5 Nov 2009 07:00
November 5, 2009
Caza Oil & Gas, Inc.
CAZA OIL & GAS ANNOUNCES THIRD QUARTER RESULTS
HOUSTON, TEXAS Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX: CAZ) (AIM: CAZA) is pleased to provide unaudited financial and operational results for the three month period ended September 30, 2009.
W. Michael Ford, Chief Executive Officer commented:
"We have been active during the quarter acquiring acreage and drilling along with our partners Endeavour International and Wise Oil & Gas. The Endeavour farmout de-risked and accelerated our drilling activities, which provides Caza opportunities for growth in both production and reserves. Additionally, Caza has maintained its strong cash position and posted positive funds flow from operations for the quarter."
Copies of the Company's unaudited financial statements for the third quarter ended September 30, 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, Executive Chairman, Caza Oil & Gas, Inc. W. Michael Ford, CEO, Caza Oil & Gas, Inc. | +1 281 363 4442 +1 432 682 7424 |
| Tim Feather/Richard Baty, Hanson Westhouse Limited | +44 (0)20 7601 6100 |
| Peter Reilly, Aquila Financial Limited | +44 (0)118 979 4100 |
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 Endeavour farmout agreement contained in this news release constitutes forward-looking information within the meaning of securities laws.
Implicit in this information, particularly in respect of "joint ventures", "Endeavour farmout", "operations" and "leasing and drilling activity" are assumptions regarding projected revenue and expenses. Specifically, the Company has assumed that these agreements 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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following interim Management's Discussion and Analysis ("MD&A") of the financial results for Caza Oil & Gas, Inc. ("Caza" or the "Company") should be read in conjunction with the unaudited consolidated interim financial statements as at and for the three and nine month periods ended September 30, 2009, the audited consolidated financial statements and MD&A for the year ended December 31, 2008 and the corresponding Annual Information Form. Additional information relating to the Company can be found on SEDAR at www.sedar.com. All figures herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") unless otherwise stated. This MD&A is dated November 5, 2009. Forward Looking Information
In addition to historical information, the MD&A contains forward-looking statements that are generally identifiable as any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as "will", "may", "will likely result," "expected," "is anticipated," "believes," "estimated," "intends," "plans," "projection" and "outlook"), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.
These statements are based on certain factors and assumptions regarding the results of operations, the performance of projected activities and business opportunities. Specifically, we have used historical knowledge and current industry trends to project budgeted expenditures for 2009 and into 2010. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.
Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: risks associated with the Company's stage of development; competitive conditions; share price volatility; risks associated with crude oil and natural gas exploration and development; risks related to the inherent uncertainty of reserves and resources estimates; possible imperfections in title to properties; the volatility of crude oil and natural gas prices and markets; environmental regulation and associated risks; loss of key personnel; operating and insurance risks; the inability to add reserves; risks associated with industry conditions; the ability to obtain additional financing on acceptable terms if at all; non operator activities; the inability of investors in certain jurisdictions to bring actions to enforce judgments; equipment unavailability; potential conflicts of interest; risks related to operations through subsidiaries; risks related to foreign operations; currency exchange rate risks and other factors, many of which are beyond the control of the Company. Accordingly, there is no representation by Caza that actual results achieved during the forecast period will be the same in whole or in part as that forecast. Further, Caza undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.
Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.
Non-GAAP Measures
The financial data presented herein has been prepared in accordance with GAAP. The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry in the following MD&A. The measures are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include "operating netback" and "funds flow from (used in) operations". Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales and is calculated by deducting royalties and operating expenses from revenues. Funds flow from (used in) operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These measures and their underlying calculations are not necessarily comparable or calculated in an identical manner to a similarly titled measure of another entity. When these measures are used, they are defined as "non GAAP" and should be given careful consideration by the reader.
Note Regarding Boe and Mcfe
In this MD&A, barrels of oil equivalent ("Boes") are derived by converting gas to oil in the ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl") of oil (6 Mcf: 1 bbl) and one thousand cubic feet of gas equivalent ("Mcfes") are derived by converting oil to gas in the ratio of one bbl of oil to six Mcf (1 bbl: 6 Mcf). Boes and Mcfes may be misleading, particularly if used in isolation. A Boe conversion of 6 Mcf of natural gas to 1 bbl of oil, or a Mcfe conversion ratio of 1 bbl of oil to 6 Mcf of natural gas 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.
Currency
References to "dollars" and "$" are of U.S. dollars and references to "CDN$" are to Canadian dollars.
