North Peace Energy Announces Operations Update and Second Quarter Results
Wed Aug 27, 6:40 PMCALGARY, Aug. 27 /CNW/ - North Peace Energy Corp. ("North Peace" or the "Company") releases operating and financial results for the three and six months ended June 30, 2008.
Operations and Financial Highlights:
- Completed a $26 million financing on August 7, 2008, issuing
13,333,300 common shares, 6,666,650 warrants to purchase common
shares and 3,636,360 flow-through shares.
- Working capital position of approximately $25 million subsequent to
the recent financing.
- Received Energy Resources Conservation Board ("ERCB") and Alberta
Environment approval in June for a Cyclic Steam Stimulation ("CSS")
pilot project at Red Earth.
- Invested $2.9 million procuring equipment for the CSS pilot project
in the second quarter of 2008.
CSS Pilot Project Update:
- Completed drilling of the two horizontal wells in August on budget
- Bitumen saturated sands, consistent with previously determined
reservoir characteristics and quality, were encountered over
the entire horizontal section of both wells
- Hired all key field operations employees
- Commenced facility construction
- Steam injection is expected to commence during November, on
schedule and on budget
Commercial Project Update:
- Drilling of the remaining delineation wells required for the first
10,000 bbl/d phase of our 30,000 bbl/d commercial project is
scheduled to commence in November
- Advancing commercial engineering and environmental work and the
Company expects to file an application with the ERCB in mid-2009
- Subject to successful pilot project results, the Commercial project
remains on schedule with first steam expected in 2012
Louis Dufresne, President of North Peace, said the Company now has all the pieces in place for its CSS pilot project which remains the key building block for the commercial project.
"Engineering is complete, all major equipment has been procured, and the project is fully funded," he said. "The remainder of the year is populated with significant milestones, including construction completion and first steam in November, culminating in pilot oil production either late in 2008 or in early 2009."
Management's Discussion and Analysis of
Financial Results
This Management's Discussion and Analysis of North Peace Energy Corp. ("North Peace" or the "Company") provides analysis of the Company's financial results for the three and six month periods ended June 30, 2008. The following information should be read in conjunction with the Company's unaudited interim financial statements for the three and six months ended June 30, 2008, and the audited financial statements for the year ended December 31, 2007.
Additional information about North Peace filed with Canadian securities commissions is available on-line at www.sedar.com.
See "Forward-Looking Statements" below.
Date of Report August 26, 2008
--------------
Overview
--------
North Peace has an early stage in-situ oil sands play in northern Alberta with an estimated 2 to 3.1 billion barrels of Discovered Petroleum Initially-In-Place. The Company has a 100% working interest in 86,400 acres of Crown oil sands leases in the Peace River area. The lands have the benefit of over 300 legacy logs and are surrounded by accessible oil and gas production infrastructure. The target Bluesky zone is a regional sand, deposited in a near shore marine environment at approximately 400 metres depth. The initial focus area has 24 contiguous land sections with 10 to 16 metres of oil bearing thickness, sufficient to advance a 30,000 bbl/d commercial project. North Peace is currently advancing the development of its resource using a robust and proven in-situ thermal recovery process, Cyclic Steam Stimulation ("CSS"). A pilot project consisting initially of two horizontal CSS wells has been engineered, regulatory approval has been obtained and the project is fully funded. Pilot facility construction has commenced and construction completion is scheduled for November. The Company does not currently have any oil and gas production.
Overall Performance
-------------------
During the three months ended June 30, 2008 the Company has completed the
following significant milestones:
- Received Energy Resources Conservation Board ("ERCB") and Alberta
Environment EPEA approval for our CSS pilot project
- Procured $2.9 million of equipment for the CSS pilot project
Financial Results
-----------------
Quarterly Financial Information
2008 2008 2007 2007 2007
Q2 Q1 Q4 Q3 Q2
-------------------------------------------------------------------------
Revenues 39,045 87,905 117,197 128,821 67,297
Net Loss and
Comprehensive loss 486,924 399,290 448,481 282,614 363,906
Basic and diluted
Net Loss Per share 0.013 0.010 0.012 0.007 0.012
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007 2006 2006
Q1 Q4 Q3
---------------------------------------------------
Revenues 30,306 30,247 12,563
Net Loss and
Comprehensive loss 133,324 44,955 14,981
Basic and diluted
Net Loss Per share 0.008 0.003 0.001
---------------------------------------------------
---------------------------------------------------
Results of Operations
---------------------
Interest Income
Six months ended
2008 2007 June 30,
-------------------------------------------------------------------------
Q2 Q1 Q2 2008 2007
-------------------------------------------------------------------------
Interest Income 39,045 87,905 67,297 126,950 97,603
-------------------------------------------------------------------------
Interest income was $39,045 for the second quarter of 2008, with the majority derived from redeemable term deposits bearing interest at 2.75%. The increase in interest income in the first half of 2008 from the first half 2007 is due to more cash on deposit. Interest income is down from the first quarter of 2008 and the same period in 2007 due to reduced cash on hand as the Company executed its capital program.
