CWPC's 10Q
Form 10QSB for CANWEST PETROLEUM CORP
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22-Mar-2005
Quarterly Report
Item 2. Management's Discussion and Analysis of Financial Condition and Plans of Operations
The following information should be read in conjunction with the unaudited consolidated financial statements included herein, which are prepared in accordance with generally accepted accounting principles ("GAAP") in the United States for interim financial information. All dollar amounts are in U.S. dollars unless otherwise stated.
All payments to be made in the future have been expressed in U.S. dollars using an exchange rate of $1 U.S. = $1.2244 Cdn.
Plan of Operations
The Company is in the exploration stage and does not currently have any income from operating activities. The Company has a working capital deficit of $1,862,127 and minimal other capital resources presently available to meet obligations which normally can be expected to be incurred by similar companies and has accumulated stockholder's deficiency of $517,779. Management intends to raise additional capital through the issuance of equity and or debt to finance operations and invest in other business opportunities, however, no assurance can be given that the Company will be successful in raising additional capital or that other business opportunities will be found.
During the nine months ended January 31, 2005 the Company spent $214,236 in an exploration program on its Pasquia Hills, Oil Shale prospect. The Company also entered into a joint venture with a major Canadian chemical company to jointly determine the commercial value of the shale oil in the Pasquia Hills prospect. This agreement is made up of a number of phases and each party may decide not to proceed at any time by giving notice. Phase one consists of research at an estimated cost of $50,000 (CDN) which along with the information learned are to be split equally between the parties. Subsequent phases involve further research and feasibility geared ultimately towards a production contract where the major Canadian chemical company would purchase petrochemical feedstock from the Company for further processing. Depending on the outcome of additional testing and the level of interest of the joint venture partner this prospect could become the primary focus for the Company in the future.
During the nine months ended January 31, 2005 the Company acquired a 49% interest in the Firebag, Saskatchewan prospect which covers approximately 2,000 square miles in north western Saskatchewan along the Alberta border. The prospective lands host Fort McMurray and Wabiskaw Palo channel zones containing Athabasca Oil Sands. This interest was acquired for $769,125 ($1 million CDN) and a 2.5% gross overriding royalty.
The Company has another agreement to purchase the remaining 51% interest through the indirect purchase of 100% of the issued and outstanding shares of American Oilsands Company Inc., a private Alberta, Canada, company, for $1,210,263 ($1,500,000 CDN), 2 million common shares and $0.11 per barrel in royalties. Included in property costs for the nine months ended January 31, 2005 is $437,962 ($550,000 CND) which the Company paid towards this purchase with the balance due April 8, 2005.
The 49% interest in the Firebag Saskatchewan prospect is held by the Company's subsidiary OQI, an Alberta, Canada company. In order to finance the purchase OQI borrowed $769,125 ($1 million CDN) from the Company by way of a convertible note. This convertible note is due September 29, 2008, bears interest at 3% and is convertible into common shares of OQI at $1.06 ($1.30 CND) per share. OQI was acquired by the Company, on September 24, 2004, and the Company held all 100 of the issued and outstanding shares of OQI. In order to secure management, raise funds for the exploration of the project and the payment required for the remaining 51% of the project OQI issued 3 million OQI shares to OQI management and 6,999,900 OQI shares to the Company at $.001 per share. The Company has entered into an agreement with OQI whereby it has agreed that upon acquiring the shares of American Oilsands Company Inc. it will sell them to OQI for $968,210 ($1,200,000 CDN) cash and a 242,053 ($300,000 CDN) convertible note on the same terms as noted above. OQI has raised $174,00 ($210,000 CND) through the sale of 420,000 OQI shares, has issued options to its directors whereby they may acquire up to 300,000 shares at $0.40 ($0.50 CND) per share, subject to a one year vesting, issued 315,00 flow-through common shares for proceeds of 508,310 ($630,000 CND) and 5,875 warrants to finders in relation to the sale of its shares whereby each warrant maybe converted into one common share at $1.61 ($2.00 CND) until June 30, 2006. As at January 31, 2005 the Company held 65.2% of the issued and outstanding shares of OQI. The Company has the right of first offer on future financings.
Subsequent to January 31, 2005 OQI issued $242,053 ($300,000 CND) unsecured convertible debentures which bear interest at 3%, are due three years from the date of issuance and are convertible into common shares of OQI at $1.01 ($1.25 CND) per share during first year and then at $1.29 ($1.60 CND) per share thereafter. In conjunction with this offering OQI also issued 93,750 warrants whereby for each warrant held the holder may purchase an additional common share at $1.29 ($1.60 CND) per share for a period of the earlier of the date OQI begins trading on a recognized exchange or three years from the issuance date.
