13 Aug 2008 13:09
Bankers Petroleum achieves record production, revenue, funds from operations and net income
CALGARY, Aug. 13 /CNW/ - Bankers Petroleum Ltd. is pleased to announce record production, revenue and funds from operations during the three months ended June 30, 2008.
- Average production was 6,131 boepd, 5,826 bopd from Albania and
305 boepd from its U.S. operations, representing a 12% increase from
5,452 boepd for the first quarter of 2008, and 42% higher than the
4,314 boepd for the second quarter of 2007.
- Higher production and increased commodity prices resulted in revenue
of $36.4 million for the quarter, up 39% as compared to $26.2 million
in the preceding quarter and up 182% from $12.9 million for the same period in 2007. - Funds from operations increased to $17.9 million from $10.1 million and $4.8 million for the three months ended March 31, 2008 and the corresponding period in 2007, respectively. ALBANIA
In Albania, the average oil price was $64.36 per barrel during the second quarter of 2008 compared to $51.96 per barrel for the previous quarter and $32.89 for the same period in 2007, increases of 24% and 96% respectively.
Bankers commenced drilling operations in the Patos Marinza oil field withthe spudding of its first vertical infill well in June, 2008, the first ofnumerous undrilled spacing units in the field that the Company interprets asbeing undrained areas. Two additional wells have been drilled and cased.Initial results confirm the Company's drainage model and support its plan todrill 110 vertical horizontal wells within the field over the next threeyears. Bankers acquired the remaining 50% working interest in the KuĤova oilfield in Albania, increasing total holdings in the field to 100%. The Companyexpects that an independent reserves evaluation to define the remainingreserves and production potential of the KuĤova oil field will be completed bythe end of August, 2008. Bankers will be focused on creating a plan ofdevelopment for this field, incorporating many of the extraction techniquesutilized in the Patos Marinza field. Bankers has signed an agreement with the developers of the Port of Vloreoil export terminal for the storage and handling of its oil in a 13,000 cubicmetre Company-dedicated oil tank. This storage facility will improve theCompany's export operations and allow for larger oil liftings when theterminal is ready to receive larger vessels next year.
US OPERATIONS
The Second Quarter 2008 Financial Statements and Management's Discussionand Analysis thereon fully consolidate the activities and results of Bankers'U.S. operations. On July 2, 2008, Bankers completed its plan of arrangementwherein all of the U.S. operations and assets were split into a newindependent company, BNK Petroleum Inc. ("BKX"). BKX commenced trading on theToronto Stock Exchange on July 10, 2008 and all futureactivities related to BKX will be reported separately.
MANAGEMENT CHANGES
Richard Wadsworth, President and Chief Operating Officer, and SusanSoprovich, Vice President, Investor Relations and Corporate Governance, haveleft the Company to pursue other opportunities, effective August 15, 2008. BobCross, Chairman of Bankers commented, "on behalf of the Company, we would liketo recognize the efforts and contribution made by both Richard and Susan andto wish them good luck in their future endeavours".
Abdel F. (Abby) Badwi has been named President and Chief Executive Officer.
OUTLOOK
"I am pleased to report that the first half of this year achieved all themajor components necessary to implement the Company's strategic objectives"said Abby Badwi, President and CEO of Bankers, "We completed the divestitureof the U.S. operations so we can maintain focus on exploration and productionactivities in Albania. Early results of the three-year strategic plan for thePatos Marinza oil field have already provided significant growth in productionand reserves. The acquisition of the Kucova oil field provides additionalopportunities for expansion. We have a strong balance sheet and our capitalprogram is designed to be fully funded from cash flow and available workingcapital. Our whole team is now focused on execution of our growth plans inAlbania". --------- 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 both the Patos-Marinza and the Kucova heavy oil fields. 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 management's discussion and analysis (MD&A) reports on thefinancial condition and results of operation of Bankers Petroleum Ltd.(Bankers or the Company) for the three and six month periods ended June 30,2008, compared to the preceding quarter and the corresponding period in theprior year, as well as information and expectations concerning the Company'soutlook based on currently available information. The MD&A should be read inconjunction with the unaudited interim consolidated financial statements forthe three and six month periods ended June 30, 2008 and the auditedconsolidated financial statements and MD&A for the year ended December 31,2007. Additional information relating to Bankers, including its AnnualInformation Form, 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, and are prepared in accordance with Canadiangenerally accepted accounting principles ("GAAP"). The majority of the Company's production is heavy oil (reported inbarrels), however, the Company also uses the "barrels of oil equivalent" (boe)reference in this report to reflect U.S. natural gas sales. All boeconversions are derived by converting gas to oil in the ratio of six thousandcubic feet of gas to one barrel of oil, representing the approximate energyequivalency. This report is prepared as of August 13, 2008. NON-GAAP MEASURES Netback per barrel and its components are calculated by dividing revenue,royalties, operating, sales and transportation expenses by the grossproduction volume during the period. Netback per barrel is a non-GAAP measurebut it 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, sales and transportation expenses. TheCompany believes that net operating income is a useful supplemental measure toanalyze operating performance and provides an indication of the resultsgenerated by the Company's principal business activities prior to theconsideration of other income and expenses. Funds from operations is a non-GAAP measure that represents cash providedby (used in) operating activities, as per the consolidated statements of cashflows, before changes in non-cash working capital. The Company considers thisa key measure as it demonstrates its ability to generate the funds necessaryfor future growth. Reconciliation to the GAAP measure is as follows: Three months ended June 30 Six months ended June
30
-----------------------------
----------------------------
($000s) 2008 2007 % 2008 2007 %
-------------------------------------------------------------------------
Cash provided by (used in) operating activities 6,456 3,669 76 16,255 3,440 373 Change in non-cash working capital 11,464 1,123 921 11,780 4,204 180 -----------------------------
----------------------------
Funds from
operations 17,920 4,792 274 28,035 7,644 267
-----------------------------
----------------------------
-----------------------------
----------------------------
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.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This MD & A offers our assessment of the Company's future plans andoperations as of August 13, 2008, and contains forward-looking informationincluding our expected source of funds and capital expenditure referred tounder "Liquidity and Capital Resources". Such information is generallyidentified by the use of words such as "target", "plans", "anticipate","continue", "estimate", "expect", "may", "will", "project", "should","believe" and similar expressions (including the negative thereof). By theirnature, these forward-looking statements are subject to numerous risks anduncertainties, some of which are beyond the Company's control, including theimpact of general economic conditions, volatility of commodity prices,currency fluctuations, imprecision of reserve estimates, environmental risks,taxation, royalties, regulations, competition from other industryparticipants, the lack of availability of qualified personnel or management,stock market volatility, and the Company's ability to access sufficientcapital from internal and external sources. With respect to such forward-looking information contained in this MD &A, the Company has made assumptions regarding, among other things, productiontargets, timing of the Company's planned work program and management's beliefas to the potential of certain properties, known and unknown risks,uncertainties and other factors which may cause the actual results of theCompany and its operations to be materially different from estimated costs orresults expressed or implied by such forward-looking statements. Such factors include, among others, general risks and uncertaintiesassociated with exploration, development, petroleum operations and risksassociated with equipment procurement and equipment failure as well as thosedescribed under "Risk Factors" in the Company's Annual Information Form and ineach MD&A. Although the Company has attempted to take into account importantfactors that could cause actual costs or results to differ materially, theremay be other factors that cause costs of the Company's program or results notto be as anticipated, estimated or intended. There can be no assurance thatsuch statements will prove to be accurate as actual results and future eventscould differ materially from those anticipated in such statements.Accordingly, readers should not place undue reliance on forward-lookinginformation. OVERVIEW Three months ended June 30 Six months ended June 30 -----------------------------
---------------------------- Results at a Glance 2008 2007 % 2008 2007 %
-------------------------------------------------------------------------
Financial ($000s, except as noted) Oil and gas revenue 36,353 12,913 182 62,597 23,652 165 Net operating income 19,609 6,176 218 33,541 10,686 214 Net income (loss) 1,050 600 75 1,356 (450) 401 Funds from operations 17,920 4,792 274 28,035 7,644 267 Additions to property, plant and equipment 36,763 23,257 58 56,330 37,271 51 Cash and cash equivalents 42,867 18,903 127 Total assets 315,631 175,550 80 Bank loans 29,004 19,471 49 Other long-term liabilities 30,790 8,059 282 Shareholders' equity 216,631 136,596 59 Three months ended June 30 Six months ended June 30 -----------------------------
----------------------------
2008 2007 % 2008 2007 %
-------------------------------------------------------------------------
Operating Albania - crude oil Average production (bopd) 5,826 4,314 35 5,522 4,351 27 Average price ($/barrel) 64.36 32.89 96 58.54 27.19 115 Netback ($/barrel) 34.63 16.14 115 29.58 11.42 159 U.S. - natural gas, natural gas liquids (NGL) and condensate(1) Average natural gas production (mcf/d) 990 - n/a 872 - n/a Average condensate & NGL production (bopd) 140 - n/a 123 - n/a Average natural gas price ($/mcf) 9.38 - n/a 8.36 - n/a Average condensate & NGL price ($/barrel) 105.97 - n/a 105.57 - n/a Netback ($/boe) 55.06 - n/a 49.13 - n/a
(1) U.S. production commenced in September 2007; the U.S. operations were
split from the Company pursuant to a Plan of Arrangement on July 2,
2008
Bankers achieved record production, revenues, netback and funds from operations during the three month period ended June 30, 2008 as compared to the same period in 2007:
- In Albania, average production was 5,826 bopd compared to 4,314 bopd for the same period in 2007 and 5,218 from the first quarter of 2008, an increase of 35% and 12% respectively. - Exit production for June 2008 was 5,867 bopd from the Albanian properties. - In the U.S., average gas production was 990 mcf/d compared to
762 mcf/d for the first quarter of 2008, an increase of 30%; average
condensate and NGL production was 140 bopd compared to 107 bopd for the previous quarter, an increase of 31%. - On a combined basis, this represented 6,131 boepd for the second quarter of 2008, a 12% increase from 5,452 boepd for the first quarter of 2008, and 42% higher than the 4,314 bopd for the second quarter of 2007.