FINANCIAL AND OPERATING RESULTS
Petroleum and Production Revenue
| Three months ended September 30, | Nine months ended September 30, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Natural gas | ||||
| Production (Mcf) | 92,429 | 83,727 | 263,034 | 257,655 |
| Revenue ($) | 297,718 | 772,393 | 934,274 | 2,483,020 |
| Price ($/Mcf) | 3.22 | 9.23 | 3.55 | 9.64 |
| Natural gas liquids | ||||
| Production (bbls) | 248 | 884 | 1,011 | 1,361 |
| Revenue ($/bbl) | 16,227 | 85,583 | 45,039 | 136,554 |
| Price ($/bbl) | 65.38 | 96.78 | 44.53 | 100.34 |
| Oil Production | ||||
| Production (bbls) | 3,682 | 405 | 13,655 | 702 |
| Revenue ($/bbl) | 239,848 | 47,079 | 689,479 | 82,129 |
| Price ($/bbl) | 65.13 | 116.22 | 50.49 | 116.94 |
| Combined | ||||
| Production (Mcfe) | 116,013 | 91,463 | 351,032 | 270,033 |
| Revenue ($) | 553,793 | 905,055 | 1,668,792 | 2,701,703 |
| Price ($/Mcfe) | 4.77 | 9.90 | 4.74 | 10.01 |
| Mcfe/d | 1,261 | 994 | 1,286 | 989 |
| Boe/d | 210 | 166 | 214 | 165 |
Revenues from oil and gas sales decreased 39% to $553,793 for the three-month period ended September 30, 2009 from $905,055 for the three-month period ended September 30, 2008 (the "comparative period") and were 38% lower than the nine-month period ended September 30, 2008. Caza's production increased 27% to 116,016 Mcfe for the three-month period ended September 30, 2009, up from 91,463 Mcfe for the comparative period. This represents an average daily production rate increase of 267 Mcfe/d for the three months ended September 30, 2009 to 1,261 Mcfe/d, as compared to 994 Mcfe/d for the comparative period. The average natural gas price received by Caza decreased 52% to $4.77 per Mcfe during the three-month period ended September 30, 2009 from $9.90 per Mcfe during the comparative period. The decrease in revenues from the third quarter of 2008 is a result of the decrease in commodity prices. Presently the Company has not hedged any of its production and does not have any commodity price management programs in place.
Operating Netback Summary
The following table reconciles the Company's operating netback which is considered to be a non-GAAP measure:
| Three months ended September 30, | Nine months ended September 30, | |||
| (on a Mcfe basis) | 2009 | 2008 | 2009 | 2008 |
| Oil and natural gas revenue | $ 4.77 | $ 9.90 | $ 4.75 | $ 10.01 |
| Production expense | (1.36) | (0.77) | (1.33) | (0.74) |
| Severance expense | (0.35) | (0.73) | (0.34) | (0.71) |
| Transportation expense | (0.18) | (0.17) | (0.13) | (0.14) |
| Operating netback (non-GAAP) | 2.88 | 8.23 | 2.95 | 8.42 |
Production Expenses
| Three months ended September 30, | Nine months ended September 30, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Severance ($) | 40,867 | 67,074 | 119,433 | 190,857 |
| Transportation ($) | 21,079 | 15,489 | 45,863 | 37,672 |
| Production ($) | 157,763 | 70,766 | 467,950 | 199,764 |
| Severance, transportation and production ($) | 219,709 | 153,329 | 633,246 | 428,293 |
| Severance, transportation and production ($/Mcfe) | 1.89 | 1.68 | 1.80 | 1.59 |
Severance taxes and transportation expenses totaled $61,946 ($0.53/Mcfe) for the three-month period ended September 30, 2009, representing a decrease of 25% from $82,563 ($0.90/Mcfe) incurred during the comparative period. Severance tax is a tax imposed by states on natural resources such as crude oil, natural gas and condensate extracted from the ground. The tax is calculated by applying a rate to the dollar amount of production from the property or a set dollar amount applied to the volumes produced from the property. The decrease in severance taxes and transportation costs are a result of a 52% decrease in the average commodity price received by Caza during the third quarter of 2009.
Production expenses for the three-month period ended September 30, 2009 was $157,763 compared to $70,766 for the comparative period. Caza's average lifting cost for the three-month period ended September 30, 2009 was $1.36 per Mcfe versus $0.77 per Mcfe for the comparative period. This increase in lifting costs occurred as a result of the natural decline in production of certain wells and the bringing on of new wells which currently have higher lifting costs than our historical average. Depletion, Depreciation and Accretion
| Three months ended September 30, | Nine months ended September 30, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Depletion and depreciation ($) | 614,251 | 320,042 | 2,006,738 | 991,152 |
| Accretion ($) | 6,154 | 3,566 | 18,461 | 10,698 |
| Depletion, depletion and accretion ($) | 620,405 | 323,608 | 2,025,199 | 1,001,850 |
| Depletion, depletion and accretion ($/Mcfe) | 5.35 | 3.54 | 5.77 | 3.71 |
Depletion, depreciation, amortization and accretion expense for the three months ended September 30, 2009 increased to $620,405 ($5.35/Mcfe) from $323,608 ($3.54/Mcfe) in the comparative period. The increase resulted from drilling costs associated with, and production from, the wells drilled by Caza during 2008.