The Company's subsidiary OQI reached agreement with its President and Chief Financial Officer whereby, subject to certain conditions, they each have agreed to provide their services to OQI in return for $68,571 ($84,000 CND) per year until certain business targets are met and thereafter at $142,822 ($175,000 CND). These agreements also contain termination clauses whereby OQI has agreed to pay them, subject to certain conditions, an amount of up to two times their annual pay should they be terminated for reasons other than cause.
During the nine months ended January 31, 2005 the Company increased its investment in Energy 51 Inc. by purchasing $157,491 of its equity to increase its equity interest to 25%. Energy 51 Inc. is a privately held Alberta oil and gas exploration company. The Company retains the right to participate on all prospects generated by Energy 51 Inc. through to April 1, 2006. During the nine months ended January 31, 2005 the Company advanced $205,269 towards the Sylvan Lake and Barrhead oil and gas prospects. To date $12,130 in preliminary work has been done on these prospects and this has been charged to exploration costs.
The Company continues to hold its interest in the Earth Energy Licence Agreement and is currently renegotiating the terms of its agreement whereby the Company's interest may become a royalty interest. Likewise the Company continues to hold its 20% interest in Uranium Holdings Corporation which is exploring for uranium but does not intend to spend any further funds other than to maintain its interest at this time.
Changes in Financial Condition
During the nine months ended January 31, 2005 the primary focus of the Company was on the exploration of its Pasquia Hills, Oil Shale prospect, completing agreements to purchase the Firebag Sask., Tar Sands prospect and finding funding for the Company. For the nine months ended January 31, 2004 the primary focus of the Company was on finding a business plan and / or project of significant merit for the Company and in dealing with the creditor and other issues related to failure of the Company's exploration program. Management fees for the nine months ended January 31, 2005 of $54,000 (2004 - $108,857) decreased as the former president of the Company resigned and the new president of the Company is not paid a management fee. Advertising and promotion costs of $186,204 (2004 - $125,412) were up as a result of the Company actively seeking financing for the Firebag Sask., Oil Sands prospect. Consulting expense of $1,341,829 (2004 - $337,846) was up significantly as the Company tried to conserve its cash resources by paying consultants with bonus shares. Included in consulting expenses as at January 31, 2005 is $147,500 paid to directors of the Company and used to exercise 650,000 shares under option plans. Travel costs of $22,285 (2004 - $21,248) are directly related to costs associated with financing attempts and meetings pertaining to the development of the Companies projects. Professional fees of $199,969 (2004 - $92,642) continued to be a major expense to the Company as it incurred costs related to evaluating various business proposals, dealing with Anhydride Canada's creditor situation and legal work pertaining to the convertible debenture financing. The Company incurred a significant increase in transfer agent fees of $38,017 (2004 - $10,414) as a result of calling an annual general meeting. Rent costs of the Company have increase to $19,754 (2004 - $10,455) a result of a significantly higher Canadian dollar relative to the United States dollar and the addition of rental costs of OQI. Likewise the Company's office costs are significantly higher at $45,072 (2004 - $12,230) as a result of a significantly higher Canadian dollar relative to the United States dollar, an increase volume of office related costs primarily related to OQI and work done on the Pasquia Hills project. The Company also incurred $124,516 (2004 - $2,706) in bank charges and interest primarily as a result of interest and penalties on its convertible debentures, which it did not have in the prior period. During the period the Company spent $360,234, primarily on exploration of its Pasquia Hill Oil Shale prospect while during the prior period the Company's exploration activity was minimal. In conjunction with its fund raising activities the Company had a non-cash financing expense of $1,593,503 which is related to the discount offered on the convertible debenture financing, warrants issued in conjunction with its private placements and other warrants issued. In total the Company experienced a net loss of $3,916,775 or $0.14 per share for the nine months ended January 31, 2005, compared to a net loss of $922,808 or $0.05 per share for the nine months ended January 31, 2004. The Company expects to continue to incur operating losses and will continue to be dependent on additional equity or debt sales and or property joint ventures to fund its activities in the future.
We have no revenues, and our operating results, profitability and future rate of growth depend solely on our ability to successfully implement our business plan and our ability to raise further funding, as well as OQI's ability to raise funding for its projects. We plan to fund future operations by way of joint venture agreements and or other forms of financing, including the public offering or private placement of equity or debt securities. However, we cannot assure you that joint venture partners, debt or equity financing will be available to us on acceptable terms to meet these requirements. The Company has no revenues.
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