- Higher production and increased commodity prices resulted in revenue
of $36.4 million for the quarter, up 39% as compared to $26.2 million
in the preceding quarter and up 182% from $12.9 million for the same period in 2007. - Net operating income improved to $19.6 million ($35.15 per barrel of oil equivalent) from $13.9 million ($28.39 per barrel of oil equivalent) in the preceding quarter and $6.2 million ($16.14 per barrel) for the same period in 2007, increases of 41% and 218% respectively. - Funds from operations increased to $17.9 million from $10.1 million and $4.8 million for the three months ended March 31, 2008 and the corresponding period in 2007, respectively. Albania Production increases and higher commodity prices helped Bankers to
receive higher overall average oil prices. The Company averaged $64.36 perbarrel during the second quarter of 2008 compared to $51.96 per barrel for theprevious quarter and $32.89 for the same period in 2007, increases of 24% and96% respectively. Bankers exported 60% of its crude during the second quarter of 2008 at anaverage price of $68.29 per barrel. In comparison, exports made up 42% of thesales during the quarter ended March 31, 2008 at an average price of$54.49 per barrel. The domestic sale price averaged $58.69 per barrel duringthe second quarter of 2008 as compared to $50.18 per barrel for the precedingquarter and $26.26 per barrel for the same period in 2007.
Other significant events during the quarter included:
- Bankers commenced drilling operations in the Patos Marinza oil field with the spudding of its first vertical infill well in June. As the first of four wells to be drilled off a drilling pad, the well was programmed to test the potential of multiple Gorani and Driza sandstone formations within the first of numerous undrilled spacing units in the field that the Company interprets as being undrained areas. - Bankers acquired the remaining 50% working interest in the KuĤova oil field in Albania, increasing total holdings in the field to 100%. The KuĤova oil field has approximately 490 million barrels of oil equivalent. United States
In Oklahoma, Bankers finished fracture stimulating its fifth horizontal shale well in the Tishomingo field, the Dunn 2-1H.
- The well had an initial gross production rate of approximately 4.8 mmcfe/d, which is significantly higher than previous wells drilled by the Company. - A gathering system was installed to connect the Brock wells to the processing facility, which was completed in late March. Bankers is waiting on parts for a tap upgrade to remove current throughput restrictions into the NGPL line. - Twelve new horizontal wells were spud in the Tishomingo gas field in the quarter: eight are drilled and cased. - Several initiatives to increase capacity are underway including new gathering lines, production facilities and second-party facilities.
This MD&A fully consolidates the activities and results of Bankers' U.S.operations. On July 2, 2008, Bankers completed its plan of arrangement wherebyall of the U.S. operations and assets were split into a new independentlymanaged company, BNK Petroleum Inc. ("BKX"). BKX commenced trading on theToronto Stock Exchange on July 10, 2008 and all futureactivities related to BKX will be reported separately. DISCUSSION OF OPERATING RESULTS Production and Revenue Three months ended June 30 Six months ended June 30 -----------------------------
---------------------------- Albania - crude oil 2008 2007 % 2008 2007 %
-------------------------------------------------------------------------
Average production (bopd) 5,826 4,314 35 5,522 4,351 27 Average price ($/barrel) 64.36 32.89 96 58.54 27.19 115 U.S. - natural gas, condensate & NGL
-------------------------------------------------------------------------
Average natural gas production (mcf/d) 990 - n/a 872 - n/a Average condensate & NGL production (bopd) 140 - n/a 123 - n/a Average natural gas price ($/mcf) 9.38 - n/a 8.36 - n/a Average condensate & NGL price ($/barrel) 105.97 - n/a 105.57 - n/a Oil and gas revenue ($000)
-------------------------------------------------------------------------
Albania 34,157 12,913 165 58,833 23,652 149 U.S. 2,196 - n/a 3,764 - n/a During the quarter, production continued to increase as more wells werere-activated in Albania, bringing the active well count to 191 from 172 in thepreceding quarter. As at June 30, 2008, the Company also had 107 wells waitingfor servicing and reactivation. Average production increased by 12% to5,826 bopd during the quarter from 5,218 bopd for the preceding quarter andincreased 35% from 4,314 bopd from the same period a year ago. For the sixmonths ended June 30, 2008, average production increased by 27% to 5,522 bopdfrom 4,351 bopd for the comparable six months in 2007. Planned well take-oversand work overs, as well as additions from new drilling during the balance ofthe year, are anticipated to enable Bankers to meet its previously announcedproduction targets of 7,000 bopd by year-end 2008. In Albania, increased production and commodity prices helped Bankers toreceive higher overall average oil revenue. The Company averaged $64.36 perbarrel during the second quarter of 2008 compared to $51.96 per barrel for theprevious quarter and $32.89 for the same period in 2007, increases of 24% and96%, respectively. For the six months ended June 30, 2008, Bankers averaged$58.54 per barrel compared to $27.19 per barrel for the same period in 2007. During the quarter, the Company exported approximately 60% of itsAlbanian crude oil production to two refineries in Italy at an average priceof $68.29 per barrel. Exports made up 42% of sales in the preceding quarter atan average price of $54.49 per barrel. The average price for domestic salesamounted to $58.69 per barrel, compared to $50.18 per barrel during theprevious quarter and $26.26 for the same period in 2007. Oil revenue from the Albanian operations for the quarter was$34.2 million up from $24.6 million for the quarter ended March 31, 2008, and$12.9 million for the corresponding quarter a year ago, increases of 38% and165% respectively. Oil revenue was $58.8 million for the six months ended June30, 2008, compared to $23.7 million for the same period in 2007.
Natural gas, condensate and natural gas liquids revenues from the U.S. operations were $2.2 million for the quarter, an increase of 38% from $1.6 million for the preceding period. Production increased to 305 boepd in the second quarter from 234 boepd in the first quarter of 2008. There was no revenue from the U.S. operations in the first half of 2007.
Royalties, Direct Expenses and Netbacks Three months ended June 30 Six months ended June 30 -----------------------------
---------------------------- Netback - Albania 2008 2007 % 2008 2007 %
-------------------------------------------------------------------------
Average price ($/barrel) 64.36 32.89 96 58.54 30.03 95 Royalties 12.43 4.28 190 12.25 3.96 209 Sales and transportation 3.27 2.56 28 3.38 2.26 49 Operating 14.03 9.91 42 13.33 10.04 33 -----------------------------
----------------------------
Netback
($/barrel) 34.63 16.14 115 29.58 13.77 115
-----------------------------
----------------------------
-----------------------------
----------------------------
Royalties in Albania are calculated pursuant to the Petroleum Agreementwith Albpetrol, and consist of Albpetrol's pre-existing production ("PEP") anda gross overriding royalty on new production. Royalties increased to$12.43 per barrel (19%) from $9.05 per barrel (17%) compared to the precedingquarter and $4.28 per barrel (13%) for the corresponding period in 2007. Theincrease in royalties was related to higher commodity prices and, effectiveApril 1, 2008, an increase in the gross overriding royalty to 10% of newproduction for the second quarter of 2008 as compared to 1% in both the firstquarter of 2008 and the second quarter of 2007. Bankers had previouslyproposed the 9% increase in the gross overriding royalty during the costrecovery period in exchange for expanded development opportunities of thePatos Marinza oil field, which was approved by Albpetrol and awaiting Ministryapproval. In the interim, the Albanian Parliament approved an amendment to thehydrocarbon fiscal system by establishing a 10% royalty tax in July 2008;Bankers does not expect the royalty tax to create an additional burden on itsoperations, since under Albanian Petroleum Law, amendments to the Petroleumand License Agreements will be made to mitigate any negative economic effectson the Company of changes or amendments to the fiscal terms. Increases in thedomestic sales price also contributed to the per-unit increase in royaltiesfrom 2007. For the six months ended June 30, 2008, royalties increased to$12.25 per barrel from $3.96 per barrel in 2007. This was largely due to theincrease in Albpetrol's PEP combined with the previously mentioned change inroyalties in 2008, both valued at the higher oil price now received fordomestic sales. Operating expenses increased to $14.03 per barrel from $12.02 per barrelin the preceding quarter and $9.91 per barrel for the same period in 2007.This increase was primarily due to significantly increased energy costs andretroactive cost adjustments for service equipment. For the six months endedJune 30, 2008, operating costs have averaged $13.33 per barrel while sales andtransportation costs have averaged $3.38 per barrel, increases of 33% and 49%respectively from a year ago. Sales and transportation expenses decreasedslightly to $3.27 per barrel from $3.50 per barrel in the preceding quarter asa result of fluctuations in period end diluent inventory valuation. The Company's netback per barrel improved significantly to $34.63 perbarrel from $27.39 per barrel in the preceding quarter and $16.14 per barrelfor the same period in 2007. For the six months ended June 30, 2008, netbackper barrel increased by 115% to $29.58 per barrel from $13.77 per barrel inthe comparable 2007 period. The improvement in netback primarily resulted fromhigher oil prices and improved economics of higher production.
General and Administrative Expenses
General and administrative expenses (G&A) were $2.4 million for thequarter compared to the same amount for the preceding quarter and $1.8 millionfor the same period in 2007. G&A increased to $4.8 million for the six monthsended June 30, 2008, from $3.5 million for the same period in 2007. Theincrease in general and administrative expenses primarily reflected increasedpersonnel costs and higher travel expenses related to the Company's operatingand financing activities.
During the quarter, the Company capitalized general and administrative expenses of $1.3 million compared to $1.0 million for the preceding quarter and $592,000 for the same period in 2007, for activities in Albania and the United States. These expenses were directly related to acquisition, exploration and development activities.
Non-cash stock-based compensation expense pertaining to options vestedand/or granted to officers, directors, employees and service providers were$4.2 million compared to $1.7 million for the preceding quarter and $605,000for the same period in 2007. Of this amount, $3.6 million was charged toearnings during this quarter, compared to $1.4 million and $530,000 that wascharged to earnings for the preceding period and the period ending June 30,2007.
