9 Aug 2010 07:00
August 9, 2010
Caza Oil & Gas, Inc.
CAZA OIL & GAS ANNOUNCES SECOND QUARTER RESULTS
AND PROVIDES OPERATIONAL UPDATE
HOUSTON, TEXAS (Marketwire - August 9, 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 June 30, 2010.
Operational Highlights
·; Caza drilled the Matthys-McMillan Gas Unit #2 development well located in the Wharton West Wilcox Field to a total depth of 15,000 feet. Caza has plugged the well back and plans to attempt a completion in the Yegua formation. The well has been perforated at a depth of 9,478 feet and bottom hole pressure tests are underway. Caza should be able to determine potential reserve volumes from the results of the pressure tests.
·; As recently announced, intermediate casing has been installed, and the O.B. Ranch #1 well is drilling ahead on the Bongo Prospect.
·; In May 2010, Caza executed an exploration agreement with Devon Energy Production Company, L.P. ("Devon"), naming Devon as operator, to jointly test and develop Caza's Windham Wolfberry prospect in Upton County, Texas, covering approximately 1,318 net acres.
·; Caza is currently preparing to drill the Arran prospect and, as previously announced, plans to commence operations in September 2010. The Arran prospect will expose Caza to large reserves and, if successful, has the potential to increase Caza's production rates significantly.
Financial Highlights
·; General and administrative expenses were $1,178,255 ($1,068,032 net of reimbursements) for the three-month period ended June 30, 2010 as compared to $1,182,202 ($576,770 net of reimbursements) for the comparative period in 2009. The change in net general and administration costs resulted from the expiration of certain joint venture agreements that provided reductions in overhead costs.
·; Caza's production decreased 32% to 82,272 Mcfe for the three-month period ended June 30, 2010, down from 121,786 Mcfe for the comparative period in 2009. The production decrease is primarily due to the sale of the Glass Ranch properties.
·; Caza had a cash balance of $9,375,345 as of June 30, 2010, as compared to $8,159,644 at March 31, 2010 and $9,268,547 at December 31, 2009. Caza's working capital balance at June 30, 2010 was $7,182,271 as compared to $8,376,463 at December 31, 2009. The decrease in Caza's working capital balance primarily represents the investments made to drill the Matthys-McMillan Gas Unit #2 and O. B. Ranch #1 wells.
·; Revenues from oil & gas sales decreased 29% to $398,883 for the three-month period ended June 30, 2010, down from $561,083 for the comparative period in 2009. The decrease in revenues was primarily due to the sale of the Glass Ranch properties.
W. Michael Ford, Chief Executive Officer commented:
"Caza is executing its strategy of exposing the company to large, high-impact opportunities and managing its financial exposure through farm-outs and industry partnerships. Our recent farm-outs of the Arran and Windham Wolfberry prospects to Pass Petroleum and Devon, respectively, fit this strategy. If successful, these projects have the potential to open up numerous development locations and prove up significant reserves for Caza. We are currently planning to begin drilling operations at Arran in September and expect drilling operations on Windham Wolfberry to commence during the third quarter as well.
"Although the results for the Matthys-McMillan Gas Unit #2 well have been disappointing to date, the well further validated the Company's regional model for potential Wilcox sand distribution, and still has potential for financial success due to the Yegua interval. Currently, Caza has plugged the well back and perforated the Yegua interval and is preparing to run bottom hole pressure tests to determine potential reserve volumes. The results of the pressure tests should determine if a completion is warranted.
"The O.B. Ranch #1 well is currently drilling to its target depth of approximately 16,000 feet. Prior to setting intermediate casing, drilling and log data indicated hydrocarbon bearing sands in a shallower horizon. Further evaluation of the shallow horizon will be necessary, but we are optimistic about the results. The well, which was scheduled to drill in 45 days, will take slightly longer due to complications created by continued gas influx into the drilling fluid system. We expect to reach the target depth and complete logging and testing operations within the next 15 days."
Copies of the Company's unaudited financial statements for the second quarter ended June 30th, 2010 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:
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| 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, O.B. Ranch #1 well, the Devon exploration agreement, Windham Wolfberry prospect, 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", "O.B. Ranch #1 well", "Matthys-McMillan Gas Unit #2", "Devon exploration agreement", "Windham Wolfberry prospect", "exploration", "completion", "drilling", "testing", "large 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.
Caza Oil & Gas, Inc.
