CALGARY, Aug. 5 /CNW/ - PENN WEST ENERGY TRUST (TSX - PWT.UN) is pleased
to announce results for the second quarter ended June 30, 2005 and the
appointment of Mr. George Brookman to the Board of Directors.
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Plan of Arrangement
- Subsequent to receipt of shareholder approval on May 27, 2005, court
approval was received for the plan of arrangement to convert Penn West
Petroleum Ltd. ("Penn West") into an income trust on May 31, 2005.
Penn West Energy Trust (the "Trust") commenced operations as an oil
and gas income trust retaining all of the Penn West assets and
liabilities as at May 31, 2005. As a result of the plan of
arrangement, Penn West shareholders received three Trust units for
each Penn West share. To provide meaningful comparative information,
the continuity of interest basis of accounting was followed as if the
Trust had historically carried on the business of Penn West. Results
for the second quarter of 2005 include two months operating as
Penn West and one month operating as the Trust.
Financial Results
- Cash flow(1) in the second quarter of 2005 was up $46 million or
22 percent to $257 million ($1.58 per unit, basic) from $211 million
($1.31 per unit, basic) in the second quarter of 2004, reflecting
higher crude oil and natural gas prices in the quarter.
- Net income for the second quarter of 2005 of $60 million ($0.37 per
unit, basic) compares to $66 million ($0.41 per unit, basic) in the
same period of 2004, and net income for the first half of 2005 of
$127 million ($0.78 per unit, basic) compares to $127 million
($0.78 per unit, basic) in the first half of 2004. As the stock option
plan contained a cash payment alternative and all stock options vested
as a result of the conversion, pre-tax income was reduced by a
one-time, $53 million stock-based compensation provision in the second
quarter of 2005. Adjusted income from operations for the second
quarter of 2005 of $97 million ($0.60 per unit, basic) compares to
$75 million ($0.47 per unit, basic) for the second quarter in 2004,
while adjusted income from operations for the first half of 2005 of
$177 million ($1.09 per unit, basic) compares to $132 million
($0.82 per unit, basic) for the first half of 2004.
Operations
- During the second quarter of 2005, Penn West focused its activities on
exploration and development drilling for natural gas in its Plains
area. A total of 36 net wells were drilled at an 89 percent rate of
success.
- Crude oil and liquids production averaged 50,633 barrels per day for
the quarter, a decrease of five percent over the 53,162 barrels per
day produced in the first quarter of 2005.
- Second quarter 2005 natural gas production averaged 296 mmcf per day,
up two percent from the 289 mmcf per day produced in the first quarter
of 2005.
- Barrel of oil equivalent production of 99,910 boe per day in the
second quarter of 2005 represented a one percent decrease from the
first quarter 2005 production of 101,343 boe per day.
- Production in the quarter was impacted by wet weather in Western
Canada and by scheduled maintenance programs. Subsequent to the
quarter end, production has increased to 101,000 boe per day.
Governance
- On August 3, 2005, the Board of Directors appointed
Mr. George Brookman as a director of Penn West Energy Trust.
Mr. Brookman is currently the CEO of West Canadian Industries.
Distributions
- Our first monthly cash distribution of $0.26 per trust unit was paid
on July 15, 2005 to unitholders of record on June 30, 2005. On
July 20, 2005, the Trust announced a $0.26 per unit cash distribution
payable on August 15, 2005 to unitholders of record on July 29, 2005.
- The Trust has established an initial target to distribute
approximately 60 percent of its cash flow with the remaining 40
percent reinvested in exploitation and development projects. Assuming
a US$55.00 WTI oil price and a $7.65 natural gas price for the
remainder of 2005, current distribution levels represent approximately
50 percent of forecast cash flow.
The financial and operational results follow:
<<
1. FINANCIAL HIGHLIGHTS ($ millions, except per unit amounts)
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Three months ended Six months ended
June 30 June 30
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2005 2004 % Change 2005 2004 % Change
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Gross revenues $ 424.2 $ 390.4 9 $ 829.5 $ 736.5 13
Cash flow(1) $ 257.0 $ 211.2 22 $ 517.1 $ 392.4 32
Per unit(2) 1.58 1.31 21 3.19 2.43 31
Diluted per unit(2) 1.49 1.29 16 3.07 2.39 28
Net income(3) $ 59.7 $ 65.5 (9) $ 126.6 $ 126.5 -
Per unit(2) 0.37 0.41 (10) 0.78 0.78 -
Diluted per unit(2) 0.34 0.40 (15) 0.75 0.77 (3)
Dividends paid $ 10.8 $ 6.7 $ 17.5 $ 94.1
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(1) Cash flow is a non-generally accepted accounting principles ("GAAP")
term and represents cash flow from operating activities before
changes in non-cash working capital, cash option payments and
expenditures on abandonments.
(2) The 2004 comparative figures have been restated to reflect the
conversion ratio of three trust units issued for each Penn West
common share pursuant to the plan of arrangement.
(3) Net income in the second quarter of 2005 was reduced by a $53 million
pre-tax stock-based compensation charge as a result of the Trust
conversion.
2. ADJUSTED INCOME FROM OPERATIONS
The following table provides a reconciliation of the after-tax effects of
certain items of a non-operational nature that are included in the
reported financial results.
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Three months ended Six months ended
June 30 June 30
($ millions, except ---------------------------------------
per unit amounts) 2005 2004 2005 2004
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Net income as reported $ 59.7 $ 65.5 $ 126.6 $ 126.5
Foreign exchange loss (gain)(1) 2.5 6.3 3.7 (0.6)
Effect of statutory tax rate
changes on future income tax
liabilities(2) - - - (20.3)
Stock-based compensation expense(3) 34.0 3.6 45.7 26.4
Unit-based compensation expense(4) 0.5 - 0.5 -
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Adjusted income from operations(5) $ 96.7 $ 75.4 $ 176.5 $ 132.0
Per unit - basic(6) $ 0.60 $ 0.47 $ 1.09 $ 0.82
- diluted(6) $ 0.56 $ 0.46 $ 1.05 $ 0.80
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(1) Gains and losses on the translation of US dollar denominated debt to
period end exchange rates are immediately recognized in net income.
(2) During the first quarter of 2004, the Alberta Government
substantively enacted rate reductions applicable to the resource
industry. The impact of such changes on future income tax assets and
liabilities is included in net income during the period that the
legislation is substantively enacted.
(3) The Penn West stock option plan provided employees and directors the
choice of a cash payment in return for surrendering vested options.
The plan was cancelled upon conversion to Penn West Energy Trust on
May 31, 2005 with amounts paid in excess of the previously recorded
liability expensed as stock-based compensation in the period.
(4) The Trust provides for unit-based compensation utilizing the fair
market value method.
(5) Adjusted income from operations is a non-GAAP term that the Trust
utilizes to evaluate its performance.
(6) The 2004 comparative figures have been restated to reflect the
conversion ratio of three trust units issued for each Penn West
common share pursuant to the plan of arrangement.