Depletion, Depreciation and Accretion
Depletion, depreciation and accretion expense for the quarter ended June30, 2008 were $4.2 million, compared to $3.6 million for the preceding quarterand $1.9 million for the same period in 2007. The increase in depletion,depreciation and accretion expense reflects an overall increase in thedepletable base, commensurate with production level for the period. Depletionexpense on a per barrel basis was $5.67 for the quarter compared to $5.65 and$4.02, respectively for the preceding quarter and the same period in 2007. Forthe six months ended June 30, 2008, the depletion expense attributable to theAlbanian production was $5.6 million ($1.08 per barrel) and $1.7 million($6.61 per barrel) for the U.S. production. Income Taxes June 30, Dec. 31, ($000) 2008 2007 %
-------------------------------------------------------------------------
Net book value of property, plant and equipment (Albania) 113,645 91,600 24 Cost recovery pool (59,101) (64,800) (8) ---------------------------- Timing difference 54,544 26,800 104 ---------------------------- ---------------------------- Future income tax liability (50%) 27,272 13,400 104 ---------------------------- ---------------------------- Three months ended June 30 Six months ended June
30
-----------------------------
----------------------------
2008 2007 % 2008 2007 %
-----------------------------------------------------------
Earnings before income taxes 10,082 2,337 331 15,228 2,328 554 Statutory tax rate 29.50% 32.12% (8) 29.50% 32.12% (8) ----------------------------- ---------------------------- 2,974 751 296 4,492 748 501 Difference in tax rates between Albania and Canada 2,736 573 377 4,496 842 434 Non-deductible expenses 1,061 170 524 1,474 479 208 Valuation allowance and other 2,261 243 830 3,410 709 381 -----------------------------
----------------------------
9,032 1,737 420 13,872 2,778
399
-----------------------------
----------------------------
-----------------------------
----------------------------
Future income tax liabilities result from the temporary differences between the carrying value and tax values of its Albanian assets and liabilities.
The cost recovery pool represents deductions for income taxes in Albania. Bankers is presently not paying cash taxes in any jurisdiction.
Net Income and Funds from Operations
The Company recorded net income of $1.1 million ($0.002 per share) duringthe quarter compared to net income of $306,000 ($0.001 per share) for thepreceding quarter and net income of $600,000 ($0.001 per share) for the sameperiod in 2007. For the six months ended June 30, 2008, Bankers recorded netincome of $1.4 million compared to a loss of $450,000 in 2007. Bankers generated funds from operations of $17.9 million during thequarter compared to $10.1 million for the preceding quarter and $4.8 millionfor the same period in 2007. For the six months ended June 30, 2008,$28.0 million of funds from operations were generated compared to $7.6 millionin 2007. The increase in funds from operations is attributable to productionincreases and higher commodity prices obtained during the period. OPERATIONS UPDATE Albania Patos Marinza Field ------------------- New activities were initiated in the quarter as outlined in the Addendumto the Plan of Development for the Patos Marinza oil field, which calls for110 vertical and horizontal wells to be drilled by the end of 2010. In June,Bankers commenced drilling operations in the field with the spudding of itsfirst vertical infill well, which has been drilled and cased to a total depthof 1,343 metres. As the first of four wells to be drilled off a drilling pad,the well was programmed to test the potential of multiple Gorani and Drizasandstone formations within the first of numerous undrilled spacing units inthe field that the Company interprets as being undrained areas. Log analysis indicates that eight individual sandstone units, rangingfrom 3 to 18 metres of net pay, are hydrocarbon bearing with combined net payof 39 metres. Six of the eight zones were evaluated for reservoir pressure:data confirms that the zones tested were porous and permeable reservoirquality sandstones, and that five of the six zones were at or near virginreservoir pressure with the sixth interval demonstrating an approximate 50%pressure depletion. These positive results confirm the Company's drainagemodel and support its plans to drill an additional 110 vertical and horizontalwells within the field over the next three years. The second well on the pad reached total depth of 1,390 metres and hasbeen cased; the third well is currently drilling. It is anticipated that itwill take three more weeks to finish drilling the remaining two wells on thepad, following which completion operations will commence and the wells will beplaced on production. The second and third pads have been built and are readyto drill an additional 10 wells in 2008. In addition, technical and commercial evaluation for a second drillingrig capable of drilling horizontal wells and several service rigs tenders arecomplete; agreements with the winning contractors will be finalized in thenext few weeks. Bankers anticipates having the rigs available for drilling andworkover operations commencing in October 2008.
Export Capacity
---------------
Bankers has signed an agreement with the developers of the Port of Vloreoil export terminal for the storage and handling of its oil in a 13,000 cubicmetre Company-dedicated oil tank. The storage facility will improve theCompany's export operations and allow for larger oil liftings when theterminal is ready to receive larger vessels next year. Several meetings with the successful bidders of the recently announcedprivatization of ARMO, the Albanian refinery, have taken place. The objectiveof these meetings is to extend the Company's current oil pricing agreementbeyond its current term of July 2009 and develop a pricing formula that willprovide the future sales price for Patos Marinza oil that is competitive withsimilar crudes sold in European markets. Based on discussions to date, theCompany is confident that it will reach an acceptable agreement with ARMO thatmeets the financial and operational objectives for both firms.
KuĤova Field
------------
In June 2008, Bankers acquired the remaining 50% working interest in theKuĤova oil field in Albania, increasing total holdings in the field to 100%,through the acquisition of 50% of the issued and outstanding securities of anindependent private company, Sherwood International Petroleum Ltd. (Sherwood).The final closing was completed for a payment of $1.5 million. Sherwood is now a wholly-owned subsidiary of Bankers and holds theexclusive right to evaluate and redevelop the KuĤova heavy oil field pursuantto a Petroleum Agreement with Albpetrol Sh.A., the state-owned petroleumcompany, and a License Agreement with the National Agency of NationalResources (AKBN). The terms of the Petroleum Agreement are substantially thesame as those governing Bankers' Petroleum Agreement for the Patos Marinza oilfield in Albania.
An independent reserves evaluation to define the remaining reserves and production potential of the KuĤova oil field, compliant with Canadian Security Administrators' National Instrument 51-101, is expected to be completed in August 2008.
United States Oklahoma, Ardmore Basin - Tishomingo Gas Field ---------------------------------------------- The fifth horizontal shale well in the Tishomingo field, the Dunn 2-1Hwell, was fracture stimulated in the second quarter with an initial grossproduction rate of 4.8 mmcfe/d. This is significantly higher than previouswells and is thought to be as a result of a modified fracture technique as aresult of the experience working with this reservoir. Eight new wells weredrilled and cased during the quarter and an additional four wells werespudded. Total gross production is approximately 4.0 mmcfe/d, which is limitedby the tap throughput constraints.
Bankers is working on several initiatives to increase capacity for the new wells:
- Gathering lines are being installed to connect new wells so gas can be transported to the gas plants in the area; - Upgrading to Bankers' initial plant was on-going during the quarter with the addition of two compressors to optimize production; - An additional temporary plant is being set up in the area that will allow the Company to increase its production from the current 4.0 mmcfe/d to as much as 20.0 mmcfe/d; - Parts have been ordered to increase the throughput of the Natural Gas Pipeline Ltd.'s tap to 40 mmcfe/d from 4.0 mmcfe/d;
- An agreement with Atlas pipeline has been entered into for additional
processing; - An agreement with Chesapeake Energy is being finalized to have them process approximately 15 mmcf/d of production; and - The Company is fracture stimulating additional wells as additional processing capacity is attained. CAPITAL EXPENDITURES Three months ended Six months ended June 30 June 30
-------------------------------------------------------------------------
($000) 2008 2007 2008 2007
-------------------------------------------------------------------------
Albania 17,049 14,367 30,769 24,206 United States 19,662 8,861 25,465 12,884 Canada 52 29 96 181
--------------------------------------
Total capital expenditure - cash 36,763 23,257 56,330 37,271
--------------------------------------
--------------------------------------
The Company incurred $17.0 million of capital expenditures in Albaniaduring the quarter: $12.1 million for well re-activations, $1.5 million on theacquisition of the KuĤova heavy oil field, $210,000 related to the thermalproject and $446,000 on water disposal and pipeline-flowlines systems. Thebalance of the expenditures was related to asset acquisitions and capitalizedgeneral and administrative expenses. The Company spent $14.4 million incapital expenditures in Albania for the same period in 2007, which were mainlyincurred on well re-activation and central treatment facilities. In the U.S., the Company spent $19.7 million in the second quarter, ofwhich $15.9 million was used to drill 13 news wells in Oklahoma. The balanceof the capitalized expenditures was related to lease, gathering plants andlines and capitalized general and administrative expenses. The Company spent$8.9 million in capital expenditures in the United States for the same periodin 2007 which included $2.5 million on drilling and $4.0 million on leaseacquisition costs.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2008, Bankers had working capital of $29.9 million(including cash of $42.9 million) and a term bank loan of $8.8 million. TheCompany's $30.0 million credit facility with a European financial institutionwas nearly fully utilized at June 30, 2008, with the revolving operating loanat $16.0 million, $1.6 million bridge facility and the four-year term loan at$12.5 million. Repayments of $2.5 million were made during the first sixmonths of 2008 in accordance with the term loan repayment schedule. The entirebridge facility was repaid subsequent to June 30, 2008. Bankers is examining proposals for an expansion to its existing creditfacility. The additional funds will be provided under a reserve-based facilitythat is more closely aligned with the $205 million 10%-discounted valuation ofthe proved reserves at December 31, 2007.
In March 2008, the Company completed a non-brokered private placement, issuing an aggregate of 66,666,666 common shares at CAD$0.90 per share, resulting in net proceeds of $58.3 million. During the six months ended June 30, 2008, Bankers received proceeds of $9.3 million from the exercise of an aggregate of 14,883,353 options and $3.8 million from the exercise of an aggregate of 4,284,790 warrants.
Capital expenditures for Albania are estimated to be approximately $77.0 million for 2008. Bankers anticipates that it has sufficient capital resources to fund Albania's 2008 capital expenditure program and to meet working capital requirements through funds from operations, available credit facilities and working capital. Significant changes in expected commodity prices could impact funds from operations.
