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REGISTRATION AND REPORTING UNDER
THE SECURITIES EXCHANGE ACT OF 1934
REGISTRATION STATEMENT ON FORM 10
SECURITIES & EXCHANGE COMMISSION
AMENDMENT NUMBER TWO TO FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the year ended December 31, 1997.
INDO-PACIFIC ENERGY LTD.
(Exact name of Registrant as specified in its charter)
BRITISH COLUMBIA, CANADA NOT APPLICABLE
(State or Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200-1090 WEST PENDER STREET
VANCOUVER, BRITISH COLUMBIA
CANADA, V6E 2N7
(Address of Principal Executive Offices) (Zip Code)
(604) 682-6496
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common shares without par value OTC Bulletin Board
The exhibit index commences on page 102 of this Statement.
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ITEM 1. BUSINESS
General
The Registrant is an oil and gas exploration company based in
Vancouver, British Columbia, Canada which has interests in the
Asia-Pacific region in hydrocarbon properties described in Item 3.
The Registrant is to a lesser extent involved in the development
and production of hydrocarbons. The majority of the Registrant's
properties are in the exploration stage. Total production revenue
for the year ended December 31, 1997 was $487,941. The Registrant's
focus is on the acquisition, exploration and development of
properties in the Asia-Pacific region, with the objective of
establishing a solid cash flow base, and participating in high
potential exploration blocks in under-explored countries with
attractive fiscal regimes.
All monetary amounts contained in this Statement are, unless
otherwise indicated, expressed in United States dollars. On
December 31, 1997 the buying rate for Canadian dollars was US$1.00
for CDN$1.4305. Rates of exchange are obtained from the Bank of
Canada and believed by the Registrant to approximate closely the
rates certified for customs purposes by the Federal Reserve Bank in
New York. See Item 2 - Financial Information - Exchange Rates.
General Development of the Business
The Registrant was incorporated on July 31, 1979 under the name
Pryme Energy Resources Ltd. by the registration of memorandum and
articles under the Company Act (British Columbia, Canada). On March
21, 1980 the Registrant became a reporting or distributing company
in British Columbia with the issuance of a receipt for its initial
prospectus offering. The business of the Registrant was not
successful and the Registrant was reorganized. On August 23, 1985
the name was changed to Newjay Resources Ltd. and a consolidation
of its common shares on a 2.5 old for one new basis occurred. The
business of the Registrant was the exploration for hydrocarbons in
Alberta, California and Texas. The business of the Registrant was
not successful and the Registrant was again reorganized. The
Registrant applied to be, and was deemed, inactive by the Vancouver
Stock Exchange on February 26, 1993 and subsequently completed a
reorganization satisfactory to the Vancouver Stock Exchange and was
removed from inactive status on April 25, 1994. On August 25, 1993
the name of the Registrant was changed to Consolidated Newjay
Resources Ltd. and a consolidation of its common shares on a 3.5
old for one new basis occurred. The Registrant did not commence any
business after these events until 1996.
In April, 1995 control of the Registrant was acquired by Mr. Alex
Guidi, who is currently a member of the board of directors,
chairman and the promoter of the Registrant, and the current
business of the Registrant began to be organized. See Item 7-
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Certain Relationships and Related Transactions. On May 9, 1995 the
name of the Registrant was changed to its current name. A
subdivision of its common shares on a 1.5 new for one old basis
occurred on April 15, 1996 and a further subdivision of its common
shares on a two new for one old basis on May 31, 1996 occurred. The
Registrant began to acquire its current hydrocarbon assets in 1996.
See Item 3-Properties.
The common shares of the Registrant commenced trading in January,
1996 on the OTC Bulletin Board and trades under the symbol "INDX".
Trading in the common shares of the Registrant was halted by the
Vancouver Stock Exchange on September 12, 1996 and the Registrant
was voluntarily delisted from the Vancouver Stock Exchange on
September 13, 1996.
On September 25, 1997 the Registrant was continued from being a
corporation subsisting under the Company Act (British Columbia) to
a corporation subsisting under the Business Corporations Act
(Yukon). The Registrant maintains its head office in Vancouver,
British Columbia and an exploration office in Wellington, New
Zealand.
In 1996 and 1997, the Registrant acquired interests in petroleum
exploration licenses in New Zealand, Australia and Papua New
Guinea. The Registrant also acquired the outstanding shares of
Minora Energy (New Zealand ) Ltd. and entered into a joint study
agreement with China National Oil and Gas Exploration and
Development Corporation for the study of the Nanling and Wuwei
basins, Anhui province, China. The exploration of certain of the
petroleum interests commenced in 1996. The Registrant continued to
acquire and explore petroleum interests.
The Registrant's operations are conducted through its wholly-owned
subsidiaries, as described below:
Indo-Pacific Energy Ltd.
100%
Source Rock Holdings Limited -100% Indo Overseas
Exploration Ltd. (B.C.)
100%
Indo-Pacific Energy (NZ) Limited -100% Indo-Pacific
Energy (PNG) Pty. Ltd.
100% -100% Indo-Pacific Energy
Pty. Ltd. (Aust.)
Ngatoro Energy PEP 38716 Ltd.
Limited (N.Z.)
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Unless the context indicates otherwise, the "Registrant" will refer
to Indo-Pacific Energy Ltd. and its subsidiaries.
The Registrant has financed the revival and conduct of its business
by the issuance of common shares and other securities by way of
private placement.
Discussion of Development of Business
Development of Business
The following is a discussion of the development of the business of
the Registrant between January 1, 1996 and December 31, 1997. For
a discussion of intended operations to December 31, 1998 see Item
1-Business-Plan of Operations below.
The acquisition, exploration and development of hydrocarbon
permits and licenses by the Registrant is carried on, in a number
of cases, with associated companies that have common or connected
management, the same principal shareholders and, except for Durum
Energy Corp., a common promoter. The associated companies are
Trans-Orient Petroleum Ltd. (OTCBB: TEPUF, New Zealand Unlisted
Board: TOP), Durum Energy Corp. (VSE: DUE) and AMG Oil Ltd
(OTCBB: AMGO). The companies are called the IREMCO Group after
International Resource Management Corp., a private company owned
by Mr. Alex Guidi. See Item 1. Business-Risk Factors- Dealings
with Associated Companies, Item 5. Directors and Executive
Officers and Item 7. Certain Relationships and Related
Transactions.
Except for PMP 38148, New Zealand, the properties of the
Registrant are in the exploration stage. The assessment of the
potential of the properties of the Registrant to contain
petroleum reserves involves, among other things, a consideration
of discoveries made by third parties on properties adjacent to,
or, depending on circumstances, in the area of, the properties of
the Registrant. Geological conditions are, however,
unpredictable. The discovery of reserves on properties adjacent
to, or in the area of, properties of the Registrant is no
assurance that commercially recoverable reserves of oil and gas
will be discovered on the Registrant's properties. See Item 1.
Business-Risk Factors.
Oil discovered in New Zealand may be sold locally to any of Shell
(NZ), Todd Petroleum, Fletcher Challenge and others. The sale of
gas discovered in New Zealand requires the negotiation of
contracts and the installation of compression and transport
facilities. A gas pipeline crosses from the Taranaki Basin to
Napier crosses PEP 38328. Oil discovered in offshore Australia
may be sold internationally. The sale of gas discovered in
offshore Australia will depend, among other things, on the ease
of laying a pipeline to markets on land or having sufficient
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quantities to justify liquifaction. The sale of gas or oil in
Papua New Guinea will require the installation of connection with
transport facilities lying some 100 miles to the east. Gas or oil
discovered in China will be sold locally.
1. New Zealand, East Coast Basin, North Island
(a) Petroleum Prospecting License PPL 38312 (10.5%)
PPL 38312 was granted on August 26, 1996 to Asia Pacific Oil Co.
Ltd. In August, 1997 the Registrant earned a participating
interest of 10.5% in the license by funding 10.5% of the costs of
drilling the Waitaria-1 well. The other participants were Asia
Pacific Oil Co. Ltd. (64.5%%), Arthur Oil Ltd. (2.5%), Everest
Oil Co. Ltd. (12.5%) and Trans-Orient Petroleum Ltd. (10.0%).
Asia Pacific Oil Co. Ltd. was the operator. The permit area is
about 100,000 acres. The permit expired in November, 1997. The
Registrant and an associated company, Trans-Orient Petroleum
Ltd., have applied for a new permit covering the area. Any
production permits granted will be for a term of up to 40 years
from the date of issue. The Crown in right of New Zealand
reserves a royalty of the greater of five per cent of net sales
revenue from the sale of petroleum products or 20% of accounting
profits.
The conditions of the permit required the participants by
October, 1997 to re-enter and complete the drilling of Waitaria-1
well to 1600 meters unless geological or engineering constraints
make this unreasonable and before November 15, 1997 to assess the
well and if appropriate apply for an extension of the duration of
the license in order to undertake a further work program.
In the third quarter of 1997, the participants drilled the
Waitaria-1 well which encountered gas bearing formations, but was
abandoned due to engineering problems encountered while drilling
before the target Tunani sandstones were reached.
On expiration of the permit, the Registrant and associated
company Trans-Orient Petroleum applied for a new permit to cover
the area. The permit has not been awarded yet.
(b) Petroleum Exploration Permit PEP 38328 (40.0%)
PEP 38328 was granted on July 1, 1996. The Registrant assigned a
10% working interest to Trans-Orient Petroleum Ltd. in
consideration that Trans-Orient pay for 20% of the dry hole costs
of drilling the Kereru-1 well. By an agreement dated November 1,
1996 and subsequent arrangements, Boral Energy Resources Limited
acquired a 30% participating interest in PEP 38328 from the
Registrant and another party by funding a disproportionate share
of costs associated with the drilling of the Kereru-1 well, up to
and including the plugging and abandonment of the well. By an
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agreement dated September 15, 1997 Trans-Orient acquired a
further 10% interest from the Registrant by agreeing to pay for
costs incurred after drilling the Kererru-1 well. The Registrant
paid the costs of Trans-Orient in consideration that Trans-Orient
issue to the Registrant 233,510 common shares at $1.00 per share.
After the withdrawal of two participants, the participants in the
license are the Registrant (40.0%), Trans-Orient Petroleum Ltd.
(22.5%) and Boral Energy Resources Limited (37.5%). The
Registrant is the operator. The permit area is 785,000 acres
(1,226 square miles). The permit is for five years, renewable for
a further five years over 50% of the license area. Any production
permits granted will be for a term of up to 40 years from the
date of issue. The Crown in right of New Zealand reserved a
royalty of the greater of five per cent of net sales revenue from
the sale of petroleum products or 20% of accounting profits.
The conditions of the permit require that before July 1, 1997 the
participants reprocess existing seismic data over the Kereru
Prospect, collect, process and interpret at least eight km of new
seismic data and drill one exploration well to a minimum depth of
1,500 meters to test the Pliocene section of the Kereru Prospect.
Before July 1, 1998 the participants are required to collect and
process 240 km of new seismic data and reprocess 300 km of
existing seismic data. By July 1, 1999 the participants are
required to conduct geologic field studies and complete a permit
review report. By July 1, 2000 the participants are required to
collect such other data as is necessary to make a drilling
decision and, subject to their commitment to do so, by July 1,
2001 to drill an exploration well to a depth of at least 1,500
meters.
In the fourth quarter of 1996, after completion of the necessary
seismic work, the Kereru-l exploration well was drilled to a
depth of 1,938 meters (6,391 feet). Several thin and separated
potential pay reservoir sandstones were encountered, but the
Registrant and the other participants decided that the results
did not justify the expense of flow testing the well. The well
was plugged. In the first half of 1997, a 120 mile seismic survey
costing approximately $700,000 was completed. Data was exchanged
with adjacent permit holders which identified a number of new
prospects and leads. These include a large thrust fault anticline
in the northern part of the permit area (the Pentane Lead),
anticlinal structures in the coastal area south of Napier (the
Awanga and Haumoana Leads) and several structures on the southern
boundary with PEP 38332 (the Rosearl Leads).
PEP 38329 is owned by third parties and lies between PEP 38328
and PEP 38330. In the first quarter of 1998, the third parties
that hold PEP 38329 drilled the Kauhauroa-1 well which was
reported as flowing sulfur-free gas at a sustained rate of 11.5
million cubic foot per day, with a pressure of 2100 psi, from
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Miocene sandstones situated near 4,000 foot depth over a 60 hour
test period. Although the Registrant holds no interest in this
discovery, it is important in several respects. The Kauhauroa-1
is the first potentially commercial discovery in the huge, but
very lightly explored East Coast Basin. With the discovery, the
Basin changes from non-producing to hydrocarbon productive
status. Many of the structures which the Registrant is exploring
are geologically similar to that of the Kauhauroa-1 discovery.
After the announcement of the discovery of the Kauhauroa-1 well,
the Registrant and other participants commenced a 100 mile
seismic program on PEP 38328 and on PEP 38332 to define the
existing leads better and to identify targets for drilling later
in 1998.
(c) Petroleum Exploration Permit PEP 38330 (34%)
PEP 38330 was granted on July 1, 1996. The other participants are
Mosaic Oil NL (33%) and Moondance Energy Property Ltd. (33%). The
Registrant is the operator. The permit area is 1,077,000 acres
(1,683 square miles). The permit term is for five years,
renewable for a further five years over 50% of the permit area.
Any production permits granted will be for a term of up to 40
years from the date of issue. The Crown in right of New Zealand
has reserved a royalty of the greater of five per cent of net
sales revenue from the sale of petroleum products or 20% of
accounting profits.
The conditions of the permit require the participants by July 1,
1997 to review all existing data, undertake field sampling,
reprocess a minimum of 80 km of existing seismic data and
undertake certain test for seismic planning purposes. By July 1,
1998 the participants are required to collect, process and
interpret a minimum of 12 km of seismic data and undertake a
structural review of the permit area. By July 1, 1999 the
participants are required either to collect, process and
interpret a minimum of 60 km of seismic data, and either commit
to drill an exploration well before July 1, 2001 or to collect,
process and interpret a further 25 km of seismic data before July
1, 2001. Subject to their commitment to do so, the participants
are required to drill an exploration well before July 1, 2001 and
submit a further program of exploration for approval.
At December 31, 1997 a 25 km regional seismic line had been
completed over the main structural features in the license area,
including the Matanui and Pauariki anticlines, both of which may
be drilling targets. Also, the Waingoromia-1 well, which produced
in the 1880's, was relocated and found to be leaking
hydrocarbons. In June, 1998 the Registrant and other participants
plan to collect 30 miles of seismic data which will detail
several other structures, including the Arataha Dome, which was
originally mapped by Mobil Oil in the early part of the century.
Drilling is planned for late 1998.
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In June, 1998 the Registrant completed a seismic program to
identify further drilling prospects.
(d) Petroleum Exploration Permit PEP 38332 (42.5%)
PPL 38332 was granted on August 25, 1997. The other participants
are Boral Energy Resources Limited. (37.5%) and Trans-Orient
Petroleum Ltd. (20%). The Registrant is the operator. The permit
area is situated immediately south of PEP 38328 and is 1,012,000
acres (1,581 square miles) in area. The permit term is for five
years, renewable for a further five years over 50% of the license
area. Any production permits granted will be for a term of up to
40 years from the date of issue. The Crown in right of New
Zealand has reserved a royalty of the greater of five per cent of
net sales revenue from the sale of petroleum products or 20% of
accounting profits.
By December 24, 1998 the participants are required to reprocess
100 km of existing seismic data, collect 25 km of new seismic
data, undertake photogeologic and field geological mapping,
complete an evaluation of the exploration potential of the permit
area and make a further work commitment or relinquish the permit.
By December 24, 1999, the participants are required to collect 50
km of seismic data, complete an evaluation of the exploration
potential of the permit area and make a further work commitment
or relinquish the permit. By June 24, 2000, the participants are
required to drill one exploration well and submit a further
program of work for approval.
At December 31, 1997 a regional seismic program had been
completed over the northern part of the permit area. The comment
relating to PEP 38329 made under the heading "Petroleum
Exploration Permit PEP 38328" applies to this permit. After the
announcement of the discovery of the Kauhauroa-1 well, the
Registrant and other participants commenced a 100 mile seismic
program on PEP 38328 and on PEP 38332 to define the existing
leads better and to identify targets for drilling later in 1998.
In June, 1998 the Registrant completed a seismic program to
identify further drilling prospects.
2. New Zealand, Onshore Canterbury Basin, South Island
Petroleum Exploration Permit 38256 (50%)
PEP 38256 was granted on August 25, 1997 to the Registrant and to
Trans-Orient Petroleum Ltd. The Registrant and Trans-Orient
Petroleum Ltd. agreed to assign an interest of 20% to AMG Oil
Ltd. (formerly, Trans New Zealand Oil Company) and an interest of
10% to Gondwana Energy Ltd. This transaction was cancelled
January 31, 1998. The Registrant is the operator. The permit area
is situated in the area surrounding Christchurch, South Island
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and is 2,760,120 acres (4,312.69 square miles) in area. The
permit term is for five years, but at the end of the third year
of the permit the participants must relinquish at least 50% of
the permit area. Any production permits granted will be for a
term of up to 40 years from the date of issue. The Crown in right
of New Zealand has reserved a royalty of the greater of five per
cent of net sales revenue from the sale of petroleum products or
20% of accounting profits.
By November 25, 1998 the participants are required to locate and
analyze petroleum seeps within the permit area, model existing
gravity data and acquire new gravity data, collect and interpret
a minimum of ten magnetotelluric stations, process existing
seismic data and complete surface geological work. If the permit
is not surrendered, the participants are required by August 25,
1999 to collect, process and interpret 80 kilometres of new
seismic data. If the permit is not surrendered, by February 25,
2000 the participants are required to acquire, process and
interpret 120 kilometres of new seismic data. If the permit is
not surrendered, the participants are required by August 25, 2000
to drill an exploration well to the lesser of 1200 meters or the
economic basement.
At December 31, 1997 the participants were planning the first
phase of required work in order to determine the geologic
structure of the sedimentary basin. If the interpretation of the
geologic structure indicates the possible existence of
hydrocarbons, the participants will conduct further seismic
surveys in order to determine the location of possible drill
targets. Seismic work is expected to start in late June, 1998.
In June 1998 the Registrant and associated company Trans-Orient
Petroleum ("TOP") granted two options to associated company AMG
Oil Ltd. (formerly, Trans New Zealand Oil Company) ("AMG"). The
first option is for AMG to acquire a 30% participating interest
on paying for past costs and a 200 km seismic program designed to
identify two drilling prospects. The second option is for AMG to
acquire a further 50% participating interest on paying for any
additional seismic required and paying for the cost of drilling
two wells. AMG agreed to issue 1,000,000 shares to a subsidiary
of the Registrant for US$0.25 per share and 500,000 shares to a
subsidiary of TOP at the same price, to give 12,500,000 shares
outstanding. An option to acquire 1,000,000 shares for US$0.50
per share before July 31, 2000 has been granted to each of the
Registrant and TOP.
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3. New Zealand, Onshore Taranaki Basin, North Island
(a) Petroleum Mining Permit PMP 38148 (5.0%)
Effective September 1, 1996 the Registrant bought the outstanding
shares of Minora Energy (New Zealand) Limited for AUS$575,000
(CDN$478,755, US$348,790). The name of the company was changed to
Ngatoro Energy Limited. Ngatoro Energy Limited owns a five per
cent participating interest and revenue interest in petroleum
mining permit 38148, which has four producing oil wells and two
shut-in gas wells. The permit area is 9,400 acres. The permit
expires on December 23, 2010. Production is from turbidite
sandstones of the Mount Messenger Formation at depths of 1,500
meters to 2,000 meters. The other participants are New Zealand
Oil & Gas Ltd. (35.43%) and Fletcher Challenge Energy Taranaki
Ltd. (59.57%). New Zealand Oil & Gas Ltd. is the operator. The
Crown in right of New Zealand has reserved a royalty of the
greater of five per cent of net sales revenue from the sale of
petroleum products or 20% of accounting profits.
In the year ended December 31, 1997, the Registrant received
revenues of $487,941 and in the first quarter of 1998 revenues of
$68,499. Production from the four oil wells remained steady at
between 1,400 and 1,500 barrels per day. A flow test was done on
one of the shut-in gas wells flowed gas at sustained rates in
excess of four million cubic feet per day, establishing a new gas
field in the permit area.
Oil and gas production and sales revenue from September 1996 to
September 30, 1998 is:
Oil Oil Gas Gas
Year Sales (bbl) Revenue (US$) Sales ( 000 scf) Revenue (US$)
1996 (1) 8,206 $163,388 - (3) $ -
1997 26,556 $487,941 - (3) $ -
1998 (2) 15,265 $177,379 10,934 $ 3,746
Notes:
1. For the months September to December, inclusive.
2. For the first three quarters.
3. To August 1998, gas was flared.
The Registrant entered into an oil sales contract dated November 9,
1997 with Fletcher Challenge Energy Taranaki Limited and a gas
sales contract dated February 18, 1998 with Fletcher Challenge
Energy Limited. Under the oil sales contract, the Registrant has
agreed to sell between 1,100 and 1,750 barrels of oil a day from
the Ngatoro field at the monthly average of the mean of the Asian
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Petroleum Price Index published in Hong Kong. The agreement has
been confirmed but may be terminated on 30 days' notice on the
occurrence of certain events. Gas sales began in the third quarter
of 1998. The gas sales contract provides for the sale by the
Registrant and other participants from the Ngatoro-1 and -3 wells
of up to ten pentajoules of gas for NZ$0.50 per gigajoule for the
first four pentajoules and for NZ$1.05 per gigajoule thereafter.
Reasonable efforts are to be made to deliver up to one pentajoule
a year. Fletcher Challenge has the option to purchase any gas
production from other Ngatoro wells, but gas from the Ngatoro-9 and
- -11 wells is currently flared.
A workover of the Ngatoro-2 oil well was suspended in May, 1998
with the intention of carrying out a complete rehabilitation of the
well after drilling of the Ngatoro-9 development well. In the
third quarter of 1998, the Ngatoro-9 and -11 oil wells were
completed and a workover of the Ngatoro-2 oil well, shut in since
December 1997, was completed and the well recommenced production.
The operator has informed the Registrant that Ngatoro field oil
production is expected to increase from the current level of about
1,000 barrels a day to 1,700 barrels a day due to production from
these wells.
Drilling two wells early in 1999 to test separate oil prospects,
G0880 and BS780, is under consideration. A water injection well is
planned to increase recovery from the Ngatoro-1 oil well pool.
(b) Petroleum Prospecting License PPL 38706 (7.75%)
PPL 38706 is in the last year of its ten year term and will expire
on July 31, 1998. A retention license covering about 5,800 acres
of PPL 38706 area was granted in August 1998. The retention
license expires July 31, 2001 and requires the participants to
drill a well before that date. Should a discovery be made, the
participants may apply for a petroleum mining permit over the
extent of the discovery for a term of up to 40 years. The license
is operated by Fletcher Challenge Energy Taranaki Ltd. which holds
a 46.125% working interest in the license. The remaining 46.125%
working interest is held by Southern Petroleum (Ohanga) Ltd. The
Minister of Energy (New Zealand) has reserved an 11% carried
interest. The Crown in right of New Zealand has reserved a royalty
of the greater of five per cent of net sales revenue from the sale
of petroleum products or 20% of accounting profits.