Costs of acquiring unproved properties of $11,364,481 were excluded from depletable costs in accordance with Canadian Institute of Chartered Accountants Accounting Guideline 16. A proportionate amount of the carrying value will be transferred to the depletable pool as reserves are proven up through the execution of Caza's exploration programs.
General and Administrative Expenses
| Three months ended September 30, | Nine months ended September 30, | |||
|
| 2009 | 2008 | 2009 | 2008 |
| General and administrative ($) | 938,483 | 1,889,194 | 3,179,031 | 4,606,074 |
| Joint venture partner reimbursements ($) | (608,854) | - | (1,184,676) | - |
| General and administrative recovery ($) | (62,334) | (31,857) | (109,384) | (148,921) |
| Net general and administrative ($) | 267,295 | 1,857,337 | 1,884,971 | 4,457,153 |
| General and administrative ($/Mcfe) | 8.09 | 20.66 | 9.05 | 17.08 |
| Net general and administrative ($/Mcfe) | 2.30 | 20.31 | 5.37 | 16.52 |
Net general and administrative expenses were $267,291 for the three-month period ended September 30, 2009 and $1,857,337 for the comparative period. Stock-based compensation expense in the amount of $114,229 is included in general and administrative expenses for the three-month period ended September 30, 2009 ($149,215 in 2008). During the three-month period ended September 30, 2009, Caza capitalized general and administrative expenses relating to exploration and development activities of $58,887, of which $39,422 related to capitalized stock-based compensation. Under certain joint venture agreements Caza receives reimbursements of general and administrative expenses. Net loss
Caza incurred a net loss of $553,423 for the three-month period ended September 30, 2009 compared to a net loss of $2,164,475 during the comparative period. The decrease in net loss from the comparative period occurred as a result of significant reductions in general and administrative expenses, reimbursements from joint venture partners and the de-recognition of future income tax assets in the second quarter of 2008.
Investments
Interest income for the three-month period ended September 30, 2009 was $193 down from $132,295 during the same period in 2008. Caza invested its cash in short-term money market funds. The Company does not hold any asset backed commercial paper.
Funds flow from (used in) operations (Non-GAAP)
The following is a reconciliation of funds flow used in operations to net loss:
The Company had a funds flow from operations for the three month period ended September 30, 2009 of $157,545 as compared to a funds flow used in operations for the three month period ended September 30, 2008 of $841,092.
|
| Three months ended September 30, | Nine months ended September 30, | ||
|
| 2009 | 2008 | 2009 | 2008 |
| Net loss | (553,423) | (2,164,475) | (2,871,550) | (3,336,861) |
| Depletion, depreciation, amortization and accretion | 620,405 | 323,608 | 2,025,199 | 1,001,850 |
| Stock-based compensation | 90,563 | 149,215 | 363,212 | 401,441 |
| Asset retirement obligations settled | - | - | - | (9,767) |
| Future income tax expense (recovery) | - | 850,560 | - | 426,082 |
| Funds flow from (used in) operations | 157,545 | (841,092) | (483,139) | (1,517,255) |
|
|
|
|
|
|
| Funds loss per share - basic and diluted | 0.00 | (0.01) | (0.00) | (0.01) |
Capital Expenditures
| Three months ended September 30, | Nine months ended September 30, | |||
| By Type ($) | 2009 | 2008 | 2009 | 2008 |
| Drilling and completions | (79,393) | 4,283,732 | 150,765 | 9,840,167 |
| Seismic | - | - | 19,427 | 166,314 |
| Facilities and lease equipment | 28,616 | 175,690 | 230,765 | 1,438,223 |
| Office furnishings and equipment | 7,464 | 47,761 | 7,464 | 121,969 |
| Leasehold /geological /geophysical | 286,301 | 1,664,782 | 922,950 | 1,955,737 |
| Other costs (recovery) | 118,323 | 519,147 | 142,907 | 559,009 |
| Total | 361,311 | 6,691,112 | 1,474,278 | 14,081,419 |
During the nine month period ended September 30, 2009 Caza initiated the 2009 drilling schedule with the Lucky Penny 10 State #1 and the Moore Bailout 11 State #1 wells located in Lea County, New Mexico. Caza plans to drill sequentially 4 Abo-Wolfcamp wells in 2009. During the nine month period ended September 30, 2009, as a result of joint venture agreements the Company received payments for prior period costs of $556,589 of lease acquisition costs and seismic reprocessing costs of $435,500. In addition, the Company increased its working interests in certain oil and gas properties in consideration for the settlement of certain joint venture accounts receivable due to the Company.
