CAZA.L Regulatory News (CAZA)

RNS Number : 9139L

Caza Oil & Gas, Inc.

14 May 2010

 

May 14, 2010

Caza Oil & Gas, Inc.: ANNOUNCES FIRST QUARTER RESULTS AND NEW PARTICIPATION AGREEMENT

HOUSTON, TEXAS-(Marketwire - May, 2010) - Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX: CAZ) (AIM: CAZA) is pleased to provide its unaudited financial and operational results for the three months ended March 31, 2010.

 

 

Operational Highlights

 

·; Caza has entered into a participation agreement with Pass Petroleum, Inc. ("Pass") covering its Arran prospect located in Acadia Parish, Louisiana. The participation agreement names Caza, as operator, and requires Pass to fund 100% of the initial appraisal costs attributable to Caza's 50% working interest in the prospect to earn a 37.5% participation interest.

 

·; Caza successfully drilled the Matthys-McMillan Gas Unit #2 development well located in the Wharton West Wilcox Field to a total depth of 15,000 feet and plans to attempt a natural completion in the near future ahead of fracture stimulating the well at a later date.

 

·; Subsequent to the quarter end, on May 12, 2010, Caza entered into a contract with Patterson Drilling to drill the Bongo Prospect in Wharton County, Texas. The contract provides for a test well to be drilled to a total depth of 16,000 feet. Caza expects the well to commence within 45 days. Caza is in the process of farming out part of its current 65% working interest to a 40% working interest. After completion of the well, Caza will have a 42.24% working interest (approximate net revenue interest of 30%).

 

 

Financial Highlights

 

·; General and administrative expenses were $934,395 ($203,786 net of reimbursements) for the three-month period ended March 31, 2010 down from $1,057,603 ($1,040,162 net of reimbursements) for the comparative period in 2009. Caza continued to benefit from reductions in overhead costs resulting from various initiatives introduced by management to cut general and administrative expenses.

·; Caza's production decreased 6% to 106,400 Mcfe for the three-month period ended March 31, 2010, down from 113,233 Mcfe for the comparative period in 2009. A successful completion at the Matthys-McMillan Gas Unit #2 well should more than offset this decline and upcoming drilling projects, such as Arran, if successful, will expose Caza to larger reserves and increased production.

·; Caza had a cash balance of $8,159,644 as of March 31, 2010, down from $9,268,547 at December 31, 2009. The decrease in Caza's cash balance primarily represents the investment made to drill the Matthys-McMillan Gas Unit #2 well.

 

·; Revenues from oil & gas sales increased 26% to $696,665 for the three-month period ended March 31, 2010 from $553,916 for the comparative period in 2009.

 

 

W. Michael Ford, Chief Executive Officer commented:

 

"Caza's strategy is to utilize advanced technology to de-risk large exploratory targets, reduce single project exposure through farm out arrangements and to increase the number of projects drilled. The farm out of the Arran prospect to Pass fits with this strategy. If successful, the Arran prospect will open up numerous development locations and prove up significant potential reserves for Caza. We plan to drill this prospect in the third Quarter of 2010.

 

"The Matthys-McMillan Gas Unit #2 is the second operated well in the Wharton West Wilcox Field for Caza. The results from the well are in line with expectations, and we look forward to placing this well on production in the near future. The information which will be gathered from the testing program planned for this well will be useful in our continued evaluation of the field and our Bongo prospect which lies approximately 1.5 miles to the south. We are pleased to have entered into a contract to drill the Bongo prospect. The prospect is a significant target, and will add significant value to the Company if successful.

 

"We will continue to strive to reduce costs and improve our cash flow position through the development of the Wharton West Wilcox Field and execution of our exploration program. As a result, Caza believes that its business fundamentals are sound with a positive cash position, no debt and a portfolio of prospects in proven oil and gas regions."

 

Copies of the Company's unaudited financial statements for the first quarter ended March 31, 2009, and the accompanying management's discussion and analysis are available on SEDAR at www.sedar.com and the Company's website at www.cazapetro.com.