Stock-based Compensation
Six months ended
2008 2007 June 30,
-------------------------------------------------------------------------
Q2 Q1 Q2 2008 2007
-------------------------------------------------------------------------
Stock-based
Compensation 150,651 166,376 94,152 317,027 149,169
-------------------------------------------------------------------------
Stock-based compensation for the second quarter of 2008 was $306,232. $
150,651 of the stock-based compensation was expensed relating to the
recognition of the expense for existing stock options as there were no
additional option grants in the first half of 2008. $155,581 of stock based
compensation was capitalized during the quarter relating to consultants
working directly on the capital program and pilot project.
Administrative Expenses
Six months ended
2008 2007 June 30,
-------------------------------------------------------------------------
Q2 Q1 Q2 2008 2007
-------------------------------------------------------------------------
G&A expense 365,118 310,883 331,719 676,001 435,000
-------------------------------------------------------------------------
Administrative expenses for the second quarter amounted to $365,118
compared to $310,883 for the first quarter of 2008 and $331,719 for the same
period last year. The increase from the first quarter of 2008 is due to
increased investor relations activity. The increase from the same period in
2007 is due to the Company's growth in size and level of activity.
Depletion, Depreciation and Accretion
Six months ended
2008 2007 June 30,
-------------------------------------------------------------------------
Q2 Q1 Q2 2008 2007
-------------------------------------------------------------------------
Depletion,
Depreciation and
Accretion 10,200 9,936 5,332 20,136 10,664
-------------------------------------------------------------------------
The Company had depreciation expense during the second quarter of 2008 of
$5,920 related to office furniture and computer equipment. Accretion related
to asset retirement obligations in the second quarter of 2008 was $4,280. The
increase from the same period last year is due to additional wells. The change
from the previous quarter is due to the passage of time.
Liquidity and Capital Resources
-------------------------------
As at June 30, 2008, the Company had working capital of $2 million.
The Board of Directors has approved a 2008/2009 capital budget of $20 million to build the pilot project and complete a winter 2008/2009 delineation drilling program.
On August 7, 2008 the Company completed a private placement equity offering, issuing a total of 13,333,300 units ("Units"), at a price of $1.50 per Unit and 3,636,360 flow-through common shares ("Flow-Through Shares"), at a price of $1.65 per Flow-Through Share for gross proceeds of approximately $26 million. Each Unit consists of one common share and half of one common share purchase warrant ("$2.00 Warrant"). Each full $2.00 Warrant entitles the holder to acquire one common share at an exercise price of $2.00 per share until February 7, 2010.
The proceeds from the financing are sufficient to fully fund the $20 million 2008/2009 capital budget and the additional funds raised will be used for potential contingencies during pilot construction. Following construction and first steam injection the remaining funds will be used to increase the number of wells drilled in the winter 2008/2009 delineation drilling program and for commercial project engineering.
As at June 30, 2008, the payments due under the office lease commitment are as follows:
(Cdn $)
-------------------------------------------------------------------------
2008 41,123
2009 82,246
2010 82,246
2011 82,246
Thereafter Nil
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital expenditures were as follows:
Six months ended
2008 2007 June 30,
-------------------------------------------------------------------------
Q2 Q1 Q2 2008 2007
-------------------------------------------------------------------------
Property
Acquisition - - 20,160,921 - 20,160,921
Land & Lease
Rentals 19,880 120,735 8,064 140,615 41,694
Drilling 42,216 3,538,738 131,700 3,580,953 1,000,087
Geological Costs 15,906 40,393 - 56,299 30,000
Pilot Facilities 2,895,907 188,489 - 3,084,396 -
Pilot Project
Costs 64,730 27,314 - 92,043 -
Other - - 26,780 - 32,134
-------------------------------------------------------------------------
Total 3,038,639 3,915,669 20,327,465 6,954,306 21,264,836
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Share Capitalization
Capitalized stock-based compensation and asset retirement obligation
additions are not included in the above table.
The following table shows the common shares, stock options and performance
warrants issued and outstanding at June 30, 2008:
June 30, 2008
-------------------------------------------------------------------------
Common shares outstanding 38,101,140
Weighted average number of shares outstanding
during the period 38,059,057
Stock options outstanding 2,230,000
Performance warrants outstanding 6,300,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at August 26, 2008, there were 55,070,800 common shares, 3,770,000
stock options, 6,300,000 performance warrants and 6,666,650 purchase warrants
outstanding.
Off Balance Sheet Arrangements
------------------------------
There were no off balance sheet arrangements as at June 30, 2008.
