NewsCalgary, Alberta, Canada ? May 27, 2004: Oilexco Incorporated (LSE-AIM: OIL) is pleased to announce
its first quarter interim report for the period ending March 31, 2004.
This discussion and analysis contains forward-looking statements relating to future events or future
performance. In some cases, forward-looking statements can be identified by terminology such as "may", "will",
"should", "expects", "projects", "plans", "anticipates" and similar expressions. These statements represent
management's expectations or beliefs concerning, among other things, future operating results and various
components thereof or the economic performance of Oilexco. The projections, estimates and beliefs contained in
such forward-looking statements necessarily involve known and unknown risks and uncertainties, including the
business risks discussed in the MD&A as at and for the years ended December 31, 2003 and 2002, which may cause
actual performance and financial results in future periods to differ materially from any projections of future
performance or results expressed or implied by such forward-looking statements. Accordingly, readers are
cautioned that events or circumstances could cause results to differ materially from those predicted.
Financial and Operating Review
Oil and gas revenues before royalties for the three months ended March 31, 2004 were $420,185 versus $426,996
for the same period last year. Period to period change was a decrease of 2% due to slightly lower realized
prices.
Sales of oil, gas and liquids averaged 106 BOEPD (at 6:1 Mcf/B equivalent conversion) during the first quarter
ended March 31, 2004 versus 97 BOEPD for the same period last year. The increase was due to the fact that
there were no shut-in days in 2004. Average oil and natural gas prices decreased from $48.56/BOE to $43.47/BOE
for the three months ended March 31, from comparative periods in 2003 to 2004. Crude prices were higher in
2004 than in 2003 when denominated in US dollars however the Canadian dollar increased significantly from Q1
2003 and were therefore lower in Canadian dollar terms. Operating expenses for the three months ended March 31
2004 were $76,255, a 1% increase from the same period last year of $75,312.
Royalties for the quarter ended March 31, 2004 were essentially flat for the same period last year from $75,713
to $75,817. General and administrative expenses increased to $329,968 from $228,314 for the three months ended
March 31, 2004 versus the same period last year. The increase was due mainly to the addition of 2 full time
staff and expenses related to the UK North Sea project. Depreciation and depletion expense decreased for the
three months ended March 31 2004 to $44,904 from $126,564 for the same period last year. The decrease was due
to depletion rates from a lower cost base.
During first quarter of 2004, the Company had significant foreign exchange gains of $921,893, primarily due to
a significant foreign exchange gain on cash held in foreign currencies. The foreign exchange loss of $10,035
for the corresponding period was nominal and resulted in the normal course of business.
A compensation expense of $300,000 has been recognized for the quarter ended March 31, 2004 as a result of
200,000 stock options granted to a consultant to acquire common shares of an exercise price of $2.30 per
share.
Funds flow from operations increased for the three months ended March 31, 2004 to $426,606 from $40,506 for the
same period last year, primarily due to the foreign exchange gain on cash held in foreign currency. Net
earnings for the three months ended March 31 2004 was $587,759 versus a loss of $86,058 for the same period
last year.
The Company's quarterly results are summarized below:
Q1/04 Q1/03 Q2/03 Q2/02 Q3/03 Q3/02 Q4/03
Q4/02
Gross Revenue 420,185 426,996 376,813 392,543 368,886 401,690 346,993
383,682
Net Earnings/(Loss) 587,759 (86,058) (149,350) (78,721) (220,511) (1,445,357) (2,052,678)
8,585
Basic and Diluted
Per Share 0.01 (0.00) (0.00) (0.00) (0.00) (0.08) (0.06)
0.00
Liquidity and Capital Resources
During the period, the Company's agents exercised the over-allotment option in connection with the Company's
December 2003 public offering. Gross proceeds of $4,546,740 were raised representing 4,133,400 units at a price
of $1.10 per unit. Each unit consists of one common share and one quarter common share purchase warrant. Each
common share purchase warrant entitles the holder to purchase one common share at $1.65 per share until January
16, 2006.