Consolidated Balance Sheets
(Unaudited)
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(In United States dollars) | June 30, 2010 |
| December 31, 2009 |
| Assets |
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| Current |
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| Cash and cash equivalents | $ 9,375,345 |
| $ 9,268,547 |
| Accounts receivable | 2,214,119 |
| 3,973,085 |
| Prepaid and other | 149,825 |
| 278,914 |
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| 11,739,289 |
| 13,520,546 |
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| Property and equipment (Note 3) | 35,796,827 |
| 36,201,223 |
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| $ 47,536,116 |
| $ 49,721,769 |
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| Liabilities |
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| Current |
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| Accounts payable and accrued liabilities | $ 4,557,018 |
| $ 5,144,083 |
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| Asset retirement obligations (Note 4) | 639,689 |
| 549,450 |
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| 5,196,707 |
| 5,693,533 |
| Shareholders' Equity |
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| Share capital (Note 5(b)) | 51,212,097 |
| 51,212,097 |
| Contributed surplus (Note 5(e)) | 5,125,478 |
| 4,805,074 |
| Deficit | (13,998,166) |
| (11,988,935) |
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| 42,339,409 |
| 44,028,236 |
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| $ 47,536,116 |
| $ 49,721,769 |
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| See accompanying notes to the interim consolidated financial statements |
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Caza Oil & Gas, Inc.
Consolidated Statements of Net Loss, Comprehensive Loss, and Deficit
(Unaudited)
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| Three months ended | Six months ended | ||
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| June 30, | June 30, | ||
| (In United States dollars) | 2010 | 2009 | 2010 | 2009 |
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| Revenue |
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| Petroleum and natural gas | $ 398,883 | $ 561,083 | $ 1,095,548 | $ 1,114,999 |
| Interest income and other income | 137 | 740 | 300 | 2,881 |
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| 399,020 | 561,823 | 1,095,848 | 1,117,880 |
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| Expenses |
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| Production | 164,395 | 235,217 | 409,100 | 413,537 |
| General and administrative | 1,068,032 | 576,770 | 1,271,818 | 1,616,932 |
| Depletion, depreciation, amortization and accretion |
646,820 |
731,524 |
1,421,798 |
1,404,793 |
| Interest | - | 559 | 2,363 | 745 |
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| 1,879,247 | 1,544,070 | 3,105,079 | 3,436,007 |
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| Net loss and comprehensive loss | (1,480,227) | (982,247) | (2,009,231) | (2,318,127) |
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| Deficit, beginning of period | (12,517,939) | (9,604,013) | (11,988,935) | (8,268,133) |
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| Deficit, end of period | $(13,998,166) | $(10,586,260) | $(13,998,166) | $(10,586,260) |
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| Net loss per share |
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| - basic and diluted | $ (0.01) | $ (0.01) | $ (0.01) | $ (0.02) |
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| Weighted average shares outstanding |
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| - basic and diluted (1) | 145,821,000 | 145,821,000 | 145,821,000 | 145,821,000 |
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| (1) All options and warrants have been excluded from the diluted loss per share computation as they are anti-dilutive. |
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| See accompanying notes to the interim consolidated financial statements | ||||
Caza Oil & Gas, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| | Three months ended | Six months ended | ||
| | June 30, | June 30, | ||
| (In United States dollars) | 2010 | 2009 | 2010 | 2009 |
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| CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: | ||||
| OPERATING | | | | |
| Net loss | (1,480,227) | (982,247) | (2,009,231) | (2,318,127) |
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| Adjustments for items not affecting cash: | | | | |
| Depletion, depreciation, amortization and accretion | 646,820 | 731,524 | 1,421,798 | 1,404,793 |
| Stock-based compensation | 89,986 | 132,915 | 184,831 | 272,649 |
| Changes in non-cash working capital (Note 7(a)) | 365,061 | (1,429,411) | (429,816) | (2,696,594) |
| Cash flows used in operating activities | (378,360) | (1,547,219) | (832,418) | (3,337,279) |
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| INVESTING | | | | |
| Exploration and development expenditures | (2,318,831) | (367,963) | (3,502,646) | (1,683,067) |
| Purchase of equipment | - | - | (77,794) | - |
| Proceeds from the sale of oil & gas assets | 1,800,000 | - | 1,800,000 | - |
| Partner reimbursement | 988,850 | 992,089 | 988,850 | 992,089 |
| Changes in non-cash working capital (Note 7(a)) | 1,124,042 | 2,373,435 | 1,730,806 | 1,140,244 |
| Cash flows used in investing activities | 1,594,061 | 2,997,561 | 939,216 | 449,266 |
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| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,215,701 | 1,450,342 | 106,798 | (2,888,013) |
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| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 8,159,644 | 9,765,472 | 9,268,547 | 14,103,827 |
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| CASH AND CASH EQUIVALENTS, END OF PERIOD | 9,375,345 | 11,215,814 | 9,375,345 | 11,215,814 |
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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 $3.8 million of expenditures related to proved undeveloped reserves (see note 3). During the six months ended June 30, 2010, the Company incurred a net loss of $2.0 million however, the Company had a working capital surplus of $7.2 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.
