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