 

 

For further information please contact:

 

John McGoldrick, Caza Oil & Gas, Inc	+1 281 363 4442
Michael Ford, CEO, Caza Oil & Gas, Inc. Tim Feather/Richard Baty, Westhouse Securities Limited	+1 432 682 7424 +44 (0)20 7601 6100

 

 

 

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.

 

ADVISORY REGARDING FORWARD LOOKING STATEMENTS

Information in this news release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws. Such information is often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "schedule", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Information regarding the Pass Petroleum participation agreement, Arran Prospect, the Wharton West Wilcox Field, the Matthys-McMillan Gas Unit #2 well, the Bongo Prospect and exploration program and potential production of flow rates contained in this news release constitutes forward-looking information within the meaning of securities laws.

Implicit in this information, particularly in respect of the "Pass Petroleum participation agreement", "Arran Prospect", "Wharton West Wilcox Field", "Bongo Prospect", "Matthys-McMillan Gas Unit #2", "exploration", "completion", "drilling", "testing", "larger reserves" and "increased production" are assumptions regarding projected revenue and expenses and well performance. Specifically, the Company has assumed that these agreements, prospects and/or activities will produce positive results. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected as set out above.

For more exhaustive information on these risks and uncertainties you should refer to the Company's most recently filed annual information form which is available at www.sedar.com. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time except as may be required by Securities laws.

Mcfe may be misleading, particularly if used in isolation. An Mcfe conversion ratio of 1 bbl : 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

 

 

Consolidated Balance Sheets

(Unaudited)

 

(In United States dollars)	March 31, 2010		December 31, 2009
Assets
Current
Cash and cash equivalents	$ 8,159,644		$ 9,268,547
Accounts receivable	3,247,001		3,973,085
Prepaid and other	266,626		278,914
	11,673,271		13,520,546
Property and equipment (Note 3)	36,716,798		36,201,223
	$ 48,390,069		$ 49,721,769
Liabilities
Current
Accounts payable and accrued liabilities	$ 4,217,598		$ 5,144,083
Asset retirement obligations (Note 4)	566,919		549,450
	4,784,517		5,693,533
Shareholders' Equity
Share capital (Note 5(b))	51,212,097		51,212,097
Contributed surplus (Note 5(f))	4,911,394		4,805,074
Deficit	(12,517,939)		(11,988,935)
	43,605,552		44,028,236
	$ 48,390,069		$ 49,721,769
See accompanying notes to the interim consolidated financial statements

 

 

Consolidated Statements of Net Loss, Comprehensive Loss, and Deficit

(Unaudited)

 

For the three month period ended March 31, (in United States dollars)	2010	2009
Revenues
Petroleum and natural gas	$ 696,665	$ 553,916
Interest and other income	163	2,141
	696,828	556,057
Expenses
Production	244,705	178,320
General and administrative	203,786	1,040,162
Depletion, depreciation, amortization and accretion	774,978	673,269
Interest	2,363	186
	1,225,832	1,891,937
Net loss and comprehensive loss for the period	(529,004)	(1,335,880)
Deficit, beginning of period	(11,988,935)	(8,268,133)
Deficit, end of period	$ (12,517,939)	$ (9,604,013)
Net loss per share
- basic and diluted	$ (0.00)	$ (0.01)
Weighted average shares outstanding
- basic and diluted (1)	145,821,000	145,821,000
(1) All options and warrants have been excluded from the diluted loss per share
computation as they are anti-dilutive.
See accompanying notes to the interim consolidated financial statements

 

Consolidated Statements of Cash Flows

(Unaudited)

 