Outstanding Share Data
Caza is authorized to issue an unlimited number of common shares without par value, of which 119,319,000 common shares are currently issued and outstanding. An additional 26,502,000 common shares are issuable pursuant to certain exchange rights attached to certain outstanding common shares of Caza Petroleum.
The following table sets forth the classes and number of outstanding securities of the Company and the number of issued and issuable Common Shares on a fully diluted basis. See note 5 to the corresponding interim financial statements.
| Issued and Issuable Securities | |
| Common Shares | |
| Issued and outstanding | 119,319,000 |
| Issuable from exchangeable shares | 26,502,000 |
| Issuable from exercise of warrants | 19,800,000 |
| Issuable from exercise of broker warrants | 700,000 |
| Issuable from exercise of stock options | 6,118,334 |
| Total Common Shares issued and issuable | 172,439,334 |
| Warrants Issued |
|
| Warrants to purchase common shares | 19,800,000 |
| Broker warrants | 700,000 |
| Total warrants | 20,500,000 |
| Stock Options Issued | |
| Total stock options outstanding | 6,118,334 |
Commitments
The following is a summary of the estimated amounts required to fulfill Caza's remaining contractual commitments as at September 30, 2009:
| Type of Obligation ($) | Total |
| 1-3 Years | 4-5 Years | Thereafter |
| Operating leases | 48,674 | 48,674 | - | - | - |
| Asset retirement obligations | 767,972 | 11,714 | 105,909 | 79,259 | 571,090 |
| Total contractual commitments | 816,646 | 60,388 | 105,909 | 79,259 | 571,090 |
Liquidity and Capital Resources
At September 30, 2009, Caza had a working capital surplus of $8,854,631 (December 31, 2008 $10,812,048). The decrease in working capital of $1,957,416 for the nine month period was a result of a net funds outflow from operations of $483,139 and capital expenditures of $1,474,278. During the quarter ended September 30, 2009 the Company's cash position decreased to $11,116,454 from $14,103,827 at December 31, 2008. This was a result of joint venture partner lease acquisition reimbursements of $992,089 offset by a net outflow of working capital of $1,029,956 which was accompanied by a net use of funds in operations of $483,139 and by exploration and leasehold expenditures of $2,466,367. Caza had no bank credit facilities drawn or in place.
On April 8, 2009, the Company entered into a participation agreement with Endeavour Operating Corporation to participate in a jointly established exploration and development program in the United States. The exploration program will primarily focus on Caza's existing onshore acreage position and portfolio of identified opportunities throughout Texas, Louisiana and New Mexico. Under the terms of the Agreement, Endeavour has the right to participate in assets presented to it in its sole discretion. With respect to those assets in which Endeavour elects to participate, Endeavour will fund the acquisition, exploration and appraisal activity costs attributable to Caza's interest in such assets. In consideration for these payments, Endeavour will earn a 75% participating interest in any interest then owned by Caza in any particular asset in which Endeavour elects to participate. The term of the Agreement will run for two years. Endeavour has also agreed to pay a program fee of US$3 million per annum to be paid monthly. However, either party may terminate the Agreement as of the end of each anniversary period by giving 60 days prior written notice. If neither party terminates the Agreement, it shall automatically renew for subsequent one-year periods.
Caza will typically use four sources of funding to finance its capital expenditure program: internally generated cash flow from operations, proceeds from the sale of properties, bank debt where appropriate and if available new equity issues.
The Company's investing activities in the quarter consisted primarily of expenditures on its capital program. As a result of the current international credit crisis, capital markets with respect to both equities and debt have tightened significantly. However, due to the $21.4 million financing completed in 2008 and the joint venture with Endeavour Operating Corporation completed on April 8, 2009, management anticipates that the Company will have adequate liquidity to fund its operations and budgeted capital expenditures.
Caza and its subsidiary, Caza Petroleum, Inc. ("Caza Petroleum") may be considered to be "related parties" for the purposes of Multilateral Instrument 61-101 of the Canadian Securities Administrators. As a result, Caza or Caza Petroleum may therefore be required to obtain a formal valuation or disinterested shareholder approval before completing certain transactions with the other party.