The proceeds from the Company's warrants and stock options exercised during the period amounted to $2,282,745
and $59,400, respectively. Assuming all outstanding warrants and stock options are exercised, the Company would
realize gross proceeds of approximately $20.6 million. During January 2004, the Company instructed its Agent to
transfer cash of $5,888,728 held in a trust as at December 31, 2003 into Oilexco UK subsidiary's account. The
proceeds from above sources as well as cash available at the beginning of the period were used to finance the
UK North Sea drilling project of approximately $31.1 million in the first quarter of 2004.
Oilexco is currently pursuing projects that may require additional financing. In general, Oilexco finances its
domestic capital program through the use of internal cash flow however its projects in the UK North Sea require
external financing. At the end of the period, the Company had cash on hand of $3,574,677 and working capital
of $333,395 and has no long-term debt.
On April 15, 2004, the Company closed a private placement of 19,000,000 Special Warrants. The private
placement consisted of 3,285,000 Special Warrants issued at ?0.84 for gross proceeds of ?2,759,400, and
15,715,000 Special Warrants issued at $2.02 for gross proceeds of $31,744,300, for aggregate gross proceeds of
$38,380,000. Each Special Warrant is exercisable into a unit consisting of one common share and one common
share purchase warrant (the "Warrant") exercisable for an additional common share at ?0.99 or $2.38, for a
maximum of 19,000,000 common shares (the "Offering"). The Warrant may be exercised within seven business days
after the earlier of receipt of the final prospectus qualifying the issuance of the common shares or the third
business day after the expiry of the four-month Canadian hold period.
Operations Update
The Corporation commenced its UK North Sea drilling program in December 2003 with the drilling of the first
well of a two well program on Production Licence P1042 (100% working interest), located on the Block 15/25b in
the Outer Moray Firth. The Oilexco 15/26b-6 well encountered a thicker upper Paleocene "Forties" sandstone
section when compared to the original well. More importantly, oil-stained sand lenses in the base of the core
from the upper Paleocene in the 15/25b-6 well that contained free oil, good fluorescence and hydrocarbon odor
were situated below the alleged oil/water contact in the original 15/25b-3 well. A drill-stem test of the
Oilexco 15/25b-6 "Brenda" well yielded oil at an average rate of 2,990 barrels per day. No formation water was
produced from this test although the base of the perforations was over 40 feet lower than the "oil/water
contact" from the original well.
According to an independent engineering study by UK based PGL Engineering Geosciences, the 15/25b-6 well
appeared to be part of the same large oil accumulation with the 15/25b-3 well and the 16/21a-18 West Blair
well. The study concluded that reservoir engineering data from wells 15/25b-3, 15/25b-6 and 16/21a-18
indicated that they are part of the same oil accumulation. This data and its analysis supports the concept of
a larger accumulation than previously interpreted in this area.
Based on the results of the first well of the UK drilling program, Oilexco exercised its option with Transocean
Offshore for a third well to be drilled by the J.W. McLean semi-submersible drilling rig. A third well, an
appraisal well to the first well, was drilled in March 2004.
Oilexco drilled and abandoned the second well of the drilling program that was planned to assess the potential
of a separate, untested structural anomaly in February 2004. The second well (15/25b-7) encountered a thick,
very porous Paleocene-age sand with non-commercial oil shows. The sidetrack leg (15/25b-7Z) to this well
encountered a thick, porous upper Paleocene-aged sand with a thin oil column at the top of the sand that
suggests that this structural anomaly is separate from the "Brenda" stratigraphic accumulation to the south
that is at a structurally lower position.
Oilexco spudded its 15/25b-8 test on February 29, 2004. This location was selected based on mapping of
seismically-derived hydrocarbon indicators. Nearly 70 feet of oil-bearing upper Paleocene "Forties" sandstones
were encountered. The 15/25b-8 well was tested over 23 hours on multiple choke settings. The maximum flow rate
achieved during the test was 4,785 barrels of oil per day. The oil flow was through a 56/64" choke at 408 psi
flowing wellhead pressure, from 39 feet of perforations. Additional appraisal wells are proposed to further
delineate this field on Licence P1042. Oilexco holds a 100% working interest in these wells. Site surveys are
required for some of these appraisal wells and are expected to be completed by the end of the second quarter
2004
In North Dakota, the Company has a joint venture agreement with an Oklahoma based exploration and production
company wherein nine square kilometres of 3D seismic has been shot and recorded, additional pertinent leases
have been acquired and an 8,800 foot test well is to be drilled to assess the Mississippian zone with an
anticipated spud date in late May 2004. This test well will target an upper Cretaceous-age gas zone and a
Mississippian-age oil zone. The estimated cost of this 3-D and additional leasing program is approximately US
$450,000. All additional expenditures, including drilling of the aforementioned well, will be done on a 70/30
basis in favour of Oilexco's joint venture partner.
