to share capital on exercise (3,301,838) (706) ------------------------------------- Balance, December 31, 2008 9,713,375 2,088 Issued 16,000,000 14,136 Transferred to share capital on exercise (16,407,924) (14,181) ------------------------------------- Balance, September 30, 2009 9,305,451 $ 2,043 ------------------------------------- ------------------------------------- (x) On July 30, 2008, the Company's shares, warrants and options were consolidated on a one-for-three (1:3) basis, as approved by the shareholders In May 2009, the Company reserved for issuance 16 million common share purchase warrants, eight million for each of the two international banks (EBRD and IFC) in relation to the reserve based long-term facility described in Note 5(d). Each warrant entitled the holder to purchase one common share of the Company at a price of CAD$1.50 when the Brent oil price is above $55 per barrel for ten consecutive trading days until the earlier of i) one year from such date or ii) 45 days after the date on which the Company has notified that its common shares close at or above the exercise price for twenty consecutive trading days. The Company determined the fair value of the warrants as CAD$1.01 per warrant using the Black-Scholes option pricing model. As a result, a value of $14.1 million was allocated to warrants. All the above warrants were exercised during the three months ended September 30, 2009. Subsequent to September 30, 2009, 2.7 million of the November 2009 warrants were exercised generating proceeds of CAD$6.8 million. Approximately 428,000 November 2009 warrants remained unexercised at their expiry on November 10, 2009 and have been cancelled. The following table summarizes the outstanding and exercisable warrants at September 30, 2009: --------------------------------------------------------------------- Weighted Average Number of Warrants Exercise Outstanding and Price Expiry Date exercisable (CAD$) --------------------------------------------------------------------- November 10, 2009 3,165,117 2.49 November 15, 2010 1,266,667 2.63 March 1, 2012 4,873,667 2.37 ------------------------------------- 9,305,451 2.45 ------------------------------------- ------------------------------------- (c) Stock Options The Company has established a "rolling" Stock Option Plan. The number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding shares and, to any one optionee, may not exceed 5% of the issued and outstanding shares on a yearly basis or 2% if the optionee is engaged in investor relations activities or is a consultant. The exercise price of each option shall not be less than the market price of the Company's stock at the date of grant. A summary of the changes in stock options is presented below: Weighted Average Exercise Price Number of Options (CAD$) --------------------------------------------------------------------- Balance, December 31, 2008 11,936,128 2.26 Granted 3,030,000 1.83 Exercised (1,291,239) 1.99 Forfeited (1,372,442) 2.77 ------------------------------------- Balance, September 30, 2009 12,302,447 2.24 ------------------------------------- ------------------------------------- (d) Stock-based Compensation Using the fair value method for stock-based compensation, the Company calculated stock-based compensation expense for the three and nine months periods ended September 30, 2009 as $1.3 million and $4.3 million, respectively ($1.4 million and $7.0 million for the same periods in 2008) for the stock options vested and/or granted to officers, directors, employees and service providers. Of these amounts, $0.9 million and $3.1 million ($1.1 million and $5.9 million for the same periods in 2008) were charged to earnings and $0.4 million and $1.2 million ($0.4 million and $1.1 million for the same periods in 2008) were capitalized. The Company determined these amounts using the Black-Scholes option pricing model assuming no dividends were paid. The weighted average fair market value per option granted in the three and nine months periods ended September 30, 2009 and 2008 and the assumptions used in their determination were as follows: Three months ended Nine months ended September 30 September 30 --------------------------------------------------------------------- 2009 2008 2009 2008 --------------------------------------------------------------------- Weighted average fair value per option(CAD$) - 2.24 1.55 2.49 Risk-free interest rate (%) - 3.09 2.33 3.28 Average volatility (%) - 74 125 72 Expected life (years) - 5 5 5 (e) Contributed Surplus The following table summarizes the changes in contributed surplus as of September 30, 2009 and December 31, 2008: ($000s) 2009 2008 --------------------------------------------------------------------- Balance, beginning of period $ 11,862 $ 8,308 Stock-based compensation 4,284 9,136 Discontinued operations - (1,591) Transferred to share capital on exercise (1,442) (3,991) ------------------------------- Balance, end of period $ 14,704 $ 11,862 ------------------------------- ------------------------------- 9. SEGMENTED INFORMATION The Company defined its reportable segments based on geographic locations. Nine months ended September 30, 2009 ($000s) Albania Canada Total --------------------------------------------------------------------- Revenue Oil revenue $ 56,600 $ - $ 56,600 Royalties (14,243) - (14,243) Interest 1 696 697 ---------------------------------------- 42,358 696 43,054 ---------------------------------------- Expenses Operating 17,343 - 17,343 Sales and transportation 6,168 - 6,168 General and administrative 2,257 2,436 4,693 Interest and bank charges 860 423 1,283 Interest on term loan 552 - 552 Foreign exchange (gain) loss (56) (3,614) (3,670) Stock-based compensation 247 2,836 3,083 Amortization of deferred financing costs - 1,128 1,128 Depletion, depreciation and accretion 11,666 93 11,759 ---------------------------------------- 39,037 3,302 42,339 ---------------------------------------- Income (loss) before income taxes 3,321 (2,606) 715 Future income tax expense (3,178) - (3,178) ---------------------------------------- Net income (loss) for the period $ 143 $ (2,606) $ (2,463) ---------------------------------------- ---------------------------------------- Assets, September 30, 2009 $ 203,291 $ 88,921 $ 292,212 ---------------------------------------- ---------------------------------------- Additions to property, plant and equipment $ 21,008 $ 57 $ 21,065 ---------------------------------------- ---------------------------------------- Nine months ended September 30, 2008 ($000s) Albania Canada Total --------------------------------------------------------------------- Revenue Oil revenue $ 92,377 $ - $ 92,377 Royalties (18,689) - (18,689) Interest - 1,141 1,141 ---------------------------------------- 73,688 1,141 74,829 ---------------------------------------- Expenses Operating 20,902 - 20,902 Sales and transportation 5,323 - 5,323 General and administrative 2,468 3,814 6,282 Interest and bank charges 897 - 897 Interest on term loans 812 - 812 Foreign exchange (gain) loss (412) 1,288 876 Stock-based compensation 611 5,311 5,922 Depletion, depreciation and accretion 9,248 119 9,367 ---------------------------------------- 39,849 10,532 50,381 ---------------------------------------- Income (loss) from continuing operations before income taxes 33,839 (9,391) 24,448 Future income tax expense (18,028) - (18,028) ---------------------------------------- Income (loss) from continuing operations $ 15,811 $ (9,391) 6,420 --------------------------- --------------------------- Discontinued operations (188) ------------ Net income for the period $ 6,232 ------------ ------------ Assets, September 30, 2008 $ 166,257 $ 50,721 $ 216,978 ---------------------------------------- ---------------------------------------- Additions to property, plant and equipment $ 56,304 $ 63 $ 56,367 ---------------------------------------- ---------------------------------------- Three months ended September 30, 2009 ($000s) Albania Canada Total --------------------------------------------------------------------- Revenue Oil revenue $ 23,441 $ - $ 23,441 Royalties (5,368) - (5,368) Interest - 216 216 ---------------------------------------- 18,073 216 18,289 ---------------------------------------- Expenses Operating 6,083 - 6,083 Sales and transportation 2,739 - 2,739 General and administrative 689 721 1,410 Interest and bank charges 262 423 685 Interest on term loan 205 - 205 Foreign exchange (gain) loss 107 (2,745) (2,638) Stock-based compensation 72 851 923 Amortization of deferred financing costs - 692 692 Depletion, depreciation and accretion 3,846 31 3,877 ---------------------------------------- 14,003 (27) 13,976 ---------------------------------------- Income before income taxes 4,070 243 4,313 Future income tax expense (2,605) - (2,605) ---------------------------------------- Income for the period $ 1,465 $ 243 $ 1,708 ---------------------------------------- ---------------------------------------- Additions to property, plant and equipment $ 12,097 $ 7 $ 12,104 ---------------------------------------- ---------------------------------------- Three months ended September 30, 2008 ($000s) Albania Canada Total --------------------------------------------------------------------- Revenue Oil revenue $ 33,543 $ - $ 33,543 Royalties (7,790) - (7,790) Interest - 541 541 ---------------------------------------- 25,753 541 26,294 ---------------------------------------- Expenses Operating 7,503 - 7,503 Sales and transportation 1,932 - 1,932 General and administrative 851 1,306 2,157 Interest and bank charges 361 - 361 Interest on term loan 184 - 184 Foreign exchange (gain) loss (387) 1,048 661 Stock-based compensation 118 1,019 1,137 Depletion, depreciation and accretion 3,286 41 3,327 ---------------------------------------- 13,848 3,414 17,262 ---------------------------------------- Income (loss) from continuing operations before income taxes 11,905 (2,873) 9,032 Future income tax expense (4,156) - (4,156) ---------------------------------------- Net income (loss) for the period $ 7,749 $ (2,873) $ 4,876 ---------------------------------------- ---------------------------------------- Additions to property, plant and equipment $ 25,493 $ 9 $ 25,502 ---------------------------------------- ---------------------------------------- 10. COMMITMENTS The Company leases office premises, requiring minimum lease payments of: ($000s) Albania Canada Total --------------------------------------------------------------------- 2009 $ 48 $ 40 $ 88 2010 191 55 246 2011 191 - 191 2012 8 - 8 ---------------------------------------- $ 438 $ 95 $ 533 ---------------------------------------- ---------------------------------------- The Company has debt repayment commitments as disclosed in Note 5. 