Summary of Quarterly Results
| Three months ended September 30, 2009 | Three months ended June 30, 2009 | Three months ended March 31, 2009 | Three months ended December 31, 2008 | |
| Petroleum and natural gas sales | 553,793 | 561,083 | 553,916 | 650,186 |
| Net income (loss) | (553,423) | (982,247) | (1,335,880) | (1,749,825) |
| Per share - basic and diluted | (0.00) | (0.01) | (0.01) | (0.01) |
| Funds flow from operations (non-GAAP) (1) | 157,545 | (117,808) | (522,877) | (1,046,915) |
| Per share - basic and diluted | 0.00 | (0.00) | (0.00) | (0.00) |
| Net capital expenditures (recovery) | (361,311) | (202,139) | 1,315,105 | 3,851,867 |
| Average daily production (mcfe/d) | 1,261 | 1,338 | 1,258 | 1,130 |
| Weighted average shares outstanding | 145,821,000 | 145,821,000 | 145,821,000 | 145,821,000 |
| Three months ended September 30, 2008 | Three months ended June 30, 2008 | Three months ended March 31, 2008 | Three months ended December 31, 2007 | |
| Petroleum and natural gas sales | 905,055 | 1,067,364 | 729,284 | 600,431 |
| Net income (loss) | (2,164,475) | (536,701) | (635,685) | (554,402) |
| Per share - basic and diluted | (0.01) | (0.01) | (0.01) | (0.01) |
| Funds flow from(used in) operations (non-GAAP) (1) | (841,092) | (326,850) | (349,312) | (427,152) |
| Per share - basic and diluted | (0.01) | (0.00) | (0.00) | (0.01) |
| Net capital expenditures | 6,691,112 | 3,237,140 | 4,153,166 | 3,047,631 |
| Average daily production (mcfe/d) | 994 | 1,005 | 957 | 1,019 |
| Weighted average shares outstanding | 145,675,139 | 97,723,874 | 95,821,000 | 80,782,196 |
(1) Calculated based on cash flow from operating activities before changes in non-cash working capital.
Factors that have caused variations over the quarters:
In 2009 Caza acquired all of the working interest of Probe Resources, Inc. in the Safari Project located in Wharton County, Texas. The acquisition dated April 1, 2009, included among other lease hold Probe's 19.2 % working interest in the Andel # 2201 well, 18.36% working interest in the Hinton # 1501 well, 18.36% working interest in the Rachunek #201 well and 19.2% working interest in the Gavranovic #701 well. All four wells are operated by Caza.
In 2009 the Company drilled 2 gross (0.25 net) wells in Lea County New Mexico. The two wells are the Lucky Penny 10 State # 1 and the Moore Bailout 11 State # 1, both wells are currently undergoing completion operations.
On April 8, 2009, the Company completed a participation agreement with Endeavour Operating Corporation to participate in a jointly established exploration and development program in the United States.
The Company drilled 16 gross (6.15 net) wells in Texas, New Mexico and Louisiana during 2007 and 2008 of which 13 gross (4.33 net) wells were completed. One well is waiting further completion operations pending the drilling of an appraisal well.
Financial Instruments
For a discussion about financial instruments, please refer to the corresponding September 30, 2009 consolidated interim financial statements and our Management's Discussion and Analysis for the year ended December 31, 2008 available at www.sedar.com.
Critical Accounting Estimates
Certain of our accounting policies require that we make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. For a discussion about those accounting policies, please refer to our annual management's discussion and analysis and Note 2 of the corresponding audited consolidated financial statements for the year ended December 31, 2008 available at www.sedar.com.
Recent Accounting Pronouncements
The Company has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Company: In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that effective January 1, 2011, Canadian GAAP for publicly accountable entities will be replaced in full with International Financial Reporting Standards (IFRS) as promulgated by the International AcSB. Management is currently assessing the impact of adopting IFRS and is developing a plan to achieve convergence to IFRS by January 1, 2011. Based on management's initial assessments, the Company has identified that the accounting and disclosure of capital assets are the areas that will have the greatest potential impact upon conversion.
In February 2008, the AcSB issued Section 3064, Goodwill and Intangible Assets and amended Section 1000, Financial Statement Concepts clarifying the criteria for recognizing assets, intangible assets and internally developed intangible assets. Items that no longer meet the definition of an asset are no longer recognized with assets. The standard was adopted on January 1, 2009 and did not have a material impact on our results of operations or financial position.
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 does not expect the adoption of this section to have a material impact on the results of operations or financial position.
In January 2009, the AcSB issued Sections 1601, Consolidated Financial Statements, and 1602, Non-controlling Interests, which replaces existing guidance. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. Management does not expect the adoption of this section to have a material impact on the results of operations or financial position.
Risks and Uncertainties
For a discussion about risk and uncertainties, please refer to our Management's Discussion and Analysis and Annual Information Form for the year ended December 31, 2008 available at www.sedar.com.
Internal Control Over Financial Reporting
There was no change to Caza's internal control over financial reporting during the nine month period ended September 30, 2009 that would materially affect, or is reasonably likely to materially affect, Casa's internal control over financial reporting.
Caza Oil & Gas, Inc.