Industry Overview
Crude oil and natural gas prices continue to be strong at relatively high prices for the first quarter of 2004.
The Canadian dollar has stabilized relative to the US dollar however it has been weakening during the quarter
relative to the British Pound. Cash flow has actually benefited from the fluctuations against the British
Pound however we are aware that these changes can have a negative impact as well. Financial markets also
continue to be relatively strong, particularly for resource companies, thereby enhancing our ability to finance
our projects from external sources.
Risk Factors and Uncertainty
There are no changes to the risk factors and uncertainties as discussed in the December 31, 2003 Management
Discussion and Analysis.
New Accounting Pronouncements
Impairment of Long-Lived Assets
In September 2002, the CICA issued CICA Handbook Section 3063 "Impairment of Long-Lived Assets" effective for
fiscal years beginning on or after April 1, 2003. This standard requires the recognition, measurement and
disclosure of the impairment of long-lived assets and applies to long-lived assets held for use. An impairment
loss is recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair
value. The Company adopted this standard on January 1, 2004. The adoption of this new standard had no impact on
the Company's interim financial statements as at and for the three month period ended March 31, 2004.
Asset retirement obligations
In December 2003, the CICA issued CICA Handbook Section 3110 "Asset Retirement Obligations" which requires the
liability recognition for retirement obligations associated with capital assets. These obligations are
initially recognized at fair value, which is the discounted future value of the liability. This fair value is
capitalized as part of the cost of the related capital asset and amortized over its useful life. The liability
accretes until the company settles the retirement obligation. This standard is effective for fiscal years
beginning on or after January 1, 2004. On January 1, 2004, the Company adopted this new standard on a
retroactive basis and the necessary adjustments were made to the Company's interim financial statements as at
and for the three month period ended March 31, 2004.
Stock-based compensation and other stock based payments
In September 2003, the CICA issued an amendment to CICA Handbook Section 3870 "Stock-Based Compensation and
Other Stock-Based Payments" effective for fiscal years beginning on or after January 1, 2004. This amendment
requires that all stock-based payments be measured using the fair value of method of accounting and the
recognition of an expense in the financial statements. On January 1, 2004, the Company adopted this amendment
retroactively without restatement of prior periods. The Company's interim financial statements as at and for
the three month period ended March 31, 2004 were adjusted to reflect the impact of this amendment.
Outlook
Oilexco will continue to focus on its projects in the UK North Sea, Mountrail County, North Dakota and Monroe
County, Alabama.
Our results to date in the North Sea are extremely encouraging and substantiate our belief that the North Sea
offers tremendous opportunities for companies with our business model. Oilexco will continue to evaluate the
potential at its Brenda pool by drilling further appraisal wells later in the year.
Consolidated Balance Sheets
as at
(Unaudited)
March 31 December 31
Assets 2004 2003
Current Assets
Cash $ 3,574,677 $ 20,892,264
Cash Held in Trust - 5,888,728
Accounts Receivable 357,781 292,881
Other 304,734 91,818
4,237,192 27,165,691
Deferred Financing Costs 173,284 -
Capital Assets 37,725,815 6,657,866
$ 42,136,291 $ 33,823,557
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable & Accrued Liabilities $ 3,903,797 $ 3,128,905
Operating Line of Credit - -
3,903,797 3,128,905
Assets Retirement Provision 190,731 176,013
Shareholders' Equity
Share Capital (Note 4) 53,574,029 46,926,281
Contributed Surplus 3,897,980 1,165,190
Deficit (19,430,246) (17,572,832)
38,041,763 30,518,639
$ 42,136,291 $ 33,823,557
The accompanying notes form an integral part of these unaudited consolidated financial statements.