Fletcher Challenge operates the adjoining permit PML 38138. The
Registrant doe snot have a participating interest in PML 38138. In
May 1998, the Tariki-2C well was drilled on PML 38138 about 200
meters from the border with PPL 38706. The Registrant made a
contribution to the cost of the well entitling it to data from the
well and a refund of the contribution if the well were successful.
The Tariki-2C well was a commercial success. The oil reserves
discovered in the Tikorangi Limestone Formation by the Tariki-2C
well are expected to extend into PPL 39706.
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The location and trajectory of a well on PPL 38706 is being
determined and is scheduled to be drilled early in 1999.
(c) Petroleum Exploration Permit PEP 38716 (19.8%)
A participating interest of 38.4% in PEP 38716 was acquired by the
Registrant on January 30, 1996. On application, the effective date
was changed to April 10, 1996. A participating interest of six per
cent was assigned to Durum Energy Corp. By agreement effective July
1, 1997 with Australian Worldwide Exploration NL, the participants
assigned a 25% participating interest to Australian Worldwide in
consideration that Australian Worldwide pay the first NZ$2,000,000
of the costs of drilling an exploration well to earn a 25%
interest. After giving effect to this assignment, the other
participants are Durum Energy Corp. (4.0%), Marabella Enterprises
Ltd. (39.6%), Euro-Pacific Energy Pty. Ltd. (6.6%) and Australian
Worldwide Exploration NL (25.0%). Marabella Enterprises Limited, a
subsidiary of Bligh Oil & Minerals NL, is the operator.
By an agreement dated November 6, 1997, Marabella Enterprises Ltd.
agreed to sell a 15% participating interest to Antrim Energy Ltd.
for US$225,000. The Registrant agreed to participate in one-third
of this. After giving effect to this assignment, the participants
are the Registrant (19.8%), Durum Energy Corp. (4.0%), Marabella
Enterprises Ltd. (29.6%), Euro-Pacific Energy Pty. Ltd. (6.6%),
Australian Worldwide Exploration NL (25.0%) and Antrim Energy Ltd.
(15%).
The permit is about 67,000 acres (104 square miles) in area. The
permit term is for five years, renewable for a further five years
over 50% of the license area. Any production permits granted will
be for a term of up to 40 years from the date of issue. The Crown
in right of New Zealand has reserved a royalty of the greater of
five per cent of net sales revenue from the sale of petroleum
products or 20% of accounting profits.
The conditions of the permit require the participants within 18
months of the commencement date to reinterpret 250 km of existing
seismic data, acquire, process and interpret 30 km of new seismic
data, collect gravity data and commit to a second phase of work.
The second phase of work requires the participants to drill an
exploration well to a depth of 2,500 meters or another approved
depth before August 1, 1998. In the second quarter of 1996, a
program of aeromagnetic survey and reprocessing of existing seismic
data was undertaken. In the first quarter of 1997 a total of 60 km
of new seismic data was acquired to assist in defining a drill
location on the Crown Prospect in the northern part of the permit
area. The program confirmed the presence of the Crown Prospect at
the Tikorangi Limestones and deeper levels and also detailed the
shallower Oru Prospect.
<PAGE> 13
The Huinga-1 well is scheduled to be drilled in September, 1998 to
test to 13,000 feet the Crown Prospect, a thrust structure similar
to the adjacent Waihapa/Ngaere oil field, where individual wells
have flowed in excess of 10,000 barrels of oil per day from
fractured Tikorangi limestones. The Huinga-1 well will test
Tikorangi Formation fractured limestones, Tariki Formation
sandstones and Kapuni Formation sandstones within the Crown
structure, as well as intersecting Mt. Messenger sandstones at
shallower depth.
On the adjacent property, the Waihapa-8 well touched the edge of
the Oru Prospect and flowed at 750 barrels of oil a day from Mt.
Messenger sandstones. The Oru Prospect has the potential to be a
larger discovery than the Ngatoro Field, and may be drilled in the
near future.
In June, 1998 the Tariki-2C well was drilled on a prospect which
extends into the permit. Over 150 feet of oil-bearing sandstones
were intersected and the well flowed production of 550 barrels oil
and 600 mcf gas through a 1/4 inch choke.
(d) Petroleum Exploration Permit PEP 38720 (50.0%)
A participating interest of 50.0% in PEP 38720 was acquired by the
Registrant on September 2, 1996. The other participant is Trans-
Orient Petroleum Ltd. The Registrant is the operator.
The permit is approximately 6,322 acres (9.8 square miles) in area
and the term of the permit is five years, renewable for a further
five years over 50% of the permit area. Any production permits
granted will be for a term of up to 40 years from the date of
issue. The Crown in right of New Zealand reserved a royalty of the
greater of five per cent of net sales revenue from the sale of
petroleum products or 20% of accounting profits.
Before September 2, 1997 the participants are obligated to
reprocess a minimum of 100 miles of existing seismic data,
undertake modeling of the seismic data to investigate reservoir
distribution, undertake a reservoir engineering review of flow-
tested off-set wells to investigate likely productivity potential
within the permit area and either commit to drill one exploration
well before September 2, 1998 or commit to collect, process and
interpret a minimum of 15 km of new seismic data before March 31,
1999. If an exploration well is drilled, a program for further
exploration must then be submitted for approval. If further seismic
work is done, the participants must commit by March 31, 1999 to
drill an exploration well before September 2, 1999 or relinquish
the permit.
In the first half of 1997, the participants completed 38 km of
seismic survey. At December 31, 1997 the data had been processed
and confirmed the Waitoriki Prospect as a sizable gas-condensate
<PAGE> 14
drilling target within the Kapuni formation at depths below 3,500
meters. Sandstones of the Mount Messenger Formation are also oil
discovery objectives at depths between 1,500 and 2,000 meters. The
participants are planning to drill an exploration well at an
estimated cost of $1,200,000 in late 1998 to early 1999. The
Registrant's portion of budgeted costs is $600,000.
(e) Petroleum Exploration Permit PEP 38723 (40%)
PEP 38723 was granted on October 30, 1997. The other participants
are Trans-Orient Petroleum Ltd. (40.0%) and Gondwana Energy Ltd.
(20.0%). The Registrant is the operator. The permit area is 19,783
acres (30.9 square miles) in area. The permit term is for five
years, renewable for a further five years over 50% of the license
area. Any production permits granted will be for a term of up to 40
years from the date of issue. The Crown in right of New Zealand has
reserved a royalty of the greater of five per cent of net sales
revenue from the sale of petroleum products or 20% of accounting
profits.
By January 31, 1999, the participants must reprocess a minimum of
50 km of seismic data, re-evaluate prospects and leads, review
relevant existing wells to identify a potential Mount Messenger
sand play and develop a sand distribution model in conjunction with
the seismic interpretation, identify and high grade leads for
further seismic acquisition and either make a firm commitment to
continue the work program or surrender the permit. By April 30,
2000 the participants must collect a minimum of six square km of 3D
seismic data, or 2D swathe coverage of equivalent detail, interpret
the new data and identify and consider drilling targets. If the
participants continue, by October 30, 2000 they must drill an
exploration well to a minimum depth of 1600 meters unless
geological or engineering constraints encountered while drilling
make this unreasonable and either submit a satisfactory work
program for the remainder of the permit term or surrender the
permit.
In 1996 and 1997, previous holders of PEP 38723 reprocessed seismic
data and the Registrant is involved in a seismic reprocessing
program in the area. Completion of this work is required to be able
to identify prospects. Before January 31, 1999 the participants
intend to carry out the first phase of the required work at an
estimated cost of $75,000 and, if results warrant, proceed to the
second stage of the work program at an estimated cost of $420,000.
PAPUA NEW GUINEA
Petroleum Prospecting License PPL 192 (40.0%)
A participating interest of 80% in PPL 192 was acquired by the
Registrant in January, 1997. The Registrant assigned a 20%
participating interest to each of Trans-Orient Petroleum Ltd. and
<PAGE> 15
Durum Energy Corp. The remaining participant is Mosaic Oil Niugini
Pty. Ltd. (20%). The Registrant is the operator.
PPL 192 grants the exclusive right to explore for petroleum for an
initial six year term commencing January 28, 1997, extendable for
a further five year term over 50% of the original area, and the
exclusive right to enter into a production agreement upon a
discovery. A production agreement provides the right to produce any
oil and gas discovered for a period of up to 30 years from
discovery, subject to a maximum 22.5% participating interest that
can be acquired by the Government of Papua New Guinea and a two per
cent participating interest that can be acquired by local
landowners.
PPL 192 comprises some 1,200,000 acres (1,875 square miles) located
in the foreland of the Papuan Basin, immediately south of the
Highlands fold belt. Previous seismic work by Shell US (Pecten)
identified a number of exploration targets and drilled the Langia-1
gas discovery well. However, the license has in general been only
lightly explored. The main areas of interest are the Kamu Prospect,
the Mamboi Prospect and the area surrounding the Langia gas
discovery. The license requires the participants to reprocess
seismic and other data in the first year of the license at a cost
of $100,000 and in the second year of the license to spend $100,000
on an area review and an analysis of gas development in a "Kamu"
type gas discovery. If work proceeds in the license area, 50 km of
seismic work are required in the third year of the license and
drilling of an exploration well is required in the fourth year of
the license.
The participants intend to carry out a program of geological work,
license administration and seismic data collection and, if results
warrant, proceed to the second stage of the work program at an
estimated cost of $420,000. The Registrant's portion of budgeted
costs of $198,000.
The Registrant has applied for other interests in Papua New Guinea.
AUSTRALIA
(a) Offshore Petroleum Exploration Permit Ashmore Cartier AC/P19,
Timor Sea (65.0% to earn 61.75%)
A participating interest of 65.0% was acquired by the Registrant in
AC/P19 in May, 1997. The other participant is Mosaic Oil NL
(35.0%). The Registrant is the operator.
The permit comprises some 364,500 acres (570 square miles) and
encompasses the Cartier Trough and parts of the Ashmore Platform.
The permit has a term of six years. In the first three years of the
permit, the participants are required to carry out a program of
seismic reprocessing and acquisition, including the collection of
<PAGE> 16
400 km of seismic data, with an estimated cost of $675,000. At
December 31, 1997, the Registrant was planning the initial
exploration program. The Omnia survey, a large 3D seismic survey,
is in progress in the area and will extend over much of this permit
in late 1998.
By an agreement dated August 12, 1997 the participants granted a
five percent carried interest to Lonman Pty. Ltd. The Registrant is
initially carrying 3.25%. If the participants farmout an interest
to drill the first well on the permit, the carried interest will
become five percent of the percentage interest that is farmed out.
The carried interest may be converted to a participating interest
before the commencement of commercial production. The carried
interest may be assigned after being first offered to the
participants.
(b) Offshore Gippsland Basin, Bass Strait Permit VIC/P-39 (33.33%
to earn 31.67%)
A participating interest of 33.33% was acquired by the Registrant
in VIC/P-39 in June, 1997. The other participants are Mosaic Oil NL
(33.33%) and Moondance Energy Pty. Ltd (33.33%). Mosaic Oil NL is
the operator.
The permit comprises some 541,250 acres (845 square miles). The
permit has a term of six years. The permit provides for certain
minimum work requirements. In the first year, the participants must
reprocess certain seismic data. In the second year, a 500 km
seismic survey must be completed. In the third year, an exploration
well must be drilled. The work requirements for the balance of the
permit are not mandatory. The estimated cost for the first three
years is $5,600,000. Further seismic interpretation, seismic data
collection and drilling is prescribed.
The participants are applying new computer processing techniques to
the existing data to identify and map prospects. Subject to the
success of this work, farm-in participants will be sought to fund
an exploration well to be drilled in 1999.
By an agreement dated August 12, 1997 the participants granted a
five percent carried interest to Lonman Pty. Ltd. The Registrant is
initially carrying 1 2/3%. If the participants farmout an interest
to drill the first well on the permit, the carried interest will
become five percent of the percentage interest that is farmed out.
The carried interest may be converted to a participating interest
before the commencement of commercial production. The carried
interest may be assigned after being first offered to the
participants.
<PAGE> 17
(c) Offshore Exploration Permit WA-199-P, Western Australia (5.0%)
Pursuant to an agreement dated September 15, 1997 with Boral Energy
Resources Limited, a participating interest of five percent is to
be acquired by the Registrant in WA-199-P in consideration that the
Registrant pay the lesser of 10% of the dry hole costs of drilling
the Kittiwake-1 well or $636,000. The other participants are Boral
Energy Resources Limited (24.869%), which is the operator, Petroz
NL (11.392%), TAP Oil NL (10.0%), Asisun Pty. Ltd. (10.027%) and
Santos (BOL) Pty Ltd. (38.712%)
The permit requires the participants to complete geological and
geophysical studies with an estimated cost of $75,000 by December
31, 1997 and to drill two exploration wells by December 31, 1998
with an estimated cost of $9,500,000. The Kittiwake-1 well was
drilled in April and May, 1998. The Plover Sands, which were the
main target of the well, were encountered at a depth near 8,800
feet, and were present down to the 9,400 foot level. Electric log
evaluation showed there are no significant hydrocarbons in the
reservoir. Accordingly, the decision was taken to plug and abandon
the Kittiwake-1 well. In June, 1998 the participants decided to
apply for a six month deferral on drilling a second well on the
Avocet Deep and to seek a farm-in participant.
CHINA
China-Joint Study Agreement of March 18, 1996 (50%)
A Joint Technical Study Agreement of March 18, 1996 between China
National Oil and Gas Exploration and Development Corporation and
the Registrant and Moondance Energy Limited provides for the
preparation of a comprehensive study report of the Nanling and
Wuwei Basins, Anhui Province, China. The area involved is about
2,500,000 acres (3,906 square miles). Operatorship is vested in the
person of the chief executive officer of the Registrant. The
Registrant and Moondance Energy Limited are required to bear all
costs. The participants are negotiating with China National Oil and
Gas Exploration and Development Corporation with a view to entering
into the next phase or work, which may take the form of a
Geophysical Study Agreement, a Drilling Participation Agreement or
a Production Sharing Contract.
Conceptual planning and costing of exploration wells on the
Hongzhuang Prospect in the Nanling Basin and on the Longtangwon
Prospect in the Wuwei Basin and an assessment of the cost of
additional seismic work have been completed and the negotiation of
the next phase of work with China National Oil and Gas Exploration
and Development Corporation is underway.
<PAGE> 18
Plan of Operations
The plan of operations for fiscal 1998 is as follows:
1. New Zealand, East Coast Basin, North Island
(a) Petroleum Exploration Permit PEP 38312
The permit lapsed in November, 1997. The Registrant and an
associated company, Trans-Orient Petroleum Ltd., have applied for
a new license over the area.
(b) Petroleum Exploration Permit PEP 38328 (40.0%)
The Registrant intends to collect, process and interpret 45 miles
of new seismic data at an estimated cost of $300,000. The
Registrant's portion of the budgeted cost is $120,000.
(c) Petroleum Exploration Permit PEP 38330 (34%)
The Registrant intends to collect, process and interpret 30 miles
of new seismic data at an estimated cost of $200,000. The
Registrant's portion of the budgeted cost is $68,000.
(d) Petroleum Prospecting License PPL 38332 (42.5%)
The Registrant intends to collect, process and interpret 55 miles
of new seismic data at an estimated cost of $300,000. The
Registrant's portion of the budgeted cost is $127,500.
2. New Zealand, Onshore Canterbury Basin, South Island
Petroleum Exploration Permit 38256 (50%)
To November, 1998 the Registrant intends to locate and analyze
petroleum seeps within the permit area, model existing gravity data
and acquire new gravity data, collect and interpret a minimum of
ten magnetotelluric stations, process existing seismic data and
complete surface geological work at an estimated cost of $100,000.
The Registrant's portion of the budgeted costs is $50,000.
3. New Zealand, Taranaki Basin, North Island
(a) Petroleum Mining Permit PMP 38148 (5.0%)
In the third quarter of 1998, the Ngatoro-9 and -11 oil wells were
completed and a workover of the Ngatoro-2 oil well, shut in since
December 1997, was completed and the well recommenced production.
The operator has informed the Registrant that Ngatoro field oil
production is expected to increase form the current level of about
1,000 barrels a day to 1,700 barrels a day due to production form
these wells.
<PAGE> 19
Drilling two wells early in 1999 to test separate oil prospects,
G0880 and BS780, is under consideration. A water injection well is
planned to increase recovery from the Ngatoro-1 oil well pool.
(b) Petroleum Prospecting License 38706 (7.75%)
Fletcher Challenge operates the adjoining permit PML 38138. The
Registrant doe snot have a participating interest in PML 38138. In
May 1998, the Tariki-2C well was drilled on PML 38138 about 200
meters from the border with PPL 38706. The Registrant made a
contribution to the cost of the well entitling it to data from the
well and a refund of the contribution if the well were successful.
The Tariki-2C well was a commercial success. The oil reserves
discovered in the Tikorangi Limestone Formation by the Tariki-2C
well are expected to extend into PPL 39706.
The location and trajectory of a well on PPL 38706 is being
determined and is scheduled to be drilled early in 1999.
(c) Petroleum Exploration Permit PEP 38716 (19.8%)
On PEP 38716, the participants intend to drill, and if successful
complete, the Huinga-1 well in October, 1998 at an estimated cost
of $4,000,000. The Registrant's portion of the budgeted cost is
$200,000.
(d) Petroleum Exploration Permit PEP 38720 (50.0%)
On PEP 38720, the participants intend to drill in late 1998 or
early 1999 an exploration well to test the Kapuni sandstone and
Mount Messenger Formations at an estimated cost of $1,000,000. The
Registrant's portion of the budgeted cost is $500,000.
(e) Petroleum Exploration Permit PEP 38723 (40%)
Before January 31, 1999 the participants intend to carry out the
first phase of the required work at an estimated cost of $75,000
and, if results warrant, proceed to the second stage of the work
program at an estimated cost of $420,000. The Registrant's portion
of budgeted costs is $198,000.
Papua New Guinea
Petroleum Prospecting License PPL 192 (40.0%)
The participants intend to carry out a geological work program,
license administration and a seismic data collection, processing
and interpretation program at an estimated cost of $1,600,000. The
Registrant's portion of the budgeted cost is $640,000.
The Registrant has applied for a further interest in Papua New
Guinea.
<PAGE> 20
Australia
(a) Offshore Petroleum Exploration Permit Ashmore Cartier AC/P19,
Timor Sea (65.0% to earn 61.75%)
The participants intend to carry out a geological program and to
purchase 3D seismic data at an estimated cost of $600,000. The
Registrant's portion of budgeted costs is $390,000.
The Registrant is in the process of applying for further offshore
interests in the Timor Sea.
(b) Offshore Gippsland Basin, Bass Strait Permit VIC/P-39 (33.33 to
earn 31.67%)
The participants intend to carry out a program of seismic
collection, processing and interpretation at an estimated cost of
$600,000. The Registrant's portion of the budgeted cost is
$200,000.
(c) Offshore Exploration Permit WA-199-P, Western Australia (5.0%)
The participants intend to seek a six month extension to find a
farm in participant to drill an exploration well on the Avocet Deep
in the last quarter of 1998.
China
China-Joint Study Agreement of March 18, 1996 (50%)
The Registrant and Moondance Energy Limited have completed the
study of existing seismic data and the preparation of the report on
the Nanling and Wuwei basins. The Registrant is in the process of
negotiating the next phase of work with China National Oil and Gas
Exploration and Development Corporation and, if successful, the
participants intend to carry out further seismic work in the second
half of 1998. Along with the costs of administration, the estimated
costs are $1,105,000 of which the Registrant's portion is $553,000.
If warranted, the participants intend to drill two exploration
wells in the second half of 1999.
Acquisition, Exploration and Development Expenditures
The Registrant has incurred expenditures of $1,113,928 to December
31, 1996 and $1,064,976 in the year ended December 31, 1997 in the
acquisition, exploration and development of petroleum properties.
<PAGE> 21
Employees and Consultants
The Registrant employs ten people in its Vancouver office and
five people in its Wellington office. The persons employed in the
Vancouver office are the chairman and nine others occupied with
office management, reception, shareholder relations and
communications and legal and accounting matters. The persons
employed in the Wellington office are the president and chief
executive officer and four persons occupied with joint venture
accounting, office management and New Zealand, Australian and PNG
corporate affairs.
The principal consultants engaged by the Registrant are Alan
Hart, Dr. Bruce Morris, Roger Brand, David Francis, Carey Mills and
Xian Xi Tai.
Mr. Hart holds graduate degrees in geology from the University of
Texas and has 23 years of industry experience. Mr. Hart worked on
petroleum projects for Hunt Oil Company and later with Atlantic
Richfield International in North and West Africa, Central America,
Southeast Asia, Australia and New Zealand. Mr. Hart served for six
years as exploration manager of Arco International's Jakarta-based
companies which, during his tenure, added one trillion cubic feet
of gas and 156 million barrels of oil to the reserve base.
Dr. Morris trained and lectured as a sedimentologist at University
of Victoria (New Zealand). Over the last nine years, he has been
involved in remote oilfield operations in Papua New Guinea, and
with exploration in the Taranaki and East Coast Basin of New
Zealand. Dr. Morris has also worked as a well site geologist for
Exxon in the Gippsland Basin, Australia.
Mr. Brand has over 20 years experience in the oil industry. After
graduating from Oxford University (United Kingdom) in 1974, he
worked for British Petroleum as a geologist in the North Sea and
onshore United Kingdom. Following a move to New Zealand in 1982,
Mr. Brand served as Chief Geologist for New Zealand Oil and Gas
Ltd. for three years. Since 1986, he has conducted a variety of
exploration assessments and prospect valuations for major and minor
oil companies based in New Zealand, Australia and Papua New Guinea.
His main interests lie in the definition of hydrocarbon plays in
New Zealand's Taranaki Basin.
Mr. Francis is a highly experienced field geologist with over 15
years specialist activity in New Zealand's East Coast Basin. He has
completed numerous scientific papers and company reports detailing
East Coast petroleum geology.
Mr. Mills provides the group with a broad range of capabilities.
Before joining the Registrant, Mr. Mills worked as a petrophysisist
for Exxon on the West Tuna Field in the Gippsland Basin,
Australia, on the Moran discovery in Papua New Guinea and had other
responsibilities.
<PAGE> 22
As consultant for the Nanling-Wuwei project in China and other
exploration projects, Tian Xi Tai brings expertise in seismic field
acquisition and data processing. A geophysicists with a Master of
Science from Stanford University (California), Mr. Tian has worked
for such companies as Fletcher Challenge Energy Ltd. and China
National Petroleum Corporation.
