Bitech Petroleum Corp BPU
Shares issued 43,802,327 Dec 2 close $4.00
Wed 3 Dec 97 Company Review
Mr James Clubb reviews the company
The third quarter of 1997 will go down as a milestone in the development of
the company. It was the quarter in which the millionth barrel of oil was
produced from the South Kyrtayel field, production rose above 10,000
barrels of oil per day and the company's achievements began to be properly
recognized by the stock market. It has taken time for the benefits of
Bitech's unique Russian strategy to become apparent and these benefits will
compound in the future.
Oil Field Development
During the third quarter Bitech completed the drilling of its third (SK-33)
and fourth (SK-201) development wells at South Kyrtayel. SK-33 was a
horizontal well, the only one to be drilled thus far in the Komi Republic.
It produced at a stabilized rate of 2,400 bopd while SK-201 produced at
rates above 5,000 bopd. A new Russian rig, built to a Romanian design,
using API specifications drilled both these wells. This rig and the
increased planning, allowed each well to be drilled faster than its
predecessor. It now takes 37 days to drill and complete a South Kyrtayel
well. This, coupled with the ability to move the rig in time frames more
consistent with onshore Canada, has meant an ever accelerating development
program.
Russian government consent has been obtained to allow the development of
the Lekker field. Preliminary work has been carried out, including
providing the tie-in to the Northern Transneft pipeline. A drilling rig has
been contracted and access to two existing wells in the field has been
acquired. This latter point, though unusual in western terms, arises from
the fact that wells, once drilled, can be owned separately from the
licence. The reason for obtaining these wells is to enable early production
to be achieved from the field through the completion of work-overs. The
main phase of development of the field, that is the construction of the
access road and camp, awaits the onset of winter.
Oil Sales
Obviously the rising production levels have increased the challenge of
maximizing the percentage of production which is sold on the export market.
During the third quarter approximately 62.9% of sales were for export from
the Russian federation. For the year to date, 77% of 1997 production has
gone for export. The company, recognizing the challenge caused by higher
volumes, has set itself the target of selling at least 50% of its
production outside of Russia. As such a significant proportion of crude
will now be sold on the domestic market, the company has also recently
entered into a long term arrangement with a major Russian company, ensuring
a known market outlet that will provide both a high domestic price and a
secure payment mechanism.
New Business
The company continues to focus significant attention on the acquisition of
new assets. Its growing reputation and credibility in the Komi Republic,
which parallels growth in production, has led to substantially increased
activity on the acquisition front. The company's competitive position has
been enhanced by the recognition of its strong balance sheet and positive
cash flow situation. Management is confident that at least one transaction
will be closed in the next six months. Management believes that the stated
objective of 500 million barrels of reserves by the end of 1998 is
attainable.
Reserve Levels
Subsequent to the end of the third quarter, the results of the first stage
of the stage of the 1997 independent reserve audit were obtained from
Scientific Software-Intercomp (UK). This indicated that the proved reserves
at South Kyrtayel (prepared under Canadian regulations) had more than
doubled from the reserves reported last year, from 21.2 million barrels to
43.8 million barrels.
Stock Markets, the Internet and Analysts' Reports
In July Bitech obtained its listing on the TSE. The aim of this was to
allow the company access to a broader investor base and the additional
following this would entail.
As it has now moved onto the TSE, Bitech has delisted from the ASE. This
was effected on October 30 1997.
The company has opened a web site which can be accessed under
www.bitechpetroleum.com.
Financial Review
All figures are in US dollars. In the nine months to September 30 the
company recorded a pre-tax profit of $281,914 and a profit after tax and
minority interest of $116,622. This was based on oil sales of $10,537,720.
The sales comprised 832,783 barrels, being made up of 1997 production of
733,147 barrels and 99,636 barrels of oil stocks held at year end. Stocks
of oil at September 30 1997 amounted to 33,115 barrels. In addition, 10,579
barrels of production were used to generate fuel oil for operations.
The rising production levels have meant that approximately 37% of the third
quarter's sales went to the domestic market. For the nine months to date,
approximately 77% of the 1997 production has been exported.
Within revenues for the period are one off sales of $432,051 comprising the
sale of low cost surplus equipment and geological studies related to
earlier projects of the company. These items are unlikely to recur on a
predictable basis.
Cash flow from operations before changes in non-cash working capital for
the first nine months of the year amounted to $2,198,917.
Based on this number and using a weighted average number of shares for the
period gives rise to a cash flow per share of $0.06.
The 1996 comparative numbers for expense items have been restated from
those originally issued to reflect the change in accounting policy adopted
in late 1996 to move to the full cost basis of accounting from the
successful efforts method. Under the full cost method of accounting costs
which are attributable to the continuing development of the company's oil
fields and also to the identification of new business, are capitalized on
the balance sheet. In the explanation of the general and administrative
expenses, capitalized amounts have been disclosed.
Operating costs have been split this quarter to show transportation and
selling costs separately from other operating costs. Reported operating
costs for the nine months were $2,504,592. Transportation and other selling
expenses for the period were $1,909,477.
General and administrative expenses for the first three quarters of 1997
were $2,254,915 having capitalized $1,717,240. The 1996 comparatives are
$2,281,313 and $1,673,401 respectively.
The foreign taxes relate to an accrual for Russian profit tax and arise
because of the difference in timing of deductions for capital expenditure,
as between Russian tax law and conventional accounting policy.
Capital expenditures for the period amounted to $14,556,383. The main items
of expenditure related to the construction of a new well site, the drilling
of wells and the construction of intra-field pipelines.
Personnel
On October 31 1997 it was announced that Russell Harvey was stepping down
as president, CEO and a director. Until a replacement is found, Ray de
Smedt, vice chairman and former CEO, will assume day to day responsibility
for the company's operations as part of an executive committee.
Jay Scott has been promoted to vice-president of operations based in
London. |