Transactions with Related Parties
---------------------------------
As at June 30, 2008, the Company accrued legal costs of $30,000 payable to
a firm in which a director is a partner.
Critical Accounting Estimates
-----------------------------
The preparation of financial statements requires the Company to make judgements, assumptions and estimates in the application of generally accepted accounting principles that have a significant impact on the financial results of the Company. Actual results could differ from those estimates. A comprehensive discussion of the Company's significant accounting policies is contained in the financial statements for the year ended December 31, 2007.
Accounting Policies
-------------------
For the impact of new accounting policies please refer to note 2 of the
unaudited financial statements as at June 30, 2008.
Financial Instruments and Other Instruments
-------------------------------------------
The Company's carrying value of cash and cash equivalents, accounts
receivable and accounts payable and accruals approximates its fair value due
to the immediate or short-term maturity of these instruments.
Risks and Uncertainties
-----------------------
North Peace is exposed to operational and regulatory risks and uncertainties in the normal course of business that can influence its future financial performance. A summary of certain of these risks is set out below under "Forward-Looking Statements" and a more detailed description of these risks is presented in the Company's Information Circular dated April 18, 2008 which is available on SEDAR at www.sedar.com. Readers are cautioned that these descriptions are not exhaustive.
Outlook
-------
The majority of the capital spending during the balance of 2008 will be focused on completing the pilot project. The two CSS horizontal were drilled following the equity financing. Construction of pilot facilities has commenced, with first steam injection expected in November. Initial production response should occur approximately two months following steam injection and is expected late in the fourth quarter 2008 or early 2009.
Additional delineation drilling work will commence in the winter of 2008/2009 to confirm an area sufficient to construct the first 10,000 bbl/d phase of a 30,000 bbl/d commercial project. Pilot production information combined with the data gathered from this drilling program will allow the Company to advance commercial engineering and in mid 2009 North Peace expects to be in a position to submit an application to the ERCB for the first 10,000 bbl/d phase of the commercial project.
International Financial Reporting Standards ("IFRS")
----------------------------------------------------
In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed that the changeover to IFRS from Canadian GAAP will be required for publicly accountable enterprises effective for the interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The AcSB issued the "omnibus" exposure draft of IFRS with comments due July 31, 2008, wherein early adoption by Canadian entities is also permitted. The Canadian Securities Administrators ("CSA") has also issued Concept Paper 52-402, which requested feedback on the early adoption of IFRS as well as the use of US GAAP by domestic issuers. The transition from current Canadian GAAP to IFRS is a significant undertaking that may materially affect the Company's reported financial position and results of operations.
The Company has not completed development of its IFRS changeover plan, which will include project structure governance, resourcing and training, analysis of key GAAP differences and a phase plan to assess accounting policies under IFRS as well as potential IFRS 1 ("First Time Adoption of IFRS") exemptions. The Company hopes to complete its project scoping, which will include a timetable for assessing the impact on data systems, internal controls over financial reporting and business activities, such as financing and compensation arrangements during 2009.
The International Accounting Standards Board ("IASB") has stated that it plans to issue an exposure draft relating to certain amendments to IFRS 1 in order to make it more useful to Canadian entities adopting IFRS for the first time. One such exemption relating to full cost oil and gas accounting is expected to result in a reduced administrative transition from the current Acg-16 to IFRS. It is anticipated that this exposure draft will not result in an amended IFRS 1 standard until late 2009. The amendment will potentially permit the Company to apply IFRS prospectively to its full cost pool, rather than the retrospective assessment of capitalized exploration and development expenses, with the proviso that the ceiling test, under IFRS standards, is conducted at the transition date.
Discovered Petroleum Initially-In-Place
---------------------------------------
Discovered Petroleum Initially-In-Place (equivalent to Discovered Resources) is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of Discovered Petroleum Initially-In-Place includes production, reserves, and contingent resources. There is no certainty that the Discovered Petroleum Initially-In-Place will ever be produced.
Forward-Looking Statements
--------------------------
Certain statements contained in this release and MD&A including statements relating to future development plans including the application of CSS, anticipated costs and expenditures, anticipated production capacity and business strategies, constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Actual results will differ and could differ materially as a result of changes in North Peace's plans, changes in commodity prices, regulatory changes, including but not limited to changes in royalty regimes, tax laws and environmental regulations, general economic, market and business conditions, ability to access sufficient capital in the future, failure to obtain required regulatory approvals, as well as production, development and operating performance and other risks associated with oil and gas operations including anticipated success of resource prospects and the expected characteristics of resource prospects; results of the Company's pilot project and delineation program; anticipated capital requirements, project rates of return and estimated project life; estimates of original discovered resource; estimates of recovery factors; estimates of the geologic and other attributes and characteristics of the Company's property; the effectiveness and economic feasibility of utilizing CSS, lack of diversification; and overall technical and economic feasibility of the Company's project. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect North Peace's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at North Peace's website (www.northpec.com). These statements speak only as of the date of this release or as of the date specified in the documents accompanying this release, as the case may be. The Company undertakes no obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities laws.