3. CAPITAL EXPENDITURES ($ millions)
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Three months ended Six months ended
June 30 June 30
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2005 2004 2005 2004
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Property acquisitions, net $ 31.7 $ (0.9) $ 32.0 $ 232.9
Land acquisition and retention 2.9 5.8 7.2 10.8
Drilling and completions 27.3 30.7 170.8 146.7
Facilities and well equipping 35.9 45.1 85.2 128.5
Geological and geophysical 1.4 1.1 5.4 10.2
Administrative 0.2 0.2 0.5 0.5
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Capital expenditures $ 99.4 $ 82.0 $ 301.1 $ 529.6
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Capital expenditures exclude the impact of property, plant and equipment
adjustments for asset retirement obligations and future income taxes.
For details of these adjustments, see notes 3 and 5 to the unaudited
interim consolidated financial statements.
4. PRODUCTION AND NETBACKS
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Three months ended Six months ended
June 30 June 30
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2005 2004 % Change 2005 2004 % Change
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Natural gas:
MMcf per day 295.7 329.8 (10) 292.4 320.9 (9)
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Operating netback
($ per mcf):
Sales price $ 7.41 $ 7.03 5 $ 7.14 $ 6.73 6
Hedging gain - - - 0.12 - -
Royalties (1.49) (1.44) 3 (1.48) (1.41) 5
Operating costs (0.82) (0.67) 22 (0.80) (0.66) 21
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Netback $ 5.10 $ 4.92 4 $ 4.98 $ 4.66 7
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Light oil and NGL's:
Barrels per day 32,011 34,624 (8) 33,109 35,950 (8)
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Operating netback
($ per bbl):
Sales price $ 59.05 $ 47.01 26 $ 57.48 $ 44.03 31
Hedging loss - (7.21) - - (5.31) -
Royalties (9.06) (7.12) 27 (8.95) (6.84) 31
Operating costs (14.93) (12.84) 16 (14.27) (12.83) 11
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Netback $ 35.06 $ 19.84 77 $ 34.26 $ 19.05 80
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Conventional heavy
oil:
Barrels per day 18,622 19,692 (5) 18,781 16,830 12
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Operating netback
($ per bbl):
Sales price $ 31.22 $ 30.17 3 $ 29.63 $ 29.47 1
Royalties (4.63) (4.28) 8 (4.42) (4.04) 9
Operating costs (9.02) (8.60) 5 (8.99) (8.46) 6
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Netback $ 17.57 $ 17.29 2 $ 16.22 $ 16.97 (4)
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Total Liquids:
Barrels per day 50,633 54,316 (7) 51,890 52,780 (2)
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Operating netback
($ per bbl):
Sales price $ 48.81 $ 40.90 19 $ 47.40 $ 39.39 20
Hedging loss - (4.60) - - (3.62) -
Royalties (7.43) (6.09) 22 (7.31) (5.95) 23
Operating costs (12.75) (11.30) 13 (12.36) (11.43) 8
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Netback $ 28.63 $ 18.91 51 $ 27.73 $ 18.39 51
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Combined totals:
Barrels of oil
equivalent(1)
Daily production 99,910 109,280 (9) 100,623 106,258 (5)
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Operating netback
($ per boe):
Sales price $ 46.66 $ 41.56 12 $ 45.18 $ 39.88 13
Hedging (loss)
gain - (2.29) - 0.36 (1.79) -
Royalties (8.17) (7.37) 11 (8.06) (7.22) 12
Operating costs (8.89) (7.66) 16 (8.70) (7.66) 14
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Netback $ 29.60 $ 24.24 22 $ 28.78 $ 23.21 24
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(1) Barrels of oil equivalent (boe) are based on six mcf of natural gas
equals one barrel of oil (6:1).
Production in the quarter declined nine percent compared to the second
quarter of 2004 due to scheduled summer maintenance programs and wet
weather in Western Canada. Liquids prices in the second quarter of 2005
were $48.81 per barrel before and after hedging (2004 - $40.90 before;
$36.30 after). Natural gas hedges did not impact the natural gas price
realized during the second quarter of 2005 or 2004. Revenue was not
impacted by commodity hedging in Q2 2005 (Q2 2004 - $22.7 million loss).
5. UNDEVELOPED LANDS
------------------------------
As at June 30
------------------------------
2005 2004 % Change
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Gross acres (000s) 5,408 6,023 (10)
Net acres (000s) 5,109 5,797 (12)
Average working interest 94% 96% (2)
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6. DRILLING PROGRAM
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Three months ended June 30 Six months ended June 30
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2005 2004 2005 2004
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Gross Net Gross Net Gross Net Gross Net
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Natural gas 18 18 37 37 110 108 117 112
Oil 15 14 9 9 62 58 100 95
Dry 4 4 5 5 11 11 24 24
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Total wells 37 36 51 51 183 177 241 231
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Success Rate 89% 90% 94% 90%
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7. FARM OUT ACTIVITY
------------------------------
Six months ended June 30
------------------------------
2005 2004
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Wells drilled on farm out lands(x) 67 16
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(x) Wells drilled on Penn West lands, including re-completions and
re-entries, by independent operators pursuant to farm out agreements.
8. ACTIVITIES BY CORE AREA
------------------------------
Undeveloped Net wells
land as at drilled for
June 30, 2005 the six months
(thousands of ended
Core Area net acres) June 30, 2005
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Northern 2,021 27
Peace River Arch 102 14
Central 948 18
Plains 1,256 111
Southern Saskatchewan/Other 782 7
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5,109 177
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9. TRUST UNIT DATA (millions of units)
-------------------------------
2005 2004 % Change
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Weighted average:
(Six months ended June 30)
Basic(1) 162.02 161.37 -
Diluted(1) 168.57 164.16 3
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Outstanding: (as at June 30)
Basic(1) 163.14 161.46 1
Basic plus trust unit rights(1) 170.68 173.31 (2)
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(1) The 2004 comparative figures have been restated to reflect the
conversion ratio of three trust units issued for each Penn West
common share pursuant to the plan of arrangement.
LETTER TO OUR UNITHOLDERS
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Effective May 31, 2005, Penn West Energy Trust (the "Trust") commenced
operations as an oil and natural gas income trust pursuant to the plan of
arrangement approved by shareholders on May 27, 2005. Since May 31, 2005, we
have put together a new Board of Directors and management team to guide the
Trust to future success. We have begun an ongoing significant effort to unlock
the value in our 5.1 million net acres of undeveloped land through farm outs,
sales, and joint ventures. Operation teams for each core area have completed
detailed property reviews and are going forward with plans to exploit
development opportunities available to the Trust for every property. In
addition to these more conventional activities, we are working towards
realization of our goal to implement an enhanced recovery program on the multi
billion barrel Pembina Cardium oil field utilizing waste CO2 that is currently
being emitted into the atmosphere by heavy industry in Alberta. As well, we
are beginning the second phase of a development program for the Seal oil sands
project that will ultimately include 30 to 50 horizontal wells and a new
facility.
On August 3, 2005, the Board of Directors of Penn West Energy Trust
appointed Mr. George Brookman as a director of the Trust. Mr. Brookman brings
to the board extensive business experience gained over a successful career
spanning 30 years to date, currently as the CEO of West Canadian Industries.
This business experience is complemented by extensive service to the
community. He is currently the Vice-Chairman of the Calgary Exhibition and
Stampede, director of KSPS Public Television in Spokane and is involved with
the University of Calgary. On behalf of the Board of Penn West, we welcome
George as a director and look forward to his counsel in the future.