For the three month period ended March 31,			2010			2009
	CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
	OPERATING
	Net loss for the period		(529,004)			(1,335,880)
	Adjustments for items not affecting cash:
	Depletion, depreciation, amortization and accretion		774,978			673,269
	Stock-based compensation		94,844			139,734
	Changes in non-cash working capital (Note 7 (a))		(794,877)			(1,267,183)
	Cash flow used in operating activities		(454,059)			(1,790,060)
	INVESTING
	Exploration and development expenditures		(1,183,814)			(1,315,104)
	Purchase of equipment		(77,794)			-
	Changes in non-cash working capital (Note 7 (a))		606,764			(1,233,191)
	Cash flow used in investing activities		(654,844)			(2,548,295)
	DECREASE IN CASH AND CASH EQUIVALENTS		(1,108,903)			(4,338,355)
	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,268,547			14,103,827
	CASH AND CASH EQUIVALENTS, END OF PERIOD		8,159,644			9,765,472
	Supplementary information (Note 7)
	See accompanying notes to the interim consolidated financial statements

 

1. Basis of Presentation

 

Caza Oil & Gas, Inc. ("Caza" or the "Company") was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum, Inc. ("Caza Petroleum"). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves.

 

In 2009 and continuing in 2010, the global credit crisis, the volatility in the price of crude oil and natural gas, the recession in United States and the slowdown of economic growth in the rest of the world has created a substantially more volatile business environment. These conditions will limit certain of the Company's previously planned business development activities and it will continue to provide uncertainty for the Company's future.

 

The Company's ability to continue as a going concern is dependent upon its ability to attain profitable operations, generate sufficient funds there from, and continue to obtain capital from investors sufficient to meet its current and future obligations, including $4.5 million of expenditures related to proved undeveloped reserves (see note 3). During the period ended March 31, 2010, the Company incurred a net loss of $529,004, however, the Company had a working capital surplus of $7.45 million (and does not have any debt facilities available). Although management's efforts to raise capital have been successful in the past, there is no certainty that they will be able to do so in the future. If the company is unsuccessful in raising additional capital, the Company may have to sell or farm out certain properties. If the Company cannot sell or farm out certain properties, it will be unable to participate with joint venture partners and may forfeit rights to some of its properties. If the going concern basis is not appropriate, adjustments may be necessary to the carrying amounts and classification of the Company's assets and liabilities. The accompanying financial statements do not include any adjustments that might result if the Company is unable to continue as a going concern. Although management's efforts to raise capital have been successful in the past, there is no certainty that management will be able to do so in the future.

 

The interim unaudited consolidated financial statements of Caza have been prepared by management, in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The interim consolidated financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality. These interim consolidated financial statements do not include all the note disclosures required for annual financial statements and therefore they should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2009. The interim consolidated financial statements have been prepared following the same significant accounting policies as the most recently reported audited consolidated financial statements of Caza.

 

Caza's reporting currency is the United States ("US") dollar as the majority of its transactions are denominated in the currency.

 

2. Future Changes in Significant Accounting Policies

 

The Canadian Institute of Chartered Accountants ("CICA") issued the following new Handbook Sections, which were effective for interim periods beginning on or after January 1, 2010.

(a) In January 2009, the AcSB issued Section 1582, Business Combinations, which replaces former guidance on business combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. Management is currently assessing the impact of the adoption of this section on the results of operations, financial position and disclosures.

 

(b) In February 2008, the AcSB confirmed that all Canadian publicly accountable enterprises will be required to adopt International Financial Reporting Standards (IFRS) for interim and annual reporting purposes for fiscal years beginning on or after January 1, 2011. Management is currently assessing the impact of the convergence of Canadian GAAP with IFRS on the results of operations, financial position and disclosures.

 

3. Property and Equipment

 

	March 31, 2010			December 31, 2009
	Cost	Accumulated depletion and depreciation	Net Book Value	Cost	Accumulated depletion and depreciation	Net Book Value
Petroleum and natural gas properties and equipment	$42,416,585	$6,080,187	$36,336,398	41,208,133	$5,349,421	$35,858,712
Office equipment and furniture	$808,003	$427,603	$380,400	$730,209	$387,698	$342,511
	$43,224,588	$6,507,790	$36,716,798	$41,938,342	$5,737,119	$36,201,223

 

At March 31, 2010, the cost of petroleum and natural gas properties includes $9,142,177 (December 31, 2009 - $11,662,047) relating to unproven properties which have been excluded from costs subject to depletion and depreciation. No events or circumstances suggest that the undeveloped properties, and all associated costs are impaired at March 31, 2010. Future development costs of proved undeveloped reserves of $4,504,300 were included in the depletion calculation at March 31, 2010 and December 31, 2009.

