RNS Number:3761W
Caspian Energy Inc
10 May 2007
Caspian Energy Inc.
("Caspian" or "the Company")
First Quarter 2007 Financial Results
Caspian Energy Inc. (TSX and AIM: CEK), an oil exploration company operating in
the Republic of Kazakhstan ("ROK"), today announces its financial results for
the three months ended March 31, 2007. Its interim unaudited financial
statements for the period and related management's discussion and analysis have
been filed with Canadian securities regulatory authorities and are available for
viewing at www.sedar.com.
For the three months ending March 31, 2007, Caspian's net loss was $1,377,135
(three months ended March 31, 2006: loss $397,309). Stock-based compensation
charges of $595,914 (2006: $305,689) and foreign exchange gains of $262,303
(2006: $101,636) were components of these results. Interest charges during 1Q
2007 were $460,793 (2006: $2,586) and accretion of discount on convertible
debentures was $86,012 (2006: $28,874).
Caspian's operations used $356,150 in cash during the three month period and
$389,452 for the comparative quarter of 2006. At the close of 1Q 2007, the
Company had working capital of $5.5 million.
Oil revenues before transportation costs during 1Q 2007 were $357,997 (2006:
$751,911). During the 2007 fiscal quarter, only one of Caspian's wells (EZ#213)
contributed to sales volumes. EZ#301 was put back on-stream subsequent to the
close of the quarter and its productive capacity will be reflected in the
Company's 2Q 2007 results.
For the period ended March 31, 2007 operating costs were $366,629 (2006:
$274,657) and transportation expenses were $28,209 (2006: $5,559).
Administrative expenses for the same period were $604,320 (2006: $687,371).
Capital expenditures in 1Q 2007, composed of advances to Aral Petroleum Capital
LLP ("Aral"), in which the Company holds a 50% indirect interest, and the
Company's share of the expenditure of funds by Aral, amounted to $9,415,919
(2006: $13,176,539).
CEK today filed on SEDAR interim unaudited financial statements and MD&A with
respect to its March 31, 2007 first fiscal quarter.
William Ramsay, Chairman and Chief Executive Officer, Caspian Energy, Inc.
commented:
"I'm pleased to report that Caspian Energy has got off to a good start in 2007,
following a year in which the business suffered a number of operational
setbacks, with well 301 now back in production and re-evaluation and testing
resumed on wells 302 and 303. We re-entered an original producing well, EZ#213,
late last year and are now recording a significant improvement of daily
production over the pre-workover rate. In addition, we are presently reviewing
an exciting development at East Zhagabulak. We look forward to the future with
confidence."
-Ends-
For further information, please contact:
Caspian Energy Inc.
William Ramsay
Chairman and Chief Executive Officer
+1 403 510 0119
Bell Pottinger Corporate & Financial
Angus Prentice / Algy Rowe
+44 (0)20 7861 3232
Jefferies International Limited
Toby Hayward / Jack Pryde
+44 (0)20 7618 3500
CAUTIONARY NOTE
Some of the statements and information contained in this news release may
include certain estimates, assumptions and other forward-looking information.
The actual performance, developments and/or results of the Company may differ
materially from any or all of the forward-looking statements, which include
current expectations, estimates and projections, in all or in part attributable
to general economic conditions, and other risks, uncertainties and circumstances
partly or totally outside the control of the Company, including oil prices,
imprecision of reserve estimates, drilling risks, future production of gas and
oil, rates of inflation, changes in future costs and expenses related to the
activities involving the exploration, development, production and transportation
of oil, hedging, financing availability and other risks related to financial
activities, and environmental and geopolitical risks. Further information which
may cause results to differ materially from those projected in the
forward-looking statements is contained in the Company's filings with Canadian
securities regulatory authorities. The Company disclaims any intention or
obligation to update or revise forward-looking information, whether as a result
of new information, future events or otherwise, except in accordance with
applicable securities laws.
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES.
BUSINESS PROSPECTS AND OUTLOOK
The Company has been successful in establishing itself as an operating entity in
the ROK and expects to continue with future growth through continued work there.
Prior to the end of the fourth quarter 2005, EZ#301 was drilled to a total depth
of 4,846 metres and logged. The well was completed with the drilling rig before
the rig was moved to the EZ#302 location. EZ#301 was matrix acidized and the two
potentially productive hydrocarbon bearing zones were flow-tested. The lower
zone (KT-2) was tested at 2,532 Bopd. The upper zone (KT-1) had difficulty
maintaining an independent flow, so it was commingled with the lower zone and
the well was tied-in to the Zhagabulak production facility. Subsequently,
productions logs were ran and it was determined that the KT-1 was producing 100
Bopd. Well 301 was undergoing a government mandated pressure survey in November
2006, when a production logging tool and cable were lost in the hole. Fishing
operations were ongoing at the end of 1Q 2007. Subsequent to the close of the
quarter, the tool and wire were recovered and the well has resumed production at
981 Bopd.
The second exploration effort, EZ#302, was spud on December 25, 2005. Acidizing
and testing of the well were performed following removal of the drilling rig.