Anticipated Sale of Oil and Gas
Oil discovered in New Zealand may be sold locally to any of Shell
(NZ), Todd Petroleum, Fletcher Challenge and others. The sale of
gas discovered in New Zealand requires the negotiation of contracts
and the installation of compression and transport facilities. A gas
pipeline crosses from the Taranaki Basin to Napier crosses PEP
38328. Oil discovered in offshore Australia may be sold
internationally. The sale of gas discovered in offshore Australia
will depend, among other things, on the ease of laying a pipeline
to markets on land or having sufficient quantities to justify
liquefaction. The sale of gas or oil in Papua New Guinea will
require the installation of connection with transport facilities
lying some 100 miles to the east. Gas or oil discovered in China
will be sold locally.
Hydrocarbon Tenures in New Zealand, Australia, Papua New Guinea and
China
In New Zealand a prospecting license is a form of tenure held
under the Petroleum Act 19337, the predecessor legislation to the
Crown Minerals Act of 1991 and is, as the tenure expires, replaced
by the exploration permit under the later legislation. In New
Zealand, permits are granted for specified minerals to the first
applicant for that mineral in a specific area and generally
prescribe work to be performed over the term of the permit. In most
cases, permits contain a work program approved by the Minister of
Energy. Prospecting permits are limited forms of tenure granted
under the Crown Minerals Act of 1991 for two years on conditions
the Minister of Energy considers appropriate. The Registrant does
not hold any prospecting permits. Under the Crown Minerals Act of
1991, the exploration permit, which replaced the prospecting
license, grants the right to explore a specified mineral for a term
of five years and may be extended for up to ten years on conditions
the Minister of Energy considers appropriate. If the holder of an
exploration permit discovers a deposit or occurrence to which the
exploration permit relates and satisfies the Minister of Energy
that the results of exploration justify granting a mining permit,
the holder may, on application before the expiry of the exploration
permit, obtain a mining permit for up to 40 years for such part of
the land as the deposit or occurrence relates and exchange the
exploration permit for such part of the land. Changes to the
conditions prescribed in a permit may be made by application to the
Minister of Energy of the holder of a permit is in substantial
compliance with the conditions of the permit. The Crown Minerals
<PAGE> 23
Act of 1991 also provides for the revocation of a permit if the
Minister of Energy has reason to believe that the holder of the
permit is contravening, or not making reasonable efforts to comply
with, the Crown Minerals Act or the conditions of the permit and
the Minister of Energy is satisfied that the holder of a permit has
failed to comply with a note to rectify the contravention or non-
compliance. Any transfer or other dealing with a permit is subject
to the consent of the Minister of Energy on such conditions as he
considers appropriate and an application for consent is made within
three months of the date of the agreement. A transfer or lease of
a permit with respect to petroleum has no effect until a notice of
the transfer has been lodged with the Secretary of Commerce and the
Minister of Energy has given his consent. Otherwise, the transfer
or other dealing has no effect. The Minister of Energy may also
direct that any petroleum products be refined or processed in New
Zealand. The Minister of Energy also has the jurisdiction to
unitize producing permits. Finally, the Crown Minerals Act of 1991
provides procedures for the resolution of conflict with other forms
of land tenure.
In Australia, the Petroleum (Submerged Lands) Act 1967 governs
permits lying further offshore than three miles form the coast.
Coastal waters and lands are within state jurisdiction. The
Australian permits of the Registrant are granted and regulated
under the Petroleum (Submerged Lands) Act 1967. This statute
provides for four types of permits, exploration permits, retention
leases, production licenses and pipeline licenses. An exploration
permit provides the exclusive right to undertake seismic surveys
and drilling in a defined area. Permits are awarded by a work
program bidding system or a cash bidding system over acreage
released each year by the Commonwealth. Work program permits are
issued for an initial term of six years with an unlimited number of
five year renewals. At each renewal, 50% of the permit area must be
relinquished. On discovering petroleum, a holder must notify the
authority. If commercial, the holder may apply for a production
license. Production licenses are issued for 21 years and may be
renewed for a further 21 years. If the holder makes a non-
commercial discovery which has a reasonable chance of becoming
commercial within the next 15 years, a retention lease may be
granted. Retention leases are issued for terms of five years with
renewal periods of five years. a pipeline license is usually
granted at the same time as a production license.
In Papua New Guinea, the Petroleum Act provides for four different
types of license, petroleum prospecting licenses ("PPL") for
exploration, which is the form of tenure held by the Registrant,
petroleum development licenses ("PDL") for petroleum developments,
petroleum retention licenses ("PRL") for gas reserves which are
considered sub-economic and pipeline licenses. A PPL is granted for
a term of six years with one five year extension permitted. At the
end of the first term, the holder must relinquish 50% of the
initial size of the permit, less the area of any PRLs on extension.
<PAGE> 24
A PPL usually contains a work program which is submitted to, and
approved by, the Minister for Petroleum and Energy. Appropriate
variations to a work program may be approved by the Minister at any
time during the third to sixth years of a PPL. The State has the
option to acquire a 22.5% interest in any petroleum development.
Where it does so, a two percent interest is held for the benefit of
the landowners in the project area. The price payable by the State
is 22.5% of sunk costs, including the allowable exploration
expenditure of the project. Orogen Minerals Limited ("Orogen"), a
publicly listed company 51% owned by the State, has an option to
acquire up to a 20.5% interest in future petroleum projects out of
the State's entitlement of 22.5%. If Orogen does not exercise its
option, the permit holder is obliged to carry the State's
acquisition of its 22.5% interest and all development costs. This
carried interest is repaid with a commercial rate of interest out
of petroleum production attributable to the State's share. If
Orogen exercises its option, the cost of the carried interest is
paid immediately. A PDL is granted for an initial term of 25 years
with one 20 year extension. A PRL is granted for an initial term of
five years with two five year extensions. A pipeline license is
granted for a term of 25 years with one 20 year extension.
Assignments of, and dealings in, all types of petroleum licenses
are permitted, subject to the Minister's consent. Any assignment or
dealing without such consent is void. Before drilling an
exploration well, the permit holder and the State generally enter
into a production agreement that sets out additional conditions
applying to operations, the procedures which will lead to a
development and the terms on which the state will acquire its
equity interest in a development.
In China, the Registrant is negotiating with the China National
Petroleum Corporation the next stage of its operation. The terms
and conditions of operation and property tenure cannot at this time
be determined. Discussions are based on the February 1994 China
National Petroleum Corporation model contract, but it is not clear
at this time if the Registrant will enter into a geophysical
service agreement, a drilling services agreement or a production
sharing contract or the extent to which terms and conditions of the
model agreement will be modified during the course of negotiation
with the China National Petroleum Corporation.
Risk Factors
The common shares of the Registrant must be considered a
speculative investment due to a number of factors. The purchase of
the common shares involves a number of significant risk factors.
Purchasers of common shares should consider the following:
<PAGE> 25
1. No History of Operations and Reliance on Expertise of Certain
Persons
The Registrant has no history of operations and is dependent on the
management by its president and, in the acquisition, exploration
and development of petroleum properties, and on the advice of
consulting geologists retained by the Registrant from time to time.
The current president of the Registrant is experienced in the
acquisition, exploration and development of petroleum properties in
New Zealand and other Asian countries, particularly China, Papua
New Guinea and Australia. Should the current president leave the
Registrant, the Registrant may have difficulty in finding a person
of comparable education and experience to manage the business of
the Registrant.
2. Limited Financial Resources
The Registrant has limited financial resources and, if the business
is not profitable, may not be able to raise sufficient funds to
sustain, continue or expand its business. The Registrant currently
has limited revenues and relies principally on the issuance of
common shares to raise funds to finance the business of the
Registrant. There is no assurance that market conditions will
continue to permit the Registrant to raise funds if required.
3. Competition with Other Companies
Other companies with greater financial resources or expertise are
in competition with the Registrant. The Registrant must compete
with such companies in bidding for the acquisition of petroleum
interests from various state authorities, in purchasing or leasing
equipment necessary to explore for, develop and produce
hydrocarbons and in obtaining the services of personnel in the
exploration for, and development and production of, hydrocarbons.
While the Registrant has acquired various rights to explore, there
is no assurance that personnel and equipment will be available to
carry out the programs planned by the Registrant.
4. Failure to Locate Commercial Quantities of Hydrocarbons and
Geological Risks
There is no assurance that commercial quantities of hydrocarbons
will be discovered and prices for hydrocarbons may vary, rendering
any deposit discovered uneconomic. In addition, even if
hydrocarbons are discovered, the costs of extraction and delivering
the hydrocarbons to market may render any deposit found uneconomic.
Geological conditions are variable and unpredictable. Even if
production is commenced from a well, the production will inevitably
decline and may be affected or terminated by changes in geological
conditions that cannot be foreseen or remedied by the Registrant.
<PAGE> 26
Prices for oil and gas may fluctuate widely from time to time
depending on international demand, production and other factors
which cannot be foreseen by the Registrant. A decline in price
may render a discovery uneconomic. The recent Asian financial
market crisis has reduced demand for petroleum products in the
Asia-Pacific region, but production, if any, from the
Registrant's properties that might be sold to countries affected
by the recent Asian financial market crisis would, even for a
discovery made in 1998, take some years to develop and would be
sold under financial conditions cannot be determined.
5. Governmental Laws and Local Conditions
Claims of aboriginal peoples in Australia or New Zealand may
adversely affect the rights or operations of the Registrant. There
is no assurance that governmental regulation will not vary,
including regulations relating to prices, royalties, allowable
production, environmental matters, import and export of
hydrocarbons and protection of water resources and agricultural
lands. The Registrant is subject to numerous foreign governmental
regulations that relate directly and indirectly to its operations
including title to the petroleum interests acquired by the
Registrant, production, marketing and sale of hydrocarbons,
taxation, environmental matters, restriction on the withdrawal of
capital from a country in which the Registrant is operating and
other factors. There is no assurance that the laws relating to the
ownership of petroleum interests and the operation of the business
of the Registrant in the jurisdictions in which it currently
operates will not change in a manner that may materially and
adversely affect the business of the Registrant. In particular, the
Registrant is of the view that the laws of China and to a lesser
extent those of Papua New Guinea relating to the business of the
Registrant may be unable to be determined or may change with little
or no notice or the Registrant may be subject to unofficial or
local policies that materially and adversely affect the business of
the Registrant. There is, however, no assurance that the laws of
any jurisdiction in which the Registrant carries on business may
not change in a manner that materially and adversely affects the
business of the Registrant.
6. Environmental Risks
The Registrant is subject to laws and regulations that control the
discharge of materials into the environment, require removal and
cleanup in certain circumstances, require the proper handling and
disposal of waste materials or otherwise relate to the protection
of the environment. In operating and owning petroleum interests,
the Registrant may be liable for damages and the costs of removing
hydrocarbon spills for which it is held responsible. Laws relating
to the protection of the environment have in many jurisdictions
become more stringent in recent years and may, in certain
circumstances, impose strict liability, rendering the Registrant
liable for environmental damage without regard to negligence of
<PAGE> 27
fault on the part of the Registrant. Such laws and regulations may
expose the Registrant to liability for the conduct of, or
conditions caused by, others or for acts of the Registrant that
were in compliance with all applicable law at the time such acts
were performed. The application of these requirements or the
adoption of new requirements could have a material adverse effect
on the business of the Registrant. The Registrant believes that it
has conducted its business in substantial compliance with all
applicable environmental laws and regulations.
7. Indemnities may be Unenforceable or Uncollectable
The operating agreements with participants in a property provide
for the indemnification of the Registrant as operator. There is no
assurance that such indemnification will be enforceable or that a
participant will be financially able in all circumstances to comply
with its indemnification obligations, or that the Registrant will
be able to obtain such indemnification agreements in the future.
8. Possible Lack of or Inadequacy of Insurance
The Registrant maintains insurance against certain public
liability, operational and environmental risks, but there is no
assurance that an event causing loss will be covered by such
insurance, that such insurance will continue to be available to, or
carried by, the Registrant or, if available and carried, that such
insurance will be adequate to cover the Registrant's liability.
9. No Assurance of Earnings or Dividends and Taxation of
Dividends
The Registrant has no history of earnings and there is no assurance
that the business of the Company will be profitable and, even if
the business of the Registrant is profitable, there is no assurance
the board of directors will declare dividends on common shares.
The register of members of the Registrant discloses that the
majority of the shares of the Registrant are held of record by
persons resident in the United States of America. If the Registrant
should declare a dividend, a withholding tax of five per cent is
payable in Canada on payment of a dividend to a corporate resident
of the United States of America holding more than ten per cent of
the shares of the Registrant and 15% to all other residents of the
United States.
10. Marketing of Petroleum Products
The availability of products sold, or to be sold, by the Registrant
may be restricted or rendered unavailable due to factors beyond the
control of the Registrant, such as change in laws in the
jurisdictions in which the properties of the Registrant are
located, changes in the source of supply in foreign countries,
<PAGE> 28
prohibition on use due to testing and licensing requirements and in
certain areas of the world civil disorder or governmental
confiscation without compensation.
The Registrant is in the early stages of the exploration of its
properties and does not sell petroleum production in countries
affected by the current Asian financial market crisis. Even if
discoveries in commercial quantities are made by the Registrant,
development of a discovery may take a number of years and financial
conditions at that time cannot be determined. The Registrant holds
its cash reserves in US dollars but incurs the majority of its
expenses in Australian and New Zealand dollars which have declined
relative to the US dollar, and if anything, has benefited from the
Asian financial crises with the recent rise of the US dollar
relative to currencies of countries in the Asia-Pacific region.
11. Activities of Management
The management of the Registrant and the growth of the Registrant's
business depends on certain key individuals who may not be easily
replaced if they should leave the Registrant; and persons in
management have other business interests which may result in them
devoting, from time to time, some of their time to such other
interests.
12. Inadequacy of Public Market
There is no assurance that the public market for the common shares
of the Registrant will be maintained or that the holder of common
shares will be able in all circumstances to sell such shares in the
quantity and at the price desired by such holder.
13. Restrictions in Applicable Securities Laws
Applicable securities laws may restrict the transfer of common
shares and if an exemption is not available to a holder wishing to
sell, the shares may not be transferred.
14. Dilution
The Registrant may issue more common shares at prices determined by
the board of directors, possibly resulting in dilution of the value
of common shares, and, given there is no preemptive right to
purchase common shares, if a member does not purchase additional
common shares, the percentage share ownership of the member in the
Registrant will be reduced.
<PAGE> 29
15. Loss of Investment
An investment in common shares of the Registrant should only be
made by persons who can afford a complete loss of their investment
and there is no assurance that the common shares of the Registrant
will increase in value from the amount at which a member acquired
common shares of the Registrant.
16. Risk Inherent in Exploration
Most of the properties of the Registrant are at the exploration
stage and, except for petroleum mining permit 38148, without known,
commercial reserves of oil or gas. Oil and gas exploration and
development involves a high degree of risk and few properties which
are explored are ultimately developed into producing and profitable
properties.
17. Dealings With Associated Companies
The acquisition, exploration and development of hydrocarbon permits
and licenses by the Registrant is carried on, in a number of cases,
with associated companies that have common or connected management,
the same principal shareholders and, except for Durum Energy Corp.,
a common promoter. The associated companies are Trans-Orient
Petroleum Ltd. (OTCBB: TEPUF, New Zealand Unlisted Board: TOP),
Durum Energy Corp. (VSE: DUE) and AMG Oil Ltd (OTCBB: AMGO). The
companies are called the IREMCO Group after International Resource
Management Corp., a private company owned by Mr. Alex Guidi. See
Item 1. Business-Risk Factors- Dealings with Associated Companies,
Item 5. Directors and Executive Officers and Item 7. Certain
Relationships and Related Transactions.
Mr. Alex Guidi is the chairman, a member of the board of directors,
principal shareholder and the promoter of the Registrant. Mr. Guidi
is a member of the board of directors, principal shareholder and
the promoter of Trans New Zealand Oil Company ("TNZ"). Mr. Guidi is
a member of the board of directors, the chairman, principal
shareholder and the promoter of Trans-Orient Petroleum Ltd. ("TOP")
and the promoter of Gondwana Energy, Ltd. ("GEL"). Mr. Guidi is a
shareholder of Durum Energy Corp. ("Durum") but is by private
agreement not involved in Durum until the earlier of delisting of
trading of the shares of Durum through the facilities of the
Vancouver Stock Exchange or April 15, 2000.
Dr. David Bennett is a member of the board of directors of TNZ. Dr.
Bennett is the president, chief executive officer and a member of
the boards of directors of the Registrant, TOP and Durum. Dr.
Bennett is the spouse of Jennifer Lean. Dr. Bennett is a member of
the various boards of directors and an officer of various
subsidiaries of companies in the IREMCO Group and holds powers of
attorney to deal on behalf of various companies in the IREMCO
Group.
<PAGE> 30
Mr. Ronald Bertuzzi if the president and a member of the board of
directors of the TNZ. Mr. Bertuzzi is also a member of the boards
of directors of the Registrant and GEL.
Mr. Mark Katsumata is the secretary and treasurer of TNZ. Mr.
Katsumata is also the secretary of the Registrant, TOP and Durum
and the secretary and treasurer of GEL.
Ms. Jennifer Lean is the president and a member of the board of
directors of GEL. She holds the authority to act on behalf of
various companies in the IREMCO Group and subsidiaries of various
companies in the IREMCO Group. She is also a member of various
boards of directors and an officer of various subsidiaries of
companies in the IREMCO Group and is the spouse of Dr. David
Bennett.
Mr. Peter McKeown and Mr. Bernhard Zinkhofer are members of the
boards of directors of TOP and Durum and Mr. Zinkhofer is a partner
of the solicitors of the companies in the IREMCO Group, Lang
Michener Lawrence Shaw, Vancouver, B.C. and Toronto, Ontario,
Canada.
At June 30, 1998 Mr. Guidi beneficially held 4,991,000 shares of
TNZ of a total outstanding of 12,500,000 (39.9%). Mr. Garth
Johnson, who has voting discretion over 1,500,000 (12.0%) shares of
the outstanding shares of the Company, is employed by the IREMCO
Group. At June 30, 1998 Mr. Guidi beneficially held 5,904,076
common shares of the Registrant of a total outstanding of
28,262,398 common shares (20.9%) and held rights to acquire an
additional 994,000 common shares at various prices. At June 30,
1998 Mr. Guidi beneficially held 10,021,400 common shares of TOP of
a total outstanding of 28,779,060 common shares (34.8%) and held
rights to acquire an additional 6,800,000 common shares at various
prices. At June 30, 1998 Mr. Guidi beneficially held 1,000,000
common shares of Durum of a total outstanding of 9,541,908 common
shares (10.5%) subject to a private agreement dated April 15, 1997.
At July 8, 1998 Mr. Guidi owned 90.9% of the outstanding shares of
GEL.
The percentage participation of the Registrant and associated
companies in a property is determined by the boards of directors of
each company in accordance with the provisions of the Business
Corporations Act (Yukon). Persons who are not willing to rely on
the exercise of judgment by the respective boards of directors in
determining the participation in properties should not consider an
investment in the shares of the Registrant or associated companies.
18. Defeasance of Title
The possibility exists that title to one or more properties of the
Registrant may be lost due to an omission in the claim of title.
The Registrant does not maintain title insurance.
<PAGE> 31
ITEM 2. FINANCIAL INFORMATION
Introduction
The following is a discussion of the Registrant's financial
condition, results of operations, financial resources and working
capital. This discussion and analysis should be read in conjunction
with the Registrant's consolidated financial statements contained
in this Form 10 under Item 13.
Overview
The Registrant was not active in the acquisition, exploration and
development of petroleum properties in 1995. The interests
currently held by the Registrant began to be acquired in 1996. The
Registrant has directed its efforts to the acquisition of petroleum
interests of substantial acreage in under-explored areas that are
geologically favorable for the discovery of the hydrocarbons. The
risk inherent in the exploration for the discovery of hydrocarbons
has been reduced by the participation of other companies as working
interest participants. The Registrant has also established itself
as the operator of programs on certain of the petroleum interests
held by the Registrant in order to better control and manage the
process of exploration and development of the petroleum interests.
Acquisition of Petroleum Interests, Exploration, Development and
Production
The acquisition, exploration and development of, and production
from, petroleum interests between January 1, 1996 and December 31,
1997 is described under Item 1-Business.
Selected Financial Information
The following constitutes selected financial data for the
Registrant prepared in accordance with United States generally
accepted accounting principles for the last five completed
financial periods The information, expressed in United States
dollars unless otherwise indicated, must be read in conjunction
with the more detailed financial information contained in the
accompanying audited and management financial statements.
<PAGE> 32
<TABLE>
<CAPTION>
December 31 January 31
1997 1996 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Current Assets $10,785,233 $9,597,265 $1,024,635 $ 575,210 $ 604,111
Petroleum and Natural
Gas Properties 1,929,839 1,113,928 60,438 10,320
Property and
Equipment 115,244 34,933 6,150 nil nil
Incorporation
Costs nil nil 867 867 867
Total Assets 12,830,316 10,746,126 1,092,090 586,397 604,978
Share Capital 18,178,652 15,528,959 4,993,739 4,397,920 4,290,952
Deficit (5,394,040) (4,869,868) (3,968,214) (3,824,570) (3,773,864)
Gross Revenue 870,059 426,432 38,980 25,768 2,266
Net Loss (524,172) (901,654) (143,644) (50,706) (40,027)
Net Loss
per Share (0.02) (0.04) (0.01) (0.00) nil
</TABLE>
Certain transactions have occurred during the periods which may
cause the data between periods to be not comparable. For fiscal
1996, refer to Item 1-Business-Development of Business for a
description of the acquisition of the interest in the Ngatoro Oil
Field.
Exchange Rates
On December 31, 1997, the buying rate for Canadian dollars was
US$1.00: CDN $l.4305. The following table sets out the buying rate
for Canadian dollars for the period indicated. Rates of exchange
are obtained from the Bank of Canada and believed by the Registrant
to approximate closely the rates certified for customs purposes by
the Federal Reserve Bank in New York.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Year End 1.3217 1.4018 1.3640 1.3706 1.4305
Average 1.2898 1.3659 1.3726 1.3636 1.3844
High (1) 1.3446 1.4065 1.4243 1.3855 1.4393
Low (1) 1.2425 1.3109 1.3303 1.3295 1.3365
</TABLE>
Note (1): The high and low buying rate figures are selected from
daily high and low figures.
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Registrant is in the exploration and evaluation stage on its
oil and gas properties and hence has not yet achieved profitability
or break even cash flow. The Registrant has experienced losses in
each fiscal period reported on. Its main source of capital
currently is the issuance of equity securities, which has a
dilative effect on the Registrant's shareholders. Total losses
incurred from incorporation to December 31, 1997 were $5,572,109.
