Sorry, the tables are too hard to format coming from PDF. Copy/paste turned it into a mess.
===========================
2012 Results
Production operations
Mart's production in 2012 and 2011 was comprised solely of oil production from the Umusadege field in Nigeria. Mart's share of oil produced and sold from the Umusadege field for Q112 was 631,202 bbls compared to 332,890 bbls produced and sold in Q111. The main reason for the increase in Mart's share of production was the addition of the UMU-6, UMU-7, and UMU-8 wells coupled with an increase in cost oil recovery from an average rate of 61.2% in Q111 to an average rate of 82.5% in Q112. In Q112, the Umusadege field was in production for 73 days. Mart's average share of oil produced and sold from the Umusadege field in Q112 was 6,936 bopd compared to 3,429 bopd in Q111.
Shutdowns in oilfield and export pipeline operations are not unusual for producers in Nigeria and other regions of Africa. For internal budgeting purposes, Mart estimates 60 days of shutdown time per year. In the first three months of 2012, there were approximately 18 shutdown days, compared to 18 shutdown days in Q111, due to various disruptions in the export pipeline, well testing activities, maintenance and modification of production facilities.
Oil produced from the Umusadege field is sold pursuant to an oil purchase agreement with ENI Trading & Shipping S.P.A. ("ENI"), a subsidiary of ENI S.p.A. ENI S.p.A. is also the parent company of AGIP, the operator of the export pipeline. The oil purchase agreement requires that Umusadege field owners confirm or "nominate" in advance the volumes of oil to be delivered to ENI. Historically, ENI has paid for oil nominated regardless of whether or not it has been physically delivered. A situation in which oil is nominated and paid for but not delivered is called an "over lift" with the delivery shortfall constituting "deficit oil". Mart is required to deliver deficit oil at the time of future oil deliveries. The liability for Mart's share of future deliveries of deficit oil as at December 31, 2010 was $14,705,194 which was satisfied by oil deliveries during Q111. There was no liability for deficit oil as at March 31, 2012 or December 31, 2011. A situation in which oil has not been nominated nor paid for but delivered to ENI is called an "under lift". As at March 31, 2012 the Umusadege field had an under lift of 452,790 bbls. Since Mart is in cost recovery, Mart is entitled to 82.5% of the under lift or 373,552 bbls of the under lift at March 31, 2012. At March 31, 2012 Mart has recorded a receivable of $38,708,758 for the under lift. In April 2012, 247,500 bbls of under lift was nominated.
During December 2011 AGIP, the operator of the export pipeline, and the Umusadege field operators amended the Crude Handling Agreement to allow AGIP to recover pipeline losses at the actual rate of loss which was estimated to be 8% in 2011. In December 2011, AGIP notified the field operators that for the year ended December 31, 2011 AGIP incurred additional pipeline losses of 198,757 bbls and that these pipeline losses will be required to be paid from Q112 and Q212 production. Previous to December 2011, AGIP had recovered pipeline losses of 5,605 bbls for 2011 and 22,008 bbls for 2010. The total pipeline losses attributable to the Umusadege field for 2011 are 226,370 bbls. Mart bears 50% of the pipeline losses attributable to the Umusadege field, thus Mart's share of the total 2011 pipeline losses is 113,185 bbls. As a result of the 198,757 bbls of pipeline losses being paid with 2012 production Mart recorded a liability at December 31, 2011 for its 50% share (99,378 bbls) of $1,802,319 that was valued at Mart's per-barrel direct operating costs plus per-barrel depletion. During Q112, 71,701 bbls of the 2011 pipeline losses were delivered to AGIP. Mart estimates that its share of 2012 pipeline losses amount to 34,534 bbls of which AGIP recovered 9,363 bbls in Q112. Mart has accrued a liability of $963,146 at March 31, 2012 with respect to the estimated outstanding operator recovery.
Petroleum sales
During the cost recovery phase, Mart is entitled to a maximum of 82.5% of the production revenues from the Umusadege field after the deduction of royalties, taxes, Niger Delta Development Commission ("NDDC") contributions, operating costs and abandonment obligations. Once Mart has recovered all of its capital costs, all production revenues remaining after deduction of royalties, income taxes, NDDC contributions, operating costs and abandonment obligations are shared 50% to Mart and 50% to its co-venturers, Midwestern Oil and Gas Company Plc. ("Midwestern") and Suntrust Oil Company Limited ("Suntrust"). Mart was in cost recovery throughout Q112 and therefore earned the maximum recovery rate of 82.5%, compared to 61.2% for Q111. The Company plans to continue developing the Umusadege field and adding recoverable costs during 2012, which will affect Mart's share of revenue for the 2012 year as additional eligible costs are incurred and recovered.
Mart's funds flow from production operations in Q112 was $55.0 million compared to $23.9 million in Q111. The higher amount for the first quarter of 2012 is primarily the result of increased production, as well as the increase in cost oil recovery from 61.2% in Q111 to an average rate of 82.5% during Q112, combined with higher prices obtained on the sale of oil.