The well showed indications of hydrocarbons while drilling and logging. However,
the stimulation efforts failed to cause the well to flow naturally. In well 302,
workover operations to seal off lower perforations believed to be contributing
water during swabbing are under evaluation. If the outcome of the evaluation is
positive, then the remedial work to EZ#302 will be conducted during 2Q 2007.
The third location, EZ#303 is about 5.2 km southwest of EZ#302. EZ#303 spud on
May 28, 2006. The well was permitted to a depth of 5,700 metres. EZ#303 reached
a total depth of 4,630 metres in a sidetrack wellbore after the initial wellbore
reached a depth of 5,430 metres, but was lost due to a drill string parting,
while pulling out of the hole for logging. Efforts are underway to test the
sidetrack well in the KT-1 and KT-2. A total of 70 meters were perforated and
acidized. Presently, EZ#303 is being swabbed to remove water and spent acid
injected during the stimulation program. Nearly all of the load water and spent
acid has been recovered with a trace of oil. Preparations are being made to
isolate the lower KT-2 perforations and then to test the upper intervals.
Results of the test are expected within 60 days.
The original producing well, EZ#213, drilled and completed during the Soviet
period, was re-entered in November 2006 and perforations were added in the KT-1
reservoir. Due to different casing weights, problems were encountered with
packer setting for the acid operation and consequently, one-half of the
productive zones was acidized. Despite the limits on the acidization, a
significant improvement of daily production over the pre-workover rates was
achieved and the well is currently producing at 434 Bopd.
Further drilling in the remainder of the Zhagabulak area will be delayed
following an evaluation of the results of the completion of well 303 and the
potential workover in well 302. The Company is reviewing a development at East
Zhagabulak. While East Zhagabulak is small, it provides an opportunity to enter
into a development contract ultimately leading to commercialization of the area.
Expansion is planned as drilling in the surrounding Zhagabulak area unfolds.
Ongoing petrophysical analyses of all wells penetrating the below salt
reservoirs is being completed and correlations of these wells will aid in the
identification of future drilling locations in the North Block. Identification
and acquisition of well data within the extended territory is also being
evaluated for inclusion into this process.
The Baktygaryn 3-D seismic program was completed in early November 2005.
PGS-GIS, in Almaty, ROK was awarded the processing contract. Due to the presence
of large salt bodies in the Baktygaryn Area, the 3-D data set was processed
through PSDM (Pre-Stack Depth Migration) and interpretation of this data has
been completed. PS(TM)(Pre-Stack Time Migration) analysis, for the above salt
section has also been conducted. The acquisition of the 367 km regional 2-D
seismic survey covering the west and north areas of the North Block and tying
into the Zhagabulak and Baktygaryn 3-D seismic surveys that was completed in
March 2007 has also been processed and interpreted. The Baktygaryn 3-D program
and the regional 2-D program were fully interpreted at the end of October 2006.
The interpreted data from all new seismic data acquired and from the earlier
reprocessed Soviet-era 2-D seismic is being combined to create a geological
model and identify additional leads and prospects across the North Block
territory. This work is expected to be completed during 3Q 2007.
The Baktygaryn Area presents drilling targets in both the below salt Lower
Permian and Carboniferous sections and the above salt Upper Permian and Mesozoic
sections with depths ranging from approximately 400 to 2,300 metres and provides
a second tier of exploration to the Company's drilling portfolio. Three
locations are being permitted with target depths of 600 to 800 metres. These
targets are recognized in the forms of channel sands, traps against the
Kungurian salt ridges and underneath salt overhangs. This work is scheduled to
start mid-2007.
Soviet-era seismic data interpretation, mapping and the associated shallow well
drilling in the Itisay, Kozdesay and West Kozdesay areas, located in the
south-western portion of the North Block, yielded minor positive tests and shows
of oil associated with the post-salt sediments of Jurassic, Triassic and Upper
Permian ages. A review of this data has resulted in the identification of
several prospects and leads ranging from 600 to 1,800 metres in trapping
positions against Permian salt ridges and under-salt overhangs. Several lines
from the Company's 2006 2-D seismic program were shot across certain of these
leads and prospects to verify this premise. The entire vintage and modern data
sets are being fully interpreted and well-to-seismic ties performed for aiding
in the creation of a geological model for these Areas. The Company expects to
have identified several drillable prospects by the close of 3Q 2007.