The level of future operations may be limited by the availability
of capital resources, the sources of which are not predictable. The
results of operations should be largely measured by the success of
the extent and quality of oil and gas discovered as a result of
exploration programs. The sales value of any oil and gas discovered
by the Registrant will be largely dependent on factors beyond the
Registrant's control such as the market value of the hydrocarbons
produced.
The business of the Registrant was inactive during the 1995 fiscal
year. The Registrant commenced the operation of its current
business in 1996. The efforts of management have been directed
towards the acquisition of petroleum interests and the commencement
of exploration programs on the interests acquired. The Registrant
is also the operator on certain of the interests acquired and to
that end has established an exploration office in Wellington, New
Zealand. The acquisitions made by the Registrant between January 1,
1996 and December 31, 1997 are described under Item 1-Discussion of
Development of Business.
Operating Revenue
Effective September 1, 1996 the Registrant bought the outstanding
shares of Minora Energy (New Zealand) Limited for AUS$575,000
(CDN$478,755, US$348,790). The name of the company was changed to
Ngatoro Energy Limited. Ngatoro Energy Limited owns a five per cent
participating interest and revenue interest in petroleum mining
permit PMP 38148, which has four producing oil wells and two shut-
in gas wells. In the year ended December 31, 1996 the Registrant
received $163,388 from hydrocarbon sales and in the year ended
December 31, 1997, the Registrant received revenues of $487,941.
Production has remained relatively constant.
Costs and Expenses
In the year ended December 31, 1997 the Registrant incurred
expenses in the acquisition, exploration and development of
petroleum interests of $1,064,976. The amount incurred in the
acquisition, exploration and development of petroleum interests for
<PAGE> 34
the year ended December 31, 1996 was $1,182,655. The increase
represents the acquisition of additional petroleum interests by the
Registrant and development and implementation exploration programs.
Depletion and amortization expense for the year ended December 31,
1997 was $97,827 and for the year ended December 31, 1996 was
$98,252.
General and administrative expenses for the year ended December 31,
1997 were $1,022,554 and for the year ended December 31, 1996 were
$1,153,770.
Interest Expense
The Registrant finances its business primarily from the issuance of
common shares and secondarily from the receipt of petroleum
revenues from its interest in the Ngatoro oil field, New Zealand.
The Registrant has not effected any borrowing and has consequently
not incurred any interest expense.
Interest Income
Interest income for the year ended December 31, 1997 was $382,118
and for the year ended December 31, 1996 was $263,044. The increase
was due to the receipt and deposit between January 1, 1996 and
December 31, 1997 of $13,184,913 from the issuance of common
shares.
Liquidity
The Registrant has maintained an appropriate liquidity level to
fund its expenditure programs in the past and has no reason to
conclude that this will not continue for fiscal 1998. The
Registrant is satisfied with its ability to access capital markets
through private placements, public offerings, and convertible
securities in order to preserve liquidity levels. The Registrant
will utilize joint venture arrangements to reduce its exposure on
exploration and development programs.
In the fiscal year ended December 31, 1997 the Registrant completed
a Canadian private placement of 1,000,000 units for $1.80 per unit.
Each unit is comprised of one common share and one non-transferable
share purchase warrant. Each share purchase warrant entitles the
holder to purchase a common share for $1.90 before July 4, 1998,
for $2.00 from July 4, 1998 to July 3, 1999 and for $2.10 from July
4, 1999 to July 3, 2000. The Registrant issued 279,000 common
shares to directors, senior officers and employees pursuant to the
exercise of incentive stock options for gross proceeds of $652,151.
The Registrant also issued 50,000 common shares on exercise of
warrants for proceeds of $125,667.
<PAGE> 35
As of December 31, 1997 the Registrant had $10,739,529 in working
capital as compared with $9,510,230 as of December 31, 1996.
During the fiscal year ended December 31, 1996, the Registrant
completed a Canadian private placement of units distributed to
British Columbia residents raising $2,209,620 (CDN$3,030,000)
through the issuance of 1,000,000 units at a price of CDN$3.03 per
unit, each unit consisting of one common share and one non-
transferable share purchase warrant to purchase an additional share
before May 27, 1997 at CDN$3.03 per share and between May 28, 1997
and May 27, 1998 at CDN$3.485 per share. The Registrant issued
additional common shares to directors, senior officers and
employees pursuant to the exercise of incentive stock options for
gross proceeds of $7,614,949 (CDN$10,384,167) (1,725,000 shares for
CDN$2.167 per share, 1,002,000 shares for CDN$3.333 per share,
612,000 shares for CDN$5.00 per share, 40,000 shares for CDN$5.33
per share and 40,000 shares for CDN$0.837 per share).
During the fiscal period ended December 31, 1995, the Registrant
issued 7,494,000 shares for CDN$0.103 per share for gross proceeds
of $579,789 (CDN$774,380) pursuant to the exercise of share
purchase warrants. No incentive options were exercised during this
period.
Capital Resources
The Registrant's capital resources are comprised primarily of
private investors, including members of management, who are either
existing contacts of the Registrant's management or who come to the
attention of the Registrant through brokers, financial institutions
and other intermediaries. The Registrant's management is of the
view that conventional banking is unavailable to resource companies
which are in the exploration stage. The Registrant's access to
capital is always dependent upon general financial market
conditions, especially those which pertain to venture capital
situations such as oil and gas exploration companies. The
Registrant's capital resources have not changed in 1997 nor are
they anticipated to change materially in 1998.
The amount that the Company has spent on acquisitions vs.
exploration and development over the past two years is:
Acquisition: $ 460,104
Exploration and development: $1,787,527
The amount that the Company intends to spend in 1998 on
acquisitions vs. exploration and development is:
Acquisition: $ 100,000
Exploration and development: $ 2,950,000
<PAGE> 36
It is management's intention to acquire, explore and develop oil
and gas properties in the Asia Pacific region. Material capital
commitments to December 31, 1998 are described in Item 1. Business-
Plan of Operations.
The Registrant has no other anticipated capital expenditures of a
material amount. However, the Registrant intends to acquire
additional petroleum interests which may give rise to further
capital expenditures.
The Registrant has no agreements with management, investors,
shareholders or anyone else respecting additional financing at this
time. Because of the nature of the Registrant's business, there are
no trends in the nature of its capital resources which could be
considered predictable. To date, the Registrant's capital resources
have consisted solely of the issuance of common shares pursuant to
either public distributions, private placements or the exercise of
convertible securities.
Results of Operations
The Registrant is an exploration company. The Registrant's primary
focus as of December 31, 1997 is the investigation and acquisition
of oil and gas properties. The Registrant's policy is to acquire
interests and where possible, minimize its risk exposure by farming
out or joint venturing these interests to other industry
participants.
The Registrant's current property focus is on the acquisition and
exploration of properties primarily in the Asia Pacific region with
the objective of establishing a solid cash flow base and
participating in high potential exploration blocks in under
explored countries with attractive fiscal regimes.
Revenues for the year ended December 31, 1997 were $870,059
compared with $426,432 for the year ended December 31, 1996. The
Registrant's expenses for the year ended December 31, 1997 were
$1,394,231 resulting in a per share book loss of $0.02 compared
with $1,328,086 resulting in a per share book loss of $0.01 for the
period ended December 31, 1996.
Effective September 1, 1996 the Registrant bought the outstanding
shares of Minora Energy (New Zealand) Limited for AUS$575,000
(CDN$478,755, US$348,790). The name of the company was changed to
Ngatoro Energy Limited. This acquisition provided the Registrant
with oil and gas revenues of $163,388 for the year ended December
31, 1996 and $487,941 for the year ended December 31,1997. During
the year ended December 31, 1997, interest income increased to
$382,118 compared to $263,044 for the year ended December 31, 1996.
This is due to additional cash of $2,649,693 provided by the
issuance of common shares through private placements and exercise
of stock options and warrants during the year ended December 31,
1997.
<PAGE> 37
Revenues for the period ended December 31, 1995 were $38,980
compared with $25,768 for the year ended January 31, 1995. The
Registrant's expenses for the period ended December 31, 1995 were
$182,624 resulting in a per share book loss of $0.01 compared with
$76,474 resulting in a per share book loss of $0.01 for the year
ended January 31, 1995.
ITEM 3. PROPERTIES
The following is a brief description of the principal properties
held by the Registrant. The terms and conditions of the permits and
licenses under which the properties are held are discussed in Item
1. Business-Discussion of Development of Business.
ALTHOUGH THE REGISTRANT IS CURRENTLY RECEIVING SOME PRODUCTION
REVENUE, THE REGISTRANT DOES NOT REPRESENT THAT IT HOLDS MATERIAL
INTERESTS IN PROVEN PROPERTIES AS ALMOST ALL OF ITS PROPERTIES ARE
IN THE EXPLORATION STAGE. THE REGISTRANT SHOULD BE CONSIDERED AN
EXPLORATION AND DEVELOPMENT STAGE OIL AND GAS COMPANY.
For definitions of technical terms in the following description of
properties, see the Glossary of Terms.
General
The formation of geological conditions for the generation,
entrapment and location of hydrocarbons depends on a number of
unpredictable factors. First, any system of sedimentary strata must
contain a source of hydrocarbons. Secondly, the source rocks must
have been buried in order for conditions favorable to the
production of hydrocarbons to prevail and the hydrocarbons must
have been expelled from the source formations. With expulsion, the
hydrocarbons will migrate and strata into which the hydrocarbons
migrate must be conducive to both the collection of the
hydrocarbons in the strata and the sealing of the hydrocarbons
within the strata in which they collect. Geological conditions are
extremely varied and unpredictable. See Item 1-Business-Risk
Factors.
1. New Zealand, East Coast Basin, North Island
Regional Geology
Geologically, the East Coast Basin area in north-east New Zealand
lies in the forearc of an active convergent plate margin between
the subducting oceanic Pacific plate to the east and the Indian-
Australian plate of continental composition to the west. The rocks
exposed on land are characterized by thick marine clastic sequences
ranging in age from early Cretaceous to the Quaternary, with
complex stratigraphy and structure. The stratigraphy may be
simplified into five parts. The pre-Miocene geology can be divided
<PAGE> 38
into autochthonous and allochthonous sequences. Both sequences have
some units in common, but there are material differences. The
basement rocks are Early to Mid-Cretaceous. Overlying the basement
rocks is an allochthonous unit that was emplaced by a foreland
style thrust belt in early Miocene times. This emplacement occurred
at the same time as a change in sedimentation from a slow, clastic-
starved environment (Late Cretaceous to Paleocene) to a rapid
clastic deposition environment (Miocene to Quaternary). Overlying
this unit is about 19,000 feet of Miocene strata that was laid down
in a moderate to deep marine environment. The sequence is
interspersed with turbiditic sandstone and mudstone sections of
variable thickness of up to 100 feet. The structural geology in the
area is complex, varying from large, open synclines and tight
anticlines in the north to low angle normal faults of several
hundreds of feet displacement in the west and disconformities and
faulting in the south. From Pliocene times, there was rapid uplift
in the area, which prevented further marine deposition, and rapid
erosion began with normal faulting occurring throughout the area.
Currently, there is no production from the East Coast Basin except
for small scale local use of gas seeps.
(a) Petroleum Exploration Permit PEP 38328 (40.0%)
Most of PEP 38328 is flat or gentle hill country, with some hilly
areas to the south-east. The main population centers are the twin
cities of Hastings and Napier, which has a port, with a combined
population of about 110,000. These are the largest cities on the
east coast of the North Island and service a largely rural area.
Current gas consumption in the area is about 2.5 billion cubic
feet. Gas is supplied by an eight inch pipeline from the Taranaki
area on the west coast of the North Island. This pipeline passes
through the center of the permit area.
PEP 38328 has been very lightly explored. Only three wells have
been drilled in the permit area and limited seismic data has been
collected. A well in the south of the permit area encountered
Pliocene reservoir limestones, but these were water saturated and
the well was abandoned. Another well near Napier encountered gas
but was not tested. Later, gas was collected for local use. A third
well near Napier encountered Upper Pliocene turbidite sandstones
which contained a gassy brine. Upper Miocene turbidite sandstones
were also encountered below the Upper Pliocene. Other horizons also
has indications that they were gas bearing.
The Kereru Prospect was defined in 1988 to 1991, but much of the
permit has not been explored with seismic techniques. One of the
objects of the participants is to define additional structures in
the permit area. The East Coast Basin has many oil seeps, gas seeps
and indications of oil in outcrop but not enough is known about
sub-surface structures to determine likely reservoir locations. The
best source formations in the permit area are considered to be the
<PAGE> 39
Upper Cretaceous to Paleocene Whangai Formation and the Paleocene
Waipawa black shale formation. The latter is usually about 100 feet
thick and the former about 300 feet thick. These formations are
considered to be likely oil bearing formations. Local gas seeps
indicate that other formations may be targets for the location of
gas.
Surface geology and information from the wells drilled to date
indicate the Pliocene and Pleistocene limestones, which occur at
several stratigraphic levels and outcrop throughout the permit
area, have the best potential to be reservoir formations.
Thicknesses vary from 15 to several hundred feet. Other potential
reservoir formations include Pliocene and Pleistocene turbidite
sandstones that occur throughout the permit area, and Upper Miocene
turbidite sandstones.
Additional seismic work is required to delineate structures within
the permit area. Finally, regional conditions indicate that the
depth of burial of the source formations for oil and gas is in
excess of 13,000 feet, sufficient for the generation of
hydrocarbons. Seismic data indicates that there are structures
within the permit area which may act as traps for migrating
hydrocarbons.
In the fourth quarter of 1996, the Kereru-l exploration well was
drilled to a depth of 1,938 meters (6,391 feet). Several thin and
separated potential pay reservoir sandstones were encountered, but
the Registrant decided that the results did not justify the expense
of flow testing the well. The well was plugged and abandoned. In
the first half of 1997, a 120 mile seismic survey costing
approximately $700,000 was completed. Data was exchanged with
adjacent permit holders and indicated a previously unidentified
structure in coastal the northern part of the permit, an anticlinal
structure in the coastal area south of Napier and several structure
along the southern boundary with PEP 38330.
(b) Petroleum Exploration Permit PEP 38330 (34%)
PEP 38330 is north of PEP 38328 on the eastern side of Raukumara
Peninsula, the most easterly part of the North Island. The country
covered by PEP 38330 ranges from low alluvium-filled valleys to
hilly incised country. The area is lightly populated, comprised
mostly of pastoral farmland increasingly converted to forestry
blocks in recent years. An extensive transportation system is
already in place. Gisborne, with a population of 30,000 serves as
a port and service center for the area.
The permit area is very lightly explored. The abundance of oil and
gas seeps in the area indicates that hydrocarbon generation has
occurred, the most likely source rocks being the Whangai Formation.
The formation process will be complex as a result of the
complicated tectonic and burial history. In the permit area, the
<PAGE> 40
Miocene turbiditic sandstones and minor conglomerate and limestone
deposits are the likely areas where reservoirs will be located.
There are several promising outcrops known with some indications of
hydrocarbons. Finally, the presence of mud volcanoes and hot
springs in the permit area indicate that the Miocene-Pliocene
mudstone sequences contain stratigraphic seals capable of
containing hydrocarbons.
Historically, there have been six exploration wells drilled on or
adjacent to the permit area since 1945. Four of the wells were
drilled before 1972 with very poor seismic control. Two wells
drilled in 1985 and 1986 were supported with 75 miles of seismic
data but in both cases were unsuccessful. The Registrant is
concentrating on the acquisition of seismic data and on surface
geological mapping.
The main exploration targets currently recognized are around the
Waitangi Oil Seeps area in the south of the permit area and the
Matanui Anticline area in the center of the permit area. The
surface expression of the Matanui Anticline covers some 80 square
miles in area and there are few oil or gas seeps along its
boundaries, indicating a possible unbreached structure. The
Registrant is also considering drilling a well alongside the old
Waingaromia-1 well, which produced oil in the 1880's before the rig
burnt down due to ignition of gas escaping from the well. A recent
survey of this old well confirmed that it is still actively leaking
hydrocarbons.
A 15 mile regional seismic line was completed in April, 1997 over
the main structural features of the basin, including the Matanui
and Pauariki Anticlines.
(c) Petroleum Prospecting License PPL 38332 (42.5%)
PEP 38332 covers an area of approximately one million acres in the
East Coast Basin and is located onshore in the southern Hawke Bay
area, North Island, immediately south of PEP 38328.
The country covered by PEP 38332 is a fairly flat alluvial plain in
the center, but more hilly, incised country in the east and west.
Major road and rail links, including the eight-inch natural gas
line to the Hawke Bay area, running across the center of PEP 38332.
There is a good network of minor roads. The area is predominantly
pastoral farmland, with no major population centers. The area is
serviced from Napier and Hastings to the north.
Two wells were drilled in the east of the permit in the early years
of the 20th century, and both recorded oil and gas shows. Two
further wells, in 1969 and 1971, were drilled in the western area
of PEP 38332, but were unsuccessful. These results identify the
area east of the Waewaepa Fault as being the main area of
exploration interest in PEP 38332. A number of prominent oil and
<PAGE> 41
gas seeps in the eastern area, and oil source rocks seen in
outcrop, confirm its potential for discovery. Potential reservoirs
are also present in the Miocene sandstones and Pliocene limestones.
Some limited seismic data, acquired in 1970, together with surface
geological mapping identifies potential trapping structures
immediately east of the Waewaepa Fault.
Approximately 15 miles of new seismic data were acquired in this
area of PEP 38332 in May, 1997 as an extension of the larger
program in PEP 38328, to the north. Further seismic in 1998 will be
considered after interpretation of this new seismic, together with
reinterpretation of the existing old seismic. Over the next six
months, the Registrant intends to continue the processing and
interpretation of seismic data.
The Registrant intends to apply for the acquisition of further
petroleum exploration rights in the East Coast Basin, New Zealand.
2. New Zealand, Canterbury Basin, South Island, Petroleum
Exploration Permit PEP 38256 (50%)
The Canterbury Basin is located both onshore and offshore in the
area surrounding Christchurch, on the east coast of the South
Island. The total area of the Canterbury Basin is about twelve
million acres. The sediments in the Canterbury Basin range in age
from Middle Cretaceous to Miocene and have evolved in a manner
similar to the Taranki Basin. There are numerous gas seeps in the
area.
There have been five wells drilled on PEP 38256 since 1914 and four
offshore wells drilled since 1970, two of which were condensate
discoveries, which are relevant in interpreting the geology of PEP
38256. Generally, the area is lightly explored. The basement rocks
are Cretaceous sediments and volcanics with some interbedding of
coal formations. Overlying the Cretaceous formations are Paleocene
and Eocene terrestrial sediments which gradually become of marine
origin towards the eastern part of the basin. Overlying these
formations are Oligocene limestone and sandstone formations which
are principally marine in origin. The early Miocene period saw the
deposition of marine sandstones and mudstones with a gradation to
nonmarine sediments in the late Miocene period. The Pliocene and
Quaternary strata are principally gravels derived from the
formation of the Southern Alps with some volcanics.
Structures in the area trend from the north east to the south west.
Little is known of the local geologic structure. The sandstones in
the Miocene, Paleocene and late Cretaceous formations are
considered to be potential reservoirs, with lesser emphasis placed
on the Eocene and Oligocene limestones. Interbedded mudstones would
provide seals for the reservoirs. Source formations are thought to
be the upper Cretaceous coal formations and the Whangai and Waipawa
Black Shale formations which are found elsewhere in the East Coast
Basin.
<PAGE> 42
3. New Zealand, Taranaki Basin, North Island
Regional Geology
The Taranaki Basin is located on the west coast of the North
Island. The sediments in the Taranaki Basin range in age from Late
Cretaceous to the Quaternary and encompass a depth of some 25,000
feet with complex structure and geology. Compression across the
eastern portion of the Basin during the early Miocene period
resulted in a thrusted fold belt up to ten miles wide, which
contains the McKee, Tariki, Ahuroa and Waihapa-Ngaere fields. The
eastern margin of the Basin, where PEP 38716 is located, is lightly
explored when compared with other areas of the Basin.
(a) Petroleum Mining Permit PMP 38148 (5%) and Petroleum
Prospecting License PPL 38706 (7.75%)
PPL 38706 and PMP 38148 are situated onshore in the north central
part of the Taranaki Basin, and cover a total area of approximately
40,000 acres. The area is immediately to the south of PEP 38720.
Oil production from the four wells producing from sandstones of the
Mount Messenger Formation at depths of 5,000 feet has remained
steady at 1,400 to 1,500 barrels per day. The participants intend
to workover the producing Ngatoro- well and to enhance the
production levels in the other producing wells. After this, a
development well is planned to be drilled in the Ngatoro-2 pool, to
be followed, if successful, by another development well, and an
exploration well is planned to be drilled to test an undrilled
structure in the PMP 38148 area.
(b) Petroleum Exploration Permit PEP 38716 (19.8%)
PEP 38716 is situated in the eastern margin of the onshore Taranaki
Basin and covers an area of approximately 67,000 acres. It is
located adjacent to both the Kapuni gas-condensate field,
discovered in 1959, and the Waihapa-Ngaere oil and gas field. The
gathering station for the Waihapa-Ngaere oil and gas field is
located within a few miles of the boundary of PEP 38716. The area
consists of gently rolling hills with rural agriculture being the
main activity.
Exploration of PEP 38716 has to date resulted in the collection of
several hundred miles of seismic data from the area overlying the
Taranaki Fault which formed the eastern margin of the Basin before
Miocene thrusting. Two major plays are currently recognized as the
basis for further exploration.
The Crown Prospect is located in the northern part of PEP 38716.
Two wells were drilled to the south of this prospect in 1991 and
both were unsuccessful. The main target horizons in the Crown
Prospect are the Tikorangi limestones, with an estimated depth of
<PAGE> 43
8,000 feet and the Tariki sandstones, with a depth of 10,500 feet.
The Crown Prospect is interpreted as a thrust block anticline,
somewhat similar in geological style and size to the nearby Waihapa
oil field.
Deeper reservoir targets are provided by the sandstones of the
Kapuni Group, with a depth of 12,000 to 16,000 feet. This formation
may underlie the Crown Prospect and areas in the southern part of
PEP 38716.
South of the Crown Prospect lies the Oru Prospect which overlies
the Miocene sandstones of the Mount Messenger Formation. This
horizon may contain oil at depths of less than 5,000 feet. This is
considered to be a secondary target within the permit area. The
Waihapa-8 well, drilled on the very edge of the Oru structure, flow
tested oil from the target sandstones at rates in excess of 750
barrels per day.
(c) Petroleum Exploration Permit PEP 38720 (50.0%)
PEP 38720 lies in the north central part of the Taranaki Basin,
immediately south-west of the McKee oil field and north-east of the
Ngatoro oil field. The Kaimiro gas field lies to the west of the
permit area. The permit area is underlain by a complete Tertiary
section including the Mount Messenger and Kapuni Formations which
are reservoir objectives.