Consolidated Balance Sheets
(Unaudited)
| (In United States dollars) | September 30, 2009 | December 31, 2008 | |
| Assets | |||
| Current | |||
| Cash and cash equivalents | $ 11,116,454 | $ 14,103,827 | |
| Accounts receivable | 2,173,605 | 3,346,720 | |
| Prepaid and other | 47,562 | 215,301 | |
| 13,337,621 | 17,665,848 | ||
| Property and equipment (Note 3) | 36,684,362 | 37,112,470 | |
| $ 50,021,983 | $ 54,778,318 | ||
| Liabilities | |||
| Current | |||
| Accounts payable and accrued liabilities | $ 4,482,990 | $ 6,853,800 | |
| Asset retirement obligations (Note 4) | 526,929 | 493,919 | |
| 5,009,919 | 7,347,719 | ||
|
|
| ||
| Shareholders' Equity | |||
| Share capital (Note 5(b)) | 51,481,597 | 51,481,597 | |
| Contributed surplus (Note 5(f)) | 4,670,150 | 4,217,135 | |
| Deficit | (11,139,683) | (8,268,133) | |
| 45,012,064 | 47,430,599 | ||
| $ 50,021,983 | $ 54,778,318 | ||
| See accompanying notes to the interim consolidated financial statements | |||
Caza Oil & Gas, Inc.
Consolidated Statements of Net Loss, Comprehensive Loss, and Deficit
(Unaudited)
| Three months ended | Nine months ended | |||
| September 30, | September 30, | |||
| (In United States dollars) | 2009 | 2008 | 2009 | 2008 |
| Revenue | ||||
| Petroleum and natural gas | $ 553,793 | $ 905,055 | $ 1,668,792 | $ 2,701,703 |
| Interest income and other income | 193 | 132,295 | 3,074 | 277,208 |
| 553,986 | 1,037,350 | 1,671,866 | 2,978,911 | |
| Expenses | ||||
| Production | 219,709 | 153,329 | 633,246 | 428,293 |
| General and administrative | 267,295 | 1,857,337 | 1,884,971 | 4,457,153 |
| Depletion, depreciation, amortization and accretion | 620,405 | 323,608 | 2,025,199 | 1,001,850 |
| 1,107,409 | 2,334,274 | 4,543,416 | 5,887,296 | |
| Loss before income taxes | (553,423) | (1,296,924) | (2,871,550) | (2,908,385) |
| Income taxes | ||||
| Current income taxes | - | 16,991 | - | 2,394 |
| Future income tax recovery | - | 850,560 | - | 426,082 |
| - | 867,551 | - | 428,476 | |
| Net loss and comprehensive loss | (553,423) | (2,164,475) | (2,871,550) | (3,336,861) |
| Deficit, Beginning of Period | (10,586,260) | (4,353,826) | (8,268,133) | (3,181,440) |
| Deficit, End of Period | $(11,139,683) | $(6,518,301) | $(11,139,683) | $(6,518,301) |
| Loss per share | ||||
| basic and diluted | $ (0.00) | $ (0.01) | $ (0.02) | $ (0.03) |
| Weighted average shares outstanding | ||||
| basic and diluted (1) | 145,821,000 | 145,675,139 | 145,821,000 | 113,192,322 |
| (1) The 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 | ||||
Caza Oil & Gas, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| Three months ended | Nine months ended | |||
| September 30, | September 30, | |||
| (In United States dollars) | 2009 | 2008 | 2009 | 2008 |
| CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: | ||||
| OPERATING | ||||
| Net loss | (553,423) | (2,164,475) | (2,871,550) | (3,336,681) |
| Adjustments for items not affecting cash: | ||||
| Depletion, depreciation, amortization and accretion | 620,405 | 323,608 | 2,025,199 | 1,001,850 |
| Stock-based compensation | 90,563 | 149,215 | 363,212 | 401,441 |
| Future income tax expense (recovery) | - | 850,560 | - | (426,082) |
| Asset retirement obligations settled | - | - | - | (9,767) |
| Changes in non-cash working capital (Note 8(a)) | (232,037) | 1,529,745 | (2,928,631) | 1,232,985 |
| Cash flows from (used in) operating activities | (74,492) | 688,653 | (3,411,770) | (284,270) |
| FINANCING | ||||
| Proceeds from issuance of shares, net of issue costs | - | 3,084,668 | - | 21,386,409 |
| Changes in non-cash working capital (Note 8(a)) | - | - | - | (650,899) |
| Cash flows from financing activities | - | 3,084,668 | - | 20,735,510 |
| INVESTING | ||||
| Exploration and development expenditures | (775,835) | (6,643,351) | (2,458,903) | (13,959,449) |
| Purchase of equipment | (7,464) | (47,761) | (7,464) | (121,970) |
| Partner reimbursement | - | - | 992,089 | - |
| Changes in non-cash working capital (Note 8(a)) | 758,431 | (780,235) | 1,898,675 | (1,770,723) |
| Cash flows used in investing activities | (24,868) | (7,471,347) | 424,397 | (15,852,142) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (99,360) | (3,698,026) | (2,987,373) | 4,599,098 |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 11,215,814 | 21,491,713 | 14,103,827 | 13,194,589 |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | 11,116,454 | 17,793,687 | 11,116,454 | 17,793,687 |
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.