With the separation of the U.S. operations into a new independent entityin July 2008, Bankers will no longer be funding any further capitalexpenditures for those assets. Bankers has provided a $23.0 million guaranteeto a U.S. bank as security for a new credit facility for the new entity, BNKPetroleum Inc. ("BKX"). The loan guarantee deposit that Bankers has providedto BKX is secured by a term loan agreement, is interest-bearing and will bereduced from BKX's equity issues and reserve valuation increases. Subsequentto June 30, 2008, BKX announced a $20.4 million bought-deal private placementthat is expected to close on August 14, 2008. Upon closing, up to$10.0 million will be repaid to Bankers, thereby decreasing the loan guaranteedeposit to $13.0 million.
As of June 30, 2007, the Company had working capital of $19.4 million and a term loan of $12.2 million. Bankers had a working capital deficiency of $9.6 million and a term loan of $11.3 million at December 31, 2007.
Plan of Development
Bankers has no capital expenditure commitment for the Patos Marinzaoilfield under the Petroleum Agreement. Bankers annually submits a workprogram to AKBN 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 AKBN 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, the Company will continueto conduct petroleum operations on the portion it retains and the futurecapital expenditures will be adjusted accordingly.
Commitments
The Company has long-term lease commitments in Canada, Albania and the U.S. The minimum lease payments for the next five years are $866,000 and outlined as follows:
($000) Canada Albania U.S. Total
-------------------------------------------------------------------------
2008 85 88 37 210 2009 169 49 56 274 2010 169 37 - 206 2011 169 - - 169 2012 7 - - 7
---------------------------------------
599 174 93
866
---------------------------------------
---------------------------------------
With the separation of the U.S. operation into a separate entity subsequent to June 30, 2008, the Company does not have any long term lease commitments in U.S. The total commitments as of August 13, 2008 were $773,000.
The $12.5 million term loan is repayable in equal monthly installmentsover a 48-month period commencing January 1, 2008. Of the amount outstanding,$3.75 million was classified as a current liability and $8.75 million aslong-term debt. Principal repayments of the term loan over the next four yearsare as follows: ($000)
-------------------------------------------------------------------------
2008 1,875 2009 3,750 2010 3,750 2011 3,125 -------- 12,500 -------- -------- QUARTERLY SUMMARY
Below is a summary of Bankers' performance over the last eight quarters.
2007
--------------------------------------
($000s, except as noted) Third Quarter Fourth Quarter
-------------------------------------------------------------------------
$/boe $/boe
-------------------------------------------------------------------------
Albania - crude oil
-------------------------------------------------------------------------
Average production (bopd) 4,753 5,429
-------------------------------------------------------------------------
Oil revenue 16,239 37.14 21,398 42.84 Royalties 1,922 4.40 2,207 4.42 Sales and transportation 1,068 2.44 1,332 2.67 Operating expenses 4,535 10.37 5,303 10.93
--------------------------------------
Net operating income 8,714 19.93 12,556
24.82
--------------------------------------
--------------------------------------
2008
--------------------------------------
($000s, except as noted) First Quarter Second Quarter
-------------------------------------------------------------------------
$/boe $/boe
-------------------------------------------------------------------------
Albania - crude oil
-------------------------------------------------------------------------
Average production (bopd) 5,218 5,826
-------------------------------------------------------------------------
Oil revenue 24,676 51.96 34,157 64.36 Royalties 4,298 9.05 6,601 12.43 Sales and transportation 1,664 3.50 1,727 3.27 Operating expenses 5,706 12.02 7,693 14.03
--------------------------------------
Net operating income 13,008 27.39 18,136
34.63
--------------------------------------
--------------------------------------
2006
-------------------------------------------------------------------------
($000s, except as noted) Third Quarter Fourth Quarter
-------------------------------------------------------------------------
$/boe $/boe
-------------------------------------------------------------------------
Albania - crude oil
-------------------------------------------------------------------------
Average production (bopd) 3,776 4,113
-------------------------------------------------------------------------
Oil revenue 9,240 26.63 9,250 24.44 Royalties 1,055 3.04 1,149 3.04 Sales and transportation 728 2.10 670 1.77 Operating expenses 3,141 9.05 3,737 9.88
--------------------------------------
Net operating income 4,316 12.44 3,694
9.75
--------------------------------------
--------------------------------------
2007
-------------------------------------------------------------------------
($000s, except as noted) First Quarter Second Quarter
-------------------------------------------------------------------------
$/boe $/boe
-------------------------------------------------------------------------
Albania - crude oil
-------------------------------------------------------------------------
Average production (bopd) 4,388 4,314
-------------------------------------------------------------------------
Oil revenue 10,739 27.19 12,913 32.89 Royalties 1,440 3.65 1,682 4.28 Sales and transportation 775 1.96 1,007 2.56 Operating expenses 4,014 10.16 4,048 9.91
--------------------------------------
Net operating income 4,510 11.42 6,176
16.14
--------------------------------------
--------------------------------------
2007
--------------------------------------
Third Quarter Fourth Quarter
-------------------------------------------------------------------------
U.S. - natural gas, condensate
& NGL
-------------------------------------------------------------------------
Average natural gas production (mcf/d) 127 492 Average condensate & NGL production (bopd) 15 37
-------------------------------------------------------------------------
Average natural gas price ($/mcf) 5.18 5.91
Average condensate & NGL price
($/barrel) 59.08 73.35
--------------------------------------
Net operating income 120 407
--------------------------------------
--------------------------------------
2008
--------------------------------------
First Quarter Second Quarter
-------------------------------------------------------------------------
U.S. - natural gas, condensate
& NGL
-------------------------------------------------------------------------
Average natural gas production (mcf/d) 762 990 Average condensate & NGL production (bopd) 107 140
-------------------------------------------------------------------------
Average natural gas price ($/mcf) 8.17 9.38
Average condensate & NGL price
($/barrel) 105.03 105.97
--------------------------------------
Net operating income 924 1,473
--------------------------------------
--------------------------------------
(x) U.S. production commenced in September 2007; the U.S. operations were
split from the Company pursuant to a Plan of Arrangement on July 2, 2008 2007
--------------------------------------
($000s, except as noted) Third Quarter Fourth Quarter
--------------------------------------
-------------------------------------------------------------------------
Average production (boepd) 4,789 5,548
-------------------------------------------------------------------------
Oil and gas revenue 16,392 22,061 General and administrative 1,975 2,853 Funds from operations 6,420 10,072 Net income (loss) 264 (2,156) Basic and diluted earnings (loss) per share(1) 0.002 (0.015) Total assets 185,652 204,295 Bank loans 25,967 30,850 2008
--------------------------------------
($000s, except as noted) First Quarter Second Quarter
--------------------------------------
-------------------------------------------------------------------------
Average production (boepd) 5,452 6,131
-------------------------------------------------------------------------
Oil and gas revenue 26,244 36,353 General and administrative 2,422 2,392 Funds from operations 10,115 17,920 Net income (loss) 306 1,050 Basic and diluted earnings (loss) per share(1) 0.002 0.006 Total assets 272,469 315,631 Bank loans 30,218 29,004 2006
--------------------------------------
Third Quarter Fourth Quarter
--------------------------------------
-------------------------------------------------------------------------
Average production (bopd) 3,776 4,113
-------------------------------------------------------------------------
Oil and gas revenue 9,240 9,250 General and administrative 1,422 1,820 Funds from operations 2,950 1,588 Net income (loss) (208) (107) Basic and diluted earnings (loss) per share(1) (0.002) (0.001) Total assets 127,106 138,030 Bank loans - 6,772 2007
--------------------------------------
First Quarter Second Quarter
--------------------------------------
-------------------------------------------------------------------------
Average production (bopd) 4,388 4,314
-------------------------------------------------------------------------
Oil and gas revenue 10,739 12,913 General and administrative 1,659 1,824 Funds from operations 2,852 4,792 Net income (loss) (1,050) 600 Basic and diluted earnings (loss) per share(1) (0.007) 0.004 Total assets 168,005 175,550 Bank loans 15,987 19,471
(1) Subsequent to June 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. OUTSTANDING SHARE DATA
There were approximately 538 million and 548 million shares outstanding as at June 30, 2008 and August 13, 2008, respectively, on a pre-consolidation basis. In addition, the Company had approximately 68 million and 57 million stock options and warrants outstanding as of the same dates.
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.
Post consolidation, the Company had approximately 179 million and 183 million shares outstanding as at June 30, 2008 and August 13, 2008, respectively. Bankers also had approximately 23 million and 19 million stock options and warrants outstanding as of the same dates.
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 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 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 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.