 

During the period ended March 31, 2010, the Company received reimbursements of costs as a result of joint exploration agreements with other companies. This resulted in a decrease of $88,692 to the petroleum and natural gas properties and equipment.

 

During the quarter ended March 31, 2010 the Company capitalized general and administrative expenses of $150,318 (March 31, 2009 - $252,313) directly relating to exploration and development activities of which $11,475 related to stock based compensation for the period ended March 31, 2010 (March 31, 2009 - $54,223).

 

4. Asset Retirement Obligations

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas properties:

 

	March  31, 2010		December 31, 2009
Asset retirement obligation, beginning of period	$ 549,450		$ 493,919
Obligations incurred	13,162		30,915
Accretion	4,307		24,616
Asset retirement obligation, end of period	$ 566,919		$ 549,450

 

The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $802,572 (December 31, 2009 - $795,234). The obligation was calculated using a credit-adjusted risk free discount rate of 6 percent and an inflation rate of 3 percent. It is expected that this obligation will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2011 and 2040.

 

 

5. Share Capital

 

 

(a) Authorized

 Unlimited number of voting common shares.

(b) Issued

 

 

	Three Month Ended		Year Ended
	March 31, 2010		December 31,2009
	Shares	Amounts	Shares	Amounts
Common shares
Balance beginning and end of period	119,319,000	$ 46,423,526	119,319,000	$ 46,423,526
Exchangeable rights
Balance beginning and end of period	26,502,000	918,571	26,502,000	918,571
Opening balance warrants	19,800,000	3,870,000	20,500,000	4,139,500
Expired broker warrants (i)	-	-	(700,000)	(269,500)
Balance end of period	19,800,000	3,870,000	19,800,000	3,870,000
		$ 51,212,097		$ 51,212,097

 

(i) Caza issued 700,000 broker warrants to the selling agents as partial consideration for their services. Each broker warrant entitles the holder to purchase one common share at a price of CDN $0.80 per share, approximately $0.79 per share, expired on December 12, 2009.

 

 

(c) Warrants

The following table summarizes the warrants outstanding as at March 31, 2010.

 

Date of Grant	Number Outstanding	Exercise Price	Remaining Contractual Life	Date of Expiry	Number Exercisable March 31, 2009
September 22, 2006	16,731,000	1.00	0.48	September 22, 2010	16,731,000
November 20, 2006	2,535,500	1.00	0.64	November 20, 2010	2,535,500
January 17, 2007	533,500	1.00	0.70	December 12, 2010	533,500
	19,800,000				19,800,000

 

(d) Stock options

 

The maximum number of common shares for which options may be granted, together with shares issuable under any other share compensation arrangement of the Company, is limited to 10% of the total number of outstanding common shares (plus common shares that would be outstanding upon the exercise of all exchangeable rights) at the time of grant of any option. The exercise price of each option may not be less than the fair market value of the Company's common shares on the date of grant. Except as otherwise determined by the Board and subject to the limitation that the stock options may not be exercised later than the expiry date provided in the relevant option agreement but in no event later than 10 years (or such shorter period required by a stock exchange) from their date of grant, options cease to be exercisable: (i) immediately upon a participant's termination by the Company for cause, (ii) 90 days (30 days in the case of a participant engaged in investor relations activities) after a participant's termination from the Company for any other reason except death and (iii) one year after a participant's death. Subject to the Board's sole discretion in modifying the vesting of stock options, stock options will vest, and become exercisable, as to 33⅓% on the first anniversary of the date of grant and 33⅓% on each of the following two anniversaries of the date of grant. All options granted to a participant but not yet vested will vest immediately upon a change of control or upon the Company's termination of a participant's employment without cause. A summary of the Company's stock option plan as at March 31, 2010 and December 31, 2009 and changes during the respective years ended on those dates is presented below.