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
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June 30, 2010 |
December 31, 2009 | ||||
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| Cost | Accumulated depletion and depreciation | Net Book Value | Cost | Accumulated depletion and depreciation | Net Book Value |
| Petroleum and natural gas properties and equipment |
$42,139,127 |
$6,684,523 |
$35,454,604 |
41,208,133 |
$5,349,421 |
$35,858,712 |
| Office equipment and furniture |
$808,003 |
$465,780 |
$342,223 |
$730,209 |
$387,698 |
$342,511 |
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$42,947,130 |
$7,150,303 |
$35,796,827 |
$41,938,342 |
$5,737,119 |
$36,201,223 |
At June 30, 2010, the cost of petroleum and natural gas properties includes $9,779,523 (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 June 30, 2010. Future development costs of proved undeveloped reserves of $3,777,819 were included in the depletion calculation at June 30, 2010 and $4,504,300 was included in the depletion calculation at December 31, 2009.
During the three and six month periods ended June 30, 2010 the Company capitalized general and administrative expenses of $39,751 and $190,069 respectively (three and six month periods ended June 30, 2009 - $170,292 and $422,605) directly relating to exploration and development activities of which $6,799 and $150,265 related to stock based compensation (three and six month periods ended June 30, 2009 - $61,041 and $115,265).
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:
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| June 30, 2010 |
| December 31, 2009 |
| Asset retirement obligation, beginning of period | $ 549,450 |
| $ 493,919 |
| Obligations incurred | 81,625 |
| 30,915 |
| Accretion | 8,614 |
| 24,616 |
| Asset retirement obligation, end of period | $ 639,689 |
| $ 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 $1,063,830 (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
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| Six Months Ended | Year Ended | ||
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| June 30, 2010 | December 31,2009 | ||
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| Shares | Amounts | Shares | Amounts |
| Common shares |
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| Balance beginning and end of period | 119,319,000 | $ 46,423,526 | 119,319,000 | $ 46,423,526 |
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| Exchangeable rights |
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| Balance beginning and end of period | 26,502,000 | 918,571 | 26,502,000 | 918,571 |
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| 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 |
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| $ 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
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The following table summarizes the warrants outstanding as at June 30, 2010.
| Date of Grant | Number Outstanding | Exercise Price |
Remaining Contractual Life | Date of Expiry | Number Exercisable June 30, 2010 |
| September 22, 2006 | 16,731,000 | 1.00 | 0.23 | September 22, 2010 | 16,731,000 |
| November 20, 2006 | 2,535,500 | 1.00 | 0.39 | November 20, 2010 | 2,535,500 |
| January 17, 2007 | 533,500 | 1.00 | 0.45 | December 12, 2010 | 533,500 |
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| 19,800,000 |
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| 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 June 30, 2010 and December 31, 2009 and changes during the respective periods ended on those dates is presented below.