On July 15, 2005, the Trust delivered its first monthly cash distribution
of $0.26 per unit to unitholders of record on June 30, 2005 and has announced
a $0.26 per unit distribution to be paid on August 15, 2005. To increase the
certainty of cash flow to fund our distributions, the Trust entered into
costless collars on 20,000 barrels per day of crude oil through December 31,
2006. These WTI collars incorporate an average floor price of US$47.50 and an
average ceiling of US$67.86. Based on the current forecast for commodity
prices for the remainder of the year, cash flow is expected to exceed
$1 billion for the year ended December 31, 2005.
On behalf of the Board of Directors,
William E. Andrew
President and CEO
Calgary, Alberta
August 5, 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis ("MD&A") of financial conditions and
results of operations should be read in conjunction with the unaudited interim
consolidated financial statements of Penn West Energy Trust (the "Trust") for
the three and six months ended June 30, 2005, and the audited consolidated
financial statements and MD&A of Penn West Petroleum Ltd. ("Penn West") for
the year ended December 31, 2004. Due to the conversion of Penn West to an
income trust on May 31, 2005, the second quarter results ended June 30, 2005
included operations for one month of the Trust and two months of Penn West. To
facilitate meaningful comparisons, the financial results of the Trust are
presented on a continuity of interest basis as if it historically carried on
the business of Penn West. The date of this MD&A is August 5, 2005.
References to cash flow, cash flow per unit-basic, cash flow per
unit-diluted, and netbacks included in this MD&A are considered non-generally
accepted accounting principles ("GAAP") measures and may not be comparable to
similar measures provided by other issuers. Cash flow represents cash flow
from operating activities before changes in non-cash working capital, cash
option payments and expenditures on abandonments. Management utilizes cash
flow and netbacks to assess financial performance and the capacity of the
Trust to finance distributions to unitholders and future capital projects.
Notes to Reader
This document contains forward-looking statements (forecasts) under
applicable securities laws. Forward-looking statements are necessarily based
upon assumptions and judgements with respect to the future including, but not
limited to, the outlook for commodity prices and capital markets, the
performance of producing wells and reservoirs, and the regulatory and legal
environment. Many of these factors can be difficult to predict. As a result,
the forward-looking statements are subject to known or unknown risks and
uncertainties that could cause actual results to differ materially from those
anticipated or implied in the forward-looking statements.
All dollar amounts contained in this document are expressed in millions
of Canadian dollars unless noted otherwise.
The calculations of barrels of oil equivalent ("boe") are based on a
conversion ratio of six thousand cubic feet of natural gas to one barrel of
crude oil, however, this could be misleading if used in isolation. A boe
conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
The business environment in which the Trust operates continues to reflect
strong oil and natural gas prices, low interest rates and a stable regulatory
environment.
Quarterly Financial Summary ($millions, except per unit amounts)
------------------------------------------------------
2005 (unaudited) 2004
------------------------------------------------------
Three months ended June 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
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Gross revenues(1) $ 424.2 $ 405.3 $ 400.5 $ 384.3 $ 390.4 $ 346.1
Cash flow(2) 257.0 260.1 237.8 236.5 211.2 181.2
Basic per unit(3) 1.58 1.61 1.47 1.46 1.31 1.12
Diluted per
unit(3) 1.49 1.58 1.44 1.44 1.29 1.11
Net income(1) 59.7 66.9 68.6 76.7 65.5 61.0
Basic per unit(3) 0.37 0.41 0.42 0.48 0.41 0.38
Diluted per
unit(3) $ 0.34 $ 0.41 $ 0.42 $ 0.47 $ 0.40 $ 0.37
Production
Liquids (bbls/day) 50,633 53,162 53,781 52,966 54,316 51,245
Natural gas
(mmcf/d) 295.7 289.1 307.4 316.0 329.8 312.0
Oil equivalent
(boe/day) 99,910 101,343 105,007 105,639 109,280 103,237
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------------------
2003
------------------
Three months ended Dec 31 Sep 30
-------------------------------------
Gross revenues(1) $ 310.5 $ 331.4
Cash flow(2) 193.7 204.8
Basic per unit(3) 1.20 1.27
Diluted per
unit(3) 1.18 1.26
Net income(1) 38.8 77.4
Basic per unit(3) 0.24 0.48
Diluted per
unit(3) $ 0.24 $ 0.47
Production
Liquids (bbls/day) 47,079 46,060
Natural gas
(mmcf/d) 314.4 339.9
Oil equivalent
(boe/day) 99,479 102,712
-------------------------------------
(1) The 2003 comparative figures have been restated to reflect the
required retroactive implementation of accounting for Asset
Retirement Obligations - see note 11 to the audited annual
consolidated financial statements for the year ended December 31,
2004.
(2) Cash flow is a non-generally accepted accounting principles ("GAAP")
term and represents cash flow from operating activities before
changes in non-cash working capital, cash option payments and
expenditures on abandonments.
(3) Per unit figures for the periods prior to June 30, 2005 have been
restated to reflect the conversion of Penn West common shares to
trust units using an exchange ratio of three trust units per share
pursuant to the plan of arrangement.
Plan of Arrangement
On May 27, 2005, the shareholders approved the proposed reorganization of
Penn West into an income trust as described in the plan of arrangement dated
April 22, 2005. Court approval was obtained on the effective date of the
conversion, May 31, 2005. Penn West shareholders received three units of the
Trust for each Penn West share. The Trust commenced operations on May 31, 2005
with a new business mandate and legal structure pursuant to the trust
indenture dated April 22, 2005, as amended and restated on May 27, 2005. The
Trust assumed all assets and liabilities previously held by Penn West.
Prior to the income trust conversion, the consolidated financial
statements included the accounts of the Company and its subsidiaries and
partnerships. The consolidated financial statements of the Trust have been
prepared on a continuity of interest basis, as if the Trust historically
carried on the business of Penn West, and include the financial results of
Penn West to May 31, 2005 and the Trust for the month of June 2005. Per unit
figures of comparative periods have been restated to reflect the conversion
ratio of three units of the Trust for each share of Penn West.
Reorganization costs of $36 million, relating to financial advisors,
legal fees, short year tax rate differences and additional capital taxes
associated with the plan of arrangement were charged to accumulated earnings
in the second quarter of 2005. In addition, as Penn West's stock option plan
contained a cash payment alternative, $53 million related to canceling
outstanding options was charged to income in the second quarter of 2005. At
the end of May 2005, Penn West made cash payments of $81 million for the
surrender of the remaining vested and unvested stock options pursuant to the
plan of arrangement and the terms of the stock option plan.
Oil and Natural Gas Revenues
Higher prices for both crude oil and natural gas were partially offset by
lower production resulting in revenues of $830 million for the six months
ended June 30, 2005 up from $737 million in the first half of 2004. Production
of crude oil and liquids decreased two percent to 51,890 bbls per day from
52,780 bbls per day in 2004. Production of natural gas averaged 292 mmcf per
day in the first half of 2005, down from 321 mmcf per day in 2004. The average
price received for natural gas in the first six months of 2005 was $7.26 per
mcf up eight percent from $6.73 per mcf in 2004 and the average crude oil and
liquids price increased 33 percent from $35.77 per bbl in the first six months
of 2004 to $47.40 per barrel in 2005.