NORTH PEACE ENERGY CORP.
(A Development Stage Company)
Balance Sheets, as at
(unaudited)
-------------------------------------------------------------------------
June 30, December 31,
2008 2007
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents (note 4) $ 4,517,878 $ 9,964,393
Accounts receivable 277,178 363,600
Prepaid expenses 47,603 46,360
-------------------------------------------------------------------------
4,842,659 10,374,353
Oil and gas properties (note 5) 39,959,843 32,711,756
Other assets 51,639 54,703
-------------------------------------------------------------------------
$ 44,854,141 $ 43,140,812
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accruals $ 2,874,329 $ 944,654
Asset retirement obligations (note 6) 378,290 215,820
Future income taxes 550,929 915,900
-------------------------------------------------------------------------
3,803,548 2,076,374
-------------------------------------------------------------------------
Shareholders' equity
Common shares (note 7) 42,453,432 42,037,961
Performance warrants (note 7) 1,466,550 1,466,550
Contributed surplus (note 8) 1,122,001 665,103
Deficit (3,991,390) (3,105,176)
-------------------------------------------------------------------------
41,050,593 41,064,438
-------------------------------------------------------------------------
$ 44,854,141 $ 43,140,812
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments (note 10)
Subsequent events (note 13)
Signed on behalf of the Board:
"Ian Robertson", Director
"Don Garner", Director
NORTH PEACE ENERGY CORP.
(A Development Stage Company)
Statements of Loss, Comprehensive Loss and Deficit
(unaudited)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue
Interest Income $ 39,045 $ 67,297 $ 126,950 $ 97,603
-------------------------------------------------------------------------
39,045 67,297 126,950 97,603
-------------------------------------------------------------------------
Operating expenses
General and
administrative 365,118 331,719 676,001 435,000
Stock-based
compensation 150,651 94,152 317,027 149,169
Depletion,
depreciation and
accretion 10,200 5,332 20,136 10,664
-------------------------------------------------------------------------
525,969 431,203 1,013,164 594,833
-------------------------------------------------------------------------
Net Loss and
Comprehensive
Loss $ 486,924 $ 363,906 $ 886,214 $ 497,230
Deficit at
beginning of
period 3,504,466 1,818,112 3,105,176 1,572,433
Costs relating
to Juno
transaction
(note 3) - - - 112,355
-------------------------------------------------------------------------
Deficit at end of
period $ 3,991,390 $ 2,182,018 $ 3,991,390 $ 2,182,018
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net Loss per share
(note 12)
Basic and
Diluted $ 0.013 $ 0.012 $ 0.023 $ 0.021
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NORTH PEACE ENERGY CORP.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Cash provided by
(used in):
Operating
Activities
Net Loss $ (486,924) $ (363,906) $ (886,214) $ (497,230)
Non-cash charges
to earnings
Depletion,
depreciation
and accretion 10,200 5,332 20,136 10,664
Stock-based
compensation 150,651 94,152 317,027 149,169
-------------------------------------------------------------------------
(326,073) (264,422) (549,051) (337,397)
Net change in
non cash working
capital
Accounts
receivable 204,557 (158,377) 210,471 (226,311)
Prepaid expenses (13,479) 16,772 (1,243) 15,368
Accounts payable
and accruals 14,332 (21,105) (76,636) (139,060)
-------------------------------------------------------------------------
(120,663) (427,132) (416,459) (687,400)
-------------------------------------------------------------------------
Investing
Activities
Additions to oil
and gas
properties (3,038,639) (20,327,465) (6,954,306) (21,264,836)
Other assets (3,537) (32,224) (8,512) (58,528)
Net change in non
cash working
capital
Accounts
receivable (52,600) 399,361 (124,049) 323,232
Accounts payable
and accruals 809,039 (647,434) 2,006,311 125,081
-------------------------------------------------------------------------
(2,285,737) (20,607,762) (5,080,556) (20,875,051)
-------------------------------------------------------------------------
Financing
Activities
Proceeds on
issue of common
shares 50,500 28,773,671 50,500 30,551,171
Cash acquired
from Juno
Capital Corp.
(note 3) - - - 261,845
Deferred financing
charges - - - 24,354
Net change in non
cash working
capital
Accounts payable
and accruals - 5,027 - 48,002
-------------------------------------------------------------------------
50,500 28,778,698 50,500 30,885,372
-------------------------------------------------------------------------
(Decrease) Increase
in cash and cash
equivalents (2,355,900) 7,743,804 (5,446,515) 9,322,921
Cash and cash
equivalents,
beginning of
period 6,873,778 4,861,538 9,964,393 3,282,421
-------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $ 4,517,878 $ 12,605,342 $ 4,517,878 $ 12,605,342
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental
disclosure:
Interest
received $ 246,413 $ 4,120 $ 308,551 $ 4,120
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NORTH PEACE ENERGY CORP.