The Inglewood Fault, a feature which has played a significant
geological role, both in creating traps for oil and gas, as in the
Kaimiro and Ngatoro fields and in providing a conduit for oil and
gas to move into such traps, crosses the northern part of PEP
38720. Movement on this fault system in the geological past has
created a structural trap at Kapuni level (12,000 feet) within PEP
38720, which has been mapped from existing seismic and well
information as covering an area of up to ten square km (2,500
acres). This feature, named the Waitoriki Prospect, will be the
main focus of the ongoing exploration effort.
A significant petroleum seep in a quarry on the permit boundary, at
a location where the Inglewood Fault cuts to ground surface,
demonstrates that oil entrapment at shallower levels can also
occur, in similar manner to the adjacent Ngatoro and Kaimiro oil
fields. This makes the shallower Mount Messenger Formation (~5,000
feet depth) an exploration target.
(d) Petroleum Exploration Permit 38723 (40%)
PEP 38723 is adjacent to, and was until 1993 part of, PEP 38706 and
has similar geology. Exploration of the general area has been
conducted since 1978 and has resulted in the discovery of the
McKee, Tariki, Ahuroa, Kaimiro and Ngatoro fields. The discovery of
the McKee field in 1979 directed exploration towards investigation
<PAGE> 44
of the overthrust area of the eastern Taranaki Basin. In the
general area, the formations which have been the targets of
exploration are the Kapuni Formation, the Mount Messenger Formation
and to a lesser extent the Upper Moki Formation. In 1993, 50% of
PEP 38706 was relinquished and there were no leads recognized in
the area covered by PEP 38723.
PEP 38723 is underlain by Late Cretaceous coal and marine shale
sequences. Above these formations lies the Kapuni Formation of
inter-bedded coal sequences which provide the principal source of
local oil and gas accumulations. Above the Kapuni formation lies
the McKee formation which was formed during the Eocene period. This
formation has a limited potential to be a producing horizon on PEP
38723 due to its limited distribution, depth and absence of
prospects and leads. During the Oligocene period, there was erosion
followed by sandstone and then limestone deposition. The Tikorangi
limestones increase in thickness towards the eastern boundary of
the permit. In the Miocene period, clastic sediments were deposited
to form the Moki sandstones which are a secondary reservoir target
and to form the Mount Messenger sandstones which have not been
tested on PEP 38723, although they are the producing horizon on the
adjacent Ngatoro and Kaimiro fields. Tectonic activity along the
Taranaki and Tarata fault zones also occurred during the Miocene
period. Tilting to the southwest and about one kilometer of uplift
occurred in the late Pliocene period.
The principal target formation on PEP 38723 is the Mount Messenger
sandstones. There is, however, much regional variation within this
formation given its deposition as toe and slope fans. Experience
from the Ngatoro wells indicates that there may be as little as
1000 meters of continuity in the Mount Messenger formation.
Definition of drilling targets requires well control, strong
seismic anomalies and evidence of geologic structural closure.
Papua New Guinea
Petroleum Prospecting License PPL 192 (40.0%)
PPL 192 lies across the Strickland River in Western Province, Papua
New Guinea. The area is covered by forests and is relatively flat.
The area is sparsely populated and the lack of roads leaves the
principal mode of transport as the Strickland River.
Drilling of several wells near to PPL 192 has given geologic
indications of features favorable to oil and gas exploration on PPL
192. Thirty miles to the north-west of PPL 192 a well drilled by
British Petroleum in 1990 was directed at a large basement drape
structure of some 25,000 acres in area and 250 feet of vertical
relief. The well encountered a basal Cretaceous sandstone at 10,040
feet which produced gas at 11.9 MMCFPD and condensate at 634 BCPD.
Other wells have encountered structures and horizons which are
likely to be replicated in PPL 192. Generally, the geologic system
contains sizable, four-way dip closures of areas of up to 5,000
<PAGE> 45
acres at the levels of Late Jurassic to Early Cretaceous target
horizons. There is widespread development at the 5,500 to 6,000
foot level of the Toro sandstones and overlying Cretaceous marine
shale which provide topseals, both of which have been encountered
throughout the area. Finally, the geologic structures in the area
were formed before hydrocarbon emplacement, meaning that structural
traps for entrapment of hydrocarbons existed at the time of any
hydrocarbon migration in the area.
PPL 192 has seen substantial exploration in the past. In the early
1970's, the area was largely covered by seismic surveys by Conoco,
Marathon, Union Oil and others. In 1988 to 1990, Shell US, spent
about $30 million in exploration and acquired an open 8 km by 16 km
seismic grid over most of the area, with an infilling down to a 4
km by 4 km grid over the Kamu and Mamboi Prospects and the Tagari
and Pogo Leads. Several other single line leads are also
identified, and sizable structures may have been completely missed
by the existing seismic coverage, given the open nature of the
grid. In addition, the drilling in 1991 of the Langia-l well,
located in the southern part of PPL 192, resulted in the discovery
of 25 feet of gas pay at 5,000 feet depth which might extend over
an area of some 5,000 acres across the Langia structure.
Since 1991, there has been virtually no exploration in this area as
exploration in Papua New Guinea was at reduced levels and was
concentrated in the mountain fold belt to the north-east of PPL
192. Activity in the foreland area has recently increased. The main
feature in PPL 192 is the Kamu Prospect, a structure in the center
part of the area defined on seismic as covering an area of
approximately 4,500 acres, with a vertical relief of about 260 feet
at the Toro Sands level at about 5,500 feet depth. The Toro Sands
are widely developed across the Papuan Basin, and are the main
producing reservoir sequence in virtually all the onshore
discoveries. In addition to the Toro Sands, the Digimu and Imburu
Formations also may be target reservoir formations.
Computer reprocessing and remapping of the existing seismic data is
in process and a variety of geological studies are being conducted
to better define the potential size and exploration uncertainties
of the existing prospects and leads, particularly focusing on the
Kamu Prospect and the Langia Field. In the immediate future, it is
expected that several wells will be drilled in adjacent foreland
basin licenses, both southeast and northwest of PPL 192, and these
should also aid in understanding the potential of PPL 192. After
completion of the current geological studies, further seismic
acquisition will be considered before a drilling program in the
license is announced.
The Registrant has applied for a further interest in Papua New
Guinea.
<PAGE> 46
Australia
(a) Offshore Petroleum Exploration Permit Ashmore Cartier AC/P19,
Timor Sea (65.0% to earn 61.75%)
The Western Australian continental margin was formed in the late
Paleozoic era by the extension of this area of Gondwanaland. This
event determined the major crustal architecture of the region. The
AC/P19 permit area lies within the northern and western portion of
the Vulcan sub-basin and the eastern flank of the Ashmore Platform.
The Vulcan Sub-basin is a north-east trending, fault bounded
deposition area that is characterized by several prominent troughs
and a graben terrain. It is bounded to the northwest and to the
southeast by the Permian-Triassic blocks of the Ashmore Platform
and the Londonderry High. Up to ten kilometres of Upper Permian to
Tertiary sediments lie in the basin.
The Vulcan Sub-basin is thought to have undergone a complex
structural evolution that was dominated by three tectonic events,
a Late Triassic compression, a Late Jurassic NNW-SSE extension and
a Tertiary compression on collision with Pacific plates. The fault
styles are dominated by a mixture of tilted fault blocks in the
southern area and hourglass structures in the northern area. The
location and geometry of the basement rocks control the relative
position of the source rocks, fluid migration paths and reservoirs.
The Ashmore Platform is a large, elevated block that extends along
the western margin of the Vulcan sub-basin. Triassic sediments on
the Ashmore Platform are up to 4.5 kilometres thick. Faulting of
the area in the Late Triassic resulted in extensive uplift and
erosion. Flat-lying Cretaceous and Tertiary sediments unconformably
overlie the Triassic sediments.
Regionally, Late Jurassic shales have been the source rocks for
hydrocarbon formation. Source rock shales may also have been
deposited in Middle and Early Jurassic shales in the Cartier
Trough. Four dry wells have been drilled on the Ashmore Platform
and this area is of little interest to the Registrant. The area of
greatest interest is the Cartier Trough. The main objectives for
exploration are traps that occur within and bounding the Cartier
Trough. The water depth in the area is about 400 meters.
The Registrant has applied for further offshore interests in the
Timor Sea.
(b) Offshore Gippsland Basin, Bass Strait Permit VIC/P-39 (33.33%
to earn 31.67%)
The Gippsland Basin lies offshore between the mainland of Australia
and Tasmania, about 30 miles from the coastline of the state of
Victoria. All commercial oil and gas fields located in the area
have been discovered in structural or combined structural and
<PAGE> 47
stratigraphic traps, mainly at the top of the Latrobe Group Coarse
Clastic formation. The basin was developed during the separation of
Australia from Antarctica by north-northeast to south-southwest
lithospheric extension during the Early Cretaceous and the
separation of Australia from the Lord Howe Rise and the Campbell
Plateau in the Late Cretaceous. Rifting occurred in the Early
Cretaceous and formed NNE-SSW transfer faults. Rift-bounding faults
terminate abruptly before reaching the Paleozoic Gippsland Rise.
The Rise is part of a regional belt which extends along the eastern
margin of Australia. A second phase of rifting occurred in the Late
Cretaceous, followed by a period of uplift and erosion over much of
the basin area. Most of the formations in the basin area, including
the Latrobe Group, are of marine to marginal marine origin.
Source formations in the area of the Gippsland Basin are located in
the Western and Eastern Deeps. The Western Deep has undergone
predominantly coastal plain deposition while the Eastern Deep was
a transition zone between an estuary environment and limited
offshore deposition. The Eastern Deep was buried during the Eocene
period. Oil formation and migration occurred during the Miocene
period and is believed to have been over vertical distances of two
kilometres from the source formations to the coarse clastic
sandstone reservoirs.
Permit VIC/P-39 is surrounded by the Kingfish, Halibut and Mackerel
oil fields and the Marlin, Snapper, Bream and Barracouta gas
fields. Seismic mapping of the area is difficult due to the
existence of large, buried marine channels. Historically, seven
wells have been drilled in the area of permit VIC/P-39. However,
correct positioning of the exploration wells has been hindered by
the difficulty of interpreting seismic data. The buried marine
channels give a false representation of the subsurface geology. The
Veilfin-1 well tested gas with a small amount of condensate at a
depth of 9,760 feet and exhibited hydrocarbon shows in other
formations. Preliminary examination of seismic information
indicated that the well was drilled off structure and the area to
the south east of the well is considered a lead. The other wells
were also unsuccessful.
Other leads recognized in the permit area are Lead A and Knifejaw.
The former is an upthrown, tilted fault block about six square
kilometres in area and the latter has been mapped as a downthrown
tilted fault block. Water depths in the area are less than 100
meters.
(c) Offshore Exploration Permit WA-199-P (5%), Timor Sea, Western
Australia
This permit area is located on the south east flank of the Sahul
Syncline in the Timor Sea, north east of the AC/P19 permit area.
The permit has been held since 1984 by the principal participants
and work to date has identified two main prospects, the Kittiwake
<PAGE> 48
Prospect in the northern part of the permit area and the Avocet
Deep Prospect in the southern part of the permit area. The water
depth over the Kittiwake Prospect is about 300 feet and the target
formation for drilling is the Plover sandstones at a depth of about
9,000 feet. The target formation is at a depth of some 12,000 feet.
The Kittiwake-1 well was dry. The participants have decided to
apply for a six month extension and to farm-out a well on the
Avocet Deep.
China
China-Joint Study Agreement of March 18, 1996 (50%)
The Registrant and Moondance Energy Limited have completed the
study of existing seismic data and the preparation of the report on
the Nanling and Wuwei basins and are negotiating the next stage of
the work program.
The basins are situated immediately north and south of the Yangtze
River in south-eastern Anhui Province and cover approximately 2.5
million acres (3,900 square miles). The shipbuilding center of
Wuhu, a trading hub and deep-water river port, is located in the
eastern part of the Wuwei Basin. It has a population of about
600,000 and is the last deep water port on the Yangtze River,
accommodating ships of up to 10,000 tons year round. Shanghai is
some 180 miles downstream.
The basins are geologically closely linked to the Subei Basin in
North Jiangsu Province, about 100 miles to the northeast.
Regionally, there was marine sedimentary deposition from the
Proterozoic to Early Mesozoic eras. This was followed by what is
called the Indosinian orogeny. This was a period of folding and the
occurrence of thrust faults with later erosion occurring from the
collision of the Yangtze and Huanan plates into the Jurassic
period. There was then a change to continental sequences of
deposition with arid conditions in the Early Cretaceous, regional
compression thrust faults and north-west trending, high angle
faulting occurred. This was followed in the Late Cretaceous by
extensional rift basin development which were filled by thick
continental deposits throughout the Cenozoic era. As a consequence,
the basins have complex structural features of highly folded and
eroded pre-Jurassic marine sequences which have been later thrusted
and buried under thousands of meters of continental sedimentary
formations. The current surface morphology is relatively flat and
the recent deposition of continental sediments hides the complex
structure.
The formations laid down in the Permian and Triassic periods are
considered the best source for hydrocarbons. Outcrops of formations
of Early Triassic age on the edges of the basins contain
hydrocarbons. Outcrops of the Late Cretaceous to early Cenozoic
strata have not been observed. The Paleozoic sediments are not
<PAGE> 49
considered to be likely formations for the location of reservoirs.
On the south-western edge of the Wuwei Basin, there are outcrops of
Middle to Late Jurassic carbonates and on the south-east edge of
the Nanling basin there are outcrops of Cretaceous conglomerates
and an outcrop of a porous sandstone which may possibly be placed
in the Late Cretaceous period.
The regional folding that occurred during the Indosinian orogeny
created four-way dip closures that are the most favorable
structures for hydrocarbon entrapment. These "buried hill"
structures affect the overlying sediments. In the overlying
sediments, the normal and wrench faulting has created other traps
for hydrocarbons. Accordingly, there are a number of targets for
exploration, although the geology is complex. The basins contain
numerous other leads, including domal features and pinch outs,
unconformity, and stratigraphic and fault traps.
The basins have been lightly explored, with efforts by Chinese
exploration companies being limited to geophysical surveys and the
drilling of one deep exploration well. The participants have
reinterpreted about 360 miles of seismic data collected in the
Wuwei Basin in 1989 to 1994 and about 430 miles of pre-1982 analog
data and 52 miles of 1988 digital data in the Nanling Basin.
The existing seismic data from the Nanling and Wuwei Basins was
reprocessed in Shanghai for the Registrant as part of the ongoing
evaluation of these areas. The main Nanling Basin prospect is the
Hongzhuang Prospect, a mid-basin domal ridge approximately 8,000
feet deep at the crest, which is mapped in an upper level as
covering approximately 25 square miles, with almost 1,200 feet of
vertical relief. A second structure at about 12,000 feet deep
covering about eight square miles with almost 1,000 feet of
vertical relief has been detected.
Conceptual planning and costing of exploration wells on the
Hongzhuang Prospect in the Nanling Basin and the Longtangwan
Prospect in the Wuwei Basin is being completed, together with an
assessment of the costs of additional seismic programs, in
preparation for the next phase of work in these areas.
GLOSSARY OF TERMS
Currency and Measurement-All currency amounts in this Statement are
stated in United States dollars unless otherwise indicated.
Conversion into imperial equivalents is as follows:
Metric Units Imperial Units
hectare 2.471 acres
meter (m) 3.281 feet
kilometer (km) 0.621 miles (5,280 feet)
<PAGE> 50
Geologic Time
Name of Era Name of Period Number of Years Before Present
Quaternary Holocene 0 to 400,000
Pleistocene 400,000 to 1,800,000
Tertiary Pliocene 1,800,000 to 5,000,000
Miocene 5,000,000 to 24,000,000
Oligocene 24,000,000 to 36,500,000
Eocene 36,500,000 to 56,000,000
Paleocene 56,000,000 to 66,000,000
Mesozoic Cretaceous 66,000,000 to 140,000,000
Jurassic 140,000,000 to 200,000,000
Triassic 200,000,000 to 250,000,000
Paleozoic Permian 250,000,000 to 290,00,000
Carboniferous 290,000,000 to 365,000,000
Devonian 365,000,000 to 405,000,000
Silurian 405,000,000 to 425,000,000
Ordivician 425,000,000 to 500,000,000
Anticline is a geologic structure in which the sedimentary strata
are folded to form an arch or dome.
Basin is a segment of the crust of the Earth which has been
downwarped and in which thick layers of sediments have accumulated
over a long period of time.
Condensate refers to hydrocarbons associated with natural gas which
are liquid under surface conditions but gaseous in a reservoir
before extraction.
Depletion is the reduction in petroleum reserves due to production.
Development Phase refers to the phase in which a proven oil or gas
field is brought into production by drilling and completing
production wells.
Dry Hole is a well drilled without finding commercial quantities of
oil or gas.
Exploration Well is a well drilled without knowledge of the
contents of the underlying rock.
Farm-In or Farm-Out refers to a common form of agreement between
petroleum companies where the holder of the petroleum interest
agrees to assign all or part of an interest in the ownership to
another party that is willing to fund agreed exploration
activities.
Formation is a reference to a group of rocks of the same age
extending over a substantial area of a basin.
<PAGE> 51
Hydrocarbons is the general term for oil, gas, condensate and other
petroleum products.
Lead is an inferred geological feature or structural pattern which
on further investigation may be upgraded to a prospect.
Participating Interest or Working Interest is an equity interest
(compared with a royalty interest) in an oil and gas property
whereby the participating interest holder pays its proportionate
percentage share of development and operating costs and receives
the equivalent share of the proceeds of hydrocarbon sales after
deduction of royalties due on the gross income.
Pay Zone is the stratum of sedimentary rock in which oil or gas is
found.
Prospect is a potential hydrocarbon trap which has been confirmed
by geological and geophysical studies to the degree that drilling
of an exploration well is warranted.
Reservoir is a porous and permeable sedimentary rock formation
containing adequate pore space in the rock to provide storage space
for oil, gas or water.
Seal is an impervious sedimentary rock formation overlying a
reservoir that prevents the further migration of hydrocarbons.
Seismic refers to a geophysical technique using low frequency sound
waves to determine the subsurface structure of sedimentary rocks.
Trap is a geological structure in which hydrocarbons build up to
form an oil or gas field.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Registrant's securities are recorded on the books of its
transfer agent in registered form. However, the majority of such
shares are registered in the name of intermediaries such as
brokerage houses and clearing houses on behalf of their respective
clients and the Registrant does not have knowledge of the
beneficial owners thereof. The Registrant is not directly or
indirectly owned or controlled by a corporation or foreign
government.
As of December 31, 1997 the Registrant had authorized share capital
of 100,000,000 common shares without par value of which 28,262,398
shares were issued and outstanding.
<PAGE> 52
Of the issued and outstanding shares, there are 1,406,250 shares
subject to escrow restrictions and held in escrow by Pacific
Corporate Trust Company ("Pacific Corporate"), 830 - 625 Howe
Street, Vancouver, British Columbia pursuant to an agreement dated
April 8, 1994. The escrow shares were originally issued in
accordance with Local Policy 3-07 of the British Columbia
Securities Commission. 1,361,250 shares are owned by International
Resource Management Corp.("IREMCO"), a private company the voting
shares of which are owned by Alex Guidi. Mr. Guidi is a member of
the board of directors, chairman and promoter of the Registrant. By
an agreement dated December 15, 1997 IREMCO agreed, subject to
receipt of regulatory approval, to sell 225,000 escrow shares to
Dr. David Bennett. Two former directors own 45,000 and they are by
the terms of the agreement dated April 8, 1994 obligated to
transfer the escrow shares held by them to IREMCO or surrender the
shares to the Registrant.
The agreement of April 8, 1994 provides that the beneficial
ownership of the common shares or any interest in them will not be
sold, assigned, hypothecated, alienated, released from escrow,
transferred within escrow or otherwise in any manner dealt with,
without the expressed consent, order or direction in writing from
the Executive Director, British Columbia Securities Commission (the
"BCSC"), except as may be required by the death or bankruptcy of
any shareholder. All voting rights attached to the escrowed shares
may be exercised by the registered owner and any dividends declared
on the common shares of the Registrant will similarly be paid to
the holders of the escrowed shares. The shares are released from
escrow on application to the Executive Director and an assessment
by the Executive Director of the progress of the Registrant's
business. If any shares are not released from escrow before April
25, 1999, those shares are to be cancelled.
In January, 1998 the Registrant applied for the consent of the
Executive Director to the transfer of 225,000 escrow shares to Dr.
Bennett. In his position as president and chief executive officer
of the Registrant, Dr. Bennett is an eligible recipient of escrow
shares under applicable BCSC securities policies. On application
made January 20, 1998 to the BCSC for consent to the transfer of
225,000 of the escrow shares to Dr. David Bennett, the Registrant
was informed that the BCSC maintained an unofficial and unpublished
policy that consent to the transfer or release of escrow shares was
not given if the shares of an applicant were not listed for trading
on a stock exchange or facility recognized by the BCSC. The BCSC
does not recognize the Over-the-Counter Bulletin Board. The BCSC
declined to consider the application for consent to the transfer in
spite of the terms of the escrow agreement of April 8, 1994 and its
own policy statement.
<PAGE> 53
The position of the BCSC is based on their view that adequate
regulatory supervision of the business of the Registrant may not be
provided unless subject to the review and policies of a body such
as the Vancouver Stock Exchange. The view of the Registrant is that
compliance with applicable common and statutory laws of Canada and
the United States and reliance by shareholders on the experience
and judgment of members of the board of directors and management of
the Registrant is sufficient for shareholders' and investors'
needs.
The Registrant obtained shareholder approval for the surrender and
cancellation of the escrow shares and replacement of the escrow
shares by the issue to IREMCO of 1,181,250 common shares for
CDN$0.01 per share and to the DJ and JM Bennett Family Trust of
225,000 common shares for CDN$0.01 per share. The shares to be
issued to the DJ and JM Bennett Family Trust will, after expiry of
the applicable statutory hold period, be released to the trust
based on the board of directors' assessment of the progress of the
business of the Registrant under the management of Dr. Bennett.
IREMCO's shares will not be subject to this condition. The
Registrant has entered into agreements dated April 15, 1998 with
IREMCO and the DJ and JM Bennett Family Trust to provide for the
issuance of such shares on receipt of shareholders' approval and
issuance of an exemption order under applicable securities
legislation.
The replacement shares were issued on June 25, 1998 after receipt
of the necessary exemption order.
In September 1996, trading in the shares of the Registrant was
suspended on the Vancouver Stock Exchange (the "VSE") due the VSE's
stated concerns that market and promotional activities by
individuals associated with the Registrant were misleading to
investors. The Registrant was, and remains, of the view that the
action taken by the VSE was unwarranted. After brief, informal
meetings with VSE officials the Registrant elected to voluntarily
delist its shares from trading through the facilities of the VSE.
To the Registrant's knowledge, no investigation, formal hearing or
other impartial proceeding was instigated by the VSE or the British
Columbia Securities Commission, the British Columbia governmental
body responsible for overseeing the VSE and neither body pursued
any allegation.