Revenues increased by nine percent to $424 million during the second
quarter (Q2) of 2005 from $390 million in Q2 2004. The average production of
natural gas declined by 10 percent to 296 mmcf per day in the quarter from
330 mmcf per day in Q2 2004, and production of crude oil and liquids decreased
seven per cent to 50,633 bbls per day in the quarter from 54,316 bbls per day
in Q2 2004. The average natural gas price received increased by five percent
to $7.41 per mcf in the quarter from $7.03 per mcf in Q2 2004, and the average
crude oil and liquids price jumped by 34 percent to $48.81 per bbl in the
period from $36.30 per bbl in Q2 2004.
Increases (Decreases) in Gross Revenues for the six months ended June 30
($ millions)
Gross revenues - 2004 $ 736.5
Decrease in light oil and NGL production (21.3)
Increase in light oil and NGL prices 112.4
Increase in conventional heavy oil production 9.9
Increase in conventional heavy oil prices 0.6
Decrease in natural gas production (36.8)
Increase in natural gas prices 28.2
------------
Gross revenues - 2005 $ 829.5
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Royalty Expenses
The average royalty rate in Q2 2005 was 18 percent, down from 19 percent
in Q2 2004 and the same as the rate incurred in the first quarter of 2005. The
royalty rate reflects an oil and liquids royalty rate of 15 percent, down
slightly from 17 percent in Q2 2004, and a natural gas royalty rate of
20 percent, the same rate that was realized in Q2 2004.
Operating Expenses
Operating expenses of $159 million incurred in the first half of 2005
were seven percent higher compared to $148 million in the first half of 2004.
Per unit operating costs increased 14 percent to $8.70 per boe from $7.66 per
boe in the first half of 2004. The unit cost increase is attributable to an
increase in the proportion of crude oil in the production mix (which increased
to 52 percent of total production in the period from 50 percent in 2004), and
to higher general field service costs arising from increases in fuel and
labour rates.
General and Administrative Expenses
Gross expenses of $23 million were up 15 percent from $20 million in the
first half of 2004 reflecting increased staffing and salary levels. Net
general and administrative expenses of $11.2 million in the period also
reflect these changes in compensation and were up 49 percent from $7.5 million
in the first half of 2004. On a per unit basis, net expenses were $0.61 per
boe in the first six months of 2005, up 56 percent from $0.39 per boe for the
same period of 2004. This increase is in line with expectations due to higher
compensation costs to retain staff.
Interest Expense
Interest expense for the first half of 2005 amounted to $9.8 million, an
increase of 14 percent from $8.6 million in the same period of 2004. The
increase is due to higher average interest rates in the 2005 period.
Depletion, Depreciation and Accretion
Depletion, depreciation and the accretion provision increased by eight
percent to a total of $214 million in the first half of 2005 from $197 million
in the same period of 2004. This was a direct result of an increase in the
depletion rate. Average unit costs increased by 15 percent to $11.73 per boe
in the period from $10.20 per boe in the same 2004 period. Accretion of the
asset retirement obligation was $10.3 million in the six months ending
June 30, 2005 compared to $6.8 million for the comparable 2004 period.
Foreign Exchange
During Q1 2005, the Company converted US $205 million of its US
denominated borrowings to Canadian dollars at an average exchange rate of
$0.829 CAD/USD resulting in a realized foreign exchange gain of $63 million.
As at March 31, 2005, the Company had $85 million of US denominated debt. In
May 2005, the Company converted its remaining US $85 million of US denominated
borrowings to Canadian dollars at an average exchange rate of $0.803 CAD/USD
and realized an additional $22.8 million foreign exchange gain. As at June 30,
2005, the Trust had no foreign currency denominated debt. The translation of
the US denominated debt outstanding during the quarter to Canadian dollars
resulted in a net foreign exchange loss in Q2 2005 of $3.0 million compared to
$4.6 million at the end of the second quarter of 2004.
Unit-Based Compensation
Upon conversion to an income trust at the end of May 2005, all previously
unvested stock options vested in accordance with the terms of the Penn West
stock option plan and the plan of arrangement. Option holders had several
alternatives in respect to options vesting on conversion including a cash
payment, purchasing Penn West shares at the option exercise price or carrying
the option forward. Of the total unit-based compensation charge of
$72.2 million in 2005, $53.3 million represented the cash paid to option
holders in the second quarter of 2005 in excess of the previously recorded
stock-based compensation liability. Penn West paid $81 million at the end of
May 2005 to option holders who elected to receive cash for surrendering stock
options that were outstanding at the time of the trust conversion. The impact
of these payments was expensed in Q2 2005, and not attributed to the
conversion, consistent with the accounting recommendations applicable when
option holders have a right to receive cash consideration in exchange for
surrendering stock options.
Taxes
In Q2 2005, the $14 million cash income tax provision was consistent with
$13 million in the same period of 2004. The cash income tax provision for the
first six months of 2005 was $54 million compared to $23 million in the 2004
period due to higher cash flows in 2005. The trust conversion on May 31, 2005
resulted in a short tax year that accelerated $217 million of cash income
taxes as a significant amount of Penn West's taxable income was earned in a
partnership. The $14 million Q2 2005 cash income tax provision was based on
the estimated amounts that would have been recorded if the trust conversion
did not occur. In addition to amounts provided for current income taxes to
May 31, 2005, the current tax liability was increased by $159 million of which
$146 million was a reduction to the future income tax liability and the
$13 million was the resulting tax rate difference recorded as a restructuring
charge. The tax plan, formulated at the time of the trust conversion,
forecasted income tax losses in the taxation year subsequent to May 31, 2005.
If realized, these tax losses will be carried back to generate a cash tax
recovery. Due to the uncertainty of realizing this recovery, no income tax
benefit for these potential losses has been recorded in the unaudited interim
consolidated financial statements. To the extent realized in the future, the
tax benefit on the losses will be recorded as an increase to the future income
tax liability.
The trust conversion also impacted capital taxes in Q2 2005. Part of the
plan of arrangement consisted of the conveyance of properties from a
partnership to a corporation. This transaction increased taxable capital in
the corporation for 2005 however will not apply in 2006 and beyond.
The provision for future income taxes in Q2 2005 of $11 million compares
to a future tax provision of $31 million in the same period of 2004. Future
income taxes in the first six months of 2005 were $14 million compared to the
future income tax provision of $28 million in the same period of 2004. The
2005 future income tax provision reflect a future tax recovery related to the
trust distribution of $0.26 per trust unit payable July 15, 2005 to
unitholders of record on June 30, 2005. In the first quarter of 2004, a
$20 million future income tax recovery was recorded to reflect the 2004 tax
rate reduction enacted by the Government of Alberta.
Capital Expenditures
Capital expenditures of $301 million in the first half of 2005 consisted
of $32 million of net property acquisitions and $269 million of exploration
and development spending. For the same period in 2004, capital expenditures
were $530 million consisting of $233 million of net property acquisitions and
$297 million of exploration and development spending. The decrease in 2005
capital expenditures over the same period in 2004 reflects the February 2004
acquisition of oil and natural gas assets and undeveloped land in southwest
Saskatchewan for $234 million.