Consolidated Statements of Earnings (Loss) and Deficit
For the Periods Ended
(Unaudited)
Three Months Three Months
March 31 March 31
2004 2003
Revenues
Oil and Gas Sales $ 420,185 $ 426,996
Royalties (75,817) (75,713)
Interest Income 69,780 1,602
Other Income 2,845 1,282
416,993 354,167
Expenses
General and Administrative 329,968 228,314
Operating 76,255 75,312
Depletion and Depreciation 44,904 126,564
Foreign Exchange (Gain)/Loss (921,893) 10,035
Recognized Expense on Stock
Options (Note 4(c)) 300,000 -
(170,766) 440,225
Net Earnings (Loss) 587,759 (86,058)
Deficit, Beginning of Period (17,572,832) (15,064,235)
Changes in accounting policies (Note 3) (2,445,173) -
Deficit, End of Period $ (19,430,246) $ (15,150,293)
Basic and Diluted Net Earnings (Loss)
per Share (Note 4(d)) $ 0.01 $ -
The accompanying notes form an integral part of these unaudited consolidated financial statements.
Consolidated Statements of Cash Flows
For the Periods Ended
(Unaudited)
Three Months Three Months
March 31 March 31
2004 2003
Cash Flow from Operating Activities
Net Earnings (Loss) $ 587,759 $ (86,058)
Items Not Affecting Cash Flow
Depletion and Depreciation 44,904 126,564
Foreign Exchange (Gain)/Loss (506,057) -
Recognized Expense on Stock Options 300,000 -
Funds Flow from Operations 426,606 40,506
Change in Non-Cash Working
Capital 1,354,508 155,666
1,781,114 196,172
Cash Flow from Financing Activities
Net Proceeds from Issuance of Shares 6,582,648 1,976,518
Cash Held in Trust 5,888,728 -
Changes in Non-cash Working Capital 65,100 19,278
12,536,476 1,995,796
Cash Flow from Investing Activities
Additions to Capital Assets (31,110,518) (685,486)
Changes in Non-Cash Working Capital (1,030,716) -
(32,141,234) (685,486)
Increase (Decrease) in Cash (17,823,644) 1,506,482
Net Effect of Foreign Exchange Gain/(Loss) on Cash Held in 506,057 -
Foreign Currency
Cash - Beginning of Period 20,892,264 162,646
Cash - End of Period $ 3,574,677 $ 1,669,128
Interest Paid $ - $ -
Income Taxes Paid $ - $ -
The accompanying notes form an integral part of these unaudited consolidated financial statements.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Oilexco Incorporated and its wholly-owned subsidiaries Oilexco America Inc. and Oilexco North
Sea Limited (together "the Company") are involved in the exploration, development and
production of oil and gas in North America and the North Sea.
The Company's current Canadian exploration efforts are focused in southeast Saskatchewan. Its
current exploration activities in the United States are in Mountrail County, North Dakota,
Monroe and Conecuh Counties, Alabama.
The Company's principal producing property is located at Vocation/Jurassic Park in Monroe
County, Alabama. In Canada, the Corporation has producing properties at Forgan West in west-
central Saskatchewan.
The Corporation's principal international focus is in the UK North Sea.
2. ACCOUNTING POLICIES
The unaudited consolidated financial statements are prepared in accordance with Canadian
Generally Accepted Accounting Principles ("GAAP"). In the opinion of management, the
unaudited consolidated financial statements contain all adjustments of a normal and recurring
nature necessary to present fairly Oilexco's financial position at March 31, 2004 and the
results of its operations and its cash flows for the three months ended March 31, 2004 and
2003. Management makes estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
unaudited consolidated financial statements, and revenues and expenses during the reporting
period. Management reviews these estimates on an ongoing basis. Changes in facts and
circumstances may result in revised estimates and actual results may differ from these
estimates. The results of operations and cash flows for the three months ended March 31, 2004
are not necessarily indicative of the results of operations or cash flows to be expected for
the year ending December 31, 2004. The notes to these interim consolidated financial
statements do not conform in all respects to the note disclosure requirements of generally
accepted accounting policies for annual financial statements. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated financial
statements included in the 2003 annual report. The accounting policies followed are in Note 2
of the audited consolidated financial statements included in the 2003 annual report, except as
noted below.