SUBSEQUENT EVENTS
Pursuant to shareholder approval at the Annual and Special GeneralMeeting on June 27, 2008, the Company completed its plan of arrangement inJuly by which all of the Company's U.S. operations and assets were transferredinto a new, independent company: BNK Petroleum Inc. ("BKX"). BKX commencedtrading on the Toronto Stock Exchange on July 10, 2008. Therationale behind this is to allow the two companies to focus on theirrespective core businesses. The Directors believe that this transaction willallow shareholders to realize additional value from their holdings in theCompany. Details were as follows:
- Shareholders of the Company received shares of BKX on a proportional
basis to their interest in Bankers: one (1) share in BKX for every ten (10) common shares held in Bankers. - The Company's outstanding common share purchase warrants were adjusted to reflect the valuation impact of the BKX spinout in accordance with the terms of the applicable warrant indenture. - The Purchase Warrants listed under the symbol BNK.WT had their exercise price share adjusted from CAD$0.95 to CAD$0.83 per Bankers share. - The Purchase Warrants listed under the symbol BNK.WT.A had their exercise price adjusted from CAD$0.90 to CAD$0.79 per Bankers share. - The Company's unlisted common share purchase warrants and stock options were also adjusted in accordance with the same formula applied to the listed purchase warrants. - As of June 30, 2008, the Company incurred $2.4 million of restructuring costs pertaining to the completion of the above transaction, which has been charged to retained earnings (deficit). The transaction is considered a distribution to shareholders, and accordingly, no gain or loss has been realized. - The pro forma balance sheet as at June 30, 2008 is as follows: PRO FORMA CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 2008 (Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS Bankers Bankers excluding Consolidated BKX BKX ----------------------------- Current assets
Cash and cash equivalents $ 42,867 $ 351 $
42,516 Investments 2,278 - 2,278 Notes receivable - - 10,535 Accounts receivable 39,109 16,451 22,658 Crude oil inventory 1,454 - 1,454
Deposits and prepaid expenses 3,651 2,441
1,210 ----------------------------- 89,359 19,243 80,651 Property, plant and equipment 226,272 105,830 120,442 ----------------------------- $315,631 $125,073 $201,093 ----------------------------- ----------------------------- LIABILITIES Current liabilities Operating loans $ 16,504 $ - $ 16,504 Notes payable - 10,535 -
Accounts payable and accrued liabilities 39,206 17,262 21,944
Current portion of term loan 3,750 -
3,750
-----------------------------
59,460 27,797
42,198
Term loan 8,750 -
8,750
Asset retirement obligations 3,518 609
2,909
Future income tax liability 27,272 - 27,272 SHAREHOLDERS' EQUITY Share capital 211,768 97,472 114,296 Warrants 2,264 - 2,264 Contributed surplus 10,845 1,591 9,254 Deficit (9,404) (2,396) (7,008)
Accumulated other comprehensive income 1,158 - 1,158
-----------------------------
216,631 96,667
119,964
-----------------------------
$315,631 $125,073
$201,093
-----------------------------
-----------------------------
After the separation, the Company completed the consolidation of itsshares on the basis of one (1) new post-consolidation share for each three (3)pre-consolidation shares on July 30, 2008. The following schedule summarizesthe share consolidation as at July 29, 2008: Pre-consolidation Post-consolidation -------------------------- -------------------------- Exercise Exercise Units Price Units Price
-------------------------------------------------------------------------
Common shares 547,503,785 - 182,501,262 - November 2009 warrants 10,719,123 $0.95 3,573,041 $2.49 March 2012 warrants 14,734,427 $0.90 4,911,475 $2.37 Unlisted warrants 3,800,000 $1.00 1,266,667 $2.63 Options 27,991,127 $1.06 9,330,376 $2.79 --------------------------
--------------------------
Fully diluted 604,748,462 - 201,582,821 - --------------------------
--------------------------
--------------------------
--------------------------
The Company has signed an agreement with the developers of the Port ofVlore oil export terminal for the storage and handling of its oil in a13,000 cubic metre Company-dedicated oil tank. This storage facility willimprove the Company's export operations and allow for larger oil liftings whenthe terminal is completed in 2009. Pursuant to this agreement, the Company hascommitted to contribute Euros 2,210,000 to the dedicated facility(Euros 1,710,000 in 2008 and the balance in 2009), and will pay a throughputrate when the facility is operational.
RELATED PARTY TRANSACTIONS
Bankers contracts with a Canadian drilling company for the provision ofrigs and other oil well services at industry competitive rates. VictorRedekop, a past Director of Bankers, is a principal shareholder and officer ofthis company. During the quarter ended June 30, 2008, the Company transacted$3.4 million of services compared to $2.9 million for the preceding quarterand $2.4 million for the corresponding period in 2007. The services can beterminated upon 60 days' notice at the election of the Company. Mr. Redekopretired from Bankers' Board of Directors effective June 27, 2008.
NEW ACCOUNTING STANDARDS
The Canadian Institute of Chartered Accountants ("CICA") has released new accounting standards for implementation effective January 1, 2008, as follows:
- Section 3031 - Inventories: the new standard replaces the previous
inventories standard and prescribes certain methods for valuing
inventories. The adoption of this standard has had no material impact
on the Company's consolidated financial statements. - Section 3862 - Financial Instruments - Disclosures and Section 3863 - Financial Instruments - Presentation: the new disclosure standard requires increased disclosure regarding the Company's financial
instruments, the risks associated with these instruments and how the
risks are managed. The new presentation standard carries forward the
former presentation requirements. The required disclosures are contained in Note 1 to the Company's interim unaudited consolidated financial statements. - Section 1535 - Capital Disclosures: the new standard requires the Company to disclose its definition of capital and its objectives, policies and processes for managing its capital structure. The
required disclosures are contained in Note 1 to the Company's interim
unaudited consolidated financial statements. - International financial reporting standards (IFRS") - In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011 as the effective date for the requirement to report under IFRS with comparative periods 2010 converted as well. Canadian generally accepted accounting principles as we currently know them, will cease to exist for all publicly reporting entities. Currently, the application of IFRS to the oil and gas industry in Canada requires considerable clarification. The Canadian Securities Administrators are in the process of examining changes to securities rules as a result of this initiative. The Company is currently assessing the impact of IFRS on our results of operations, financial position and disclosures and developing an implementation plan. INTERNAL CONTROLS Disclosure controls and procedures have been designed to ensure thatinformation required to be disclosed by the Company is accumulated andcommunicated to the Company's management, as appropriate, to allow timelydecisions regarding required disclosure. The Company's Chief Executive Officerand Chief Financial Officer have concluded, based on their evaluation as ofJune 30, 2008, that the Company's disclosure controls and procedures areeffective to provide reasonable assurance that material information related tothe Company, including its consolidated subsidiaries, is made known to them byothers within those entities. During the three months ended June 30, 2008,there have been no changes in the Company's internal control over financialreporting that have materially affected, or are reasonably likely tomaterially affect, the Company's internal control over financial reporting. On April 18, 2008, the Canadian Securities Administrators published thenotice and request for comments for the proposed repeal and replacement ofMultilateral Instrument 52-109 Certification of Disclosure in Issuers' Annualand Interim Filings. The proposed changes would include the requirement toprovide certification of the effectiveness of internal controls over financialreporting for years ending after December 15, 2008. On July 11, 2008, theCanadian Securities Administrators issued Staff Notice 52-322 recommendingsecurities commissions proceed with the December 15, 2008 effective date. TheCompany is developing plans to test the operating effectiveness of internalcontrols over financial reporting and provide the required certification.
OUTLOOK
Bankers' strategic objective is to remain focused on exploration andproduction activities in Albania. The three-year strategic plan for the PatosMarinza oil field provides significant potential for growth in production andreserves through primary, secondary and tertiary extraction techniques, suchas infill vertical and horizontal drilling, waterflood and thermal recoverytechniques. The various technologies will be focused to maximize therecoveries from each formation through disciplined and staged exposure ofcapital and an overall 'field to formation' development plan. In addition, the Company expects that an independent reserves evaluationto define the remaining reserves and production potential of the KuĤova oilfield will be completed in August 2008. Bankers will be focused on creating aplan of development for this field, incorporating many of the extractiontechniques utilized in the Patos Marinza field. BANKERS PETROLEUM LTD. CONSOLIDATED BALANCE SHEETS (Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS June 30 December 31 2008 2007 ------------------------- Current assets
Cash and cash equivalents $ 42,867 $
3,560 Investments (Note 2) 2,278 1,120 Accounts receivable 39,109 21,128 Crude oil inventory 1,454 985
Deposits and prepaid expenses 3,651
1,601 ------------------------- 89,359 28,394 Property, plant and equipment (Note 3) 226,272 175,901 ------------------------- $ 315,631 $ 204,295 ------------------------- ------------------------- LIABILITIES Current liabilities Operating loans (Note 4) $ 16,504 $ 15,805 Accounts payable and accrued liabilities 39,206
18,444
Current portion of term loan (Note 4) 3,750
3,750 ------------------------- 59,460 37,999 Term loan (Note 4) 8,750 11,250
Asset retirement obligations (Note 5) 3,518
2,610
Future income tax liability (Note 6) 27,272 13,400 SHAREHOLDERS' EQUITY Share capital (Note 7) 211,768 136,513 Warrants (Note 7) 2,264 2,539
Contributed surplus (Note 7) 10,845
8,308
Deficit (9,404)
(8,324)
Accumulated other comprehensive income 1,158 - ------------------------- 216,631 139,036 ------------------------- $ 315,631 $ 204,295 ------------------------- ------------------------- Commitments (Note 10) Subsequent events (Note 12) See accompanying notes to consolidated financial statements. BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT, COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
Three months ended June 30 Six months ended June
30
--------------------------------------------------------
2008 2007 2008 2007 Deficit Balance, beginning of period $ (8,018) $ (7,032) $ (8,324) $ (5,982) Net income (loss) for the period 1,050 600 1,356 (450) Restructuring costs (Note 12(a)) (2,436) - (2,436) -
--------------------------------------------------------
Balance, end of
period $ (9,404) $ (6,432) $ (9,404) $
(6,432)
--------------------------------------------------------
--------------------------------------------------------
Comprehensive income (loss) Net income (loss) for the period $ 1,050 $ 600 $ 1,356 $ (450) Unrealized gain on investments (Note 2) 850 - 1,158 -
--------------------------------------------------------
Comprehensive
income (loss) $ 1,900 $ 600 $ 2,514 $ (450)
--------------------------------------------------------
--------------------------------------------------------
Accumulated other comprehensive income Balance, beginning of period $ 308 $ - $ - $ - Unrealized gain on investments 850 - 1,158 -
--------------------------------------------------------
Balance, end of
period $ 1,158 $ - $ 1,158 $ -
--------------------------------------------------------
--------------------------------------------------------
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 June 30 Six months ended June
30
----------------------------
--------------------------
2008 2007 2008 2007 ---------------------------- -------------------------- Revenue Oil and gas revenue $ 36,353 $ 12,913 $ 62,597 $ 23,652 Royalties (7,013) (1,682) (11,605) (3,122) Interest 419 186 687 336
--------------------------------------------------------
29,759 11,417 51,679
20,866
--------------------------------------------------------
Expenses Operating 8,004 4,048 14,060 8,062 Sales and transportation 1,727 1,007 3,391 1,782 General and administrative 2,392 1,824 4,814 3,483 Interest and bank charges 256 351 536 513 Interest on term loan 293 168 628 336 Foreign exchange loss (gain) (833) (773) 215 (954) Stock-based compensation (Note 7) 3,598 530 4,995 1,490 Depletion, depreciation and accretion 4,240 1,925 7,812 3,826
--------------------------------------------------------
19,677 9,080 36,451
18,538
--------------------------------------------------------
Income before income taxes 10,082 2,337 15,228 2,328 Future income tax expense (Note 6) (9,032) (1,737) (13,872) (2,778)
--------------------------------------------------------
Net income (loss)
for the period $ 1,050 $ 600 $ 1,356 $ (450)
--------------------------------------------------------
--------------------------------------------------------
Basic and diluted earnings (loss) per share (Note 7(a)) $ 0.006 $ 0.004 $ 0.008 $ (0.003)
--------------------------------------------------------
--------------------------------------------------------
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 June 30 Six months ended June
30
----------------------------
--------------------------