(A Development Stage Company)
Notes to Financial Statements
As at June 30, 2008 (unaudited), as at December 31, 2007
-------------------------------------------------------------------------
1. Nature of Operations
North Peace Energy Corp. (the "Company") was amalgamated pursuant to
the provisions of the Business Corporations Act (Alberta) on
February 6, 2007, the result of a reverse takeover (note 3). The
Company's principal business activity is the exploration,
exploitation and development and production of petroleum and natural
gas resources in the Province of Alberta. To date the Company has not
earned significant revenue and is therefore considered to be a
development stage company.
These financial statements are prepared on the assumption that the
Company will continue as a going concern and realize its assets and
discharge its liabilities in the normal course of business. The
recoverability of the amounts shown for petroleum and natural gas
assets is dependent upon the discovery of economically recoverable
oil and gas resources and the ability of the Company to obtain
financing necessary to complete the exploration and development and
the success of future operations.
These interim financial statements have been prepared following the
same accounting policies and methods used in the financial statements
for the year ended December 31, 2007 except as noted. These financial
statements should be read in conjunction with the audited year-end
financial statements for North Peace Energy Corp.
2. Adoption of new accounting policies
Effective January 1, 2008 the Company adopted Section 1535, Capital
Disclosures, Section 3862, Financial Instruments - Disclosures, and
Section 3863, Financial Instruments - Presentation. Section 1535
specifies the disclosure of an entity's objectives, policies and
processes for managing capital, quantitative data about what the
entity regards as capital, whether the entity has complied with all
capital requirements, and if it has not complied, the consequences of
such non-compliance.
Sections 3862 and 3863 specify standards of presentation and enhanced
disclosures on financial instruments. These Sections will require the
Company to increase disclosure on the nature and extent of risks
arising from financial instruments and how the entity manages those
risks.
The adoption of these new accounting standards did not impact the
amounts reported in the Company's financial statements; however, it
did result in expanded note disclosure (see Note 11).
The CICA has amended Section 1400, "General Standards of Financial
Statement Presentation", which is effective for interim periods
beginning on or after January 1, 2008, to include requirements to
assess and disclose the Company's ability to continue as a going
concern (note 1).
In February 2008, the CICA issued Section 3064, Goodwill and
Intangible Assets, replacing Section 3062, Goodwill and Other
Intangible Assets and Section 3450, Research and Development Costs.
The new Section will be effective on January 1, 2009. Section 3064
establishes standards for the recognition, measurement, presentation
and disclosure of goodwill and intangible assets subsequent to its
initial recognition. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062.
3. Reverse Takeover
On February 6, 2007, Juno Capital Corp. ("Juno") completed its
qualifying transaction (the "Transaction") with North Peace Energy
Inc. to acquire all of the issued and outstanding common shares of
North Peace Energy Inc. in exchange for ten common shares of Juno for
each issued and outstanding common share of North Peace Energy Inc.
All outstanding and unexercised stock options and warrants of North
Peace Energy Inc. were exchanged for equivalent stock options and
warrants of Juno having regard for the foregoing ten for one ratio.
Upon completion of the Transaction, Juno consolidated its common
shares on the basis of one consolidated common share for each five
issued and outstanding common shares, and amalgamated with North
Peace Energy Inc. to form the Company under the name "North Peace
Energy Corp."
The Transaction has been accounted for as a reverse take-over of Juno
by North Peace Energy Inc. For accounting purposes, North Peace
Energy Inc. is the acquirer and the combined entity is considered to
be the continuation of North Peace Energy Inc., except for the
authorized and issued share capital which is that of Juno.
The net assets of Juno were recorded on the balance sheet in the
first quarter of 2007 as follows:
Number
(Cdn $) of Shares Amount
---------------------------------------------------------------------
Assets acquired $ 271,016
Liabilities assumed 123,986
---------------------------------------------------------------------
Net assets acquired $ 147,030
---------------------------------------------------------------------
---------------------------------------------------------------------
Consideration
Common shares (2,525,000 Juno common shares) 505,000 $ 134,422
Stock options at fair value (252,500 Juno
stock options) 50,500 12,608
---------------------------------------------------------------------
Total share capital $ 147,030
---------------------------------------------------------------------
---------------------------------------------------------------------
The fair value of the net assets of the Company deemed to have been
acquired by North Peace Energy Inc. was $147,030, consisting of cash
of $261,845, accounts receivable and prepaid expenses of $9,171 and
accounts payable of $123,986. Transaction costs were $304,418 at the
date of the transaction and they were recognized in the deficit.
