Beau Canada Reports Operating Results for the Third
Quarter of 1999
NOVEMBER 12, 1999
CALGARY, ALBERTA-- SUMMARY
- Cash flows for the third quarter and nine months of 1999 are 39%
and 27% higher respectively than the same periods last year due
mainly to higher commodity prices.
- Net income for the third quarter of 1999 is 26% higher than
1998. Net income for the first nine months of 1999 is 64% lower
than 1998 due to the absence of gains from the Fort
Chicago/Alliance disposition and from the sale of offshore Cuban
assets in the previous year.
- BOE production for the first nine months of 1999 is 11% lower
than 1998 due to a planned disposition in the fourth quarter of 1998.
- The Company is poised for record fourth quarter cash flow due to
expected increases in oil and liquids production, gas production,
and strong commodity prices. /T/Highlights - Third Quarter Results
Three months ended Nine months ended
September 30 September 30
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1999 1998 % 1999 1998 %
Change Change
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Financial ($000):
Revenue 29,157 31,424 (7) 75,079 83,233 (10)
Cash Flow 16,154 11,601 39 39,699 31,265 27
per share 0.18 0.13 38 0.43 0.35 23
Net Income 3,544 2,807 26 4,143 11,581 (64)
per share 0.03 0.02 50 0.03 0.12 (75)
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Production:
Gas (mmcf/d) 89.2 102.4 (13) 91.0 89.8 1
Oil & Liquids (bbls/d) 7,314 9,079 (19) 6,794 8,852 (23)
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Barrels of oil
equivalent/d 16,233 19,314 (16) 15,898 17,828 (11)
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----------------------------------------------------------------------
Average Prices:
Gas per mcf $ 2.44 $ 1.75 39 $ 2.30 $ 1.76 31
Oil & Liquids per barrel 22.74 16.19 40 17.88 14.69 22
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Three months ended Nine months ended
September 30 September 30
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1999 1998 1999 1998
Drilling Results: Gross Net Gross Net Gross Net Gross Net
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Gas Wells 6 3.5 13 8.8 17 11.7 25 19.0
Oil Wells 8 4.7 - - 20 13.6 6 2.1
Dry and Abandoned 3 1.5 1 1.0 12 10.5 2 2.0
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17 9.7 14 9.8 49 35.8 33 23.1
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----------------------------------------------------------------------
Success Rate 85% 90% 71% 91%/T/
PRODUCTION The Company's production averaged 16,233 boe/d in the third
quarter of 1999, up slightly from the previous quarter but down
16% from the same quarter in 1998. Production in the third
quarter of 1998 benefited from volume additions from the strategic
acquisition completed earlier in 1998 but does not include the
effect of planned property dispositions completed in the fourth
quarter of 1998, the proceeds of which partly financed the acquisition.
Gas production in this quarter averaged 89.2 mmcf/d, down 5% from
the previous quarter and down 13% from the same quarter in 1998.
The reduced gas production from the previous quarter is due
largely to natural decline as little gas production was tied-in
during the quarter. Gas production was added late in the third
quarter at Cranberry with the tying in of a successful Slave Point
gas well at a rate of approximately 4 mmcf/d of gas and 200 bbls/d
of natural gas liquids. The Company is currently producing
approximately 92 mmcf/d of gas. Gas production increases are
planned for the fourth quarter from the Helmet area in northeast
B.C. and the Shiningbank and Wilson Creek areas of central Alberta
with the tying in of gas wells and facility modifications.
Oil and natural gas liquids production averaged 7,314 bbls/d in
this quarter, up 10% from the previous quarter, but down 19% from
the same quarter in 1998. Increases in production over last
quarter resulted from bringing onstream oil wells drilled in the
second and third quarters of 1999 along with the bringing back of
previously shut-in oil production in west central Saskatchewan.
The Company is currently producing approximately 7,500 bbls/d of
oil and natural gas liquids. Oil and natural gas liquids
production is expected to continue to increase as drilling
programs planned for the fourth quarter are completed at the
Bantry area in southern Alberta and the Baldwinton area in west
central Saskatchewan. ACTIVITY
Beau Canada participated in the drilling of 17 (9.7 net) wells in
the third quarter with an 85% success rate. Drilling in the
quarter occurred in the Wilson Creek and Twining areas of central
Alberta and in the Low Lake, Baldwinton, Court and St. Walburg
areas of west central Saskatchewan. In the Wilson Creek area the
Company drilled 2 (1.7 net) gas wells with 1(1.0 net) well
currently on production and the other well awaiting tie-in. In
the Twining area the Company drilled 1 (0.5 net) D&A exploratory
well. The Company also participated in drilling 3 (0.8 net) gas
wells in the Westerose, Sylvan Lake and Swalwell areas of central
Alberta. In west-central Saskatchewan the Company drilled 11 (6.7
net) wells resulting in 5 (4.5 net) oil wells at Low Lake and
Baldwinton, 3 (0.2 net) oil wells in the Court area, 1 (1.0 net)
gas well at St. Walburg and 2 (1.0 net) D&A wells.