2008 2007 2008 2007 ---------------------------- -------------------------- Cash provided by (used in): Operating activities Net income (loss) for the period $ 1,050 $ 600 $ 1,356 $ (450) Items not involving cash: Depletion, depreciation and accretion 4,240 1,925 7,812 3,826 Future income tax expense 9,032 1,737 13,872 2,778 Stock-based compensation 3,598 530 4,995 1,490
--------------------------------------------------------
17,920 4,792 28,035 7,644 Change in non-cash working capital (Note 11) (11,464) (1,123) (11,780) (4,204)
--------------------------------------------------------
6,456 3,669 16,255 3,440
--------------------------------------------------------
Investing activities Additions to property, plant and equipment (36,763) (23,257) (56,330) (37,271) Proceeds from sale of property, plant and equipment - 15,000 - 15,000 Change in non- cash working capital (Note 11) 9,738 132 9,606 (1,422)
--------------------------------------------------------
(27,025) (8,125) (46,724)
(23,693)
--------------------------------------------------------
Financing activities Issue of equity instruments, net of issue costs 13,028 9 71,577 20,128 Operating loans (276) 752 699 (301) Term loan (938) 2,732 (2,500) 13,000
--------------------------------------------------------
11,814 3,493 69,776
32,827
--------------------------------------------------------
Increase (decrease) in cash and cash equivalents (8,755) (963) 39,307 12,574 Cash and cash equivalents, beginning of period 51,622 19,866 3,560 6,329
--------------------------------------------------------
Cash and cash equivalents, end of period (Note 11) $ 42,867 $ 18,903 42,867 $ 18,903
--------------------------------------------------------
--------------------------------------------------------
See accompanying notes to consolidated financial statements. Notes to the Consolidated Financial Statements (Unaudited, Expressed in Thousands of 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, 2007. In the opinion of the Company, the 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: On January 1, 2008, the Company adopted a new Canadian accounting standard on inventories which establishes standards for the measurement and disclosure of inventories including guidance on the determination of cost. The adoption of this standard did not have any impact on the Company's interim consolidated financial statements. Effective January 1, 2008, the Company adopted the new Canadian accounting standards relating to financial instruments and capital disclosures. Financial risk management Overview The Company has exposure to the credit, liquidity and market risk. This note presents information about the Company's exposure to each risk, the Company's objectives, policies and processes for measuring and managing risk, and management of capital. - The Board of Directors of the Company has overall responsibility for the establishment and oversight of the Company's risk management framework. The Board has implemented and monitors compliance with risk management policies. The Company's risk management policies are established to identify and analyze the risks faced, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company's activities. 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 and natural gas marketers and joint venture partners. As at June 30, 2008, the Company's receivables consisted of $22,987 (December 31, 2007 - $15,503) of receivables from petroleum and natural gas marketers, $13,958 (December 31, 2007 - $5,265) from joint venture partners and $2,164 (December 31, 2007 - $360) of other trade receivables. In Albania, domestic receivables from petroleum and natural gas marketers are collected 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. The Company historically has not experienced any collection issues with its petroleum and natural gas marketers. In the United States, joint venture receivables are typically collected within one to three months of the joint venture bill being issued to the partner. The Company attempts to mitigate the risk from joint venture receivables by obtaining partner approval of significant capital expenditures prior to expenditure, instead it does not typically obtain collateral from petroleum and natural gas marketers. The Company usually obtains cash advances from joint venture partners and has the ability to withhold production revenue from joint venture partners in the event of non-payment. Cash and cash equivalents consist of cash bank balances and short- term deposits maturing in less than 90 days. The Company manages the credit exposure related to short-term investments by
selecting
counter parties based on credit ratings and monitors all investments to ensure a stable return, avoiding complex
investment
vehicles with higher risk such as asset backed commercial paper. The carrying amount of accounts receivable represents the maximum credit exposure. As of June 30, 2008 and December 31, 2007, 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, as no receivables were considered past due or impaired. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company's approach to managing liquidity is to plan that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company's reputation. The Company prepares annual capital expenditure budgets, which are regularly monitored and modified as considered necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditures. To facilitate the capital expenditure program, the Company has a revolving credit facility in Albania, as outlined in note 4, which is reviewed annually by the lender. The Company also attempts to match its payment cycle with collection of petroleum and natural gas revenues and joint venture receivables. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, and interest rates will affect the Company's net income. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns. Foreign currency exchange rate risk Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. As at June 30, 2008, a 1% change in the foreign exchange rate of the Canadian dollar against the United States dollar, with all other variables held constant, would affect after tax net income for the period by $293 (December 31, 2007 - nil). The sensitivity is higher in 2008 as compared to 2007 because of an increase in Canadian dollar cash and cash equivalents outstanding. The Company had no forward exchange rate contracts in place as at or during the period ended June 30, 2008. Commodity price risk Commodity price risk is the risk that the value of future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for petroleum and natural gas are impacted by world economic events that dictate the levels of supply and demand. The Company's primary revenues are from heavy oil sales in Albania, priced on a quality
differentiated
basis, to the Brent oil price. As at June 30, 2008, a $1 per barrel change in the Brent price, with all other variables held constant, would affect after tax net earnings for the three and six months periods by $116 and $221 ($92 and $186 for the same periods in 2007). The Company has not attempted to mitigate commodity price risk through the use of various financial derivative and physical delivery sales contracts. Interest rate risk Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate fluctuations on its bank debt which bears a floating rate of interest. As at June 30, 2008, a 10% change in the interest rate, with all other variables held constant, would affect after tax net income for the period by $131 (2007 - $88). The Company had no interest rate swap or financial contracts in place as at June 30, 2008. Capital management The Company's policy is to maintain a strong capital base thereby establishing investor, creditor and market confidence and to sustain future business development. The Company manages its capital structure and makes necessary adjustments in light of changes in economic conditions and the risk characteristics of the underlying petroleum and natural gas assets. The Company's capital structure included shareholders' equity, bank debt and working capital. In order to maintain the capital structure, the Company may from time to time issue shares and adjust capital spending to manage current and projected debt levels. The Company monitors capital based on the ratio of debt to annualized cash flow. This ratio is calculated as net debt (outstanding bank debt plus or minus working capital) divided by cash provided by operating activities before changes in non-cash working capital for the most recent quarter, annualized. The Company's strategy is to maintain a debt/cash flow ratio of no more than 1.5 to 1. This ratio may increase at certain times as a result of acquisitions. In order to monitor this ratio, the Company prepares annual capital expenditure budgets, which are updated as necessary depending on varying factors including current and forecast prices, successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors. As at June 30, 2008 and December 31, 2007, the Company's ratio of net debt to annualized cash flow were (0.37) and 0.52 to 1, respectively, which were within the range established by the Company. The Company's share capital is not subject to external restrictions; however the bank debt facility is based on certain covenants, all of which were met as at June 30, 2008. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.
The unaudited consolidated financial statements include the accounts
of the Company and its wholly-owned operating subsidiaries - Bankers
Petroleum Albania Ltd. ("BPAL") and Bankers Petroleum (U.S.) Inc. Subsequent to June 30, 2008, the operations of Bankers Petroleum (U.S.) Inc. were transferred into a new, independent company (Note 12(a)). Unless where otherwise noted, the unaudited interim consolidated financial statements and their accompanying notes are presented in thousands of United States dollars. Certain prior period figures have been re-classified to conform to the current period's presentation. 2. INVESTMENTS 2008 2007
---------------------------------------------------------------------
Marketable securities $ 2,278 $ 1,120 ------------------------- ------------------------- As at June 30, 2008, the Company held certain marketable securities which were designated as available-for-sale financial instruments. The fair value of the investments at that date was $2,278 (2007 - $1,120). Accordingly, an unrealized gain of $1,158 (2007 - nil) was recorded in other comprehensive income for the six month period ended June 30, 2008. 3. PROPERTY, PLANT AND EQUIPMENT The following table summarizes the Company's property, plant and equipment as at June 30, 2008 and December 31, 2007: 2008 2007 -------------------------------------- ---------- Accumulated Depletion and Net Book Net Book Cost Depreciation Value Value -------------------------------------- ---------- Oil and gas properties Albania $ 138,810 $ 20,619 $ 118,191 $ 92,265 United States 107,836 2,122 105,714 81,657 Equipment, furniture and fixtures 3,411 1,044 2,367 1,979 -------------------------------------- ---------- $ 250,057 $ 23,785 $ 226,272 $ 175,901 -------------------------------------- ---------- -------------------------------------- ---------- The depletion expense calculation for the six months ended June 30, 2008, excluded $3,579 and $9,849 (2007 - nil and $70,672) relating to unproved and non-producing properties in Albania and the United States, respectively. Depletable assets for the depletion calculation for the six months ended June 30, 2008, included $168,000 and $2,000 (2007 - $113,000 and nil) for estimated future development costs associated with proved undeveloped reserves in Albania and the United States, respectively. The Company capitalized general and administrative expenses and stock-based compensation of $1,281 and $2,132 during the three and six months periods ended June 30, 2008, respectively ($592 and $1,391 for the corresponding periods in 2007) that were directly related to exploration and development activities in Albania and the United States. 4. TERM AND OPERATING LOAN FACILITY The Company has established credit facilities with a European financial institution based in Albania. The credit facility is comprised of a $16,000 operating loan, a $1,575 bridge facility and a $12,500 term loan. The facility is 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 June 30, 2008. a) Operating Loans Included in the operating loans is a one year loan bearing interest at one year LIBOR plus 3.5%. The term of this operating loan may be extended for further twelve month periods up to four times upon request by the Company and acceptance by the lender. As at June 30, 2008, $15,025 (December 31, 2007 - $15,805) of this operating loan was drawn down. In addition, the Company has established a $1,575 bridge facility, of which $1,479 (December 31, 2007 - nil) was drawn at June 30, 2008. The entire bridge facility was repaid subsequent to June 30, 2008. b) Term Loan The term loan has no scheduled repayments during the first twelve months after which it is repayable in equal monthly instalments over a 48-month period. The term loan bears interest at one year LIBOR plus 4.5%. As at June 30, 2008, the entire term loan was drawn down. Of the amount outstanding, $3,750 was classified as a current liability and $8,750 as long-term debt. Principal repayments of the term loan over the four years are as follows:
---------------------------------------------------------------------
2008 $ 1,875 2009 3,750 2010 3,750 2011 3,125 ----------- $ 12,500 ----------- ----------- 5. ASSET RETIREMENT OBLIGATIONS In Albania, the Company estimated the total undiscounted amount required to settle the asset retirement obligations at $18,308 (December 31, 2007 - $15,058). These obligations will be settled at the end of the Company's 25-year license of which 23 years are
remaining. The liability has been discounted using a credit-adjusted
risk-free interest rate of 9% and an inflation rate of 2.5% to arrive at asset retirement obligations of $2,909 as at June 30, 2008. In the United States, the Company estimated the total undiscounted amount required to settle the asset retirement obligations as $1,272 (December 31, 2007 - $667). These obligations are expected to be settled in 14 years. The liability has been discounted using a credit-adjusted risk-free interest rate of 5.5% and an inflation rate of 2.5% to arrive at asset retirement obligations of $609 as at June 30, 2008.