4. Cash and cash equivalents
Included in cash and cash equivalents is a redeemable term variable
rate deposit totaling $3,760,056 which currently bears interest at
2.75 % and matures on June 28, 2009. The term deposits are fully
redeemable, without penalty, 30 days after the date of investment and
therefore classified as cash and cash equivalents.
5. Oil and gas properties
June 30, December 31,
(Cdn $) 2008 2007
---------------------------------------------------------------------
Oil and gas interests $ 39,959,843 $ 32,711,756
---------------------------------------------------------------------
$ 39,959,843 $ 32,711,756
---------------------------------------------------------------------
---------------------------------------------------------------------
The Company is advancing a Cyclic Steam Stimulation ("CSS") project
on its land holdings. The initial focus area has
24 contiguous land sections with 10 to 16 metres of oil bearing
thickness, sufficient to advance a 30,000 bbl/d commercial project. A
pilot project consisting initially of two horizontal CSS wells has
been engineered and construction of the pilot facility has commenced.
At June 30, 2008, the Company has no reserves or production.
Accordingly, no provision for depletion expense has been made.
In 2007, the Company completed a property acquisition of the
remaining 30 percent ownership in its land holdings in the Red Earth
area of northern Alberta. Consideration for the acquisition consisted
of $15,000,000 in cash and $4,994,947 in common shares of North Peace
(2,270,430 common shares at a deemed price of $2.20 per share).
Stock-based compensation of $139,871 (2007 - $180,173) was
capitalized during the six months ended June 30, 2008.
No impairment has been recognized on oil and gas interests for the
six months ended June 30, 2008.
6. Asset retirement obligations
The following table represents the reconciliation of the carrying
amount of the obligation associated with the retirement of the
Company's petroleum and gas interests.
June 30, December 31,
(Cdn $) 2008 2007
---------------------------------------------------------------------
Asset retirement obligations,
beginning of period $ 215,820 $ 167,971
Increase in liabilities 156,842 206,509
Accretion 8,561 12,621
Change in estimates (2,933) (171,281)
---------------------------------------------------------------------
Asset retirement obligations,
end of period $ 378,290 $ 215,820
---------------------------------------------------------------------
---------------------------------------------------------------------
The total undiscounted amount of cash flows required to settle the
obligations as measured at June 30, 2008 is estimated to be $711,214
(2007 - 220,860). These obligations will be settled based on the
useful lives of the underlying assets, which ranges from one to ten
years. The credit-adjusted risk free rate at which the estimated cash
flows were discounted was 8% (2007 - 8%) and the estimated inflation
rate used to project future costs was 2% (2007 - 2%).
7. Share Capital
(a) Authorized
Unlimited number of common shares
Unlimited number of first preferred shares issuable in series
Unlimited number of second preferred shares issuable in series
(b) Issued
Number
of Shares Amount
---------------------------------------------------------------------
Balance, December 31, 2006 16,555,400 $ 12,292,052
Juno shares (note 3) 505,000 147,030
Tax effect of flow-through share
renouncement - (915,900)
Warrants exercised (i) 9,196,000 6,897,000
Equity financing (ii) 9,523,810 20,000,001
Property acquisition (iii) 2,270,430 4,994,947
Share issue costs (iv) - (1,377,169)
---------------------------------------------------------------------
Balance December 31, 2007 38,050,640 42,037,961
Tax effect of previously incurred
share issue costs - 364,971
Stock Options exercised 50,500 50,500
---------------------------------------------------------------------
Balance June 30, 2008 38,101,140 $ 42,453,432
---------------------------------------------------------------------
---------------------------------------------------------------------
i. In 2007, 9,196,000 warrants were exercised for common shares at
$0.75 per warrant for gross proceeds of $6,897,000.
ii. The Company issued 9,523,810 subscription receipts for common
shares of the Corporation at an issue price of $2.10 per
subscription receipt for gross proceeds of $20,000,001. The
effective date for the exchange of subscription receipts for
common shares was June 28, 2007.
iii. On June 28, 2007 2,270,430 common shares at a deemed price of
$2.20 per share were issued as partial consideration for a
property acquisition (see note 5).
iv. Share issue costs relate to the costs incurred for the equity
issuance of 9,523,810 subscription receipts and the issuance of
2,270,430 common shares as partial payment for the property
acquisition.