Cash Flow and Net Income
Cash flow for the second quarter of 2005 increased 22 percent to
$257 million ($1.58 basic per unit) from $211 million ($1.31 basic per unit)
in Q2 2004. This increase resulted from higher oil and natural gas prices
partially offset by higher operating costs. Net income of $60 million
($0.37 basic per unit) in the second quarter of 2005 was down from $66 million
($0.41 basic per unit) in Q2 2004 due mainly to the impact of the future tax
rate recovery and foreign exchange gains boosting prior period results. In the
2005 periods, pre-tax income was reduced by $53 million due to the payout of
outstanding stock options in accordance with the plan of arrangement and the
terms of the stock option plan.
Cash flow in the first six months of 2005 of $517 million ($3.19 basic
per unit) compares to $392 million ($2.43 basic per unit) in the same period
of 2004. During this period, higher average oil and natural gas price
realizations were partially offset by lower average production volumes and
higher operating costs. Net income in the first six months of 2005 of
$127 million ($0.78 basic per unit) compares to $127 million ($0.78 basic per
unit) in the first half of 2004.
Operating netbacks of $28.78 per boe for the first six months of 2005
were 24 percent higher than the $23.21 per boe in the comparable 2004 period
due to higher oil and natural gas prices partially offset by higher royalty
and operating costs.
Liquidity and Capital Resources
The capital program in the first six months of 2005 was funded using
internally generated cash flow, and by modestly using bank lines of credit.
Bank debt at the end of Q2 2005 was $576 million compared with $503 million at
December 31, 2004 and $726 million at the end of Q2 2004. In the second
quarter of 2005, the Trust entered into a new, three year revolving,
syndicated credit facility with an aggregate borrowing limit of $1,170 million
and a $50 million operating facility. The facility contains provision for
stamping fees of 65 to 115 basis points and standby fees of 15 to 22.5 basis
points depending on the Trust's consolidated bank debt to earnings before
interest, taxes and depreciation and depletion ("EBITDA") ratio. The facility
contains the following financial covenants:
- Consolidated bank debt to EBITDA shall be less than 3:1 except in
certain circumstances and shall not exceed 3.5:1;
- Consolidated total debt to EBITDA shall be less than 4:1;
- Consolidated bank debt to total trust capitalization shall not exceed
50 percent except in certain circumstances and shall not exceed
55 percent.
During the first six months of 2005, Penn West paid dividends of
$17.5 million (2004 - $94.1 million). The Trust plans to distribute
approximately 60 percent of its cash flow with the remaining 40 percent
reinvested in exploitation and development projects. The first monthly cash
distribution of the Trust, in the amount of $42 million, $0.26 per trust unit,
was paid on July 15, 2005 to unitholders of record on June 30, 2005. On
July 20, 2005, the Trust announced the next monthly distribution of $0.26 per
trust unit, payable on August 15, 2005 to unitholders of record on July 29,
2005.
As at June 30, 2005, the Trust had WTI crude oil collars on 20,000
barrels per day to December 31, 2006. The collars, acquired at no cost to the
Trust, have an average floor price of US$47.50 and an average ceiling of
US$67.86. Other financial instruments are limited to Alberta electricity
contracts, with positive mark-to-market values, as summarized in note 8 to the
unaudited interim consolidated financial statements.
Outlook
The outlook for oil and natural gas prices remains very strong, and light
to heavy oil differentials narrowed in the second quarter of 2005 further
improving the Trust's anticipated netbacks. For 2005, we are forecasting
combined capital expenditures, both as an exploration/production company and
as an income trust, of $500 to $600 million. For the full year 2005, we are
forecasting this capital program will fund approximately 300 net wells.
Subsequent to the conversion to an income trust, capital expenditures are
limited to approximately 40 percent of forecast cash flow with trust unit
distributions accounting for the remaining 60 percent of cash flow. Estimated
average 2005 production remains between 98,000 and 101,000 boe per day. Based
on an average forecast WTI oil price of US$55.00 per barrel and a $7.65 per
mcf natural gas price for the remainder of 2005, forecast after tax cash flow
for 2005 is estimated to be in excess of $1 billion.
Sensitivity Analysis
This news release includes forward-looking statements (forecasts) under
applicable securities laws. These statements are subject to known or unknown
risks and uncertainties that could cause actual results to differ materially
from those anticipated or implied in the forward-looking statements.
Sensitivities to selected key assumptions are outlined in the table below.
----------------------------
Impact on Impact on
Change of: cash flow(x) net income(x)
-------------------------------------------------------------------------
$1.00 per barrel of liquids price 15.0 9.6
Per trust unit, basic 0.09 0.06
-------------------------------------------------------------------------
1,000 barrels per day in liquids production 16.3 7.7
Per trust unit, basic 0.10 0.05
-------------------------------------------------------------------------
$0.10 per mcf of natural gas price 8.1 5.2
Per trust unit, basic 0.05 0.03
-------------------------------------------------------------------------
10 mmcf per day in natural gas production 20.9 8.8
Per trust unit, basic 0.13 0.05
-------------------------------------------------------------------------
$0.01 in $US/$CAD exchange rate 21.2 13.3
Per trust unit, basic 0.13 0.08
-------------------------------------------------------------------------
(x) $ millions, except per unit amounts. The net income impact assumes
that the distribution levels are not adjusted for changes in
cash flow thus reducing the incremental tax rate.
Commitments
We are committed to certain payments over the next five calendar years as
follows:
---------------------------------------------------
($ millions) 2005 2006 2007 2008 2009 Thereafter
-------------------------------------------------------------------------
Transportation 10.3 17.1 13.0 7.5 3.8 3.0
Transportation ($US) 1.7 3.4 1.7 1.6 1.6 9.3
Electricity 1.9 2.0 2.0 2.0 2.0 3.2
Office lease 2.7 5.3 4.5 4.2 4.2 3.5
-------------------------------------------------------------------------
Equity Instruments
Trust units issued
As at June 30, 2005(xxx) 163,138,268
Issued to employee savings plan 28,613
-----------------------------------------------------------------
As at August 5, 2005 163,166,881
-----------------------------------------------------------------
Trust unit rights outstanding
As at June 30, 2005(xxx) 7,546,000
Granted 25,050
Exercised for trust units -
Forfeited -
-----------------------------------------------------------------
As at August 5, 2005 7,571,050
-----------------------------------------------------------------
(xxx) See notes 6 and 7 to the unaudited interim consolidated financial
statements
Accounting Pronouncements
Earnings Per Share:
Effective January 1, 2005, this accounting pronouncement requires the
number of incremental shares included in year-to-date diluted earnings per
share calculations be computed using the average market price of common shares
for the year-to-date period. It also stipulates that contracts that could be
settled in cash or common shares are assumed settled in common shares if share
settlement is more dilutive. Shares to be issued upon conversion of
convertible instruments with mandatory conversion features would be included
in the basic weighted average earnings per share calculation from the date of
mandatory conversion. These changes did not materially impact the Trust's
reported diluted earnings per share amounts.
Consolidation of Variable Interest Entities:
Effective January 1, 2005, this accounting guideline addresses the
circumstances where an entity has control of another entity through
arrangements other than share ownership. The accounting guideline requires an
enterprise to consolidate the entity when that enterprise has a variable
interest that will absorb a majority of the entity's returns or losses. The
Trust does not currently have any such arrangements.