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2007 $ 2,610 Liabilities incurred during the period 787 Accretion 121
-----------
Asset retirement obligations, June 30, 2008 $ 3,518 ----------- ----------- 6. INCOME TAXES Future income tax expense relates to the Albanian operations and results from the following: June 30, Dec. 31, 2008 2007
-------------------------------------------------------------------------
Net book value of property, plant and
equipment, net of asset retirement obligations $ 113,645 $ 91,600 Cost recovery pool (59,101) (64,800) ------------------------- Timing difference $ 54,544 $ 26,800 ------------------------- ------------------------- Future income tax liability at 50% $ 27,272 $ 13,400 ------------------------- ------------------------- The cost recovery pool represents deductions for income taxes in Albania. The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the income before income taxes due to the following: Three months ended June 30 Six months ended June 30
-------------------------------------------------------------------------
2008 2007 2008
2007
-------------------------------------------------------------------------
Income before income taxes 10,082 2,337 15,228 2,328 Statutory tax rate 29.50% 32.12% 29.50% 32.12%
-----------------------------------------------------
2,974 751 4,492 748 Difference in tax rates between Albania and Canada 2,736 573 4,496 842 Non-deductible expenses 1,061 170 1,474 479 Valuation allowance and other 2,261 243 3,410 709
-----------------------------------------------------
Future income tax
expense 9,032 1,737 13,872
2,778
-----------------------------------------------------
-----------------------------------------------------
7. SHAREHOLDERS' EQUITY (a) Share Capital Authorized Unlimited number of common shares with no par value. Issued Number of Common Shares Amount
---------------------------------------------------------------------
Balance, December 31, 2006 412,066,634 $
116,696 Prospectus offering 36,042,858 19,227 Private placement 4,400,000 1,703 Share issuance costs - (1,113)
--------------------------
Balance, December 31, 2007 452,509,492
136,513 Private placement 66,666,666 59,749 Stock options exercised 14,883,352 12,697 Warrants exercised 4,284,790 4,294 Share issuance costs - (1,485)
--------------------------
Balance, June 30, 2008 538,344,300 $
211,768 -------------------------- --------------------------
Subsequent to June 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 (Note 12(b)). 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. The following table summarizes the calculation of basic and diluted weighted average number of common shares: Three months ended June 30 Six months ended June 30 ---------------------------------------------
---------------------------
2008 2007 2008
2007
-------------------------------------------------------------------------
Weighted-average number of common shares outstanding - basic 524,041,668 448,109,492 510,653,419 436,360,715 Dilution effect of stock options 15,393,741 3,744,545 11,749,186 - Dilution effect of warrants 17,106,137 - 12,524,301 -
-------------------------------------------------------
Weighted-average number of common shares outstanding - diluted 556,541,546 451,854,037 534,926,906 436,360,715
-------------------------------------------------------
-------------------------------------------------------
Post-consolidation weighted-average number of common shares outstanding - diluted 185,513,849 150,618,012 178,308,969 145,453,572
-------------------------------------------------------
-------------------------------------------------------
(b) Warrants A summary of the changes in warrants is presented below: Weighted Average Number of Exercise Warrants Amount Price (CAD $)
-------------------------------------------------------------------------
Balance, December 31, 2007 38,323,452 $ 2,539 0.93 Issued 722,188 255 0.75 Transferred to share capital on exercise (4,284,790) (530) 0.89
-----------------------------------------
Balance, June 30, 2008 34,760,850 $ 2,264
0.93
-----------------------------------------
-----------------------------------------
The following table summarizes the outstanding and exercisable
warrants at June 30, 2008.
Number of Weighted Warrants Average Outstanding and Exercise Expiry Date exercisable Price (CAD $)
---------------------------------------------------------------------
November 10, 2009 14,811,923 0.95 November 15, 2010 4,400,000 1.00 March 1, 2012 15,548,927 0.90
---------------------------------------------
34,760,850
0.93
---------------------------------------------
---------------------------------------------
(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 Number of Exercise Options Price (CAD $)
---------------------------------------------------------------------
Balance, December 31, 2007 37,155,000 0.73 Granted 11,000,000 1.36 Exercised (14,883,352) 0.63 Forfeited (250,000) 1.12
-----------------------------
Balance, June 30, 2008 33,021,648
0.98
-----------------------------
-----------------------------
(d) Stock-based Compensation
Using the fair value method for stock-based compensation, the Company
calculated stock-based compensation expense for the three and six
month periods ended June 30, 2008 as $4,195 and $5,940, respectively
($605 and $1,748 for the same periods in 2007) for the stock options
vested and/or granted to officers, directors, employees and service providers. Of these amounts, $3,598 and $4,995 ($530 and $1,490 for the same periods in 2007) was charged to earnings and $597 and $945 ($75 and $258 for the same periods in 2007) were capitalized. The Company determined these amounts using the Black-Scholes option pricing model assuming no dividends were paid. The weighted average fair market value per option granted in the three and six month periods ended June 30, 2008 and 2007 and the assumptions used in their determination were as follows: Three months ended June 30 Six months ended June 30
-------------------------------------------------------------------------
2008 2007 2008
2007
-------------------------------------------------------------------------
Weighted average fair value per option ($) 1.03 0.33 0.83 0.37 Risk-free interest rate (%) 3.25 4.05 3.32 4.06 Average volatility (%) 72 67 71 67 Expected life (years) 5 5 5 5 (e) Contributed Surplus The following table summarizes the change in contributed surplus as of June 30, 2008 and December 31, 2007: 2008 2007
-------------------------------------------------------------------------
Balance, beginning of period $ 8,308 $
4,456
Stock-based compensation 5,940
3,852
Transferred to share capital on exercise (3,403) - ------------------------- Balance, end of period $ 10,845 $ 8,308 ------------------------- ------------------------- 8. SEGMENT INFORMATION The Company defined its reportable segments based on geographic locations. Six months ended United June 30, 2008 Albania States Canada Total
-------------------------------------------------------------------------
Revenue Oil and gas revenue, net of royalties $ 47,934 $ 3,058 $ - $ 50,992 Interest - 86 601 687
-----------------------------------------------------
47,934 3,144 601
51,679
-----------------------------------------------------
Expenses Operating 13,399 661 - 14,060 Sales and transportation 3,391 - - 3,391 General and administrative 1,617 689 2,508 4,814 Interest and bank charges 536 - - 536 Interest on term loan 628 - - 628 Foreign exchange (gain) loss (25) - 240 215 Stock-based compensation 493 210 4,292 4,995 Depletion, depreciation and accretion 5,962 1,772 78 7,812
-----------------------------------------------------
26,001 3,332 7,118
36,451
-----------------------------------------------------
Income (loss) before income taxes 21,933 (188) (6,517) 15,228 Future income tax expense (13,872) - - (13,872)
-----------------------------------------------------
Net income (loss) $ 8,061 $ (188) $ (6,517) $ 1,356
-----------------------------------------------------
-----------------------------------------------------
Assets, June 30,
2008 $ 143,434 $ 125,073 $ 47,124 $
315,631
-----------------------------------------------------
-----------------------------------------------------
Additions to property, plant and equipment $ 30,769 $ 25,465 $ 96 $ 56,330
-----------------------------------------------------
-----------------------------------------------------
Six months ended United June 30, 2007 Albania States Canada Total
-------------------------------------------------------------------------
Revenue Oil and gas revenue, net of royalties $ 20,530 $ - $ - $ 20,530 Interest 1 96 239 336
-----------------------------------------------------
20,531 96 239
20,866
-----------------------------------------------------
Expenses Operating 7,906 156 - 8,062 Sales and transportation 1,782 - - 1,782 General and administrative 1,141 535 1,807 3,483 Interest and bank charges 513 - - 513 Interest on term loan 336 - - 336 Foreign exchange (gain) loss - - (954) (954) Stock-based compensation 384 251 855 1,490 Depletion, depreciation and accretion 3,762 24 40 3,826
-----------------------------------------------------
15,824 966 1,748
18,538
-----------------------------------------------------
Income (loss) before income taxes 4,707 (870) (1,509) 2,328 Future income tax expense (2,778) - - (2,778)
-----------------------------------------------------
Net income (loss) $ 1,929 $ (870) $ (1,509) $ (450)
-----------------------------------------------------
-----------------------------------------------------
Assets, June 30,
2007 $ 88,307 $ 73,656 $ 13,587 $
175,550
-----------------------------------------------------
-----------------------------------------------------
Additions to property, plant and equipment $ 24,206 $ 12,884 $ 181 $ 37,271
-----------------------------------------------------
-----------------------------------------------------
Cash proceeds from sale of property, plant and equipment $ - $ 15,000 $ - $ 15,000
-----------------------------------------------------
-----------------------------------------------------
Three months ended United June 30, 2008 Albania States Canada Total
-------------------------------------------------------------------------
Revenue Oil and gas revenue, net of royalties $ 27,556 $ 1,784 $ - $ 29,340 Interest - 52 367 419