Future, potential seismic activity, pending the results of the ongoing 2-D
seismic interpretation, includes a third 3-D seismic acquisition late in the
fourth quarter of 2007.
Interim Consolidated Balance Sheet (Unaudited)
March 31, December 31,
2007 2006
$ $
(Audited)
Assets
Current assets
Cash and cash equivalents 7,937,017 17,022,285
Accounts receivable 591,021 672,879
Prepaids and other deposits 2,692,683 2,713,994
Inventory (note 3) 627,251 177,055
--------------------------------
11,847,972 20,586,213
Restricted cash (note 2) 197,245 194,412
Property, plant and equipment (note 4) 127,662,223 118,323,038
--------------------------------
139,707,440 139,103,663
================================
Liabilities
Current liabilities
Accounts payable and accrued liabilities 6,341,746 5,305,085
Asset retirement obligation (note 5) 165,271 156,255
Future income taxes 324,748 358,848
Convertible debentures (note 6) 19,056,425 18,683,004
-------------------------------
25,888,190 24,503,192
-------------------------------
Shareholders' Equity
Share capital (note 7) 121,470,892 121,470,892
Warrants to purchase common shares (note 7) 946,508 946,508
Contributed surplus (note 9) 12,626,186 12,030,272
Deficit (21,224,336) (19,847,201)
-------------------------------
113,819,250 114,600,471
-------------------------------
139,707,440 139,103,663
===============================
See accompanying notes to consolidated financial statements.
Interim Consolidated Statement of Loss and Deficit (Unaudited)
Three months Three months
ended ended
March 31, March 31,
2007 2006
$ $
Revenue
Oil and gas revenue, net 357,997 751,911
Interest 127,349 98,080
Other 68,743 7,228
-------------------------------
554,089 857,219
-------------------------------
Expenses
General and administrative 604,320 687,371
Accretion of convertible debentures (note 6) 86,012 28,874
Interest 460,793 2,586
Operating 366,629 274,657
Transportation 28,209 5,559
Stock-based compensation (note 7) 595,914 305,689
Foreign exchange gain (262,303) (101,636)
Depletion, depreciation and accretion 51,650 51,428
-------------------------------
1,931,224 1,254,528
-------------------------------
Net loss for the period (1,377,135) (397,309)
Deficit - Beginning of period (19,847,201) (13,409,389)
-------------------------------
Deficit - End of period (21,224,336) (13,806,698)
===============================
Basic loss per share (note 7) (0.01) (0.01)
===============================
Diluted loss per share (note 7) (0.01) (0.01)
===============================
See accompanying notes to consolidated financial statements.
Interim Consolidated Statement of Cash Flows (Unaudited)
Three months Three months
ended ended
March 31, March 31,
2007 2006
$ $
Cash provided by (used in)
Operating activities
Net loss for the period (1,377,135) (397,309)
Items not affecting cash
Stock-based compensation 595,914 305,689
Unrealized foreign exchange gain (169,974) (378,134)
Depletion, depreciation and accretion 51,650 51,428
Accretion of convertible debentures 86,012 28,874
Interest on convertible debentures 457,383 -
-------------------------------
(356,150) (389,452)
Changes in non-cash working capital balances 81,859 115,517
-------------------------------
(274,291) (273,935)
-------------------------------
Financing activities
Convertible debentures - 18,432,479
Loan payable - 27,571
Foreign exchange - 378,134
Restricted cash (2,833) (549)
Issuance of common shares - 714,200
Share issue expenses - (658,611)
-------------------------------
(2,833) 18,893,224
-------------------------------
Investing activities
Acquisition of property, plant and equipment (9,415,919) (13,176,539)
Changes in non-cash working capital balances 607,775 (1,317,227)
-------------------------------
(8,808,144) (14,493,766)
-------------------------------
(Decrease) increase in cash and cash equivalents (9,085,268) 4,125,523
Cash and cash equivalents - Beginning of period 17,022,285 10,094,086
-------------------------------
Cash and cash equivalents - End of period 7,937,017 14,219,609
===============================
Interest paid and received
Interest paid - -
Interest received 127,349 84,287
See accompanying notes to consolidated financial statements.
Notes to Interim Consolidated Financial Statements
1. Nature of operations
Caspian Energy Inc. ("Caspian" or "the Company") is engaged in the exploration
for and development and production of oil and gas in the Republic of Kazakhstan.
Its primary operating activities are carried out through its wholly-owned
subsidiary, Caspian Energy Ltd. ("Caspian Ltd.").