The beneficial shareholdings, and addresses, of persons or entities
holding five per cent or more of the Registrant's common shares as
at December 31, 1997 is as follows:
<PAGE> 54
Title of Class Person or Group Amount Percentage of
and Address Class
Common shares Alex Guidi (1) 5,904,076 20.9% (3)
Vancouver, B.C.
Common shares Peter Loretto (2) 2,307,208 8.2% (3)
Richmond, B.C.
Notes:
(1) Mr. Guidi holds rights to acquire 994,000 common shares of the
Registrant at various prices and has agreed on receipt of
regulatory and shareholder approval to surrender escrow shares and
be issued 1,181,250 shares.
(2) Includes the holdings of Mrs. Tanya Loretto. At December 31,
1997 Mr. Loretto and Mrs. Tanya Loretto held rights to acquire
1,296,000 common shares at various prices.
(3) Calculated on a non-diluted basis. On a fully diluted basis,
Mr. Guidi beneficially owns 21.3% of the shares and Mr. Peter and
Mrs. Tanya Loretto beneficially own 10.5% of the shares.
The directors, officers and associated insiders as a group (four
persons) owned as of December 31, 1997, 5,906,866 shares of the
Registrant which is 20.9% of the outstanding shares on a non-
diluted basis or 24.6% of the outstanding shares of the Registrant
on a fully diluted basis. The holdings of the directors and
officers are as follows:
Number of Shares Percentage
Name Beneficially Held of Class
David Bennett (1) Nil Nil
Ronald Bertuzzi 1,790 0.006%
Alex Guidi 5,904,076 20.89%
John Holland Nil Nil
Brad Holland Nil Nil
Mark Katsumata 1,000 0.004%
Note:
(1) By an agreement dated April 15, 1998 the DJ and JM Bennett
Family Trust subscribed for 225,000 shares at CDN$0.01 per share,
subject to receipt of regulatory and shareholder approval.
The Securities Act (Yukon) does not require reporting by insiders.
The Registrant is a reporting issuer in British Columbia and
insiders comply with Part 12 of the Securities Act (British
Columbia). Insiders (generally officers and directors of the
Registrant and its subsidiaries, persons who own or control at
<PAGE> 55
least ten percent of the voting shares and employees or consultants
of the Registrant) are required to file individual insider reports
of changes in their ownership in the Registrant's securities within
the first ten days of the calendar month following any trade in the
Registrant's securities. Copies of such reports are available for
public inspection at the offices of the British Columbia Securities
Commission, Suite 200 - 865 Hornby Street, Vancouver, British
Columbia V6Z 2H4 phone (604) 899-6500, facsimile: (604) 899-6506.
The names, holdings, exercise price and expiry date of outstanding
options to acquire common shares of the Registrant are as follows:
Name Number of Shares Exercise Price Expiry Date
Under Option (1)
David Bennett (2) 200,000 $2.50 10/30/2000 (4)
Jennifer
Bennett (2) 50,000 2.50 03/25/1999
Alex Guidi 500,000 2.50 10/30/2000 (4)
Brad Holland 300,000 2.50 05/13/2000 (4)
John Holland (3) 500,000 2.50 03/25/1999
Mark Katsumata 6,000 3.00 05/12/1999
Jennifer Muzzin 5,000 3.125 05/22/1999
Paul Townson 5,000 3.125 05/22/1999
Notes:
(1) In the year ended December 31, 1997, options to acquire 279,000
shares were exercised.
(2) To be transferred to the DJ and JM Bennett Family Trust on
receipt of regulatory approval.
(3) After December 31, 1997 the option held by John Holland expired
on his death.
(4) Term extended pursuant to agreements dated May 7, 1998.
The names, holdings, exercise price and expiry date of outstanding
warrants to purchase common shares of the Registrant are as
follows:
Number of
Name Share Purchase Price Expiry Date
Warrants
Tracy Godoy 160,000 CDN$3.485 05/28/1999 (3)
Alex Guidi 494,000 CDN$3.485 05/27/1999 (3)
Peter Loretto 146,000 (1) CDN$3.485 05/27/1999 (3)
1,000,000 (2) Note (2) 07/03/2000
Tanya Loretto 150,000 CDN$3.485 05/27/1999 (3)
<PAGE> 56
Notes:
(1) In the year ended December 31, 1997, warrants to acquire 50,000
shares were exercised.
(2) By an agreement dated June 2, 1997, Mr. Loretto purchased
1,000,000 units for $1.80 per unit. Each unit is comprised of one
common share and one non-transferable share purchase warrant. Each
share purchase warrant entitles the holder to purchase a common
share for $1.90 before July 4, 1998, for $2.00 from July 4, 1998 to
July 3, 1999 and for $2.10 from July 4, 1999 to July 3, 2000.
(3) Term extended by agreements dated May 8, 1998.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, municipality of residence, age and position held of the
directors and officers of the Registrant are as follows:
Name and Municipality of Age Position Held
Residence
Dr. David Bennett (1) 51 President, Chief Executive
Karori, Wellington Officer and Director
New Zealand
Ronald Bertuzzi (1)(2) 60 Director
Vancouver, British Columbia
Canada
Alex P. Guidi 38 Chairman of the Board
Vancouver, British Columbia and Director
Canada
Brad J. Holland (1) 40 Director
Dhahran, Saudi Arabia
Mark Katsumata 31 Secretary
Surrey, British Columbia
Canada
Notes:
(1) Member of audit committee.
(2) Appointed on March 31, 1998.
<PAGE> 57
Dr. David Bennett has been a member of the board of directors and
an officer since October, 1996. Dr. Bennett received a Bachelor of
Arts (Natural Sciences) from Cambridge University in 1968 and a
Master of Science in Exploration Geophysics from the University of
Leeds in 1969. In 1973, Dr. Bennett received his doctorate in
Geophysics from the Australian National University and from 1973 to
1975 conducted post-doctoral research at the University of Texas
(Dallas). From 1975 to 1977, Dr. Bennett was a post-doctoral fellow
and lecturer at the University of Wellington, New Zealand. From
1977 to 1982, Dr. Bennett was employed by the Department of
Scientific and Industrial Research, Government of New Zealand and
from 1982 to 1994 was employed as geophysicists, exploration
manager and finally general manager by New Zealand Oil and Gas Ltd.
Dr. Bennett was an independent consultant from 1994 to 1996 when he
joined the Registrant and other associated companies. Dr. Bennett
has been the president and a member of the board of directors of
the Registrant since October, 1996. Since November, 1996, Dr.
Bennett has been a member of the board of directors, and since
April, 1997 the president, of Trans-Orient Petroleum Ltd. and since
April, 1997 a member of the board of directors and president of
Durum Energy Corp.
Mr. Bertuzzi was a member of the board of directors from October 2,
1992 to October 30, 1996 and was appointed on March 31, 1998 to
fill the vacancy resulting from the passing of Mr. John Holland.
Mr. Bertuzzi received a Bachelor of Arts from the University of
British Columbia in 1965 and has worked in the medical sales and
product development industries since that time. Mr. Bertuzzi is a
member of the board of directors of several companies, including
Trans New Zealand Oil Company, of which he is president, and
Gondwana Energy, Ltd., of which he is secretary.
Mr. Alex Guidi has been a member of the board of directors and an
officer since October, 1996. Mr. Guidi has been involved in public
markets since 1980 and since 1986 in the oil and gas sector. Mr.
Guidi has organized and financed five oil and gas companies. Mr.
Guidi has been chairman of the board and a member of the board of
directors of the Registrant since October, 1996. From July, 1988 to
December, 1995, Mr. Guidi was a member of the board of directors of
Trans-Orient Petroleum Ltd. and was elected a member of the board
of directors on January 28, 1998 and chairman on April 22, 1998.
From December, 1990 to May, 1996, Mr. Guidi was a member of the
board of directors of Durum Energy Corp. and was president from
August, 1992 to May, 1996. See Item 7-Certain Relationships and
Related Transactions.
Mr. Brad Holland was a member of the board of directors from May,
1996 to February, 1997, an officer from February, 1997 to October
15, 1997 and was appointed a member of the board on October 15,
1997. Mr. Holland received a Bachelor of Science in Chemical
Engineering from the University of Alberta in 1979. Mr. Holland was
initially employed for two years by John Holland Consultants Ltd.
<PAGE> 58
in property valuation, production management, evaluation and
financing for production acquisition. From 1982 to 1988, Mr.
Holland was employed by Canadian Western Natural Gas, a natural gas
utility. From 1988 to 1992, Mr. Holland was employed as a senior
project engineer with Nova Corp. where he was responsible for the
design and construction of large diameter pipeline projects. Since
1992, Mr. Holland has been employed by ARAMCO in Saudi Arabia in
the construction of pipelines.
Mr. Mark Katsumata was a director and officer from December, 1994
to November, 1995 and an officer from November, 1995 to February,
1997. Mr. Katsumata was appointed an officer on October 15, 1997.
Mr. Katsumata is a certified general accountant who was in public
practice from 1990 to 1994 in Vancouver, B. C. In 1994 Mr.
Katsumata joined the Registrant and associated companies as
controller. Mr. Katsumata is also the secretary of Trans-Orient
Petroleum Ltd., Durum Energy Corp. and Trans new Zealand Oil
Company.
All directors have a term of office expiring at the next annual
general meeting of the Registrant to be scheduled in June, 1998
unless re-elected or unless a director's office is earlier vacated
in accordance with the by-laws of the Registrant or the provisions
of the Business Corporations Act (Yukon). All officers have a term
of office lasting until their removal or replacement by the board
of directors.
ITEM 6. EXECUTIVE COMPENSATION
During the year ended December 31, 1997 the Registrant had two
executive officers: David Bennett, president and chief executive
officer and Alex Guidi, chairman of the board. The aggregate cash
compensation paid or payable by the Registrant and its subsidiaries
to its executive officers during the year ended December 31, 1997
was $132,214 all of which was compensation paid to Dr. Bennett.
During the year ended December 31, 1996 the Registrant had three
executive officers: David Bennett, president and chief executive
officer; Alex Guidi, chairman of the board; and John Holland, a
former president and chief executive officer. The aggregate cash
compensation paid or payable by the Registrant and its subsidiaries
to its executive officers during the year ending December 31, 1996
was $80,092. During the year ended December 31, 1995, the
Registrant had two executive officers: John Holland, a former
president and chief executive officer, and Mark Katsumata, a former
president and chief executive officer. No cash compensation was
paid by the Registrant and its subsidiaries to its executive
officers during the year ended December 31, 1995.
No long-term incentive plan awards have been made to the directors
and officers for the Registrant's most recently completed financial
year.
<PAGE> 59
No other cash compensation, including salaries, fees, commissions,
and bonuses, was paid or is to be paid to the directors and
officers of the Registrant for services rendered for the financial
years ended December 31, 1997 or 1996, nor was any remuneration
paid to the Registrant's directors in their capacity as such.
No profit sharing, pension or retirement benefit plans have been
instituted by the Registrant and none are proposed at this time.
There are no arrangements for payments on termination of any member
of management in the event of a change of control.
The aggregate value of directors' and senior officers' options
exercised below the market price of the shares at the time of
exercise for the year ended December 31, 1997 was $570,660, for the
year ended December 31, 1996 was $2,365,008 and for the period
ended December 31, 1995 was nil. These benefits are calculated as
the difference between the market price and option exercise price
on the date of exercise. Actual proceeds of the disposition will
usually vary from the date of the exercise to the date of actual
disposition of such shares.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisitions From or With Associated Companies
The Registrant has acquired interests in some petroleum properties
with four other companies, Durum Energy Corp. ("Durum"), Trans-
Orient Petroleum Ltd. ("TOP"), Trans New Zealand Oil Company
("TNZ") and Gondwana Energy Ltd. ("Gondwana"). Mr. Alex Guidi is
the promoter, a member of the board of directors and the chairman
of the Registrant. Mr. Guidi is also the promoter and a member of
the board of directors of TOP and TNZ and the promoter of Gondwana
and the chairman of TOP. Mr. Guidi is a shareholder of Durum. Dr.
David Bennett is the president, chief executive officer and a
member of the board of directors of the Registrant, TOP and Durum.
Mr. Ronald Bertuzzi is a member of the board of directors of the
Registrant, TNZ and Gondwana and is president of TNZ and secretary
of Gondwana. Messrs. Bernhard Zinkhofer and Peter McKeown are
members of the board of directors of TOP and Durum. They have no
direct relationship to the Company. Mr. Mark Katsumata is the
secretary of the Registrant, TOP, Durum and TNZ.
At April 30, 1998 Mr. Guidi beneficially held 5,904,076 common
shares of the Registrant of a total outstanding of 28,262,398
common shares (20.9%) and held rights to acquire an additional
994,000 common shares at various prices. At April 30, 1998 Mr.
Guidi beneficially held 10,021,400 common shares of TOP of a total
outstanding of 28,769,060 common shares (34.8%) and held rights to
acquire an additional 6,800,000 common shares at various prices. At
April 30, 1998 Mr. Guidi beneficially held 1,000,000 common shares
of Durum of a total outstanding of 9,541,908 common shares (10.5%)
<PAGE> 60
subject to an agreement dated April 15, 1997 among Alex Guidi,
Peter Loretto, Tanya Loretto and S. David Anfield as trustee. At
April 30, 1998 Mr. Guidi held 5,031,000 common shares of TNZ of a
total outstanding of 11,000,000 common shares (45.7%).
Other
No director or senior officer, and no associate or affiliate of the
foregoing persons, and no insider has, or has had any material
interest, direct or indirect, in any transactions, or in any
proposed transaction which in either such case has materially
affected or will materially affect the Registrant or its
predecessors except as disclosed herein.
Related Party Transactions
In the year ended December 31, 1997, consulting fees of $132,214
were paid to Dr. David Bennett, president and chief executive
officer of the Registrant. During the fiscal year ended December
31, 1996, consulting fees of $80,092 (December 31, 1995 fiscal
period - $29,274) were paid to Dr. Bennett.
In May, 1996, the Registrant sold 1,000,000 units pursuant to a
private placement. Each unit consists of one common share of the
Registrant and one share purchase warrant. Each share purchase
warrant entitles the holder to purchase a common share for
CDN$3.485 per share until May 27, 1998. Mr. Alex Guidi, chairman of
the board and a director of the Registrant, acquired 494,000 units.
By an agreement dated May 18, 1995, the Registrant granted Durum
Energy Corp. ("Durum"), a company with a common director, the right
to acquire up to a 20% interest in future exploration ventures
undertaken by the Registrant for a one year period, renewable
annually. In return, Durum would provide the Registrant with
certain services and duties in connection with the conduct of the
business of the Registrant. During the fiscal year ended December
31, 1996, this agreement was cancelled.
By an agreement dated September 1, 1997 the Registrant assigned a
participating interest of 10.0% in petroleum exploration permit
38328, East Coast Basin, New Zealand to a subsidiary of Trans-
Orient Petroleum Ltd. for nominal consideration.
By an agreement dated September 15, 1997 the Registrant satisfied
obligations of Trans-Orient Petroleum Ltd. relating to PEP 38328 in
consideration of the issuance of 233,510 shares of Trans-Orient
Petroleum Ltd. for $1.00 per share.
<PAGE> 61
By an agreement dated September 1, 1997 the Registrant assigned a
participating interest of 10% in petroleum exploration permit
38256, Canterbury Basin, New Zealand to a subsidiary of Trans New
Zealand Oil Company Ltd. and a participating interest of 5.0% to a
subsidiary of Gondwana Energy Ltd. for nominal consideration. This
agreement was cancelled on January 31, 1998.
By an agreement dated June 30, 1997, the Registrant assigned a
participating interest of six per cent in petroleum exploration
permit PEP 38716, Taranaki Basin, New Zealand to Durum Energy Corp.
for nominal consideration.
By an agreement dated June 30, 1997, the Registrant assigned a
participating interest of 20% in petroleum prospecting license PPL
192, Papua New Guinea to a subsidiary of Trans Orient Petroleum
Ltd. and a participating interest of 20% in petroleum prospecting
license PPL 192, Papua New Guinea to a subsidiary of Durum Energy
Corp. for nominal consideration.
Any member of the Registrant's management that, in its capacity as
such, locates or acquires an interest in an oil and gas property
must, because of his or her fiduciary relationship with the
Registrant, present the opportunity to effect such acquisition by
the Registrant on terms commensurate with those prevailing in the
industry. If however, the Registrant declines to participate in the
acquisition of any such property, these members of the Registrant's
management may effect an acquisition for their own account. The
directors and officers of the Registrant are both by statute and at
common law, required to act fairly and in the best interests of the
Registrant and are not permitted to breach this fiduciary duty for
their own benefit.
In many cases, application for exploration permits has been made
without consideration of which company in the IREMCO group would
participate in the permit. A case in point in PPL 192, Papua New
Guinea, in which the Registrant was granted an 80% participating
interest. The Registrant then conveyed a 20% participating interest
for nominal consideration to Trans-Orient Petroleum Ltd. and Durum
Energy Corp. In both cases, the Registrant may have been able to
obtain more favorable terms from third parties. Investors not
willing to rely on the judgment of management in allocating
interests in exploration properties should not consider an
investment in the Registrant or in associated companies.
ITEM 8. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant is
subject or which are anticipated or threatened.
<PAGE> 62
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of the Registrant traded on the Vancouver Stock Exchange
("VSE") in Vancouver, British Columbia, Canada to September 12,
1996. Since January, 1996 the shares of the Registrant have traded
and continue to trade on the OTC Bulletin Board under the symbol
"INDX". Summary trading by quarter, adjusted for the 1996 stock
subdivisions, for the two most recent calendar years ending
December 31, 1997 and the three quarter ending September 20, 1998
as follows:
VSE and OTC Bulletin Board
(in United States dollars unless otherwise indicated)
Year and Trading
Quarter(1) High(1) Low(1) Close(1) Volume (1)
1996
First Quarter CDN$2.75 CDN$0.97 CDN$2.67 6,100,851
Second Quarter CDN$7.80 CDN$2.71 CDN$5.80 28,021,277
Third Quarter (2) 10.25 3.00 5.75 9,214,099
Fourth Quarter 7.75 1.75 3.13 8,341,500
1997
First Quarter $4.031 $0.30 $2.25 10,075,800
Second Quarter $4.437 $2.13 $4.312 5,675,200
Third Quarter $6.562 $3.50 $3.656 10,199,200
Fourth Quarter $3.75 $1.25 $2.438 6,399,900
1998
First Quarter $3,563 $2.406 $2.844 3,609,500
Second Quarter $3.000 $1,492 $1.719 3,985,000
Third Quarter $1.813 $0.563 $0.969 4,191,100
Notes:
(1) Volume adjusted for 0.5 for one share subdivision on April 15,
1996 and one for one shares subdivision on May 31, 1996.
(2) To September 12, 1996 on the VSE and thereafter only on the OTC
Bulletin Board.
As at June 30, 1998 there were 28,262,398 shares outstanding. At
June 30, 1998 there were 1,180 holders of record within the United
States collectively holding 18,951,627 of such shares, or
approximately 67% of outstanding shares. To the best of the
knowledge, information and belief of the Registrant, shares of the
Registrant are held by U.S. residents through brokerage clearing
houses, depositories or otherwise in unregistered form, but the
actual number and percentage of these shares is not known by the
Registrant.
<PAGE> 63
No cash dividends have been declared by the Registrant nor are any
intended to be declared. The Registrant is not subject to any legal
restrictions respecting the payment of dividends (except that they
may not be paid to render the Registrant insolvent). Dividend
policy will be based on the Registrant's cash resources and needs
and it is anticipated that all available cash will be needed for
property development for the foreseeable future.
The Registrant believes that its market price is a reflection of
actual sales and purchases. OTC BB quotations may reflect
interdealer prices, without retail markup, markdown or commission
and may not necessarily reflect actual transactions.
Exchange Controls and Other Limitations Affecting Security Holders
There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the
remittance of dividends, interest or other payments to a non-
resident holder of common shares of the Registrant, other than
withholding tax requirements. The 1980 Tax Convention between
Canada and the United States provides for a rate of withholding tax
on dividends of five per cent of the amount to be paid if the
recipient is a corporation and holds more than 10% of the shares of
the Registrant and a withholding tax of 15% in all other cases. In
the absence of the 1980 Tax Convention, the rate would be 25% per
cent on all distributions of dividends.
There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the
remittance of dividends, interest or other payments to a non-
resident holder of Common shares, other than withholding tax
requirements. Any such remittances to United States residents are
subject to withholding tax. See "Taxation".
There is no limitation imposed by the laws of Canada or by the
charter or other constituent documents of the Registrant on the
right of a non-resident to hold or vote common shares, other than
as provided in the Investment Canada Act (Canada) (the "Investment
Act"). The following discussion summarizes the principal features
of the Investment Act for a non-resident who proposes to acquire
common shares. It is general only, it is not a substitute for
independent advice from an investor's own advisor, and it does not
anticipate statutory or regulatory amendments.
The Investment Act generally prohibits implementation of a
reviewable investment by an individual, government or agency
thereof, corporation, partnership, trust or joint venture (each an
"entity") that is not a "Canadian" as defined in the Investment Act
(a "non-Canadian"), unless after review the minister responsible
for the Investment Act (the "Minister") is satisfied that the
investment is likely to be of net benefit to Canada. An investment
in common shares by a non-Canadian other than a "WTO Investor" (as
<PAGE> 64
that term is defined in the Investment Act and which term includes
entities which are nationals of or are controlled by nationals of
members of the World Trade Organization) when the Registrant was
not controlled by a WTO Investor, would be reviewable under the
Investment Act if it was an investment to acquire control of the
Registrant and the value of the assets of the Registrant was $5
million or more, or if an order for review was made by the federal
cabinet on the grounds that the investment related to Canada's
cultural heritage or national identity. An investment in common
shares by a WTO Investor, or by a non-Canadian when the Registrant
was controlled by a WTO Investor, would be reviewable under the
Investment Act if it was an investment to acquire control of the
Registrant and the value of the assets of the Registrant was not
less than a specified amount, which for 1997 is CDN. $172 million,
and which increases each year by an amount equal to the increase in
current nominal Gross Domestic Product. A non-Canadian would
acquire control of the Registrant for the purposes of the
Investment Act if the non-Canadian acquired a majority of the
common shares. The acquisition of less than a majority but one-
third or more of the common shares would be presumed to be an
acquisition of control of the Registrant unless it could be
established that, on the acquisition, the Registrant was not
controlled in fact by the acquirer through the ownership of common
shares.
Certain transactions relating to common shares would be exempt from
the Investment Act, including
(a) an acquisition of common shares by a person in the ordinary
course of that person's business as a trader or dealer in
securities,
(b) an acquisition of control of the Registrant in connection with
the realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of the
Investment Act, and
(c) an acquisition of control of the Registrant by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
the Registrant, through the ownership of common shares, remained
unchanged.