3. CHANGES IN ACCOUNTING POLICIES
Asset Retirement Obligations
On January 1, 2004, the Company retroactively adopted the new accounting standard related to
"Asset Retirement Obligations" ("ARO"). In accordance with the new standard, a liability is
recognized for the future retirement obligations associated with the Company's capital assets.
The fair value of the ARO is recorded on a discounted basis. This amount is capitalized as
part of the cost of the related capital asset and amortized over its useful life. The
liability accretes until the Company settles the retirement obligations.
As a result of adoption of this new accounting policy, the Company has recorded a charge to
deficit of $12,383 as at January 1, 2004 to reflect the increase in the ARO. The impact on
the oil and gas properties and the related depletion and depreciation expense was immaterial
for adjustment. The accretion expense charged to operating expenses during the three month
period ended March 31, 2004 was $2,335. No ARO has been recognized for the UK North Sea
operations as at March 31, 2004 as no legal obligation exists.
Impairment on Long-Lived Assets
On January 1, 2004, the Company adopted the new accounting standard related to "Impairment on
Long-Lived Assets". An impairment loss is recognized when the carrying amount of a long-lived
asset is not recoverable and exceeds its fair value. This new standard had no impact on the
Company's financial statements as at and for the three month period ended March 31, 2004.
Stock-Based Compensation Expense
Effective January 1, 2004, the Company adopted the fair value method of accounting for stock
options, on a retroactive basis, without restatement of prior periods. Prior to January 1,
2004, the Company measured stock-based compensation using the intrinsic value method for the
award at the date of grant. As the exercise price and the market price were the same at the
grant date, no compensation expense was recognized in 2003 and 2002 on the granting of stock
options. In 2003, the Company disclosed pro forma net loss and loss per share as if
compensation expense for the Company's stock plan had been determined based on the fair value
at the grant date for stock option awards made under the plan subsequent to January 1, 2002.
As a result of the adoption of this new accounting policy, the Company has recorded a charge
to deficit of $2,432,790 at January 1, 2004 and a credit to contributed surplus of $2,432,790,
to reflect the accumulated expense of stock-based compensation for stock options granted under
the plan subsequent to January 1, 2002. The estimated fair value of the stock options issued
in 2003 and 2002 has been determined using the Black Scholes option-pricing model.
4. SHARE CAPITAL
(a) Issued Number Amount
Balance January 1, 2004 59,275,688 $ 46,926,282
Issued pursuant to agent's over-allotment 4,133,400 4,546,740
option
Issued pursuant to exercise of agent's warrants 248,004 272,804
on over-allotment
Issued pursuant to exercise of warrants 4,044,060 2,009,941
Issued pursuant to exercise of stock options 220,000 59,400
Share proceeds received on exercise of stock 245,000 65,100
options
Share issue costs - (306,238)
Balance March 31, 2004 68,166,152 $ 53,574,029
On January 16, 2004, 4,133,400 additional units were issued for proceeds of $4,546,740 on the
exercise of the agents' over-allotment option, in connection with the Company's December 2003
public offering.
(b) Warrants
In January 2004, the Company issued 1,033,350 common share purchase warrants at $1.65
per share in conjunction with the exercise of the agents' over-allotment option related
to the Company's December 2003 public offering.
Additionally, the Company's agents were granted additional common share purchase
warrants to acquire 248,004 common shares at a price of $1.10 per share, which expire
on January 16, 2005. These agent's warrants were exercised in full as at March 31,
2004.
Opening Granted Exercised Outstanding
Warrants at $0.35 6,479,700 - 3,271,900 3,207,800
Warrants at $1.10 1,653,360 248,004 992,164 909,200
Warrants at $1.65 6,889,000 1,033,350 28,000 7,894,350
15,022,060 1,281,354 4,292,064 12,011,350
Weighted average price $1.03 $1.54 $0.53 $1.26
(c) Stock Options
On March 23, 2004, the Company granted 200,000 stock options to a consultant to acquire
common shares at an exercise price of $2.30 per share, expiring on March 23, 2009.