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, 2008. 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 except as disclosed in Note 2.
Caza's reporting currency is the United States ("US") dollar as the majority of its transactions are denominated in that currency.
2. Changes in Significant Accounting Policies
3. Property and Equipment
| September 30, 2009 | December 31, 2008 | |||||
| Cost | Accumulated depletion and depreciation | Net Book Value | Cost | Accumulated depletion and depreciation | Net Book Value | |
| Petroleum and natural gas properties and equipment |
$40,902,047 | $4,589,352 | $36,312,695 |
$39,330,883 | $2,681,632 | $36,649,251 |
| Office equipment and furniture | $725,987 | $354,320 | $371,667 | $718,523 | $255,304 | $463,219 |
| $41,628,034 | $4,943,672 | $36,684,362 | $40,049,406 | $2,936,936 | $37,112,470 | |
At September 30, 2009 the cost of petroleum and natural gas properties includes $11,364,481 (December 31, 2008 - $10,778,079) 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 September 30, 2009. Future development costs of proved undeveloped reserves of $4,366,750 were included in the depletion calculation at September 30, 2009 and $11,224,800 was included in the depletion calculation at December 31, 2008.
During the nine month period ended September 30, 2009 the Company received reimbursements of prior period costs as a result of joint exploration agreements with other companies. This resulted in a decrease of $992,089 to the petroleum and natural gas properties and equipment. In addition the Company increased its working interest in certain oil and gas properties in consideration for the settlement of certain accounts receivable of the Company.
During the three and nine month periods ended September 30, 2009 the Company capitalized general and administrative expenses of $58,887 and $481,492 respectively (three and nine month periods ended September 30, 2008 - $305,469 and $909,416) directly relating to exploration and development activities of which $39,422 and $154,687 related to stock based compensation for the period ended September 30, 2009 (2008 - $49,276 and $166,865 respectively).
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:
| September 30, 2009 | December 31, 2008 | ||
| Asset retirement obligation, beginning of period | $ 493,919 | $ 286,019 | |
| Obligations incurred | 14,549 | 203,405 | |
| Accretion expense | 18,461 | 14,262 | |
| Obligations settled | - | (9,767) | |
| Asset retirement obligation, end of period | $ 526,929 | $ 493,919 |
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 as at September 30, 2009 to be $767,972 (December 31, 2008 - $740,472). The obligation was calculated using a credit-adjusted risk free discount rate of 6 percent and an inflation rate of 3 percent.
5. Share Capital
(a) Authorized
Unlimited number of voting common shares.
(b) Issued
| Nine months Ended | Year Ended | |||
| September 30, 2009 | December 31,2008 | |||
| Shares | Amounts | Shares | Amounts | |
| Opening balance common shares | 119,319,000 | $ 46,423,526 | 69,319,000 | $ 25,037,117 |
| Private placement | - | - | 50,000,000 | 21,386,409 |
| Balance end of period | 119,319,000 | $ 46,423,526 | 119,319,000 | $ 46,423,526 |
| Opening and ending exchangeable rights | 26,502,000 | 918,571 | 26,502,000 | 918,571 |
| Opening balance warrants | 20,500,000 | 4,139,500 | 25,100,000 | 4,855,100 |
| Expired broker warrants March 22, 2008 | - | - | (2,400,000) | (285,600) |
| Surrendered warrants May 21, 2008 | - | - | (2,200,000) | (430,000) |
| Balance end of period (i) | 20,500,000 | 4,139,500 | 20,500,000 | 4,139,500 |
|
| $ 51,481,597 | $ 51,481,597 | ||
(i) The weighted average life of the warrants is 0.98 years (December 2008 - 1.73 years) and the weighted average exercise price is $0.99 (December 2008 - $0.99).
(c) Warrants
The following table summarizes the warrants outstanding as at September 30, 2009.
| Date of Grant | Number Outstanding | Exercise Price |
Remaining Contractual Life | Date of Expiry | Number Exercisable September 30, 2009 |
| September 22, 2006 | 16,731,000 | 1.00 | 0.98 | September 22, 2010 | 16,731,000 |
| November 20, 2006 | 2,535,500 | 1.00 | 1.14 | November 20, 2010 | 2,535,500 |
| January 17, 2007 | 533,500 | 1.00 | 1.20 | December 12, 2010 | 533,500 |
| December 12, 2007 | 700,000 | 0.80 | 0.20 | December 12, 2009 | 700,000 |
| 20,500,000 | 20,500,000 |
(d) Stock options
A summary of the Company's stock option plan as at September 30, 2009 and December 31, 2008 and changes during the respective periods ended on those dates is presented below.