Financial Instruments, Other Comprehensive Income:
This pronouncement, effective for fiscal year ends beginning on or after
October 1, 2006, addresses when to recognize, and how to measure, a financial
instrument on the balance sheet and how gains and losses are to be presented.
An additional financial statement, other comprehensive income, will be
required. Once implemented, the fair value of financial instruments,
designated as hedges, will be included on the balance sheet as an equity item
with the related mark-to-market gain or loss recognized in other comprehensive
income. Consistent with current practice, financial instruments not designated
as hedges will be valued at market with any related gains and losses
recognized in net income of the period.
Penn West Energy Trust
Consolidated Balance Sheets
----------------------------------
As at As at
June 30, 2005 December 31, 2004
($ millions) (unaudited) (audited)
-------------------------------------------------------------------------
Assets
Current
Accounts receivable $ 173.6 $ 160.5
Future income taxes - 25.3
Other 17.6 19.8
-------------------------------------------------------------------------
191.2 205.6
Property, plant and equipment (note 3) 3,763.2 3,661.8
-------------------------------------------------------------------------
$ 3,954.4 $ 3,867.4
-------------------------------------------------------------------------
Liabilities and Unitholders' equity
Current
Accounts payable and accrued
liabilities $ 236.6 $ 306.6
Taxes payable 226.7 11.2
Distributions/dividends payable 42.4 6.7
Unit-based compensation (note 6) - 71.0
-------------------------------------------------------------------------
505.7 395.5
-------------------------------------------------------------------------
Bank loan (note 4) 575.9 503.1
Asset retirement obligations (note 5) 184.4 180.7
Unit-based compensation (note 6) - 20.9
Future income taxes 701.0 858.2
-------------------------------------------------------------------------
1,461.3 1,562.9
-------------------------------------------------------------------------
Unitholders' equity
Unitholders' capital (note 7) 556.1 515.3
Contributed surplus (note 7) 0.5 -
Accumulated earnings 1,473.2 1,393.7
Accumulated cash distributions (42.4) -
-------------------------------------------------------------------------
1,987.4 1,909.0
-------------------------------------------------------------------------
$ 3,954.4 $ 3,867.4
-------------------------------------------------------------------------
See accompanying notes to the unaudited interim consolidated financial
statements
Penn West Energy Trust
Consolidated Statements of Income and Accumulated Earnings
--------------------------------------------
Three months ended Six months ended
June 30 June 30
($ millions, except per --------------------------------------------
unit amounts, unaudited) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues
Oil and natural gas $ 424.2 $ 390.4 $ 829.5 $ 736.5
Royalties (74.2) (73.3) (146.8) (139.6)
-------------------------------------------------------------------------
350.0 317.1 682.7 596.9
-------------------------------------------------------------------------
Expenses
Operating 80.8 76.1 158.5 148.0
Transportation 5.6 6.6 11.5 12.8
General and administrative 6.8 4.1 11.2 7.5
Interest on long term debt 5.0 4.4 9.8 8.6
Depletion, depreciation and
accretion (note 5) 106.9 101.6 213.6 197.3
Unit-based compensation
(note 6) 53.8 5.6 72.2 41.0
Foreign exchange loss (gain) 3.0 7.7 4.5 (0.8)
-------------------------------------------------------------------------
261.9 206.1 481.3 414.4
-------------------------------------------------------------------------
Income before taxes 88.1 111.0 201.4 182.5
-------------------------------------------------------------------------
Taxes
Capital 3.6 1.7 6.3 4.5
Current income 14.0 13.0 54.1 23.1
Future income 10.8 30.8 14.4 28.4
-------------------------------------------------------------------------
28.4 45.5 74.8 56.0
-------------------------------------------------------------------------
Net income 59.7 65.5 126.6 126.5
-------------------------------------------------------------------------
Net income per unit(1)
Basic 0.37 0.41 0.78 0.78
Diluted 0.34 0.40 0.75 0.77
-------------------------------------------------------------------------
Accumulated earnings, beginning
of period
As previously reported 1,449.8 1,203.0 1,393.7 1,115.5
Accounting change - - - 33.2
-------------------------------------------------------------------------
As restated 1,449.8 1,203.0 1,393.7 1,148.7
Net Income 59.7 65.5 126.6 126.5
Plan of arrangement (note 10) (36.3) - (36.3) -
Dividends - (6.7) (10.8) (13.4)
-------------------------------------------------------------------------
Accumulated earnings, end
of period $ 1,473.2 $ 1,261.8 $ 1,473.2 $ 1,261.8
-------------------------------------------------------------------------
See accompanying notes to the unaudited interim consolidated financial
statements
(1) The 2004 comparative figures have been restated to reflect the
conversion ratio of three trust units issued for each Penn West
common share pursuant to the plan of arrangement.
Penn West Energy Trust
Consolidated Statements of Cash Flows
--------------------------------------------
Three months ended Six months ended
June 30 June 30
--------------------------------------------
($ millions, unaudited) 2005 2004 2005 2004
-------------------------------------------------------------------------
Operating activities
Net income $ 59.7 $ 65.5 $ 126.6 $ 126.5
Depletion, depreciation
and accretion (note 5) 106.9 101.6 213.6 197.3
Future income taxes 10.8 30.8 14.4 28.4
Unrealized foreign exchange
loss (gain) 25.8 7.7 90.3 (0.8)
Unit-based compensation
(note 6) 53.8 5.6 72.2 41.0
-------------------------------------------------------------------------
Cash flow 257.0 211.2 517.1 392.4
Decrease (increase) in
non-cash working capital 24.9 (41.0) 41.4 10.6
Payments for surrendered
options (134.3) (1.7) (141.6) (7.4)
Expenditures on abandonments (3.6) (3.9) (10.2) (9.6)
-------------------------------------------------------------------------
144.0 164.6 406.7 386.0
-------------------------------------------------------------------------
Investing activities
Additions to property, plant
and equipment, net (99.4) (82.0) (301.1) (529.6)
Increase in non-cash working
capital (76.3) (58.3) (76.1) (50.7)
-------------------------------------------------------------------------
(175.7) (140.3) (377.2) (580.3)
-------------------------------------------------------------------------
Financing activities
Increase (decrease) in bank
loan 38.6 (18.4) (17.5) 284.5
Issue of equity 17.1 1.0 18.8 3.8
Dividends paid (10.8) (6.7) (17.5) (94.1)
Plan of arrangement costs (36.3) - (36.3) -
Decrease (increase) in
non-cash working capital 23.1 (0.2) 23.0 0.1
-------------------------------------------------------------------------
31.7 (24.3) (29.5) 194.3
-------------------------------------------------------------------------
Increase in cash - - - -
Cash, beginning of period - - - -
-------------------------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
-------------------------------------------------------------------------
Interest paid $ 5.2 $ 4.4 $ 10.0 $ 8.5
Income and capital taxes paid $ 17.9 $ 2.0 $ 17.9 $ 3.1
-------------------------------------------------------------------------
See accompanying notes to the unaudited interim consolidated financial
statements
Notes to the Unaudited Interim Consolidated Financial Statements
($ millions, except per unit amounts):
1. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
On May 31, 2005, Penn West Petroleum Ltd. (the "Company") was reorganized
into Penn West Energy Trust (the "Trust") under a plan of arrangement
(the "Plan") entered into by the Trust, Penn West and the shareholders of
Penn West. Company shareholders received three trust units for each
common share held. On June 2, 2005, the trust units commenced trading on
the TSX under the symbol "PWT.UN". The Trust was created pursuant to a
trust indenture dated April 22, 2005 with CIBC Mellon Trust Company
appointed Trustee.