Caspian's principal assets are a 50% interest in Aral Petroleum Capital LLP
("Aral"), held by Caspian Ltd. Through its interest in Aral, Caspian has the
right to explore and develop certain oil and gas properties in Kazakhstan, known
as the North Block, a 3,458 square kilometre area located in the vicinity of the
Kazakh pre-Caspian basin. The Company also has minor resource interests in
Canada.
Aral's exploration and development rights to the North Block were granted
pursuant to the terms of an exploration contract between the government of
Kazakhstan and Aral (the "Exploration Contract"). The initial three-year term of
the Exploration Contract has been extended for a two-year period (expiring in
December 2007) and is subject to a further extension of two years thereafter, in
accordance with the terms of the contract.
Under the terms of the Exploration Contract, Aral was obligated to spend at
least US$20.8 million under a minimum work program in respect of the North Block
during the initial three-year term of the contract. The expenditures include
processing and reinterpretation of geological and geophysical data of prior
years, two dimensional and three dimensional seismic shoots and surveys,
drilling exploration wells, well reactivations and well surveys and testing. As
of December 31, 2005, Aral's financial obligation under the minimum work program
had been discharged.
Under terms of a shareholders' agreement dated June 25, 2004, among Caspian
Ltd., Azden Management Limited ("Azden") and Aral, Caspian was committed to fund
Aral's US$20.8 million obligation under the initial work program. This financial
commitment was satisfied, in full, by the Company. In addition, Caspian Ltd. has
undertaken, on a best efforts basis, to raise financing of US$84.0 million to
fund Aral's operations pursuant to the Exploration Contract. At March 31, 2007,
Caspian Ltd. had discharged this undertaking.
2. Significant accounting policies
The consolidated financial statements of Caspian are stated in Canadian dollars
and have been prepared in accordance with Canadian generally accepted accounting
principles.
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents are comprised of cash and short-term investments with
an initial maturity date of three months or less.
Inventory
Inventory is recorded at the lower of cost calculated using the weighted average
method, and net realizable value. Cost comprises direct materials and where
applicable direct labour costs and those overheads which have been incurred in
bringing the inventories to their present location and condition. Net realizable
value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing, selling and distribution.
Joint ventures
The Company's oil and gas exploration and development activities are conducted
mainly in Kazakhstan through its 50% interest in Aral and, accordingly, these
consolidated financial statements reflect only the Company's proportionate
interest in such activities.
Property, plant and equipment
a) Capitalized costs
The Company follows the full cost method of accounting for oil and natural gas
operations, whereby all costs related to the acquisition, exploration and
development of petroleum and natural gas reserves are capitalized. Such costs
include lease acquisition costs, geological and geophysical costs, carrying
charges on non-producing properties, costs of drilling both productive and
non-productive wells, the cost of petroleum and natural gas production equipment
and overhead charges directly related to exploration and development activities.
Proceeds from the sale of oil and gas properties are applied against capital
costs, with no gain or loss recognized, unless such a sale would change the rate
of depletion and depreciation by 20% or more, in which case, a gain or loss
would be recorded.
b) Depletion, depreciation and amortization
The capitalized costs are depleted and depreciated using the unit-of-production
method based on proven petroleum and natural gas reserves, as determined by
independent consulting engineers. Oil and natural gas liquids reserves and
production are converted into equivalent units of natural gas based on relative
energy content on a ratio of six thousand cubic feet of gas to one barrel of
oil. Significant development projects and expenditures on exploration properties
are excluded from calculation of depletion prior to assessment of the existence
of proved reserves.
Other property, machinery and equipment are recorded at historical cost.
Depreciation is calculated on a straight-line basis at the following annual
rates:
Buildings 8%
Machinery and equipment 8%
Vehicles 7%
Other fixed assets 10%
c) Ceiling test
The Company follows the Canadian accounting guideline on full cost accounting.
In applying the full cost guideline, Caspian calculates its ceiling test for
each cost centre by comparing the carrying value of oil and natural gas
properties and production equipment to the sum of undiscounted cash flows
expected to result from Caspian's proved reserves. If the carrying value is not
fully recoverable, the amount of impairment is measured by comparing the
carrying value of oil and gas properties and production and equipment to the
estimated net present value of future cash flows from proved plus probable
reserves using a risk-free interest rate and expected future prices. Any excess
carrying value above the net present value of the future cash flows is recorded
as a permanent impairment.
d) Unproved property
Costs of acquiring and evaluating unproven properties are initially excluded
from costs subject to depletion, until it is determined whether or not proved
reserves are attributable to the properties or, in the case of major development
projects, commercial production has commenced, or impairment has occurred.