Accordingly, a compensation expense of $300,000 has been recognized for the quarter
ended March 31, 2004. Fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following assumptions:
2004
Risk free interest rate 3.8%
Weighted average years 5.0
Expected volatility 80%
Expected dividend yield 0%
During the quarter ended March 31, 2004, 220,000 stock options of the Company were
exercised for proceeds of $59,400.
(d) Per Share Data
Three Months Three Months
March 31, 2004 March 31, 2003
Net Weighted Average Per Net Weighted Average Per
Earnings Shares Outstanding Share Loss Shares Outstanding Share
Basic $587,759 64,495,277 $0.01 $(86,058) 20,348,388 $ -
Options assumed
Exercised 3,106,568 -
Warrants assumed
Exercised 4,611,399 -
Diluted $587,759 72,213,244 $0.01 $(86,058) 20,348,388 $ -
5. SEGMENTED INFORMATION
Oilexco's activities are conducted in three geographic segments, Canada, the United States and
the United Kingdom. All activities relate to the exploration, development, production, and
marketing of oil, natural gas and petroleum liquids.
Three Months Three Months
March 31 March 31
2004 2003
Revenues - Gas & Oil Sales
Canada $ 65,203 $ 66,408
US 354,982 360,588
UK - -
Total $ 420,185 $ 426,996
Net Earnings (Loss)
Canada $ (165,185) $ (221,993)
US 214,049 135,935
UK 538,895 -
Total $ 587,759 $ (86,058)
At At
March 31 2004 December 31
Capital Assets 2003
Canada $ 245,119 $ 252,908
US $ 665,173 $ 682,693
UK $ 36,815,523 $ 5,722,265
Total $ 37,725,815 $ 6,657,866
6. RELATED PARTY TRANSACTIONS
None
7. COMMITMENTS
The Company is committed under an operating lease agreement for the rental of office space,
expiring August 31, 2008, as follows:
2004 $ 192,000
2005 $ 256,000
2006 $ 256,000
2007 $ 256,000
2008 $ 171,000
$ 1,131,000
8. EVENT SUBSEQUENT TO MARCH 31, 2004
On April 15, 2004, the Company closed a private placement of 19,000,000 Special Warrants. The
private placement consisted of 3,285,000 Special Warrants issued at ?0.84 for gross proceeds
of ?2,759,400, and 15,715,000 Special Warrants issued at $2.02 for gross proceeds of
$31,744,300, for aggregate gross proceeds of $38,380,000. Each Special Warrant is exercisable
into a unit consisting of one common share and one common share purchase warrant (the
"Warrant") exercisable for an additional common share at ?0.99 or $2.38, for a maximum of
19,000,000 common shares (the "Offering"). The Warrant may be exercised within seven business
days after the earlier of receipt of the final prospectus qualifying the issuance of the
common shares or the third business day after the expiry of the four-month Canadian hold
period.
The Agents were paid a 6.5% commission and will be issued warrants to purchase common shares
equal to 6% of the Special Warrants exercised at an exercise price equal to the subscription
price under the Offering.
9. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES OF AMERICA GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The Company's unaudited consolidated interim financial statements are prepared in accordance
with Canadian GAAP. Any differences in accounting principles as they pertain to the
accompanying unaudited consolidated interim financial statements were insignificant as at
March 31, 2004 and 2003 and for the three months then ended, except as described below:
(a) Consolidated Statements of Earnings (Loss) and Deficit
Three Months Three Months
March 31 March 31
2004 2003
Deficit, beginning of period in accordance with Canadian GAAP $ (20,018,005) $ (15,064,235)
Stock-based compensation expense adjustment (i) 2,432,790 -
Asset retirement obligation adjustment (ii) - (29,000)
Write down under the ceiling test (iii) (213,000) (181,000)
Deficit, end of period in accordance with US GAAP $ (17,798,215) $ (15,274,235)
Net Earnings (Loss) for the period in accordance with
Canadian GAAP $ 587,759 $ (86,058)
Stock-based compensation expense - -
Asset retirement obligation cumulative effect adjustment - (29,000)
Total $ 587,759 $ (115,058)
Net Earnings (Loss) per share under U.S. GAAP
Basic $ 0.01 $ -
Diluted $ 0.01 $ -
The weighted average number of common shares outstanding for the purposes of determining the
basic and diluted net earnings (loss) per share are the same numbers as disclosed for Canadian
GAAP purposes.