The unaudited interim consolidated financial statements have been
prepared on a continuity of interest basis as if the Trust historically
carried on the business of the Company. Prior to the Plan on May 31,
2005, the consolidated financial statements include the accounts of
Penn West and its subsidiaries. After giving effect to the Plan, the
consolidated financial statements include the accounts of the Trust, its
subsidiaries and partnerships. The unaudited interim consolidated
financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and, except as detailed in
note 2, are consistent with the accounting policies described in the
notes to the audited consolidated financial statements of the Company for
the year ended December 31, 2004. Accordingly, these financial statements
should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended December 31,
2004.
2. CHANGE IN ACCOUNTING POLICIES:
Earnings Per Share
The Trust adopted the new earnings per share accounting recommendations
effective January 1, 2005. The number of incremental shares included in
diluted EPS is computed using the average market price of common shares
for the year-to-date period. In addition, contracts that could be settled
in cash or common shares are assumed settled in common shares if share
settlement is more dilutive. Shares to be issued upon conversion of
convertible instruments with a mandatory conversion feature would be
included in the basic weighted average EPS calculation from the date when
conversion becomes mandatory. These changes did not materially impact the
Trust's reported diluted EPS amounts.
Financial Instruments
Effective July 1, 2005, the Trust changed its accounting policy for
financial instruments from the application of hedge accounting to
valuation at market with any related gains and losses recognized in net
income of the period. In accordance with transitional accounting
provisions, the existing mark-to-market gains on power contracts are
recognized in the accounting period in which the underlying contracts
relate.
Stock-based Compensation
During the second quarter of 2005, pursuant to the plan of arrangement,
the stock option plan was cancelled. Costs associated with the
cancellation of outstanding stock options on conversion were charged to
income during the quarter as the stock option plan contained a cash
settlement alternative. The Trust initiated a new trust unit rights
incentive plan during the quarter that is accounted for using the
fair-value based method.
3. PROPERTY ACQUISITION:
In February 2004, the Company acquired producing properties in southwest
Saskatchewan. Results of operations from these properties are included in
the Trust's results from February 1, 2004. The allocation of the purchase
price to assets acquired and liabilities assumed was as follows:
Purchase price
Cash consideration $ 233.7
Working capital 9.8
----------------------------------------------------
$ 243.5
----------------------------------------------------
Net assets acquired
Property, plant and equipment $ 318.7
Future income tax liability (54.8)
Asset retirement obligations (20.4)
----------------------------------------------------
$ 243.5
----------------------------------------------------
4. BANK LOAN
---------------------------------
As at As at
June 30, 2005 December 31, 2004
-------------------------------------------------------------------------
Bankers' acceptances $ 575.9 $ 154.1
LIBOR advances (2004 US $290 million) - 349.0
-------------------------------------------------------------------------
$ 575.9 $ 503.1
-------------------------------------------------------------------------
As at June 30, 2005, the Trust had unsecured bank credit facilities of
$1,220 million comprising a $1,170 million credit facility and a
$50 million operating loan facility, and had outstanding letters of
credit totalling $6 million that reduced the amount otherwise available
to be drawn on the operating facility. In Q1 2005, the Company converted
US $205 million of its US denominated borrowings to Canadian dollars at
an average exchange rate of $0.829 CAD/USD resulting in a realized
foreign exchange gain of $63 million. In May 2005, the Company converted
its remaining US $85 million of US denominated borrowings to Canadian
dollars realizing an additional foreign exchange gain of $22.8 million.
5. ASSET RETIREMENT OBLIGATIONS
The total undiscounted current amount required to settle the asset
retirement obligations at June 30, 2005 was $748 million. This amount was
discounted using a credit adjusted rate of 7.5 percent over the expected
useful life of the underlying assets, which currently extends up to
50 years into the future with an average life of 22 years.
Changes to asset retirement obligations were as follows:
------------------------
2005 2004
-------------------------------------------------------------------------
Asset retirement obligations at January 1 $ 180.7 $ 172.8
Liabilities incurred during the period 3.6 31.7
Liabilities settled during the period (10.2) (9.6)
Accretion 10.3 6.8
-------------------------------------------------------------------------
Asset retirement obligations at June 30 $ 184.4 $ 201.7
-------------------------------------------------------------------------
6. UNIT-BASED COMPENSATION
Stock option plan:
The stock option plan included a cash payment alternative and stock-based
compensation costs were recorded based on changes to the share price at
the end of each quarter and any changes to the number of outstanding
options. Pursuant to the plan of arrangement, all stock options
outstanding on the date of conversion were settled either for cash of
$84.77 per share or by issuing shares. The continuity of the compensation
liability and outstanding options to the date of cancellation was
as follows:
------------------------
2005 2004
-------------------------------------------------------------------------
Liability, January 1 $ 91.9 $ 27.9
Provision 71.7 41.0
Cash payments on exercise of stock options (141.6) (7.4)
Liability settlements on stock options exercised
for shares (22.0) (2.8)
-------------------------------------------------------------------------
Liability, June 30 - 58.7
-------------------------------------------------------------------------
Current portion - 47.4
Long term portion - 11.3
-------------------------------------------------------------------------
$ - $ 58.7
-------------------------------------------------------------------------
--------------------------------
Number of Weighted average
Penn West stock options stock options exercise price
-------------------------------------------------------------------------
Outstanding, January 1, 2005 3,728,980 $ 39.00
Granted 82,600 79.51
Exercised for common shares (488,399) 34.72
Exercised for cash (3,212,931) 40.51
Forfeited (110,250) 44.26
-------------------------------------------------------------------------
Outstanding, May 31, 2005 - $ -
-------------------------------------------------------------------------
Trust unit rights incentive plan:
The Trust has a unit rights incentive plan that allows the Trust to issue
rights to acquire trust units to directors, officers, employees and
service providers. The number of Trust units reserved for issuance shall
not at any time exceed ten percent of the aggregate number of issued and
outstanding trust units of the Trust. Unit right exercise prices are
equal to the market price for the trust units based on the five day
weighted average market price prior to the date the unit rights are
granted. If certain conditions are met, the exercise price per unit may
be reduced by deducting from the grant price the aggregate of all
distributions, on a per unit basis, made by the Trust after the grant
date. Rights granted under the plan vest over a five year period and
expire six years after the date of the grant.