Acquisitions of control by WTO Investors of certain Canadian
businesses are subject to review even if the value of the assets of
the Canadian business does not exceed the annual threshold
applicable to WTO Investors. For example, investments in the
following sectors are subject to the $5 million threshold
applicable to all non-Canadians: uranium, financial services,
transportation services and cultural businesses, which include
publication, distribution and sale of books, magazines,
periodicals, newspapers, music, film and video products and the
<PAGE> 65
exhibition of film and video products and broadcast media such as
television and radio services. The Minister has also issued an
Interpretation Note advising that oil and gas properties, and other
mineral properties, which are only at the exploration stage, are
not considered to be a business. A producing mine, however, is
considered to be a business as is a property on which development
of a mine has been commenced for the purpose of production.
Taxation
The following summarizes the principal Canadian federal income tax
considerations applicable to the holding and disposition of common
shares by a holder of one or more common shares (the "Holder") who
is resident in the United States of America and holds common shares
solely as capital property. This summary is based on the current
provisions of the Income Tax Act (Canada) (the "Tax Act"), the
regulations thereunder and all amendments to the Tax Act publicly
proposed by the government of Canada to the date hereof, and on the
current provisions of the Canada-U.S. 1980 Tax Convention (the
"Treaty"). It has been assumed that all currently proposed
amendments to the Tax Act will be enacted as proposed and there is
no other relevant change in any governing law, although no
assurance can be given in these respects.
Every Holder is liable to pay a Canadian withholding tax on every
dividend that is or is deemed to be paid or credited to the Holder
on the Holder's common shares. Under the Treaty, the rate of
withholding tax is, if the Holder is a company that owns at least
10% of the voting stock of the Registrant and beneficially owns the
dividend, 5%, and in any other case 15%, of the gross amount of the
dividend.
Pursuant to the Act, a Holder will not be subject to Canadian
capital gains tax on any capital gain realized on an actual or
deemed disposition of a common share, including a deemed
disposition on death, provided either that the Holder did not hold
the common share as capital property used in carrying on a business
in Canada, or that neither the Holder nor persons with whom the
Holder did not deal at arm's length alone or together owned 25% or
more of the issued shares of any class of the Registrant at any
time in the five years immediately preceding the disposition.
Subject to certain limited exceptions, a Holder who otherwise would
be liable for Canadian capital gains tax in consequence of an
actual or deemed disposition of a common share will generally be
relieved by the Treaty from such liability.
<PAGE> 66
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In the past three fiscal years, the Registrant has issued in Canada
the following unregistered securities at the following prices.
Securities are either director and employee incentive options
entitling the holder to purchase common shares, private placements
of common shares and share purchase warrants entitling the holder
to purchase common shares, common shares issued on share splits or
common shares issued on exercise of options or share purchase
warrants. There were no underwriters engaged and no underwriting
discounts or commissions paid. None of the securities was
distributed by the Registrant in the United States and accordingly
no exemptions from registration under U.S. legislation needed to be
claimed.
Type of Number of
Date Security Securities Consideration
1995
March 20, 1995 Option 200,000 Nominal
July 13, 1995 Options 104,000 Nominal
March to October Common shares 2,498,000 $579,789
on warrant
exercise
1996
March 21, 1996 Option 375,000 Nominal
April 8, 1996 Option 334,000 Nominal
April 1-10, 1996 Common shares 386,500 $1,839,301
on option
exercise
April 15, 1996 Stock split 3,945,559 Nominal
April 24, 1996 Option 606,000 Nominal
April 19-28, 1996 Common shares 1,103,250 $5,608,418
on option
exercise
May 13, 1996 Option 561,000 Nominal
May 31, 1996 Stock split 12,940,111 Nominal
July, 1996 Common shares 1,000,000 (1) CDN$3,030,000
and warrants
October 30, 1996 Options 700,000 Nominal
June to Dec, 1996 Common shares 53,000 $167,230
on option
exercise
1997
March 25, 1997 Options 550,000 Nominal
May 12, 1996 Option 10,000 Nominal
May 22, 1997 Options 10,000 Nominal
June 2, 1997 Common shares 1,000,000 (2) $1,800,000
and warrants
Mar-July, 1997 Common shares 279,000 $652,151
on option
exercise
<PAGE> 67
Sept. 10, 1997 Common shares 50,000 $125,667
on warrant
exercise
Notes:
(1) By an agreement dated May 1996, the Registrant sold 1,000,000
units for CDN$3.03 per unit by private placement. Each unit
consists of one common share and one share purchase warrant. Each
share purchase warrant entitles the holder to purchase a common
share for CDN$3.485 per share until May 27, 1999. Mr. Alex Guidi,
chairman of the board and a director of the Registrant, acquired
494,000 units.
(2) By an agreement dated June 2, 1997, Mr. Loretto purchased
1,000,000 units for $1.80 per unit. Each unit is comprised of one
common share and one non-transferable share purchase warrant. Each
share purchase warrant entitles the holder to purchase a common
share for $1.90 before July 4, 1998, for $2.00 from July 4, 1998 to
July 3, 1999 and for $2.10 from July 4, 1999 to July 3, 2000.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The securities of the Registrant to be registered are common shares
without par value, outstanding director and employee options and
outstanding share purchase warrants.
All common shares of the Registrant's common stock, both issued and
unissued are of the same class and rank equally as to dividends,
voting powers and participation in the assets of the Registrant on
a winding-up or dissolution. No common shares have been issued
subject to call or assessment. There are no preemptive or
conversion rights, and no provisions for redemption, purchase for
cancellation, surrender of sinking fluid or purchase fund.
Provisions as to the creation or modifications, amendments or
variations of such rights or such provisions are contained in the
Business Corporations Act (Yukon). Each common share is entitled to
one vote with respect to the election of directors and other
matters to which shareholders are ordinarily entitled. All
references to "shares" or "common shares" herein refer to common
shares without par value of the Registrant or its predecessors, all
of which have had only one class or kind of security authorized or
issued in the past, that being common shares without par value.
Pursuant to the applicable provisions of the Business Corporations
Act (Yukon) (the "Corporations Act"), no right or special right
attached to any share of the Registrant, may be prejudiced,
modified or otherwise "interfered with" under the Corporations Act
or the by-laws of Registrant, unless the members of the class of
shareholders affected consent to such action by a separate
resolution of the members of that class adopted by at least a
majority of two-thirds of the votes cast with respect to the
resolution. Under certain circumstances, two-thirds of the votes
<PAGE> 68
cast with respect to such resolution may be less than a majority of
more than 50% of the total number of shares in that class which are
issued and outstanding, since under the by-laws of the Registrant,
a quorum for a general meeting of the holders of a class of share
consist of two shareholders holding not less than five percent of
the outstanding shares of that class share.
The attributes of outstanding options and share purchase warrants
are described elsewhere in this Statement.
The Registrant's registrar and transfer agent is Pacific Corporate
Trust Company, Suite 830 - 625 Howe Street, Vancouver, British
Columbia, Canada V6C 3B8, telephone (604) 689-9853, facsimile (604)
689-8144.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except with respect to an action by the Registrant to obtain a
judgment, the constating documents of the Registrant provide for
the indemnification of any director, officer, employee or agent of
the Registrant if the person acted honestly and in good faith with
a view to the best interests of the Registrant and, with respect to
any criminal action or administrative proceeding, had reasonable
grounds to believe that his action was lawful. The Registrant has
not, however, entered into any agreement with a director and
officer providing for the grant of a covenant of indemnity by the
Registrant pursuant to this provision in the constating documents
of the Registrant.
With respect to an action to obtain a judgment, the Registrant is
required under the Business Corporations Act (Yukon) before
performing its obligation to indemnify to obtain the approval of
the Supreme Court (Yukon) of the indemnity and any payment to be
made in connection with the indemnity.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDO-PACIFIC ENERGY LTD.
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
<PAGE> 69
AUDITORS' REPORT
To the Directors of Indo-Pacific Energy Ltd.
(formerly Consolidated Newjay Resources Ltd.)
We have audited the consolidated balance sheets of Indo-Pacific
Energy Ltd. (formerly Consolidated Newjay Resources Ltd.) as at
December 31, 1997 and 1996 and the related consolidated statements
of loss and deficit and cash flows for the years ended December 31,
1997 and 1996 and for the eleven month period ended December 31,
1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in the United States. Those standards require
that we plan and perform an audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as at December 31, 1997 and 1996 and the
results of its operations and the cash flows for the years ended
December 31, 1997 and 1996 and for the eleven month period ended
December 31, 1995 in conformity with generally accepted accounting
principles in the United States.
/s/ Sadovnick Telford + Skov
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
Canada
February 20, 1998
<PAGE> 70
INDO-PACIFIC ENERGY LTD.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
AS AT DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Note
Reference 1997 1996
<S> <C> <C> <C>
CURRENT
Cash and short-term deposits $10,255,407 $ 9,442,554
Accounts receivable 134,474 142,835
Due from related companies 8 152,373 404
Prepaid expenses 9,469 11,472
Marketable securities 3 233,510 -
----------- -----------
10,785,233 9,597,265
PETROLEUM AND
NATURAL GAS PROPERTIES 4 1,929,839 1,113,928
PROPERTY AND EQUIPMENT 5 115,244 34,933
----------- -----------
$12,830,316 $10,746,126
=========== ===========
LIABILITIES
CURRENT
Accounts payable and
accrued liabilities $ 45,704 $ 81,183
Due to related company - 5,852
----------- -----------
45,704 87,035
----------- -----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 6 17,719,726 15,512,578
DEFICIT (4,935,114 (4,853,487)
----------- -----------
12,784,612 10,659,091
----------- -----------
$12,830,316 $10,746,126
=========== ===========
</TABLE>
APPROVED BY THE DIRECTORS:
______________________________ Director
______________________________ Director
<PAGE> 71
INDO-PACIFIC ENERGY LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(EXPRESSED IN UNITED STATES DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
For the Eleven
For the Year For the Year Month Period
Ended Ended Ended
Note December 31, December 31, December 31,
Reference 1997 1996 1995
(Note 11)
<S> <C> <C> <C> <C>
REVENUES
Petroleum and natural
gas sales $ 487,941 $ 163,388 $ -
Interest income 382,118 263,044 38,980
---------- ----------- -----------
870,059 426,432 38,980
---------- ----------- -----------
COST OF SALES
Amortization and depletion 97,827 98,258 958
Production costs 67,593 19,338 -
Royalties 44,209 19,067 -
Write-down of petroleum
properties 4 (b) 162,048 37,653 -
---------- ----------- -----------
371,677 174,316 958
---------- ----------- -----------
498,382 252,116 38,022
---------- ----------- -----------
EXPENSES
General and administrative
(Schedule) 580,009 1,137,389 181,666
---------- ----------- -----------
LOSS FOR THE PERIOD (81,627) (885,273) (143,644)
DEFICIT - BEGINNING OF PERIOD (4,853,487) (3,968,214) (3,824,570)
----------- ----------- -----------
DEFICIT - END OF PERIOD $(4,935,114) $(4,853,487) $(3,968,214)
=========== =========== ===========
BASIC LOSS PER SHARE $ (0.00) $ (0.04) $ (0.01)
=========== =========== ===========
DILUTED LOSS PER SHARE $ (0.00) $ (0.04) $ (0.01)
=========== =========== ===========
</TABLE>
<PAGE> 72
INDO-PACIFIC ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN UNITED STATES DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
For the Eleven
For the Year For the Year Month Period
Ended Ended Ended
December 31, December 31, December 31,
1997 1996 1995
(Note 11)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss for the period $ (81,627) $ (885,273) $(143,644)
Items not affecting cash flows from
operating activities:
Amortization and depletion 97,827 98,258 958
Write-down of petroleum
properties 162,048 37,653 -
Write-off of
incorporation costs - 867 -
---------- ----------- ---------
178,248 (748,495) (142,686)
Changes in non-cash working capital items:
Accounts receivable 8,361 (119,416) (9,908)
Due from related companies (157,821) 5,448 -
Prepaid expenses 2,003 14,099 (23,399)
Accounts payable and
accrued liabilities (35,479) 14,618 53,519
---------- ----------- ---------
Net cash used in
operating activities (4,688) (833,746) (122,474)
---------- ----------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Issue of share capital 2,207,148 10,518,839 595,819
---------- ----------- ---------
Net cash provided by
financing activities 2,207,148 10,518,839 595,819
---------- ----------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Marketable securities (233,510) - -
Petroleum and natural
gas properties (1,064,976) (1,182,655) (50,118)
Property and equipment (91,121) (35,529) (7,109)
---------- ----------- ---------
Net cash used in
investing activities (1,389,607) (1,218,184) (57,227)
---------- ----------- ---------
NET INCREASE IN CASH POSITION 812,853 8,466,909 416,118
CASH AND SHORT-TERM DEPOSITS
- BEGINNING OF PERIOD 9,442,554 975,645 559,527
---------- ----------- ---------
CASH AND SHORT-TERM DEPOSITS
- END OF PERIOD $10,255,407 $ 9,442,554 $ 975,645
========== =========== =========
</TABLE>
<PAGE> 73
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 1 - NATURE OF OPERATIONS
The Company was incorporated under the Company Act (British Columbia) and
continued its jurisdiction of incorporation to the Yukon Territory under the
Business Corporations Act (Yukon). Its major activity is the acquisition,
exploration and development of petroleum and natural gas properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These consolidated financial statements include the accounts of Indo-Pacific
Energy Ltd. and its wholly-owned subsidiaries, Indo Overseas Exploration
Ltd., Indo-Pacific Energy Pty Limited, Indo-Pacific Energy (PNG) Pty.
Limited, and Source Rock Holdings Limited and its wholly-owned subsidiaries,
Indo-Pacific Energy (NZ) Limited, Ngatoro Energy Limited (formerly Minora
Energy (New Zealand) Limited), and PEP 38716 Limited.
b) Joint Operations
Substantially all of the Company's activities relate to the exploration for
and production of petroleum and natural gas which are conducted jointly with
other companies and accordingly, the accounts reflect only the Company's
proportionate interest in these activities.
c) Cash and Short-Term Deposits
Cash and short-term deposits include Government treasury bills and Bankers'
Acceptance with maturities no longer than 90 days, together with accrued
interest.
d) Petroleum and Natural Gas Properties
The Company follows the full cost method of accounting for petroleum and
natural gas operations for each licence whereby all costs associated with the
acquisition of, exploration for and development of petroleum and natural gas
reserves are capitalized. Such costs include lease acquisitions, geological
and geophysical evaluations, lease rentals on non-producing properties, costs
of drilling productive and non-productive wells and overhead expenses
directly related to these activities. Costs of producing properties are
depleted using the unit-of-production method based on proven reserves of oil
and gas as determined by management and/or the Company's independent
consulting engineers.
In order to compute depletion, natural gas production and reserves are stated
in equivalent units of oil, based on the relative energy content of each
commodity. No gain or loss is recognized on the sale or disposition of oil
and gas properties except for dispositions which would significantly change
depletion rates.
<PAGE> 74
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
d) Petroleum and Natural Gas Properties (Cont'd)
Costs of acquiring and evaluating unproven properties are initially
excluded from depletion calculations. These unproven properties are
assessed annually to ascertain whether impairment has occurred.
At each fiscal year-end, any unproven property without firm plans for
further exploration work in the foreseeable future will be written off by
the Company. In general, the Company may write-off any unproven property
under one or more of the following conditions:
i) exploration work done on the unproven property during the fiscal year
produced negative results which does not merit further exploration;
ii) exploration work done in the vicinity of the unproven property during
the fiscal year produced negative results which does not merit further
exploration on the Company's unproven property; and
iii) for a non-renewable leased property or permit, the expiration date of
the permit does not allow sufficient time for exploration work on the
unproven property.
The Company applies a "ceiling" to net capitalized costs to ensure that such
costs do not exceed estimated net revenues after income taxes, general and
administrative costs, future removal and site restoration costs and financing
costs from production of proven reserves, discounted by 10%. Excess carrying
value, if any, is recorded as depletion in the year. Estimated net revenues
are determined by applying year-end prices to estimated proven reserves.
e) Property and Equipment
Property and equipment are recorded at cost and amortized over their
estimated useful lives on a declining-balance basis as follows:
Office equipment 20% to 30%
Automobile 30%
In the period a capital asset is acquired, management deems it to be acquired
midway through the fiscal period and accordingly, the amortization recorded
is restricted to one-half of the normal rate. Amortization is not calculated
in the period of disposal.
<PAGE> 75 INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
f) Translation of Foreign Currencies
The Company's foreign operations are of an integrated nature and accordingly,
the temporal method of foreign currency translation is used for conversion
into United States dollars, as follows:
Revenues and expenses arising from foreign currency transactions are
translated into United States dollars at the average rate for the period.
Monetary assets and liabilities are translated into United States dollars at
the rates prevailing at the balance sheet date. Other assets and liabilities
are translated into United States dollars at the rates prevailing on the
transaction dates. Exchange gains and losses are recorded as income or
expense in the period in which they occur.
g) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
h) Financial Instruments and Financial Risk
i) Fair value of financial instruments
The Company's financial instruments consist of current assets and current
liabilities. The fair values of the current assets and liabilities
approximate the carrying amounts due to the short-term nature of these
instruments.
ii) Credit risk
The Company is subject to credit risk through short-term investments.
Short-term cash investments are placed in short duration corporate and
government debt securities with well capitalized, high quality financial
institutions . By policy, the Company limits the amount of credit
exposure in any one type of investment instrument.
<PAGE> 76 INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
i) Accounting Pronouncements Recently Issued
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128: Earnings per Share ("SFAS 128"),
effective for fiscal periods ending after December 15, 1997 and requiring
restatement of all prior period earnings per share data. SFAS 128 replaces
the presentation of primary earnings per share ("EPS") with a presentation of
both basic and diluted EPS for all entities with complex capital structures.
Basic EPS excludes dilutive securities and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if dilutive securities were converted into common
shares and is computed similarly to fully diluted EPS pursuant to previous
accounting pronouncements. SFAS 128 applies equally to loss per share
presentations.
The FASB issued Statement of Financial Accounting Standards No. 130:
Reporting Comprehensive Income ("SFAS 130"), effective for fiscal periods
beginning after December 15, 1997 and requiring restatement of all
comparative financial statements disclosed. SFAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported as part of the basic financial statements.
The Company does not expect adoption of this new standard to have a material
effect on its financial reporting.
The FASB issued Statement of Financial Accounting Standards No. 131:
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"), effective for fiscal periods beginning after December 15, 1997 and
requiring restatement of all comparative financial statements disclosed.
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports. The Company does not
expect adoption of this new standard to have a material effect on its
financial reporting.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities are comprised of 233,510 (1996 - Nil) shares of Trans-
Orient Petroleum Ltd., which are restricted from resale for a one year period,
acquired at a cost of $233,510. At December 31, 1997, the market value of
these shares is $321,077 (1996 - Nil)
Trans-Orient Petroleum Ltd. is a related public company with a common director.
<PAGE> 77
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES
Petroleum and natural gas properties are comprised as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------
Accumulated Net Book Net Book
Cost Amortization Value Value
and Depletion
<S> <C> <C> <C> <C>
Proven:
New Zealand
PMP 38148
Ngatoro Oil Field $ 493,702 $178,552 $ 315,150 $ 351,607
---------- -------- ---------- ----------
Total Proven 493,702 178,552 315,150 351,607
---------- -------- ---------- ----------
Unproven:
New Zealand
PEP 38256 - - - -
PPL 38312 - - - -
PEP 38328 398,443 - 398,443 314,090
PEP 38330 109,219 - 109,219 23,561
PEP 38332 41,054 - 41,054 -
PPL 38706 14,897 - 14,897 -
PEP 38716 333,459 - 333,459 150,075
PEP 38720 176,960 - 176,960 11,219
PEP 38723 - - - -
New licences 25,899 - 25,899 42,314
Australia
AC/P19 50,254 - 50,254 -
VIC/P39 20,976 - 20,976 -
WA-199-P 1,165 - 1,165 -
People's Republic of China
Nanling-Wuwei
Blocks 324,851 - 324,851 140,251
Papua New Guinea
PPL 192 117,512 - 117,512 80,811
---------- -------- ---------- ----------
Total Unproven 1,614,689 - 1,614,689 762,321
---------- -------- ---------- ----------
$2,108,391 $178,552 $1,929,839 $1,113,928
========== ======== ========== ==========
</TABLE>
<PAGE> 78
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
NEW ZEALAND
Unless otherwise indicated, petroleum exploration permits granted
in New Zealand provide for the exclusive right to explore for
petroleum for an initial term of five years, renewable for a
further five years over one- half of the original area. Any
production permits granted will be for a term of up to 40 years
from the date of issue. The Crown in right of New Zealand has
reserved a royalty of the greater of 5% of net sales revenue or 20%
of accounting profits from the sale of petroleum products.
a) PEP 38256
The Company has a 50% participating interest in, and is the
operator of, Petroleum Exploration Permit 38256 ("PEP 38256")
commencing August 25, 1997. At least one-half of the original
area must be relinquished by August 25, 2000. The other
participant is Trans-Orient Petroleum Ltd.
The Company and its co-participant are required to complete a
work program as follows:
(i) prior to November 25, 1998, locate and analyse petroleum
seeps, model existing gravity data and acquire new gravity
and magnetotelluric data, reprocess existing BP and Bounty
seismic data, complete a license evaluation, and either
commit to complete the next stage of the work program
detailed below in (ii) or surrender the permit;
(ii) prior to August 25, 1999, acquire 80 kilometres of new
seismic data and either commit to complete the next stage
of the work program detailed below in (iii) or surrender
the permit;
(iii) prior to February 25, 2000, acquire 120 kilometres of new
seismic data and either commit to complete the next stage
of the work program detailed below in (iv) or surrender the
permit; and
(iv) prior to August 25, 2000, drill one exploration well and
either commit to a satisfactory work program for the
remainder of the permit term or surrender the permit.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $240,000 of exploration expenditures
is required to be incurred.
<PAGE> 79 INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
b) PPL 38312
The Company farmed into a 10.5% participating interest in
Petroleum Prospecting License 38312 ("PPL 38312"). The other
participants in PPL 38312 were Asia Pacific Oil Co. Ltd.
(64.5%), as the operator, Everest Oil Co. Ltd. (12.5%), Trans-
Orient Petroleum Ltd. (10.0%) and Northern Oil Ltd. (2.5%).
The participants drilled the Waitaria-1 well in August 1997.
The well was abandoned due to engineering problems before the
target depth was reached. PPL 38312 expired in November 1997
and accordingly, all costs relating to PPL 38312 were written
off during the year.
c) PEP 38328
The Company has a 40% participating interest in, and is the
operator of, Petroleum Exploration Permit 38328 ("PEP 38328")
commencing July 1, 1996.