-----------------------------------------------------
27,556 1,836 367
29,759
-----------------------------------------------------
Expenses Operating 7,693 311 - 8,004 Sales and transportation 1,727 - - 1,727 General and administrative 771 358 1,263 2,392 Interest and bank charges 256 - - 256 Interest on term loan 293 - - 293 Foreign exchange (gain) loss 101 - (934) (833) Stock-based compensation 236 53 3,309 3,598 Depletion, depreciation and accretion 3,131 1,069 40 4,240
-----------------------------------------------------
14,208 1,791 3,678
19,677
-----------------------------------------------------
Income (loss) before income taxes 13,348 45 (3,311) 10,082 Future income tax expense (9,032) - - (9,032)
-----------------------------------------------------
Net income (loss) $ 4,316 $ 45 $ (3,311) $ 1,050
-----------------------------------------------------
-----------------------------------------------------
Additions to property, plant and equipment $ 17,049 $ 19,662 $ 52 $ 36,763
-----------------------------------------------------
-----------------------------------------------------
Three months ended United June 30, 2007 Albania States Canada Total
-------------------------------------------------------------------------
Revenue Oil and gas revenue, net of royalties $ 11,231 $ - $ - $ 11,231 Interest 1 81 104 186
-----------------------------------------------------
11,232 81 104
11,417
-----------------------------------------------------
Expenses Operating 3,892 156 - 4,048 Sales and transportation 1,007 - - 1,007 General and administrative 583 125 1,116 1,824 Interest and bank charges 351 - - 351 Interest on term loan 168 - - 168 Foreign exchange (gain) loss - - (773) (773) Stock-based compensation 137 82 311 530 Depletion, depreciation and accretion 1,886 15 24 1,925
-----------------------------------------------------
8,024 378 678
9,080
-----------------------------------------------------
Income (loss) before income taxes 3,208 (297) (574) 2,337 Future income tax expense (1,737) - - (1,737)
-----------------------------------------------------
Net income (loss) $ 1,471 $ (297) $ (574) $ 600
-----------------------------------------------------
-----------------------------------------------------
Additions to property, plant and equipment $ 14,367 $ 8,861 $ 29 $ 23,257
-----------------------------------------------------
-----------------------------------------------------
Cash proceeds from sale of property, plant and equipment $ - $ 15,000 $ - $ 15,000
-----------------------------------------------------
-----------------------------------------------------
9. RELATED PARTY TRANSACTIONS During the three and six month periods ended June 30, 2008, the Company incurred $3,357 and $6,244, respectively ($2,397 and $4,396 for the same period in 2007) in oil well servicing expenses from a company related by way of common directors. Included in accounts payable and accrued liabilities at June 30, 2008 for these expenses was $2,235 (December 31, 2007 - $1,461) that bears no interest and has no fixed terms of repayment. The above transactions occurred in the normal course of business operations and represent consideration established and agreed to by the related parties. 10. COMMITMENTS The Company leases office premises, of which the minimum lease payments for the next five years are: United Albania States Canada Total
-------------------------------------------------------------------------
2008 $ 85 $ 88 $ 37 $ 210 2009 169 49 56 274 2010 169 37 - 206 2011 169 - - 169 2012 7 - - 7
-----------------------------------------------------
$ 599 $ 174 $ 93 $
866
-----------------------------------------------------
-----------------------------------------------------
The Company has a commitment to incur $1,500 in capital expenditures
by November 2009 in Albania, for which a letter of credit in the same
amount has been provided. 11. SUPPLEMENTAL CASH FLOW INFORMATION Three months ended June 30 Six months ended June 30
-------------------------------------------------------------------------
2008 2007 2008
2007
-------------------------------------------------------------------------
Operating activities Increase in current assets Accounts receivable $ (14,932) $ (2,249) $ (17,981) $ (4,378) Crude oil inventory (189) (377) (469) (297) Deposit and prepaid expenses (2,535) (1,059) (2,050) (1,006) Increase in current liabilities Accounts payable and accrued liabilities 6,192 2,562 8,720
1,477
-----------------------------------------------------
$ (11,464) $ (1,123) $ (11,780) $
(4,204)
-----------------------------------------------------
-----------------------------------------------------
Investing activities (Decrease) increase in current liabilities Accounts payable and accrued liabilities $ 9,738 $ 132 $ 9,606 $ (1,422)
-----------------------------------------------------
-----------------------------------------------------
Interest paid $ 549 $ 610 $ 1,164 $ 849
-----------------------------------------------------
-----------------------------------------------------
Six months ended June 30
---------------------------------------------------------------------
2008
2007
---------------------------------------------------------------------
Cash and cash equivalents Cash $ 2,657 $ 10,672 Fixed income investments 40,210 8,231 ------------------------- $ 42,867 $ 18,903 ------------------------- ------------------------- 12. SUBSEQUENT EVENTS (a) Pursuant to shareholders' approval at the Annual and Special General Meeting on June 27, 2008, the Company completed its plan of arrangement in July 2008 by which all of the Company's U.S. operations and assets were transferred into a new, independent company: BNK Petroleum Inc ("BKX"). BKX commenced trading on the Toronto Stock Exchange on July 10, 2008. The rationale behind this is to allow the two companies to focus on their respective core businesses. The Directors believe that this transaction will allow shareholders to realize additional value from their holdings in the Company. Details of the transaction were as follows: (i.) Shareholders of the Company received shares of BKX on a proportional basis to their interest in Bankers: one (1) share in BKX for every ten (10) common shares held in Bankers. (ii.) The Company's outstanding common share purchase warrants were adjusted to reflect the valuation impact of the BKX spinout in accordance with the terms of the applicable warrant indenture. - The Purchase Warrants listed under the symbol BNK.WT had their exercise price adjusted from CAD$0.95 to CAD$0.83 per share of the Company. - The Purchase Warrants listed under the symbol BNK.WT.A had their exercise price adjusted from CAD$0.90 to CAD$0.79 per share of the Company. (iii.) The Company's unlisted common share purchase warrants and stock options were also adjusted in accordance with the same formula applied to the listed purchase warrants. (iv.) As of June 30, 2008, the Company incurred $2,436 of restructuring costs pertaining to the completion of the above transaction, which has been charged to retained earnings (deficit). The transaction is considered a distribution to shareholders, and accordingly, no gain or loss has been realized. (v.) The pro forma balance sheet as at June 30, 2008 is as follows: PRO FORMA CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 2008
(Unaudited, expressed in Thousands of United States dollars)
-------------------------------------------------------------------------
ASSETS Bankers Bankers excluding Consolidated BKX BKX
------------------------------------------
Current assets
Cash and cash equivalents $ 42,867 $ 351 $ 42,516 Investments 2,278 - 2,278 Notes receivable - - 10,535 Accounts receivable 39,109 16,451 22,658 Crude oil inventory 1,454 - 1,454
Deposits and prepaid expenses 3,651 2,441 1,210
------------------------------------------
89,359 19,243
80,651
Property, plant and equipment 226,272 105,830 120,442
------------------------------------------
$ 315,631 $ 125,073 $
201,093
------------------------------------------
------------------------------------------
LIABILITIES Current liabilities Operating loans $ 16,504 $ - $ 16,504 Notes payable - 10,535 - Accounts payable and accrued liabilities 39,206 17,262 21,944 Current portion of term loan 3,750 -
3,750
------------------------------------------
59,460 27,797 42,198 Term loan 8,750 - 8,750
Asset retirement obligations 3,518 609
2,909
Future income tax liability 27,272 - 27,272 SHAREHOLDERS' EQUITY Share capital 211,768 97,472 114,296 Warrants 2,264 - 2,264 Contributed surplus 10,845 1,591 9,254 Deficit (9,404) (2,396) (7,008) Accumulated other comprehensive income 1,158 - 1,158
------------------------------------------
216,631 96,667
119,964
------------------------------------------
$ 315,631 $ 125,073 $
201,093
------------------------------------------
(b) 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 following schedule summarizes the share consolidation as at July 29, 2008: Pre-consolidation Post-consolidation --------------------------
------------------------- Exercise Exercise Units Price Units Price
-------------------------------------------------------------------------
Common shares 547,503,785 - 182,501,262 - November 2009 warrants 10,719,123 $0.95 3,573,041 $2.49 March 2012 warrants 14,734,427 $0.90 4,911,475 $2.37 Unlisted warrants 3,800,000 $1.00 1,266,667 $2.63 Options 27,991,127 $1.06 9,330,376 $2.79 --------------------------
-------------------------
Fully diluted 604,748,462 - 201,582,821 - --------------------------
-------------------------
--------------------------
-------------------------
(c) The Company has signed an agreement with the developers of the Port of Vlore oil export terminal for the storage and handling of its oil in a 13,000 cubic metre Company-dedicated oil tank. This storage facility will improve the Company's export operations and allow for larger oil liftings when the terminal is completed in 2009. Pursuant to this agreement, the Company has committed to contribute Euros 2,210,000 to the dedicated facility (Euros 1,710,000 in 2008 and the balance in 2009), and will pay a throughput rate when the facility is operational.
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, Tristone Capital Ltd., Nick Morgan, +44 20 7355 5800 (BNK. BNK)
vendor