--------------------------------
Number of Weighted average
Trust unit rights unit rights exercise price
-------------------------------------------------------------------------
Granted 7,546,000 28.32
Forfeited - -
-------------------------------------------------------------------------
Outstanding, June 30, 2005 7,546,000 $ 28.32
-------------------------------------------------------------------------
Exercisable, June 30, 2005 - $ -
-------------------------------------------------------------------------
The Trust recorded compensation expense of $0.5 million for the period
ended June 30, 2005. The compensation expense is based on the fair value
of rights issued and is amortized over the remaining vesting periods on a
straight-line basis. The Black Scholes option pricing model was used to
determine the fair value of trust unit rights granted with the following
weighted average assumptions:
-------------
Month ended June 30 2005
-------------------------------------------------------------------------
Average fair value of trust unit rights granted (per unit)
Directors and officers $ 6.11
Other employees $ 5.71
Expected life of trust unit rights (years)
Directors and officers 5.0
Other employees 4.5
Expected volatility (average) 16%
Risk free rate of return (average) 3.10%
Expected distribution rate (x)Nil
-------------------------------------------------------------------------
(x) The expected distribution rate is presumed to be nil as it is
anticipated that future distributions will provide a corresponding
reduction to the exercise price of trust unit rights.
Trust unit savings plan:
The Trust has an employee trust unit savings plan (the "Savings Plan")
for the benefit of all employees. Under the Savings Plan, employees may
elect to contribute up to 10 percent of their salary. The Trust matches
employee contributions at a rate of $1.50 for each $1.00. Both the
employee and the Trust contribution trust units may be issued from
treasury at the five-day weighted average month end market price or
purchased in the open market.
7. UNITHOLDERS' CAPITAL
a. Authorized
An unlimited number of voting Trust Units, which are redeemable at the
option of the unitholder at 95% of the lesser of the ten trading day
average market price, and the closing market price on the day of
redemption.
An unlimited number of Special Voting Units, which enable the Trust to
provide voting rights to holders of any exchangeable shares that may be
issued by AcquisitionCo or other direct or indirect subsidiaries of the
Trust. Except for the right to vote, the Special Voting Units do not
confer any other rights.
b. Issued
Shareholders of Penn West received three trust units for each common
share held resulting in the issuance of 163,137,018 trust units in
exchange for the common shares of Penn West pursuant to the plan of
arrangement.
No special voting units were issued or outstanding.
---------------------------------
Common shares of Penn West issued Shares Amount
-------------------------------------------------------------------------
Balance, January 1, 2005 53,868,745 $ 515.3
Issued on exercise of stock options 488,399 17.0
Issued to employee stock savings plan 21,905 1.8
Cancellation of certificates (43) -
Liability settlements on stock options
exercised for shares - 22.0
-------------------------------------------------------------------------
Balance, May 31, 2005 prior to plan
of arrangement 54,379,006 $ 556.1
Exchanged for Trust units (54,379,006) 556.1
-------------------------------------------------------------------------
Balance as at May 31, 2005 - $ -
-------------------------------------------------------------------------
---------------------------------
Trust units of Penn West Energy Trust Units Amount
-------------------------------------------------------------------------
Issued to settlor for cash 1,250 $ -
Exchanged for Penn West shares 163,137,018 $ 556.1
-------------------------------------------------------------------------
Balance as at June 30, 2005 163,138,268 $ 556.1
-------------------------------------------------------------------------
---------------------------------
Contributed surplus 2005 2004
-------------------------------------------------------------------------
Balance, January 1 - $ -
Unit-based compensation expense 0.5 -
-------------------------------------------------------------------------
Balance as at June 30 0.5 $ -
-------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS
The Company had the following financial hedging positions outstanding
as at June 30, 2005:
----------------------------------------------
Market
Notional Remaining Value(1)
Volume Term Pricing ($ millions)
-------------------------------------------------------------------------
Crude Oil
WTI Costless Collars 20,000 Jul/05 - $US 47.50 to -
Bbls/d Dec/06 67.86/Bbl
-------------------------------------------------------------------------
Electricity
Alberta Power Pool Swaps 60 MW 2005 $41.00 to 4.8
$50.00/MWh
Alberta Power Pool Swaps 60 MW 2006 $42.25 to 9.1
$43.15/MWh
Alberta Power Pool Swaps 35 MW 2007 $46.00/MWh 2.8
-------------------------------------------------------------------------
(1) Unrealized gain on electricity swaps based on calculations using
posted rates for similar contracts at the balance sheet date.
9. INCOME TAXES
Prior to the income trust conversion, a significant portion of the
Company's taxable income was incurred in a partnership. This resulted in
a significant portion of current income taxes being incurred on the
partnership's taxable income in the year following the year of inclusion
in the Company's consolidated net income. Subsequent to the income trust
conversion, a lower percentage of the Trust's taxable income will be
incurred in a partnership. It is anticipated that future trust
distributions will partially compensate for future taxable income to be
incurred in the Trust's subsidiaries.
In March 2004, the Government of Alberta reduced Alberta corporate income
taxes by one percent. A $20 million future income tax benefit was
recorded to reflect this rate reduction.
10. PLAN OF ARRANGEMENT COSTS
Effective May 31, 2005, Penn West commenced operations as an oil and gas
income trust pursuant to a plan of arrangement approved by the
Shareholders on May 27, 2005. Certain amounts, related to the plan of
arrangement, have been charged to accumulated earnings as follows:
---------
Amount
-----------------------------------------------------------------
Tax rate difference on current income taxes $ 13.3
Incremental capital taxes 13.4
Financial advisor fees 5.6
Legal fees - Burnet, Duckworth and Palmer 1.5
Staffing realignment 1.2
Filing fees, communication, professional fees and other 1.3
-----------------------------------------------------------------
$ 36.3
-----------------------------------------------------------------
Investor Information
-------------------------------------------------------------------------
Penn West Energy Trust is a senior oil and natural gas energy trust based
in Calgary, Alberta that trades on the Toronto Stock Exchange under the
symbol PWT.UN.
A conference call will be held to discuss Penn West's results at
9:00 a.m. Mountain Time, 11:00 a.m. Eastern Time on Friday, August 5,
2005. The North American conference call number is 1-800-796-7558 and the
local conference call number for Toronto is 416-640-4127. A taped
recording will be available until Friday, August 12, 2005 by dialing
1-877-289-8525 or 416-640-1917 and entering passcode 21130980 followed by
the number sign. This call will be broadcast live on the internet and may
be accessed directly on the Penn West website www.pennwest.com or at the
following URL:
www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal sign)1175020 .
Notes to Reader
1. This document contains forward-looking statements (forecasts) under
applicable securities laws. Forward-looking statements are
necessarily based upon assumptions and judgements with respect to the
future including, but not limited to, the outlook for commodity
markets and capital markets, the performance of producing wells and
reservoirs, and the regulatory and legal environment. Many of these
factors can be difficult to predict. As a result, the forward-looking
statements are subject to known or unknown risks and uncertainties
that could cause actual results to differ materially from those
anticipated or implied in the forward-looking statements.
2. All dollar amounts contained in this document are expressed in
millions of Canadian dollars unless noted otherwise.
3. Where applicable, natural gas has been converted to barrels of oil
equivalent (boe) using a conversion rate of 6 mcf of natural gas
equals 1 boe, however, this could be misleading if used in isolation.
A boe conversion ratio of 6 mcf to 1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.
>>
%SEDAR: 00001973E
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Penn West Petroleum Ltd. (PWT) Exchange: Toronto Stock Exchange
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$10.450 
May 24, 2013, 2:06 PM EDT
Change:
0.31 (3.06%)
Volume: 1,288,230
Day Low
10.130
10.130
Day High
10.570
10.570
Penn West Energy Trust announces 2005 second quarter results and the appointment of George Brookman to the Board of Directors
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