The Company plans on drilling an additional 25 wells in the fourth
quarter of 1999. Oil development programs are planned for the
Bantry area of southern Alberta and the Baldwinton areas of west
central Saskatchewan. Other drilling is planned for the Gilby,
Niton and Pine Creek areas of central Alberta. In northwest
Alberta and northeast British Columbia the Company will commence
its winter drilling program in the Cranberry, South Hamburg, Peggo
and Helmet areas as access permits. FINANCIAL
For the nine months ended September 30, 1999, Beau Canada's cash
flow increased 27% to $39.7 million ($0.43 per share) from $31.3
million ($0.35 per share) in 1998. Improved commodity prices
resulted in a $19.3 million increase in revenue which was
partially offset by a $7.7 million decrease in oil and liquids
revenue caused by lower production. Earnings at $4.1 million
($0.03 per share) are down from $11.6 million ($0.12 per share) in
1998. Earnings in 1998 include gains of $9.3 million on the sale
of Beau Canada's Alliance/Fort Chicago investment and of $3.2
million for the sale of non-core offshore acreage interests in
Cuba through the Company's subsidiary Genoil Inc.
Gas realizations have increased to $2.30/mcf in the first nine
months of 1999 from $1.76/mcf for the first nine months of 1998.
Comparing third quarter this year to last, gas realizations have
risen to $2.44/mcf from $1.75/mcf. An increase in WTI prices has
resulted in an increase in realized liquid prices to $17.88/bbl
for the first nine months of 1999 from $14.69/bbl in the first
nine months of 1998. Third quarter liquid prices rose to $22.74
from $17.82 in the second quarter of 1999. The effect of higher
commodity prices has been partially offset as Beau Canada has
reduced revenue by $2.6 million ($1.11/bbl for liquids, $0.02/mcf
for gas) from its 1999 oil and gas hedging program, entered into
in order to protect cash flow. /T/ Netbacks per BOE
----------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
----------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------
Revenue $ 23.68 $ 16.90 $ 20.79 $ 16.17
Royalties 4.38 2.64 3.71 2.53
Operating expenditures 4.26 4.35 4.29 4.20
----------------------------------------------------------
Netback 15.04 9.91 12.79 9.44
General & administrative 1.18 0.95 1.24 1.01
Interest & other 2.52 2.27 2.11 1.81
Taxes 0.34 0.15 0.24 0.20Technology service
operations (net) 0.18 - 0.06 -
----------------------------------------------------------
Cash flow 10.82 6.54 9.14 6.42
Depletion & depreciation 7.55 6.16 7.76 6.29
Site restoration 0.44 0.20 0.29 0.21
Future income taxes 0.30 0.63 0.10 0.17Gains on sale of
portfolio investment - (3.44) - (3.16)Technology service
operations depreciation
& amortization 0.34 - 0.12 -
----------------------------------------------------------
2.19 2.99 0.87 2.91Minority interest in
Genoil earnings (0.19) 1.41 (0.08) 0.54
----------------------------------------------------------
Net Income $ 2.38 $ 1.58 $ 0.95 $ 2.37
----------------------------------------------------------
----------------------------------------------------------/T/
Royalties for the nine months ended September 30, 1999 averaged
17.8% of sales as compared to 15.6% in 1998. The average royalty
rate has increased due to higher gas and liquid prices partially
offset by an increase in gas cost allowance recoveries. As well,
a higher percentage of production now comes from gas which carries
a higher royalty rate than oil.
Operating expenses for the nine months were $4.29 per boe,
comparable to $4.20 per boe recorded in 1998.
General and administrative expenses were $5.4 million (1998-$4.9
million) for the nine month period. Increased staffing levels and
additional consulting expenses in the second quarter of 1999
related to business development activity primarily account for this increase.
Interest expense is $9.6 million for the nine months, down from
$10.2 million in 1998. Debt levels in 1999 are similar to the
previous year but 1998 interest expense included higher rate
bridge financing used to finance corporate acquisitions.
Depletion and depreciation expense of $34.2 million for the
nine-month period ended September 30, 1999 is up from $30.6
million in 1998. A reduction in heavy oil reserves together with
higher reserve addition costs in 1998 combined to create an
increase in the depletion rate per BOE. Site restorations costs
for the nine months ended September 30, 1999 were $1.3 million
compared to $0.7 million in the same period of the year prior.
The Company has completed an extensive inventory of site
abandonment requirements for all of its wells and facilities and
will be setting aside a greater site restoration provision
commencing in the third quarter of 1999.