Impairment occurs whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. When proven reserves are determined or
the property is considered to be impaired, the cost of the property or the
amount of the impairment is added to the costs subject to depletion for that
country's cost centre.
e) Asset retirement obligation
Caspian records the fair value of asset retirement obligations ("ARO") as a
liability in the period in which it incurs a legal obligation to restore an oil
and gas property, typically when a well is drilled or other equipment is put in
place. The associated asset retirement costs are capitalized as part of the
carrying amount of the related asset and depleted using a unit-of-production
method over the life of the proved reserves. Subsequent to initial measurement
of the obligations, the obligations are adjusted at the end of each reporting
period to reflect the passage of time and changes in estimated future cash flows
underlying the obligation. Actual costs incurred on settlement of the ARO are
charged against the ARO.
Income taxes
Income taxes are calculated using the liability method of tax accounting.
Temporary differences arising from the difference between the tax basis of an
asset or liability and its carrying value amount on the balance sheet are used
to calculate future income tax assets and liabilities. Future income tax assets
and liabilities are calculated using tax rates anticipated to apply in the
periods that the temporary differences are expected to reverse.
Stock-based compensation
The Company grants options to purchase common shares to employees and directors
under its stock option plan. Under this standard, future awards are accounted
for using the fair value of accounting for stock-based compensation. Under the
fair value method, an estimate of the value of the option is determined at the
time of grant using a Black-Scholes option-pricing model. The fair value of the
option is recognized as an expense and contributed surplus over the vesting
period of the option. Proceeds received on exercise of stock options, along with
amounts previously included in contributed surplus, are credited to share
capital.
Revenue recognition
Revenue from the sale of oil and natural gas is recognized based on volumes
delivered to customers at contractual delivery points and rates. The costs
associated with the delivery, including operating and maintenance costs,
transportation, and production-based royalty expenses will be recognized in the
same period in which the related revenue is earned and recorded.
Measurement uncertainty
The amounts recorded for depletion and depreciation of property, plant and
equipment, the provision for asset retirement obligations and the amounts used
for ceiling test calculations are based on estimates of reserves and future
costs. The Company's reserve estimates are reviewed annually by an independent
engineering firm. The amounts disclosed relating to fair values of stock options
issued are based on estimates of future volatility of the Company's share price,
expected lives of options, and other relevant assumptions. By their nature,
these estimates are subject to measurement uncertainty.
Earnings (loss) per share
Basic per share amounts are calculated using the weighted average number of
shares outstanding during the period. Diluted per share amounts are calculated
based on the treasury stock method whereby the weighted average number of shares
is adjusted for the dilutive effect of options. The Company applies the treasury
stock method for the calculation of diluted net income (loss) per share whereby
the effect of the "in the money" instruments such as stock options and warrants
affect the calculation. The treasury stock method assumes that the proceeds from
the exercise are used to repurchase common shares of the Company at the weighted
average market price during the year.
Financial instruments
Fair values
The fair values of accounts receivable, accounts payable and accrued
liabilities, and loan payable approximate their carrying values due to their
short-term maturity.
Credit risk
Substantially all of the Company's accounts receivable are due from companies in
the oil and gas industry and are subject to the normal industry credit risks.
The carrying value of accounts receivable reflects management's assessment of
the associated credit risks.
Foreign currency
All operations are considered financially and operationally integrated. Results
of operations are translated to Canadian dollars, using average rates for
revenues and expenses, except depreciation which is translated at the rate of
exchange applicable to the related assets. Monetary items denominated in foreign
currency are translated to Canadian dollars at exchange rates in effect at the
balance sheet date and non-monetary items are translated at rates of exchange in
effect when the assets were acquired or obligations incurred. Foreign exchange
gains and losses are recorded in the statement of loss.
Restricted cash
Under the terms of the Exploration Contract, Aral has accrued 1% of the capital
costs of exploration (the "Liquidation Fund") in an amount of US $329,000 and
US $235,600 as of December 31, 2006 and 2005, respectively (Caspian - Cdn.
$194,412 and Cdn. $136,884, respectively) and deposited the cash in a restricted
bank account. It is anticipated that the Liquidation Fund will be used to
finance the restoration of the License Area upon expiration of the Exploration
Contract, unless a production contract is awarded.
3. Inventory
March 31, December 31,
2007 2006
$ $
Oil inventory 267,751 24,742
Fuel 6,138 3,522
Construction materials 4,834 4,342
Spare parts 3,717 3,425
Other materials 344,811 141,024
-------------------------------
627,251 177,055
===============================
4. Property, plant and equipment
March 31, December 31,
2007 2006
$ $
Petroleum and natural gas assets 127,441,449 118,334,595
Other assets 2,832,915 2,508,707
--------------------------------
130,274,364 120,843,302
Accumulated depletion and depreciation (2,612,141) (2,520,264)
--------------------------------
127,662,223 118,323,038
================================
Excluded from the depletable base of oil and gas assets at March 31, 2007 are
unproved properties of $71,075,991 (December 31, 2006 - $65,707,839).