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| June 30, 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 | 7,950,000 | 0.07 | - | - |
| Exercised | - | - | - | - |
| Forfeited | (280,000) | 0.56 | (1,213,333) | 0.55 |
| End of period | 13,041,667 | $0.29 | 5,371,667 | $0.62 |
| Exercisable, end of period | 4,131,667 | $0.64 | 3,931,667 | $0.59 |
| Date of Grant | Number Outstanding | Exercise Price | Weighted Average Remaining Contractual Life | Date of Expiry | Number Exercisable June 30, 2010 |
| January 31, 2007 | 2,025,000 | 0.50 | 6.59 | January 31, 2017 | 2,025,000 |
| May 10, 2007 | 200,000 | 0.50 | 6.85 | May 10, 2017 | 200,000 |
| June 11, 2007 | 13,333 | 0.50 | 6.95 | June 11, 2017 | 13,333 |
| December 12, 2007 | 2,046,667 | 0.79 | 7.45 | December 12, 2017 | 1,413,333 |
| April 7, 2008 | 500,000 | 0.59 | 7.77 | April 7, 2018 | 333,333 |
| August 11, 2008 | 306,667 | 0.44 | 8.11 | August 11, 2018 | 146,667 |
| March 23, 2010 | 1,000,000 | 0.07 | 9.73 | March 23, 2020 | - |
| April 9, 2010 | 6,300,000 | 0.07 | 9.78 | April 9, 2020 | - |
| April 12, 2010 | 400,000 | 0.07 | 9.79 | April 12, 2020 | - |
| May 19, 2010 | 250,000 | 0.07 | 9.89 | May 19, 2020 | - |
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| 13,041,667 |
| 8.76 |
| 4,131,667 |
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During the first six months of 2010 7,950,000 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:
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| 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:
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June 30, 2010 |
December 31, 2009 |
| Balance, beginning of period | $ 4,805,074 | $ 4,217,135 |
| Expired broker warrants Forfeited stock options | - (42,003) | 269,500 (196,875) |
| Stock based compensation | 362,407 | 515,314 |
| Balance, end of period | $ 5,125,478 | $ 4,805,074 |
(i) During the three and six month periods ended June 30, 2010 $89,986 (2009 -$132,915) and $184,831 (2009 -$272,649) of stock based compensation expense was recognized in the consolidated statement of net loss, comprehensive loss, and deficit and $6,799 (2009 -$6,818) and $150,265 (2009 -$61,041) was capitalized. During the three and six month periods ended June 30, 2010 stock options expensed in the amount of $38,287 and $42,003 were forfeited of which $23,595 and $27,311 was included in stock based compensation for the respective periods.
6. Related Party Transactions
The aggregate amount of expenditures made to related parties:
In 2010, Singular Oil & Gas Sands, LLC ("Singular") agreed to participate in the drilling of the Matthys McMillan Gas Unit #2 and the O B Ranch #1 wells located 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 on the Matthys McMillan Gas Unit #2 well and paid 12.5% of the drilling costs to earn a 6.94% net revenue interest on the O B Ranch #1 well. 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 $317,315 in joint venture partner receivables as at June 30, 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
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| Three months ended June 30, | Six months ended June 30, | ||
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| 2010 | 2009 | 2010 | 2009 |
| Provided by (used in) |
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| Accounts receivable | 1,032,882 | 499,046 | 1,758,966 | 1,599,389 |
| Prepaid and other | 116,801 | 29,679 | 129,089 | 79,429 |
| Accounts payable and accrued liabilities | 339,420 | 415,299 | (587,065) | (3,235,168) |
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| 1,489,103 | 944,024 | 1,300,990 | (1,556,350) |
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| Summary of changes |
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| Operating | 365,061 | (1,429,411) | (429,816) | (2,696,594) |
| Investing | 1,124,042 | 2,373,435 | 1,730,806 | 1,140,244 |
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| 1,489,103 | 944,024 | 1,300,990 | (1,556,350) |
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(b) supplementary cash flow information
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| Three months ended June 30, | Six months ended June 30, | ||
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| 2010 | 2009 | 2010 | 2009 |
| Interest paid | - | 559 | 2,363 | 745 |
| Interest received | 137 | 740 | 300 | 2,881 |
(c) cash and cash equivalents
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June 30, 2010 |
December 31, 2009 |
| Cash on deposit | $ 5,097,705 | $ 1,991,207 |
| Money market instruments | 4,277,640 | 7,277,340 |
| Cash and cash equivalents | $ 9,375,345 | $ 9,268,547 |
The money market instruments bear interest at a rate of 0.01% as at June 30, 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 ($42,339,409: December 31, 2009 - $44,028,236), working capital ($7,182,271: 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 three month period ended June 30, 2010, the Company sold 55.00% ( three month period ended June 30, 2009 - 41.70%) 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 June 30, 2010, the Company had overdue accounts receivable from certain joint interest partners of $339,699 which were outstanding for greater than 60 days with $182,627 that was outstanding for greater than 90 days.
During the three month period ended June 30, 2010, there was no impairment required on any of the financial assets of the Company. At June 30, 2010, the Company's two largest joint venture partners represented approximately 18% and 16% 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 and accounts receivable.
(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 June 30, 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 June 30, 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.