Beau Canada has spent $71.2 million on Canadian exploration and
production capital expenditures to date in 1999. In addition,
Genoil spent $3.5 million of capital expenditures on oil and gas
operations in Cuba and $3.5 million for operations and capital
expenditures in CE3. Genoil has been funded through loans from
Beau Canada. Overall, Beau Canada's operations were funded
primarily by bank borrowings ($46.1 million) and cash flow ($39.7 million).
Effective at the beginning of the third quarter, Beau Canada's
subsidiary, Genoil Inc., purchased a technology service company
called Canadian Environmental Equipment and Engineering
Technologies Inc. (CE3). CE3 is an early stage technology company
involved in servicing heavy oil operations (sand processing and
oil upgrading) and oil water separation technologies. Currently
CE3 is generating revenue from sand processing but has negative
cash flow of approximately $350,000 for the quarter as operations
are being expanded and technologies further developed. It is
anticipated that CE3 will generate positive cash flow in 2000.
Capital Expenditures /T/
----------------------------------------------------------
Nine months ended
Sept. 30
----------------------------------------------------------
(thousands) 1999 1998
----------------------------------------------------------Canada
Drilling and tie-ins $ 42,306 $ 43,295
Seismic 4,489 6,752
Facilities 3,575 5,251
Acquisitions - 100,465
Lands 7,163 7,811
Producing property purchases 11,099 2,000
Other 2,594 2,203
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Total 71,226 167,777
Dispositions - (368)
----------------------------------------------------------
Net Canada 71,226 167,409
----------------------------------------------------------Cuba
Acquisitions 433 3,369
Drilling and tie-ins 3,103 8,770
----------------------------------------------------------
Total 3,536 12,139
Dispositions - (10,080)
----------------------------------------------------------
Net Cuba 3,536 2,059
----------------------------------------------------------
Technology Service Operations
Acquisitions 2,247 -
Plant and development 1,243 -
----------------------------------------------------------
Net technology
service operations 3,490 -
----------------------------------------------------------
Net Capital Expenditures $ 78,252 $169,468
----------------------------------------------------------
----------------------------------------------------------/T/Year 2000
As reported in the 1998 annual report, the Company has established
a Year 2000 transition group, comprised of senior, knowledgeable
management members, to direct and manage the transition to the year 2000.
The Company has conducted and completed an inventory of all
property and field devices that may be date sensitive. Critical
and less critical systems have been identified and evaluated and,
where appropriate, replaced for year 2000 compliance. Vendor
representations have been received for many systems and from
suppliers who may in turn be affected by the Year 2000 issue.
Contingency plans have been devised to minimize the impact that
Year 2000 issues may have on operations and financial condition.
It is, however, not possible to be certain that all aspects of the
Year 2000 issue affecting the Company will be fully resolved by
these contingency plans and remediation that have been undertaken.
Costs of remediation and monitoring efforts are not anticipated to
exceed $100,000 in total. Outlook
Beau Canada expects gas production to average 92 mmcf/d for the
year with an exit rate of between 95-100 mmcf/d. Oil and natural
gas liquids production is forecasted to average 7,000 bbls/d with
exit rates of between 7,800 - 8,000 bbls/d.
The Company put up for bid a package of individual assets. Bids
on the individual property packages are due mid-November.
Depending on the level of these bids, the Company expects to
dispose of between $15 to 20 million of properties. Proceeds from
the disposition will be used to reduce long-term debt.