Nigerian marginal fields attract two types of royalties. Government royalties are payable to the Nigerian National Petroleum Corporation ("NNPC") (the state oil company) and a farmout royalty is payable to the farmor (the oil company that released the particular oil field to the marginal field program). Both royalties are based on a sliding scale formula where progressive increases in production from the field attract increasingly higher royalties. Based on the average Umusadege field production volume for Q112, royalties represent approximately 15% of gross oil sales. Royalties are netted against petroleum sales in the Condensed Consolidated Statements of Income and Comprehensive Income. Mart's share of royalties for Q112 was $10,359,417 (Q111 - $3,022,529).
Qua Ibo disposal
In February 2012, Mart and Network mutually terminated Mart's participating interest in the Qua Ibo field. Network has assumed responsibility for Mart's previously outstanding liabilities of approximately USD $3.6 million for the Qua Ibo field and has also paid Mart a USD $1.0 million termination fee. A gain of $4.6 million has therefore been recognized in Q112.
Expenses
Total expenses before gain on disposal were $19,858,134 in Q112 compared to $ 12,508,870 in Q111, an increase of approximately 59%. The major expense categories are reviewed in more detail below.
Production costs
Production costs incurred at the Umusadege production facilities totaled $6,931,483 in Q112 compared to $3,030,702 in Q111 which is a 128% increase in production costs period to period. Production costs include both fixed and variable components and with higher production volume in 2012 the variable component of production expense is a significant contributing factor to the overall increase in production costs
Depletion and depreciation
Depletion of interests in the Company's oil properties is calculated using the unit-of-production method where the ratio of Mart's net share of production to Mart's net share of proved and probable reserves determines the proportion of depletable costs to be expended in each period. Undeveloped properties are excluded from the depletion calculation until quantities of proved and/or probable reserves are found or impairment is determined to have occurred. Based upon the Company's share of oil production at the Umusadege field, Mart recorded depletion of $8,177,549 for Q112, (Q111 - $5,607,484) reflecting higher production volumes during Q112, offset by an increase in the total proved and probable reserves base.
General & administrative expenses
General and administrative ("G&A") costs for Q112 were $3.6 million compared to $2.5 million in Q111. The increase from Q111 to Q112 was primarily the result of increases in salaries and increases in professional fees.
Interest and bank charges
Interest and bank fees for Q112 totaled $205,584 compared to $184,677 Q111 due to increased transaction fees charged by Nigerian financial institutions.
Current assets and liabilities
As at March 31, 2012, Mart had working capital (difference between current assets and current liabilities) of $69,922,818, as compared to working capital of $35,096,506 on December 31, 2011. The increase of the working capital between December 31, 2011 and March 31, 2012 is primarily due to increased net income due to ongoing increased oil production combined with strong oil prices. As at March 31, 2012, Mart's cash and cash equivalents totaled $38,747,887 compared to $3,826,534 on December 31, 2011.
As at March 31, 2012, Mart had a balance of $29,532,569 ($56,877,135 at December 31, 2011) in current restricted cash. This amount represents Mart's share of cash held in escrow for the payment of income taxes in Nigeria in connection with ongoing operations at the Umusadege field. In Q112, Mart and its co-venturers determined that the obligations to be funded with restricted cash were less than the restricted cash held in the escrow account. Consequently, $38.3 million USD (approximately $38.2 million CDN) was released to Mart from restricted cash during the quarter.
Accounts receivable and other receivables at March 31, 2012 were $52,404,226. The balance is made up of Mart's share of net proceeds of oil nominated and delivered in Q112 totaling $9.5 million which has since been received, under lift net proceeds (gross proceeds less royalties) totaling $38.8 million of which $25.7 million was nominated in April 2012 and $13.1 million has yet to be nominated, and the balance of insurance proceeds receivable for NRG Rig 101 damages of $1.0 million. The remaining balance includes a $2.7 million receivable from co-venturers for services provided by NRG Drilling on the Umusadege field that has now been received, and outstanding Canadian goods and services tax refunds totaling $259,504.
Inventory consists of oil extracted and injected into the pipeline system but not yet loaded on to vessels and is valued at direct per-barrel cost of production plus per-barrel depletion. As at March 31, 2012 Mart's inventory is $1,035,652, compared to $1,487,144 as at December 31, 2011.
Accounts payable and accrued liabilities were $16.1 million as at March 31, 2012, comprised mainly of trade payables for ongoing operations and corporate costs, a $3.6 million accrual of Umusadege capital expenditures and $1.0 million for 2012 and 2011 pipeline losses to be paid from future 2012 production. Accounts payable and accrued liabilities at the end of December 2011 totaled $21.4 million.
Income taxes payable
At March 31, 2012 Mart's income taxes payable of $36.5 million is its estimated obligation under the Corporations Income Tax Act of Nigeria. The income taxes payable from December 31, 2011 reflects the taxable income in the quarter less approximately $1.0 million in tax payments made.
Petroleum properties interests
The Company capitalized $13,341,766 of costs to its properties during the three months ended March 31, 2012 compared to $8,443,287 during 2011. These expenditures represent investments in the Umusadege field, comprised mainly of drilling costs. Additions during 2012 were offset by $8,177,549 ($5,607,484 during 2011) of depletion expense recorded, based upon production in 2012 and 2011 respectively.