(c) Stock options
Changes in the number of shares issuable under outstanding options
were as follows:
Weighted
Range of Average
Number Exercise Exercise
of options Prices Price
---------------------------------------------------------------------
Balance, December 31, 2006 840,000 $ 1.00 $ 1.00
Juno options (note 3) 50,500 1.00 1.00
Options granted 1,390,000 1.00 - 2.62 1.71
Options exercised - - -
---------------------------------------------------------------------
Balance, December 31, 2007 2,280,500 $1.00 - 2.62 $ 1.43
Options exercised 50,500 1.00 1.00
---------------------------------------------------------------------
June 30, 2008 2,230,000 $1.00 - 2.62 $ 1.44
---------------------------------------------------------------------
---------------------------------------------------------------------
The average fair value of the options granted during 2007 is
$1.03 per option assuming an average volatility of 90% on the
underlying shares, a weighted average exercise price of $1.71, a
risk-free interest rate of 3.89% - 4.58%, an expected life of
5 years, and an expected dividend rate of 0%. The majority of the
options vest 1/3 per year on the first, second and third anniversary
of the date of the grant. Options issued to consultants vest upon
completion of consulting work or at equal amounts at 6 months,
18 months and 30 months after the date of grant.
The Company has recognized stock-based compensation of $456,898
during the six months ended June 30, 2008, of which $139,871 was
capitalized to oil and gas properties.
In 2007, 500,000 options issued to consultants contingent on them
joining as employees were canceled and 250,000 of these contingent
options were retained by the consultants as part of an engagement to
support the Company. In addition 1,140,000 options were issued by the
Company to management, employees, consultants and directors during
2007.
The following table sets forth information about stock options
outstanding as at June 30, 2008.
Options Outstanding Options Exercisable
Weighted Weighted
Range of Average Remaining Average
Exercise Number of Price Contractual Options Price
Price Options Per Share Life (yrs) Exercisable Per Share
---------------------------------------------------------------------
$1.00 1,415,000 $1.00 3.48 505,000 $1.00
$1.55-$2.62 815,000 2.21 3.95 136,667 $2.59
---------------------------------------------------------------------
2,230,000 $1.43 3.69 641,667 $1.34
---------------------------------------------------------------------
---------------------------------------------------------------------
(d) Performance Warrants
Number of Exercise
Warrants Price
---------------------------------------------------------------------
Balance, December 31, 2006 6,300,000 $ 0.50
---------------------------------------------------------------------
Balance, December 31, 2007 and
June 30, 2008 6,300,000 $ 0.50
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable, June 30, 2008 - $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
The performance warrants must be exercised the earlier of: (a)
immediately following a liquidity event whereby the Board of the
Company determines to liquidate all or substantially all of the
assets of the Company, (b) immediately following an offer to purchase
at least 66 2/3% of the outstanding common shares for cash or similar
consideration (other than pursuant to a reverse take-over) that is
received and taken up and paid for by the offeror, or (c)
December 31, 2010, otherwise they expire.
The performance warrants vest immediately if (a) or (b) above occurs,
or after the shares are listed on a recognized stock exchange and all
of the following performance criteria are satisfied; (i) the Company
has a market capitalization of at least $30,000,000; (ii) at least
32,000,000 equity shares are outstanding; and (iii) the Company meets
or exceeds the minimum listing requirements of a Tier 1 Issuer as
defined in the policies of the TSX Venture Exchange (collectively the
"Performance Criteria"). If the Performance Criteria are met, the
warrants vest as follows: 2,700,000 performance warrants upon
achieving a share price of $1.00 per share, 1,800,000 performance
warrants upon achieving a share price of $1.50 per share and
1,800,000 performance warrants upon achieving a share price of
$2.00 per share. Share prices are calculated based on the ten day
weighted average trading price per share of the Company.
As at June 30, 2008 all performance criteria related to the Company
have been satisfied except the minimum listing requirements for a
Tier 1 Issuer on the TSX Venture Exchange.
The fair value of the performance warrants was estimated at
$1,466,550 using the Black-Scholes option pricing model assuming
expected volatility of 90% and an expected life of between one and
three years with corresponding risk-free rates of 4.07% to 4.16%.
The remaining contractual life of the outstanding and exercisable
performance warrants is 2.50 years.
8. Contributed surplus
June 30, December 31,
(Cdn $) 2008 2007
---------------------------------------------------------------------
Balance, beginning of period $ 665,103 $ 33,500
Stock-based compensation
Expensed 300,512 451,430
Capitalized 75,744 120,394
Decrease/Increase in fair value of
non-employee options 59,779
Expensed 16,515
Capitalized 64,127
---------------------------------------------------------------------
Balance, end of period $ 1,122,001 $ 665,103
---------------------------------------------------------------------
---------------------------------------------------------------------
9. Related party transactions
As at June 30, 2008, the Company accrued legal costs of $30,000
(2007 - nil) payable to a firm in which a director is a partner. All
related party transactions are in the normal course of operations,
related party transactions entered into by the Company have been
measured at the exchange amount established and agreed to by the
related parties.
10. Commitments
As at June 30, 2008, the Company was committed under a lease for
office premises, requiring future minimum rental payments of $82,246
per annum plus operating costs, expiring December 31, 2011.
11. Financial instruments
The Board of Directors has overall responsibility for the
establishment and oversight of the Company's risk management
framework. The Company's risk management policies are established to
identify and analyze the risk faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and
adherence to market conditions and the Company's activities.
Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its
contractual obligations. At June 30, 2008, the Company's accounts
receivable relates to interest income and GST refunds.
Cash and cash equivalents consist of cash bank balances and
short-term deposits redeemable in less than 90 days. When applicable,
the Company manages the credit exposure related to short-term
investments by selecting counter parties based on credit ratings and
monitors all investments to ensure a stable return. The carrying
amount of accounts receivable and cash and cash equivalents
represents the maximum credit exposure.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they are due. The Company's approach to
managing liquidity is to ensure, as far as possible, that it will
have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions without incurring unacceptable
losses or risking harm to the Company's reputation.
The Company prepares periodic capital expenditure budgets, which are
regularly monitored and updated as considered necessary. Further, the
Company utilizes authorizations for expenditures on both operated and
non-operated projects to further manage capital expenditures. The
Company does not yet have a revolving reserve based credit facility.
Market risk
Market risk is the risk that changes in foreign exchange rates,
commodity prices, and interest rates will affect the Company's net
earnings or the value of financial instruments. The objective of
market risk management is to manage and control market risk exposures
within acceptable limits, while maximizing returns.
Foreign currency exchange rate risk
Foreign currency exchange rate risk is the risk that the fair value
or future cash flows will fluctuate as a result of changes in foreign
exchange rates. The Company had no forward exchange rate contracts in
place as at or during the six months ended June 30, 2008.
Commodity price risk
Commodity price risk is the risk that the fair value or future cash
flows will fluctuate as a result of changes in commodity prices. From
time to time, the Company may use both financial derivatives and
physical delivery sales contracts to manage market risks. Any such
transactions would be approved by the Board of Directors. The Company
has not entered into any financial or physical delivery sales
contract on future production at June 30, 2008.
Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate
as a result of changes in market interest rates. The Company's
exposure is limited to interest rate fluctuations on its cash in its
bank account which bears a floating rate of interest, historically
between 2.75% and 4.50%. The Company had no interest rate swap or
financial contracts in place as at or during the six months ended
June 30, 2008.
Fair value
The Company's carrying value of cash and cash equivalents, accounts
receivable and accounts payable and accruals approximates its fair
value due to the immediate or short-term maturity of these
instruments.
Capital Management
The Company's objectives when managing capital is to safeguard its
ability to continue as a going concern, so that it can continue to
provide returns to shareholders and benefits for other stakeholders.
The Company manages the capital structure and makes adjustments to it
in light of changes in economic conditions and the risk
characteristics of the underlying assets.
As the Company does not have any externally imposed capital
requirements, for the purposes of this disclosure, the Company has
defined its capital to mean its long-term debt (nil) and
shareholders' equity and working capital, as determined each
reporting date.
There have been no changes to capital management in the six months
ended June 30, 2008.
12. Loss per Share
The following is a reconciliation of basic and diluted loss per
share.
Three months ended Six months ended
June 30, June 30,
---------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------------------------
Net loss (Cdn $) $ (486,924) $ (363,906) $ (886,214) $ (497,230)
Weighted average
number of shares
outstanding 38,067,473 30,187,813 38,059,057 23,934,940
Basic loss per
share $ 0.013 $ 0.012 $ 0.023 $ 0.021
Diluted loss per
share $ 0.013 $ 0.012 $ 0.023 $ 0.021
---------------------------------------------------------------------
---------------------------------------------------------------------
The Company is in a loss position for the period, therefore all
dilutive instruments which include stock options and performance
warrants are anti-dilutive in nature.
13. Subsequent Events
On July 29, 2008 the Company granted 1,540,000 stock options at an
exercise price of $1.50 per share to management, employees,
consultants and directors. 475,000 of the stock options granted to
management will be exercisable only when the Company's previously
announced cyclic steam pilot project demonstrates first oil
production.
On August 7, 2008 the Company completed a private placement equity
offering, issuing a total of 13,333,300 units ("Units"), at a price
of $1.50 per Unit and 3,636,360 flow-through common shares ("Flow-
Through Shares"), at a price of $1.65 per Flow-Through Share for
gross proceeds of approximately $26 million. Each Unit consists of
one common share and half of one common share purchase warrant. Each
full warrant entitles the holder to acquire one common share at an
exercise price of $2.00 per share until February 7, 2010.
ContactsLouis Dufresne
President & CEO James Glessing
Vice President
Finance & CFO
North Peace Energy Corp.
470
505 - 3rd Street SW
Calgary
Alberta
T2P 3E6
Telephone (403) 262-6024
Facsimile: (403) 262-6072
E-mail: info@northpec.com Or Stephanie K Mesher Bryan Mills Iradesso
(403) 503-0144 ext. 216
smesher@bmir.com
www.northpec.com
69.72 (0.62%)