Aral applied the ceiling test to its capitalized assets at March 31, 2007 and
December 31, 2006 and determined that there was no impairment of such carrying
costs.
During the period ended March 31, 2007, the Company capitalized $48,954
(December 31, 2006 - $387,660) of general and administrative expenses related
directly to exploration and development activities.
5. Asset retirement obligation
The Company records the fair value of asset retirement obligations as a
liability in the period in which it incurs the legal obligation.
The asset retirement obligation results from net ownership interests in
petroleum and natural gas assets including well sites, gathering systems and
processing facilities. The Company estimates the total undiscounted amount of
cash flows required to settle its asset retirement obligations at March 31, 2007
is $167,542, which will be incurred between 2014 and 2019. A credit-adjusted
risk-free rate of 12.9% was used to calculate the fair value of the asset
retirement obligations, and an inflation factor of 8.4%.
A reconciliation of the asset retirement obligation is provided below:
March 31, December 31,
2007 2006
$ $
Opening balance 156,255 88,900
Liabilities incurred - 38,382
Accretion 4,531 4,760
Change in estimate 4,485 24,213
----------------------------
Closing balance 165,271 156,255
============================
Under the terms of the Exploration Contract (note 1), the Company is required to
create a fund to finance actual future restoration costs, equal to 1% of the
capital costs of exploration. At March 31, 2007 and December 31, 2006, $197,245
and $194,412, respectively have been placed in a restricted bank account related
to the funding requirement.
6. Convertible debentures
On March 1, 2006, the Company received US $16 million and issued 10% per annum,
convertible debentures in a like amount. The debentures mature on March 2, 2011
and are convertible at any time and from time to time into common shares of the
Company at a conversion price of $2.45 per share. The Company may repay the
principal amount of the debentures, in whole or in part, or require conversion
into common shares of the Company if the volume-weighted average trading price
of the common shares, for 40 consecutive trading days, is at least $4.08.
Fair value
of
conversion Carrying
Face amount option Accretion Interest value
$ $ $ $ $
Debentures issued, 18,320,884 (1,483,805) 281,168 1,564,757 18,683,004
opening balance
Accretion of discount - - 86,012 - 86,012
Translation (154,507) - - (15,467) (169,974)
adjustment
Interest accrual - - - 457,383 457,383
------------------------------------------------------------------
Balance - March 31,
2007 18,166,377 (1,483,805) 367,180 2,006,673 19,056,425
==================================================================
7. Share capital
Authorized
Unlimited number of voting common shares, without stated par value
Issued
Number of Amount
shares $
Issued and outstanding as at January 31, 2005 84,122,163 75,376,278
Exercise of warrants (i) 205,000 135,300
Share issue costs (v) - (290,816)
------------------------------
Issued and outstanding as at December 31, 2005 84,327,163 75,220,762
Exercise of warrants (ii) 357,100 888,505
Private placement (iii) 19,609,000 49,056,442
Exercise of options (iv) 50,000 87,500
Share issue costs (v) - (3,782,317)
------------------------------
Issued and outstanding as at December 31, 2006 and
March 31, 2007 104,343,263 121,470,892
==============================
i. During the period, 205,000 warrants were exercised. The warrants had an
exercise price of $0.66 per common share.
ii. During the period, 357,100 broker warrants were exercised. The warrants had
an exercise price of $2.00 per common share.
iii. On April 5, 2006 a private placement of 19,609,000 common shares were
issued at $2.55 per share.
iv. On April 10, 2006, 50,000 common shares at $1.75 per were issued pursuant
to the Company's stock option plan.
v. Share issue costs have not been tax-effected.
Stock options
The Company has a stock option plan (the "Plan") under which it may grant
options to directors, officers and employees for the purchase of up to 15% of
the number of common shares from time to time. Options are granted at the
discretion of the board of directors. The exercise price, vesting period and
expiration period are also fixed at the time of grant at the discretion of the
Board of Directors in accordance with terms of the Plan.