11. SUPPLEMENTAL CASH FLOW INFORMATION Three months ended Nine months ended September 30 September 30 --------------------------------------------------------------------- 2009 2008 2009 2008 --------------------------------------------------------------------- Operating activities (Increase) decrease in current assets Accounts receivable $ (4,206) $ 971 $ (9,758) $ (4,809) Crude oil inventory 327 (750) 293 (1,219) Deposit and prepaid expenses (1,925) (2,738) (1,955) (3,098) (Decrease) increase in current liabilities Accounts payable and accrued liabilities 3,445 846 (3,540) 7,274 --------------------------------------------------- $ (2,359) $ (1,671) $ (14,960) $ (1,852) --------------------------------------------------- --------------------------------------------------- Investing activities (Decrease) increase in current liabilities Accounts payable and accrued liabilities $ 1,140 $ 2,564 $ (3,756) $ 4,540 --------------------------------------------------- --------------------------------------------------- Financing activities (Decrease) increase in current liabilities Accounts payable and accrued liabilities $ - $ (1,836) $ - $ 600 --------------------------------------------------- --------------------------------------------------- Interest paid $ 467 $ 454 $ 1,412 $ 1,709 --------------------------------------------------- --------------------------------------------------- Interest received $ 226 $ 541 $ 1,004 $ 1,141 --------------------------------------------------- --------------------------------------------------- September 30, December 31, 2009 2008 --------------------------------------------------------------------- Cash and cash equivalents Cash $ 1,598 $ 933 Fixed income investments 53,288 14,674 ---------------------------- $ 54,886 $ 15,607 ---------------------------- ---------------------------- 12. FINANCIAL RISK MANAGEMENT Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from petroleum refineries relating to accounts receivable. As at September 30, 2009, the Company's receivables consisted of $27.1 million (December 31, 2008 - $16.9 million) of receivables from petroleum refineries and $0.2 million (December 31, 2008 - $0.7 million) of other trade receivables as summarized below: 30 - 61 - Over ($000s) Current 60 days 90 days 90 days Total --------------------------------------------------------------------- Albania $ 13,952 $ - $ 3,502 $ 9,687 $ 27,141 Canada 208 - - - 208 ------------------------------------------------------------- $ 14,160 $ - $ 3,502 $ 9,687 $ 27,349 ------------------------------------------------------------- ------------------------------------------------------------- In Albania, the Company considers any amounts greater than 60 days as past due. The accounts receivable, included in the table, past due or not past due are not impaired. They are from counterparties with whom the Company has a history of timely collection and the Company considers the accounts receivable collectible. Domestic receivables from a petroleum refinery are due by the end of the month following production. Export receivables are collected within 30 days from the date of the shipment. The Company's policy to mitigate credit risk associated with these balances is to establish marketing relationships with large purchasers. Of the total receivables of $27.1 million in Albania, approximately $14.0 million (December 31, 2008 - $13.6 million) is due from one domestic customer of which $13.2 million is considered past due. The Company received $0.5 million from this customer as payments on account of sales during the quarter and received $1.5 million subsequent to September 30, 2009. The Company is in discussion with its Albanian legal counsel and the senior management of this customer towards reaching a payment plan. Bankers has the support of the Albanian government who confirm the validity of these outstanding amounts. In Canada, no amounts are considered impaired. The carrying amount of accounts receivable represents the maximum credit exposure. As of September 30, 2009 and December 31, 2008, the Company does not have an allowance for doubtful accounts and did not provide for any doubtful accounts nor was it required to write-off any receivables. The Company also has credit risk with respect to the $11.3 million Note Receivable from BKX and regularly monitors the operations and financial condition of the borrower (See Note 3). Subsequent to September 30, 2009, BKX expects to complete an equity financing on November 13, 2009 and has agreed to repay approximately $10.0 million of the note and interest outstanding.
For further information: Abby Badwi, President and Chief Executive Officer, (403) 513-2694; Doug Urch, VP, Finance and Chief Financial Officer, (403) 513-2691; Email: investorrelations(at)bankerspetroleum.com, Website: www.bankerspetroleum.com; AIM NOMAD: Canaccord Adams Limited, Ryan Gaffney, Henry Fitzgerald-O'Connor, +44 20 7050 6500; AIM JOINT BROKERS: Canaccord Adams Limited, Ryan Gaffney, Henry Fitzgerald-O'Connor, +44 20 7050 6500; Macquarie Capital Advisors, Paul Connolly, Ben Colegrave, +44 (0) 20 3037 2000 (BNK)
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