(i) Stock-based compensation:
Prior to January 1, 2004, the compensation expense was recognized for Canadian GAAP based on
the intrinsic value at the grant date. For the years ended December 31, 2003 and 2002, pro
forma disclosures are included in the notes to the consolidated financial statements of the
impact on net loss and net loss per share had the Company accounted for compensation expense
based on the fair value of the stock options granted since January 1, 2002. Effective January
1, 2004, the Company adopted the fair value method of accounting for stock options, on a
retroactive basis, without restatement of prior periods.
Under US GAAP the Company's adopted Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB 25"). Under AP 25, companies are not required to record any
compensation expense relating to options granted with an exercise price equal to the market
price at date of grant. The adjustment to opening deficit as at January 1, 2004, in accordance
with Canadian GAAP to recognize the stock-based compensation expense for stock options granted
to employees since January 1, 2002 was added back in accordance with US GAAP.
(ii) Asset Retirement Obligations:
On January 1, 2004, the Company retroactively adopted the new accounting standard related to
"Asset Retirement Obligations" ("ARO"), which is inline with FAS No. 143 'Accounting for Asset
Retirement Obligations" ("FAS 143"). The transitional provisions differ between Canadian GAAP
and US GAAP in that Canadian GAAP requires restatement of comparative amounts whereas US GAAP
does not allow restatement. An adjustment to net earnings under Canadian GAAP has been
recorded to reflect the 2003 comparative amounts prior to the restatement in accordance with
US GAAP. Reconciled to US GAAP the impact on the basic and diluted net earnings per share for
the three month period ended March 31, 2004 is $0.01 and $0.01 per share, respectively.
(iii) Impairment Test of Oil and Gas Properties:
During December 2003, the Company adopted Accounting Guideline 16 "Oil & Gas Accounting ? Full
Cost" ("AcG-16"). Pursuant to AcG-16 the Company performs an impairment test that places a
limit on the aggregate carrying value of the oil and gas properties. For Canadian GAAP, the
discount rate used must be equal to a risk free interest rate. Under US GAAP, companies using
the full cost method of accounting for oil and gas producing activities perform a ceiling test
on each cost centre using discounted estimated future net revenue from proved oil and gas
reserves using a discount factor of 10 percent. Prices used in the US GAAP ceiling tests
performed for this reconciliation were those in effect at the applicable year-end. No write
down of oil and gas properties were noted under both Canadian and US GAAP for the three month
period ended March 31, 2004. Under US GAAP, the Company would have recognized a write down of
approximately $213,000 related to the Canadian full cost centre of which $181,000 related to
the year ended December 31, 2001 thereby, increasing the January 1, 2002 opening deficit and
decreasing the net book value of the oil and gas properties as at January 1, 2002. The
remaining write down of approximately $32,000 related to the year ended December 31, 2003
thereby, increasing the January 1, 2004 opening deficit and decreasing the net book value of
the oil and gas properties as at January 1, 2004.
10. CORPORATE INFORMATION
Directors Auditors
Donald B. Copeland Deloitte & Touche LLP
John F. Cowan Calgary, Alberta
W. Fraser Grant
Arthur S. Millholland
Brian L. Ward Bankers
Royal Bank of Canada
Royal Bank of Scotland
Canadian Western Bank
Management
Arthur S. Millholland Legal Counsel
President and Chief Executive Officer Field Law LLP
McCarthy Tetrault LLP
Brian L. Ward
Chief Financial Officer Transfer Agent and Registrar
Computershare Trust Company of Canada
Head Office
Share Listing Suite 3200, 715 ? 5th Avenue S.W.
The TSX Venture Exchange Calgary, Alberta, Canada T2P 2X6
Symbol: 'OIL'
AIM Market, London Stock Exchange
Symbol: 'OIL' Telephone: (403) 262-5441
Facsimile: (403) 263-3251
Internet: www.oilexco.com
OILEXCO