Changes to the Company's stock options are summarized as follows:
Number of Weighted
options average
option price
$
Balance - January 31, 2005 7,173,228 1.72
Granted 1,993,271 1.69
--------------------------------
Balance - December 31, 2005 9,166,499 1.72
Granted 1,943,433 1.29
Exercised (50,000) 1.75
--------------------------------
Balance - December 31, 2006 11,059,932 1.64
Granted 800,000 0.86
--------------------------------
Balance - March 31, 2007 11,859,932 1.59
================================
Exercisable - March 31, 2007 10,744,432 1.60
================================
The following is a summary of stock options outstanding and exercisable as at
March 31, 2007:
Options outstanding Options exercisable
Range of exercise Options Weighted Weighted Options
price outstanding average average exercisable
remaining exercise
contractual price
life in years
$0.75 2,079,090 2.5 $0.75 2,079,090
$0.86 800,000 4.9 $0.86 666,667
$1.25 1,043,433 4.0 $1.25 1,043,433
$1.34 900,000 4.7 $1.34 300,000
$1.61 843,271 3.5 $1.61 843,271
$1.75 1,100,000 3.5 $1.75 983,333
$2.00 1,050,000 2.7 $2.00 787,500
$2.15 4,044,138 2.5 $2.15 4,044,138
-------------- ----------- ----------
11,859,932 $1.59 10,747,432
============== =========== ==========
Per share amounts
The weighted average number of common shares outstanding during the period ended
March 31, 2007 of 104,343,263 (March 31, 2006 - 84,398,583 shares) was used to
calculate loss per share amounts.
In computing diluted loss per share, no shares were added to the weighted
average number of common shares outstanding during the period ended March 31,
2007 (March 31, 2006 - nil) as they are anti-dilutive. The fully-diluted number
as at March 31, 2007 was 129,285,828 shares (March 31, 2006 - 107,356,025).
Warrants
588,270 broker warrants are outstanding at March 31, 2007 and all have vested.
These warrants entitle the holder to purchase one common share at a price of
$2.77 until April 5, 2008. The fair value of the outstanding warrants using the
Black-Scholes method was $946,508 (December 31, 2006 - $946,508).
8. Stock-based compensation
Options granted to both employees and non-employees are accounted for using the
fair value method. The fair value of common share options granted in the period
ended March 31, 2007 was estimated to be $429,545 as at the grant date using a
Black-Scholes option-pricing model and the following assumptions:
Risk free interest rate 4%
Expected life 5 year average
Expected volatility 73%
Expected dividend yield 0%
The estimated fair value of the options is amortized to expense and credited to
contributed surplus over the option vesting period on a straight-line basis.
9. Contributed surplus
March 31, December 31,
2007 2006
$ $
Balance - Beginning of period 12,030,272 7,668,133
Stock options issued to employees, officers and 595,914 2,384,901
directors
Fair value of debentures conversion option - 1,483,805
Fair value of warrants expired - 493,433
------------------------------
Balance - End of period 12,626,186 12,030,272
==============================
The term and vesting conditions of each option may be fixed by the board when
the option is granted, but the term cannot exceed 5 years from the date upon
which the option is granted.
The options granted to directors, officers and employees may be exercised over
five years from the date of granting and expire from time to time to February
2012.
The debentures are convertible into common shares of the Company at a price of
$2.45 per share and mature on March 31, 2011.
10. Commitments
In accordance with the shareholders' agreement in respect of Aral, Caspian was
obligated to fund the initial work program of Aral pursuant to the Exploration
Contract. The minimum work program was US $20.8 million and matured at the end
of calendar 2005. As at December 31, 2005, this obligation was fully discharged.
The work program extension to December 2007 includes drilling three wells to a
combined total of 8,500 metres with a monetary obligation of US $20.6 million.
No additional seismic is required. The Company's calendar 2006 minimum work
program with the Republic of Kazakhstan has been approved for US $12.2 million
and was discharged during 2006. US $8.4 million is the minimum commitment for
calendar 2007.
11. Financial instruments
Caspian's financial instruments included in the consolidated balance sheet are
comprised of cash and cash equivalents, accounts receivable, other deposits and,
accounts payable. The fair values of these financial instruments approximate
their carrying amounts due to the short-term nature of the instruments. A
substantial portion of Caspian's accounts receivable are with customers in the
oil and gas industry and are subject to normal industry credit risks.
A substantial portion of Caspian's activities are settled in foreign currencies
and consequently, the Company is subject to fluctuations in currency translation
rates.
The liability and equity components of the convertible debentures are presented
separately in accordance with their substance. The liability component is
accreted to the amount payable at maturity by way of a charge to earnings using
the effective interest method.
12. Segmented information
The Company's activities are conducted in two geographic segments: Canada and
Kazakhstan. All activities relate to exploration for and development of
petroleum and natural gas.