 

	March 31, 2010		December 31, 2009
Stock Options	Number of options	Weighted average Exercise price	Number of options	Weighted average exercise price
Beginning of period	5,371,667	$0.62	6,585,000	$0.61
Granted	1,000,000	0.07	-	-
Exercised	-	-	-	-
Forfeited	(33,334)	0.46	(1,213,333)	0.55
End of period	6,338,333	$0.52	5,371,667	$0.62
Exercisable, end of period	3,931,667	$0.61	3,931,667	$0.59

 

 

 

 

Date of Grant	Number Outstanding	Exercise Price	Weighted Average Remaining Contractual Life	Date of Expiry	Number Exercisable March 31, 2009
January 31, 2007	2,025,000	0.50	6.84	January 31, 2017	2,025,000
May 10, 2007	213,333	0.50	7.10	May 10, 2017	146,667
June 11, 2007	20,000	0.50	7.20	June 11, 2017	13,333
December 12, 2007	2,133,333	0.79	7.70	December 12, 2017	1,426,667
April 7, 2008	500,000	0.59	8.02	April 7, 2018	166,667
August 11, 2008	446,667	0.44	8.36	August 11, 2018	153,333
March 23, 2010	1,000,000	0.07	9.75	March 23, 2020	-
	6,338,333		7.80		3,931,667

On March 23, 2010, 1,000,000 options were granted at a fair value of $0.05 per option. The fair value of these options was determined using the Black-Sholes model with the following assumptions:

 

 

 

 

	2010
Dividend yield	Nil
Expected volatility	115%
Risk free rate of return	4.00%
Weighted average life	3 years

 

 

 

(e) Contributed surplus

 

The following table presents the changes in contributed surplus:

 

	March 31,  2010	December 31, 2009
Balance, beginning of period	$ 4,805,074	$ 4,217,135
Expired broker warrants Forfeited stock options	- (3,716)	269,500 (196,875)
Stock based compensation	110,035	515,314
Balance, end of period	$ 4,911,393	$ 4,805,074

 

(i) During the period ended March 31, 2010, $98,560 of the stock based compensation expense was recognized in the statement of net loss (December 31, 2009 - $352,978) and $11,475 was capitalized (December 31, 2009 - $162,336).

 

 

6. Related Party Transactions

 

The aggregate amount of expenditures made to related parties:

 

In February 2010, Singular Oil & Gas Sands, LLC ("Singular") agreed to participate in the drilling of the Matthys McMillan Gas Unit #2 well in Wharton County, Texas. Under the terms of that agreement, Singular paid 14.01% of the drilling costs through completion to earn a 10.23% net revenue interest. This participation was in the normal course of Caza's business and on the same terms and conditions to those of other joint venture partners. Singular owes the Company $7,555 in joint venture partner receivables as at March 31, 2010. Singular is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.

 

7. Supplementary Information

 

(a) net change in non-cash working capital

 

	March 31, 2010	March 31, 2009
Provided by (used in)
Accounts receivable	$ 726,084	$ 1,100,343
Prepaid and other	12,288	49,750
Accounts payable and accrued liabilities	(926,485)	(3,650,467)
	$ (188,113)	$ (2,500,374)
Summary of changes
Operating	$ (794,877)	$ (1,267,183)
Investing	606,764	(1,233,191)
	$ (188,113)	$ (2,500,374)

 

(b) supplementary cash flow information

 

	March 31, 2010	March 31, 2009
Interest paid	$ 2,363	$ 186
Interest received	163	2,141

 

(c) cash and cash equivalents

 

	March 31, 2010	December 31, 2009
Cash on deposit	$ 1,882,141	$ 1,991,207
Money market instruments	6,277,503	7,277,340
Cash and cash equivalents	$ 8,159,644	$ 9,268,547

 

The money market instruments bear interest at a rate of 0.0099% as at March 31, 2010 (December 31, 2009 - 0.0099%). Cash on deposit is held with Wells Fargo Bank Texas and the money market account is a fund managed by Wells Fargo Brokerage Services, LLC investing in U.S. Treasury Bill securities.