The Company is projecting production for 2000 to average 105
mmcf/d of gas and 7,500 bbls/d oil and natural gas liquids. This
forecast assumes a 500 bbls/d disposition early in 2000. /T/
Consolidated Statements of Income
Three months Nine months
ended September 30 ended September 30
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(thousands) 1999 1998 1999 1998
-----------------------------------------------------------------------Revenue:
Oil & gas production $ 35,359 $ 30,029 $ 90,226 $ 78,720
Royalties (6,539) (4,694) (16,087) (12,303)
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28,820 25,335 74,139 66,417
Technology service
operations 430 - 430 -
Other (93) 6,089 510 16,816
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29,157 31,424 75,079 83,233Expenses:
Oil and gas production 6,366 7,734 18,600 20,451
Technology service
operations 696 - 696 -
General & administrative 1,760 1,689 5,385 4,936
Interest 3,669 4,010 9,647 10,202
Capital and resource taxes 512 275 1,052 976
Site restoration 660 350 1,260 1,002
Depletion & depreciation 11,788 10,939 34,194 30,630
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25,451 24,997 70,834 68,197
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Net income before income Taxes and minority
interest 3,706 6,427 4,245 15,036
Future income taxes (note) 453 1,123 453 845
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3,253 5,304 3,792 14,191
Minority interest in
Genoil earnings (291) 2,497 (351) 2,610
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Net income: $ 3,544 $ 2,807 $ 4,143 $ 11,581
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Weighted average number
of shares outstanding 91,845,536 90,806,450 91,692,710 90,620,359
Earnings per share (cents)
Basic 3 2 3 12
Fully diluted 3 2 3 11
Fully diluted, supplemental 3 2 4 11
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Consolidated Balance Sheets
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(thousands) September 30, 1999 December 31, 1998
-----------------------------------------------------------------------ASSETS
Current Assets:
Cash $ 168 $ 3,952
Accounts receivable 25,172 15,884
Inventory 1,408 1,672
Prepaid expenses 2,668 913
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29,416 22,421
Property and equipment 460,709 410,930
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$ 490,125 $ 433,351
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LIABILITIES AND SHAREHOLDERS' EQUITYCurrent Liabilities: Accounts payable and
accrued liabilities $ 31,790 $ 33,213
Royalties and taxes payable 8,003 3,069
Bank debt 4,213 -
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44,006 36,282
Long-term debt 205,943 162,521
Site restoration provision 5,291 4,777
Future income taxes (note) 56,831 17,952
Minority interest 5,217 5,346
Shareholders' Equity: Capital stock and term equity
(1999-91,923,844;1998-91,469,173) 158,457 155,159
Retained earnings (note) 14,380 51,314
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172,837 206,473
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$ 490,125 $ 433,351
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-----------------------------------------------------------------------/T/
Note to the Consolidated Financial Statements (thousands)
In the second quarter of 1999, the Company changed its policy on
accounting for income taxes. Effective January 1, 1999, the
liability method was adopted; prior thereto, the Company followed
the deferral method. The new method was applied retroactively
without restatement of prior period financial statements. At
January 1, 1999, the future income tax liability was increased by
$39,600 and retained earnings was decreased by $39,600. These
adjustments were a result of the future tax cost recognition where
the tax basis of acquired companies was less than the acquisition
cost. The effect in 1999 was to increase net income by $3,135
($0.03 per share) for the nine months ended September 30, 1999 and
increase net income by $1,330 ($0.01 per share) for the three
months ended September 30, 1999. /T/Consolidated Statements of Cash Flow
Three months Nine months
ended September 30 ended September 30
-----------------------------------------------------------------------
(thousands) 1999 1998 1999 1998
-----------------------------------------------------------------------
Cash provided by (used in):Operations:
Net income (note) $ 3,544 $ 2,807 $ 4,143 $ 11,581
Items not involving cash:
Depletion & depreciation 11,788 10,939 34,194 30,630
Site restoration 660 350 1,260 1,002
Future income taxes(note) 453 1,123 453 845
Gain on sale of
portfolio investment - - - (9,288)
Gain on sale of oil and gas
properties - (6,115) - (6,115)
Minority interest in Genoil
earnings (291) 2,497 (351) 2,610
-----------------------------------------------------------------------
Cash flow 16,154 11,601 39,699 31,265
Site restoration paid (69) (110) (746) (236)
Change in non-cash
working capital 4,304 2,387 (7,495) (4,608)
-----------------------------------------------------------------------
20,389 13,878 31,458 26,421
Financing: Capital stock and
term equity 234 1,205 647 37,303
Subsidiary company shares
issued to minority interest - - 222 -
Bank borrowings (586) 4,893 46,149 103,434
Bridge loan facility borrowing - - - 19,903
Bridge loan facility repayment - - - (27,636)
Note payable repayment - - - (19,903)
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(352) 6,098 47,018 113,101
Investments: Property, equipment additions and acquisitions
Canada (18,627) (7,848) (71,226) (167,777)
Genoil (1,076) (9,320) (7,026) (12,139)
Property dispositions
- Canada - - - 368
Property dispositions
- Cuba - 10,080 - 10,080
Portfolio investment
disposition - - - 39,806
Change in non-cash
working capital (196) (7,123) (4,008) (1,411)
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(19,899) (14,211) (82,260) (131,073)
-----------------------------------------------------------------------
Increase (decrease) in cash 138 5,765 (3,784) 8,449
Cash, beginning of period 30 2,684 3,952 -
-----------------------------------------------------------------------
Cash, end of period $ 168 $ 8,449 $ 168 $ 8,449
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Cash flow per share (cents)
Basic 18 13 43 35
Fully diluted 15 12 38 32
Fully diluted, supplemental 14 10 34 29
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-----------------------------------------------------------------------/T/
Beau Canada Exploration Ltd. is a Canadian oil and gas exploration
and development company based in Calgary. Beau Canada's common
shares are listed on The Toronto Stock Exchange and the Montreal
Exchange under the symbol "BAU". Corporate Office
47th Floor, Petro-Canada Centre West Tower, 150 - 6th Avenue S.W.
Calgary, Alberta T2P 3Y7 Telephone: (403) 750-3400 Fax: (403) 233-2565 |