Canada Kazakhstan Total
$ $ $
Revenue
Oil and gas revenue, net 10,978 347,019 357,997
Interest 127,349 - 127,349
Other - 68,743 68,743
--------------------------------------------
138,327 415,762 554,089
--------------------------------------------
Expenses
General and administrative 514,309 90,011 604,320
Accretion of convertible debentures 86,012 - 86,012
Interest 460,793 - 460,793
Operating 2,407 364,222 366,629
Transportation 135 28,074 28,209
Stock-based compensation 595,914 - 595,914
Foreign exchange (gain) loss 665,892 (928,195) (262,303)
Depletion, depreciation and accretion 1,250 50,400 51,650
---------------------------------------------
2,326,712 (395,488) 1,931,224
---------------------------------------------
Net loss for the period (2,188,385) 811,250 (1,377,135)
Assets
Current assets 7,448,871 4,399,101 11,847,972
Restricted cash - 197,245 197,245
Property, plant and equipment, net 32,923 127,629,300 127,662,223
---------------------------------------------
7,481,794 132,225,646 139,707,440
Liabilities 19,519,722 6,368,468 25,888,190
13. Subsequent event
On April 4, 2007, officers of the Company were granted options to purchase
1,868,845 common shares of the Company at a price of $0.89 per share for a
period of five years.
14. Reconciliation of International Financial Reporting Standards
Accounting practices under Canadian GAAP and International Financial Reporting
Standards ("IFRS") are, as they affect these financial statements, substantially
the same except for the following:
Property and equipment
Under Canadian GAAP, an impairment loss should be recognized when the carrying
amount of a cost centre is not recoverable and exceeds its fair value. The
carrying amount is not recoverable if the carrying amount exceeds the sum of the
undiscounted cash flows expected to result from its use and eventual
disposition. Unproved properties and major development projects are included in
this recoverability test. A cost centre impairment loss should be measured as
the amount by which the carrying amount of assets capitalized in a cost centre
exceeds the sum of:
* the fair value of proved and probable reserves; and
* the costs (less any impairment) of unproved properties that have
been subject to a separate test for impairment and contain no probable
reserves
For costs beyond the exploration and evaluation stage, IFRS requires (i) an
impairment to be recognized when the recoverable amount of an asset (cash
generating unit) is less than the carrying amount; (ii) the impairment loss to
be determined as the excess of the carrying amount above the recoverable amount
(the higher of fair value less costs to sell and value in use, calculated as the
present value of future cash flows from the asset), rather than the excess of
the carrying amount above the undiscounted future cash flows of the asset; and
(iii) the reversal of an impairment loss when the recoverable amount changes. A
ceiling test based on cash generating units did not reveal the need for an
impairment charge.
For exploration and evaluation costs, IFRS 6 has been adopted effective January
1, 2005. IFRS 6 allows for continued application of an entity's existing policy
with respect to accounting for exploration and evaluation costs.
Impairment of long-lived assets
Under Canadian GAAP, a long-lived asset should be tested for recoverability
whenever events or changes in circumstances indicate that its carrying amount
may not be recoverable. An impairment loss should be recognized when the
carrying amount of a long-lived asset is not recoverable and exceeds its fair
value. Under IFRS, the carrying amounts of the Company's assets, other than oil
and gas properties, inventories and deferred tax assets, are reviewed at each
balance sheet date to determine whether there is any indication of impairment.
If any such indication exists, the assets' recoverable amounts are estimated. An
impairment loss is recognized when the carrying amount of an asset exceeds its
recoverable amount. Impairment losses, if any, are recognized in the income
statement. This difference in accounting policy has no impact on these financial
statements.
Under Canadian GAAP, the carrying amount of a long-lived asset is not
recoverable if the carrying amount exceeds the sum of the undiscounted cash
flows expected to result from its use and eventual disposition. This assessment
is based on the carrying amount of the asset at the date it is tested for
recoverability, whether it is in use or under development. Under IFRS, the
recoverable amount of the Company's assets other than oil and gas properties is
the greater of their net selling price and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflect current market assessments of the time
value of money and the risks specific to the asset. For an asset that does not
generate cash inflows largely independent of those from other assets, the
recoverable amount is determined for the cash-generating unit to which the asset
belongs. This difference in accounting policy has no impact on these financial
statements.
In respect of impairment of assets other than oil and gas properties, under
Canadian GAAP, an impairment loss is not reversed if the fair value subsequently
increases. For IFRS, an impairment loss may be reversed if there has been a
change in the estimates used to determine the recoverable value.
An impairment loss, on assets other than oil and gas properties, is only
reversed to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized. This difference in
accounting policy has no impact on these financial statements.
Asset retirement obligation
In re-measuring an asset retirement obligation for the passage of time, Canadian
GAAP requires re-measurement based on the risk-free rate that existed when the
liability was initially measured. IFRS requires the use of current market
assessed interest rates in each estimate. This difference did not result in a
material reconciling item.
Inventory
Under Canadian GAAP, the Company measures its supplies inventory at the lower of
historical cost or net replacement cost. Under IFRS, the lower of cost or net
realizable value principle would apply. This difference did not result in a
material reconciling item.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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