 

8. Capital Risk Management

 

The Company's objectives when managing capital is to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company defines capital as shareholders' equity ($43,605,552, December 31, 2009 - $44,028,236), working capital ($7,455,673, December 31, 2009 - $8,376,463) and credit facilities when available. Currently the Company does not have a credit facility in place. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company's objective is met by retaining adequate equity and working capital to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow requirements. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year over year sustainable profitable growth.

 

9. Financial Instruments

 

The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit, and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

 

(a) Commodity Price Risk

 

The Company is subject to commodity price risk for the sale of natural gas. The Company may enter into contracts for risk management purposes only, in order to protect a portion of its future cash flow from the volatility of natural gas and natural gas liquids commodity prices. To date the Company has not entered into any forward commodity contracts.

 

(b) Credit Risk

 

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date. A majority of the Company's financial assets at the balance sheet date arise from natural gas liquids and natural gas sales and the Company's accounts receivable that are with these customers and joint venture participants in the oil & natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company's natural gas and condensate production is sold to large marketing companies. Typically, the Company's maximum credit exposure to customers is revenue from two months of sales. During the period the ended March 31, 2010, the Company sold 42.27% (March 31, 2009 - 96.19%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint venture partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call by the partner of the operation being conducted.

 

Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At March 31, 2010, the Company had overdue accounts receivable from certain joint interest partners of $488,242 which were outstanding for greater than 60 days and $188,050 that were outstanding for greater than 90 days.

 

During the three month period ended March 31, 2010, there was no impairment required on any of the financial assets of the Company. At March 31, 2010, the Company's two largest joint venture partners represented approximately 47% and 6% of the Company's receivable balance (December 31, 2009 61% and 11% respectively). The maximum exposure to credit risk is represented by the carrying amount on the balance sheet of cash and cash equivalents, accounts receivable and deposits.

(c) Foreign Currency Exchange Risk

 

The Company is exposed to foreign currency exchange fluctuations, as certain general and administrative expenses are or will be denominated in Canadian dollars and United Kingdom pounds sterling. The Company's sales of oil and natural gas are all transacted in US dollars. At March 31, 2010, the Company considers this risk to be relatively limited and not material and therefore does not hedge its foreign exchange risk.

 

(d) Fair Value of Financial Instruments

 

The Company's cash and cash equivalents, which are classified as held for trading, are categorized as level 1 financial instruments.

All other financial assets are classified as loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the balance sheet that have been designated as available-for-sale. There have been no changes to the aforementioned classifications during the year ended December 31, 2009.

(e) Liquidity Risk

 

Liquidity risk includes the risk that, as a result of our operational liquidity requirements:

 

·; The Company will not have sufficient funds to settle a transaction on the due date;

·; The Company will be forced to sell financial assets at a value which is less than what they are worth; or

·; The Company may be unable to settle or recover a financial asset at all.

 

The Company's operating cash requirements including amounts projected to complete the Company's existing capital expenditure program are continuously monitored and adjusted as input variables change. These variables include but are not limited to, available bank lines, natural gas production from existing wells, results from new wells drilled, commodity prices, cost overruns on capital projects and regulations relating to prices, taxes, royalties, land tenure, allowable production and availability of markets. As these variables change, liquidity risks may necessitate the Company to conduct equity issues or obtain project debt financing. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses. The financial liabilities as at March 31, 2010 that are subject to liquidity risk are accounts payable and accrued liabilities. The contractual maturity of these financial liabilities is generally the following sixty days from the receipt of the invoices for goods of services and can be up to the following next six months. Management believes that current working capital will be adequate to meet these financial liabilities as they become due.

 

This information is provided by RNS

The company news service from the London Stock Exchange