| September 30, 2009 | December 31, 2008 | |||
| Stock Options | Number of options | Weighted average Exercise price | Number of options | Weighted average exercise price |
| Beginning of period | 6,585,000 | $0.61 | 6,605,000 | $0.62 |
| Granted | - | - | 980,000 | 0.52 |
| Forfeited | (466,667) | 0.58 | (1,000,000) | 0.59 |
| End of period | 6,118,334 | $0.61 | 6,585,000 | $0.61 |
| Exercisable, end of period | 4,025,000 | $0.56 | 2,876,667 | $0.58 |
| Date of Grant | Number Outstanding | Exercise Price | Weighted Average Remaining Contractual Life | Date of Expiry | Number Exercisable September 30, 2009 |
| January 31, 2007 | 2,691,667 | 0.50 | 7.34 | January 31, 2017 | 2,691,667 |
| May 10, 2007 | 220,000 | 0.50 | 7.59 | May 10, 2017 | 146,667 |
| June 11, 2007 | 20,000 | 0.50 | 7.70 | June 11, 2017 | 13,333 |
| December 12, 2007 | 2,206,667 | 0.79 | 8.20 | December 12, 2017 | 846,667 |
| April 7, 2008 | 500,000 | 0.59 | 8.52 | April 7, 2018 | 166,667 |
| August 11, 2008 | 480,000 | 0.44 | 8.86 | August 11, 2018 | 160,000 |
| 6,118,334 | 7.88 | 4,025,000 | |||
(e) Escrowed securities
At September 30, 2009, no securities remained in escrow.
(f) Contributed surplus
The following table presents the changes in contributed surplus:
| September 30, 2009 | December 31, 2008 | |
| Balance, beginning of period | $ 4,217,135 | $ 2,787,434 |
| Expired broker warrants Surrendered warrants | - - | 285,600 430,000 |
| Stock based compensation (i) | 453,015 | 714,101 |
| Balance, end of period | $ 4,670,150 | $ 4,217,135 |
(i) For the three and nine month periods ended September 30, 2009, $90,563 and $363,212 of stock based compensation expense was recognized in the statement of net loss (2008 - $149,215 and $401,441) and $39,422 and $154,686 was capitalized during the respective three and nine month periods (2008 - $49,276 and $166,865).
6. Related Party Transactions
The aggregate amount of expenditures made to related parties:
In February 2008, Caza Petroleum entered into a farm out agreement with Singular Oil & Gas Sands, LLC ("Singular") to participate in the drilling of the Jonell Cerny well in Wharton County, Texas. Under the terms of that agreement, Singular paid 13.33% of the drilling costs through completion of the Jonell Cerny well to earn a 10.00% interest in the property thereafter. 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 $14,760 in joint venture partner receivables as at September 30, 2009. 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. Commitments and Contingencies
As of September 30, 2009, the Company is committed under operating leases for its offices and corporate apartment. The Company is committed to the following aggregate minimum lease payments which are shown below:
| 2009 | $48,674 |
8. Supplementary Information
(a) net change in non-cash working capital
| Three months ended September 30, | Nine months ended September 30, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Provided by (used in) | ||||
| Accounts receivable | (426,274) | 634,556 | 1,173,115 | 164,150 |
| Prepaid and other | 88,310 | 88,463 | 167,739 | 248,411 |
| Accounts payable and accrued liabilities | 864,358 | 26,481 | (2,370,810) | (1,601,198) |
| 526,394 | 749,510 | (1,029,956) | (1,188,637) | |
| Summary of changes | ||||
| Operating | (232,037) | 1,529,745 | (2,928,631) | 1,232,985 |
| Financing | - | - | - | (650,899) |
| Investing | 758,431 | (780,235) | 1,898,675 | (1,770,723) |
| 526,394 | 749,510 | (1,029,956) | (1,188,637) | |
(b) supplementary cash flow information
| Three months ended September 30, | Nine months ended September 30, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Interest paid | 4 | 6,198 | 749 | 10,144 |
| Interest received | 193 | 132,295 | 3,074 | 277,208 |
| Taxes paid | - | 12,891 | - | 16,046 |
(c) cash and cash equivalents
| September 30, 2009 | December 31, 2008 | |||
| Cash on deposit | 3,839,297 | 1,129,745 | ||
| Money market instruments | 7,277,157 | 12,974,082 | ||
| Cash and cash equivalents | 11,116,454 | 14,103,827 | ||
The money market instruments bear interest at a rate of 0.01% as at September 30, 2009 (December 31, 2008 - 0.089%).
9. 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 ($45,012,064, 2008 - $47,430,599), working capital ($8,854,632, 2008 - $10,812,048) 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.
10. Financial Instruments