In December 1996, the Company and the other participants
completed drilling of the Kereru-1 exploration well in PEP
38328, which was plugged and abandoned, thereby completing the
work program required for the first year. The requirements of
the remaining work program are as follows:
(i) prior to July 1, 1998, acquire and process 240 kilometres
of new seismic data and reprocess a minimum of 300
kilometres of existing seismic data;
(ii) prior to July 1, 1999, conduct geological field studies as
appropriate, synthesise and interpret all relevant
geological and geophysical data and complete a review
report for PEP 38328; and
(iii) prior to July 1, 2000, acquire further seismic data as
required to detail prospects for drilling and commit to
drill an exploration well prior to July 1, 2001, or
surrender the permit.
By an agreement dated November 1, 1996, Boral Energy Resources
Limited acquired a 20% participating interest in PEP 38328 from
the Company and 10% from another participant by funding 60% of
the costs of drilling the Kereru-1 well.
<PAGE> 80
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
c) PEP 38328 (Cont'd)
Trans-Orient Petroleum Ltd. ("Trans-Orient") acquired a 10%
participating interest in PEP 38328 from the Company by funding
20% of the costs of drilling the Kereru-1 well. By an agreement
dated September 15, 1997, Trans-Orient acquired a further 10%
interest in PEP 38328 from the Company by funding additional
costs incurred subsequent to the Kereru-1 well. The
consideration received by the Company was 233,510 common shares
of Trans-Orient at $1.00 per share. As a result of certain
participants withdrawing from PEP 38328, the participants
consist of the Company (40.0%), Boral Energy Resources Ltd.
(37.5%) and Trans-Orient (22.5%).
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $200,000 of exploration expenditures
is required to be incurred.
Refer to Note 3
d) PEP 38330
The Company has a 34% participating interest in, and is the
operator of, Petroleum Exploration Permit 38330 ("PEP 38330")
commencing July 1, 1996. The other participants in PEP 38330
are Moondance Energy Pty. Ltd. (33%) and Mosaic Oil N.L. (33%).
The Company and its co-participants have completed the work
program required for the first two years which includes
reviewing existing seismic data, reprocessing and interpreting
a minimum of 80 kilometres of seismic data, and acquiring twelve
kilometres of new seismic data. The requirements of the
remaining work program are as follows:
(i) prior to July 1, 1999, acquire, process and interpret a
minimum of 60 kilometres of new seismic data and commit to
drill an exploration well, or surrender the permit; and
(ii) prior to July 1, 2001, drill an exploration well, or
surrender the permit.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $90,000 of exploration expenditures is
required to be incurred.
<PAGE> 81
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
e) PEP 38332
The Company has a 42.5% participating interest in, and is the
operator of, Petroleum Exploration Permit 38332 ("PEP 38332")
commencing June 24, 1997. The other participants in PEP 38332
are Boral Energy Resources Ltd. (37.5%) and Trans New Zealand
Oil Company (20%).
The Company and its co-participants have completed the work
program required for the first year and a half which includes
reprocessing a minimum of 100 kilometres of existing seismic
data, acquiring a minimum of 25 kilometres of new seismic data,
undertaking photogeologic and field geological mapping, and
completing an evaluation of the exploration potential of PEP
38332. The requirements of the remaining work program are as
follows:
(i) prior to December 24, 1999, acquire a minimum of 50
kilometres of new seismic data, complete an evaluation of
the exploration potential of PEP 38332, and commit to
complete the next stage of the work program detailed below
in (ii); and
(ii) prior to June 24, 2000, drill one exploration well and
commit to a satisfactory work program for the remainder of
the permit term.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $140,000 of exploration expenditures
is required to be incurred.
f) PMP 38148 Ngatoro Oil Field
By an agreement dated December 4, 1996 and effective September
1, 1996, the Company acquired a 5% participating interest in
Petroleum Mining Permit 38148 ("Ngatoro Oil Field") and an
initial 4.45% participating interest in the surrounding
Petroleum Prospecting License 38706 through the purchase of
Ngatoro Energy Limited (formerly Minora Energy (New Zealand)
Limited) for $575,000 in Australian funds. The Crown in right
of New Zealand has reserved a royalty of the greater of 5% of
net sales revenue or 20% of accounting profits from the sale of
petroleum products which amounts to $44,209 (NZ$66,738) for the
1997 fiscal year. All obligatory work commitments have been
completed.
<PAGE> 82
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
f) PMP 38148 Ngatoro Oil Field (Cont'd)
The Ngatoro Oil Field includes four producing oil wells and
three shut-in gas wells.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $100,000 of exploration expenditures
is required to be incurred.
g) PPL 38706
The Company has a 7.75% participating interest in Petroleum
Prospecting Licence 38706 ("PPL 38706"). Initially, a 4.45%
participating interest was acquired which increased to 7.75%
after two participants withdrew from PPL 38706. Any production
permits granted will be for a term of up to 40 years from the
date of issue. The Crown in right of New Zealand has reserved
a royalty of the greater of 5% of net sales revenue or 20% of
accounting profits from the sale of petroleum products.
Fletcher Challenge Energy Ltd. is the operator and holds the
remaining 92.25% interest in PPL 38706.
PPL 38706 is in the last year of its ten-year term. The
participants are required to drill an exploration well by July
31, 1998.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $50,000 of exploration expenditures is
required to be incurred.
h) PEP 38716
The Company has a 24.8% participating interest in Petroleum
Exploration Permit 38716 ("PEP 38716") commencing January 30,
1996.
By an agreement effective July 1, 1997 with Australian Worldwide
Exploration N.L. ("Australian Worldwide"), the participants
agreed to assign a 25% participating interest to Australian
Worldwide in consideration that Australian Worldwide fund 50%
of the dry hole costs of drilling an exploration well. The
other participants in PEP 38716 are Marabella Enterprises Ltd.
(39.6%), Australian Worldwide Exploration N.L. (25%), Euro-
Pacific Energy Pty. Ltd. (6.6%), and Durum Energy Corp. (4%).
<PAGE> 83
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
h) PEP 38716 (Cont'd)
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $50,000 of exploration expenditures is
required to be incurred.
The Company and its co-participants have completed the work
program required for the first year and a half which includes
reprocessing and interpreting a minimum of 250 kilometres of
existing seismic data, acquiring, processing and interpreting 30
kilometres of new seismic data, acquiring aeromagnetic data, and
committing to drill one exploration well prior to July 30, 1998.
Due to the schedule on which a suitable drilling rig has been
secured, the participants applied for and received approval to
extend the deadline for drilling an exploration well to January
30, 1999.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $220,000 of exploration expenditures
is required to be incurred.
i) PEP 38720
The Company has a 50% participating interest in, and is the
operator of, Petroleum Exploration Permit 38720 ("PEP 38720")
commencing September 2, 1996. The other participant in PEP
38720 is Trans-Orient Petroleum Ltd.
The Company and its co-participant have completed the work
program required for the first two and a half years which
includes reprocessing and interpreting a minimum of 100
kilometres of seismic data, seismic modelling, reservoir
engineering and petrophysical reviews, and acquiring a minimum
of 15 kilometres of new seismic data. In addition, the
participants must commit by March 2, 1999 to drill one
exploration well prior to September 2, 1999, or surrender the
permit.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $40,000 of exploration expenditures is
required to be incurred.
<PAGE> 84
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
j) PEP 38723
The Company has a 40% participating interest in, and is the
operator of, Petroleum Exploration Permit 38723 ("PEP 38723")
commencing October 30, 1997. The other participants in PEP
38723 are Trans-Orient Petroleum Ltd. (40%) and Trans New
Zealand Oil Company (20%).
The Company and its co-participants are required to complete a
work program as follows:
(i) prior to January 30, 1999, reprocess a minimum of 50
kilometres of seismic data, re-evaluate the permit, and
either commit to continue the work program or surrender the
permit; and
(ii) prior to April 30, 2000, collect a minimum of six square
kilometres of 3D seismic data, or 2D swathe coverage of
equivalent detail, identify drilling targets, and either
commit to drill an exploration well by October 30, 2000 or
surrender the permit.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $30,000 of exploration expenditures is
required to be incurred.
AUSTRALIA
Offshore exploration permits granted in Australia provide for the
exclusive right to explore for petroleum for an initial term of six
years, renewable for an unlimited number of five-year terms over
one-half of the remaining area at each renewal. Any production
permits granted will be for a term of 21 years from the date of
issue, renewable for a further 21 years. In addition to general
Australian taxation provisions, most offshore permits, including
all of the Company's Australian permits, are subject to Petroleum
Resource Rent Taxation at the rate of 40% on a project's net income
after deduction of allowable project and exploration expenditures,
with undeducted exploration expenditures compounded forward at the
Long-Term Bank Rate ("LTBR") plus 15% and project expenditures at
LTBR plus 5%.
<PAGE> 85
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
k) AC/P19
The Company has a 65% participating interest in, and is the
operator of, Permit Ashmore-Cartier Platform 19 ("AC/P19")
commencing May 30, 1997. The other participant is Mosaic Oil
N.L.
The Company and its co-participant are required to complete a
work program as follows:
(i) prior to May 30, 1998, collect, collate and reprocess
seismic data;
(ii) prior to May 30, 1999, conduct mapping, seismic data
analysis, and delineate prospects and leads;
(iii) prior to May 30, 2000, conduct a 300 kilometre seismic grid
over the Cartier depression fan leads;
(iv) prior to May 30, 2001, collect additional seismic, if
necessary, and map and interpret data;
(v) prior to May 30, 2002, drill one exploration well; and
(vi) prior to May 30, 2003, reinterpret and evaluate results.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $60,000 of exploration expenditures is
required to be incurred.
l) VIC/P39
The Company has a 33% participating interest in Victoria/P39
("VIC/P39") commencing July 31, 1997. The other participants in
VIC/P39 are Mosaic Oil N.L. (34%), which is the operator, and
Euro-Pacific Energy Pty. Ltd. (33%).
The Company and its co-participants are required to complete a
work program as follows:
(i) prior to July 31, 1998, collect, collate and reprocess
seismic data;
(ii) prior to July 31, 1999, acquire, process and interpret 500
kilometres of 2D seismic data;
<PAGE> 86
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
l) VIC/P39 (Cont'd)
(iii) prior to July 31, 2000, drill one exploration well;
(iv) prior to July 31, 2001, collate and reprocess seismic data;
(v) prior to July 31, 2002, acquire, process and interpret a
further 500 kilometres of 2D seismic data; and
(vi) prior to July 31, 2003, drill a second exploration well.
The participants have the right to withdraw from the permit at
the end of each year's work program starting in the third year.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $80,000 of exploration expenditures is
required to be incurred.
m) WA-199-P
By an agreement effective September 15, 1997 with Boral Energy
Resources Limited, the Company has the right to acquire a 5%
participating interest in Permit Western Australia-199-P ("WA-
199-P"). The Company is required to fund 10% of the costs of
drilling the Kittiwake-1 well to a maximum of AUS$850,000,
thereafter contributing to any additional costs in accordance
with the Company's 5% participating interest. The other
participants in WA-199-P are Boral Energy Resources Limited
(24.869%), which is the operator, Petroz NL (11.392%), TAP Oil
NL (10.0%), Asisun Pty. Ltd. (10.027%) and Santos (BOL) Pty Ltd.
(38.712%).
The Company and its co-participants are required to complete a
work program as follows:
(i) prior to June 30, 1998, drill the Kittiwake-1 exploration
well; and
(ii) prior to December 31, 1998, drill a second exploration
well.
WA-199-P is in the last year of a five-year renewal term.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $1,060,000 of exploration expenditures
is required to be incurred.
<PAGE> 87
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
PEOPLE'S REPUBLIC OF CHINA
n) Nanling-Wuwei Blocks
By a Joint Study Agreement dated March 18, 1996 with China
National Oil and Gas Exploration and Development Corp.
("CNODC"), the Company has a 50% participating interest to study
the Nanling and Wuwei Blocks ("the Blocks"). The other
participant in the Blocks is Moondance Energy Limited.
A detailed technical evaluation of the Blocks, including seismic
data reprocessing and remapping, investigating field geology,
and conducting an economic evaluation, was completed by June 30,
1997 after which the Joint Study Agreement expired.
The Company has the exclusive right to negotiate with CNODC for
a Geophysical Survey Agreement or a Production Sharing Contract
covering the Blocks by March 1998.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $560,000 of exploration expenditures
is required to be incurred.
PAPUA NEW GUINEA
o) PPL 192
The Company has a 40% participating interest in, and is the
operator of, Petroleum Prospecting Licence No. 192 ("PPL 192").
PPL 192 grants the exclusive right to explore for petroleum for
an initial term of six years commencing January 28, 1997,
extendable for a further five years over one-half of the
original area, and the right to enter into a Petroleum Agreement
upon a discovery. The Petroleum Agreement provides the right to
produce any oil and gas discovered for a period of up to 30
years from discovery, subject to a maximum 22.5% participating
interest that can be acquired by the Government of Papua New
Guinea and a 2% participating interest that can be acquired by
local landowners. The Company assigned a 20% participating
interest to each of Trans-Orient Petroleum Ltd. and Durum Energy
Corp. The remaining participant is Mosaic Oil Niugini Pty. Ltd.
(20%).
<PAGE> 88
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 4 - PETROLEUM AND NATURAL GAS PROPERTIES (Cont'd)
o) PPL 192 (Cont'd)
The Company and its co-participants completed the work program
required for the first year which includes reprocessing and
interpreting a minimum of 200 kilometres of existing seismic
data. The requirements of the remaining work program are as
follows:
(i) prior to January 28, 1999, complete a work program which
includes conducting field and environmental reviews,
engineering and economic analyses, and producing a prospect
and lead ranking report. In addition, the participants
must commit to a minimum work program prior to November 28,
1998 for the third and fourth years, or surrender the
permit;
(ii) prior to January 28, 2000, complete a work program which
includes acquiring, processing and interpreting 50
kilometres of new seismic data;
(iii) prior to January 28, 2001, drill one exploration well. In
addition, the participants must commit to a minimum work
program prior to November 28, 2000 for the fifth and sixth
years, or surrender the permit;
(iv) prior to January 28, 2002, complete a work program which
includes acquiring 400 kilometres of new 2D or equivalent
3D seismic data; and
(v) prior to January 28, 2003, drill a second exploration well.
In order to meet the Company's exploration commitments for
fiscal 1998, an estimated $80,000 of exploration expenditures is
required to be incurred.
The Company has implemented the requirements of the Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." In evaluating the recoverability of the Company's
long-lived assets, management evaluated the current fair market
value and expected future cash flows attributable to its long-lived
assets and concluded that no impairment of value had occurred as of
December 31, 1997 or 1996.
<PAGE> 89
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment are comprised as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- -------
Accumulated Net Book Net Book
Cost Amortization Value Value
<S> <C> <C> <C> <C>
Office equipment $128,698 $ 14,725 $113,973 $ 32,166
Automobile 5,043 3,772 1,271 2,767
-------- -------- -------- ---------
$133,741 $ 18,497 $115,244 $ 34,933
======== ======== ======== =========
</TABLE>
<PAGE> 90
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 6 - SHARE CAPITAL
a) Authorized Share Capital
The authorized share capital of the Company is 100,000,000
common shares without par value.
b) Issued Shares
<TABLE>
<CAPTION>
Number of
Shares Amount
<S> <C> <C>
Balance - December 31, 1995 7,504,978 $ 4,993,739
Issued during the year for:
Exercise of stock options 386,500 1,908,750
Stock subdivision on a 1.5
new for one old basis 3,945,559 -
---------- -----------
11,837,037 6,902,489
Exercise of stock options 1,103,250 5,620,395
Stock subdivision on a two
new for one old basis 12,940,111 -
---------- -----------
25,880,398 12,522,884
Exercise of stock options 53,000 171,409
Private placement 1,000,000 2,209,260
Accrued compensation from stock options
granted during the year - 711,011
Less: Reclassification of stock
options exercised (85,605)
Adjustment for stock
options cancelled - (16,381)
---------- -----------
Balance - December 31, 1996 26,933,398 15,512,578
Issued during the year for:
Exercise of stock options 279,000 675,630
Private placement 1,000,000 1,800,000
Exercise of share
purchase warrants 50,000 125,667
Accrued compensation from stock options
granted during the year - 158,125
Less: Reclassification of
stock options exercised (23,479)
Adjustment for stock
options cancelled - (528,795)
---------- -----------
Balance - December 31, 1997 28,262,398 $17,719,726
========== ===========
</TABLE>
<PAGE> 91
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 6 - SHARE CAPITAL (Cont'd)
c) Subdivision of Share Capital
Effective April 15, 1996, the Company subdivided its share
capital on a 1.5 new for one old basis.
Effective May 31, 1996, the Company subdivided its share capital
on a two new for one old basis.
At an Extraordinary General Meeting held on October 9, 1996 the
shareholders of the Company granted to the board of directors
the discretion to implement a stock subdivision based on one of
three alternative ratios: a three new for one old basis, a four
new for one old basis or a five new for one old basis. The
Company has yet to implement the subdivision.
d) Incentive Stock Options
The Company applies Accounting Principles Board Opinion No. 25:
Accounting for Stock Issued to Employees ("APB 25") to account
for all stock options granted. Further, the Statement of
Financial Accounting Standards No. 123: Accounting for Stock-
Based Compensation ("SFAS 123") requires additional disclosure
to reflect the results of the Company had it elected to follow
SFAS 123.
SFAS 123 requires a fair value based method of accounting for
stock options using the Black-Scholes option pricing model and
other existing models. These models were developed for use in
estimating the fair value of traded options and require the
input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. The stock
options granted by the Company have characteristics
significantly different from those of traded options. In the
opinion of management, the existing models do not provide a
reliable single measure of the fair value of stock options
granted by the Company.
<PAGE> 92 INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 6 - SHARE CAPITAL (Cont'd)
d) Incentive Stock Options
The following incentive stock options are outstanding at
December 31, 1997:
Number of Shares Price per Share Expiry Date
832,000 $ 2.50 May 13, 1998
700,000 $ 2.50 October 30, 1998
550,000 $ 2.50 March 25, 1999
6,000 $ 3.00 May 12, 1999
10,000 $ 3.125 May 22, 1999
Refer to Note 13
e) Share Purchase Warrants
The following share purchase warrants are outstanding at
December 31, 1997:
Number of Shares Price per Share Expiry Date
950,000 CDN$3.485 May 27, 1998
1,000,000 $1.90/$2.00/$2.10 July 3,1998/1999/2000
f) Escrow Shares
There are 1,406,250 shares issued at a price of CDN$0.00333 per
share subject to escrow restrictions and held by Pacific
Corporate Trust Company, the Company's transfer agent, pursuant
to an agreement dated April 8, 1994. These shares were
originally issued in accordance with Local Policy 3-07 of the
British Columbia Securities Commission and cannot be sold,
released from escrow or otherwise in any manner dealt with,
without the expressed consent of the British Columbia Securities
Commission, except as may be required by the death or bankruptcy
of any shareholder. All voting rights attached to the escrowed
shares may be exercised by the registered owner and any
dividends declared on the common shares of the Company will
similarly be paid. Any shares not released from escrow before
April 25, 1999 will be cancelled.
<PAGE> 93
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 7 - LOSS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions
of SFAS 128 which specifies the computation, presentation and
disclosure requirements for loss per share.
A reconciliation of the numerators and denominators of the basic
and diluted loss per share calculations is as follows:
<TABLE>
For the Period Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Basic Loss per Share Computation
Numerator, Net Loss $ (81,627) $ (885,273) $ (143,644)
Denominator, Weighted Average
Number of Common Shares
Outstanding 26,169,806 23,873,549 15,434,190
---------- ---------- ----------
Basic Loss per Share $ (0.00) $ (0.04) $ (0.01)
========== ========== ==========
Diluted Loss per Share Computation
Numerator, Net Loss $ (81,627) $ (885,273) $ (143,644)
Denominator, Weighted Average
Number of Common Shares
Outstanding 26,169,806 23,873,549 15,434,190
Effect of Dilutive Securities:
Stock options and
warrants - - -
---------- ---------- ----------
Diluted Loss
per Share $ (0.00) $ (0.04) $ (0.01)
========== ========== ==========
</TABLE>
For the periods ended December 31, 1997, 1996 and 1995, common
shares issuable in connection with stock options and warrants have
not been included in the computation of diluted loss per share.
Inclusion of these shares would be antidilutive due to losses
incurred in those periods.
<PAGE> 94
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
The following are related party transactions not disclosed
elsewhere in these financial statements.
a) Due from Related Companies
As at December 31, 1997 the Company is owed a total amount of
$144,228 (December 31, 1996 - $404) by two public companies with
a common director. In addition, the Company is owed a total
amount of $8,145 (December 31, 1996 - Nil) by two public
companies with certain common directors.
b) Consulting and Management Agreements
The Company is of the view that the amounts incurred for
services provided by related parties approximates what the
Company would incur to non-arms length parties for the same
services.
During the 1997 fiscal year, the Company paid $132,214 (1996 -
$79,992) in consulting fees to the President of the Company.
A consulting agreement between the Company and a private company
owned by a former director of the Company requiring a fee of
CDN$2,550 per month was cancelled. During the 1997 fiscal year,
the Company paid $12,820 (1996 - $15,035) to this private
company.
A management agreement between the Company and a private company
wholly-owned by a relative of a former director of the Company
requiring a fee of CDN$2,500 per month was cancelled during the
1996 fiscal year.
c) Petroleum and Natural Gas Properties
Certain co-participants of petroleum and natural gas properties
as described in Note 4 have common directors with the Company.
These co-participants are Trans-Orient Petroleum Ltd., Durum
Energy Corp. and Trans New Zealand Oil Company.
<PAGE> 95
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 8 - RELATED PARTY TRANSACTIONS (Cont'd)
c) Petroleum and Natural Gas Properties (Cont'd)
By a Strategic Alliance Agreement dated May 18, 1995, the
Company granted Durum Energy Corp. ("Durum") a company with a
common director, the right to acquire up to a 20% participating
interest in future exploration ventures undertaken by the
Company for a one year period. In return, Durum provided the
Company with certain services and duties in connection with the
conduct of the business of the Company. This agreement was
cancelled during the 1996 fiscal year.
NOTE 9 - INCOME TAXES
There are no income taxes payable for the years ended December 31,
1997 and 1996.
The Company has approximately CDN$1.5 million (1996 - CDN$2.1
million) of resource and other unused tax pools to offset future
taxable income derived in Canada. In addition, the Company has
non-capital losses of CDN$977,025 available for future deductions
from taxable income derived in Canada, which expire as follows:
2000 CDN$ 10,071
2001 52,731
2002 251,664
2003 662,559
------------
CDN$ 977,025
============
The Company also has losses and deductions of approximately NZ$3.5
million (1996 - NZ$0.9 million) available to offset future taxable
income in New Zealand, Australia, Papua New Guinea and People's
Republic of China.
The benefits of these excess resource tax pools and non-capital
loss carryforwards have not been recognized in these financial
statements as there is no virtual certainty that these will be
utilized in the future.
NOTE 10 - NAME CHANGE
On May 9, 1995 the name of the Company was changed from
Consolidated Newjay Resources Ltd. to Indo-Pacific Energy Ltd.
<PAGE> 96
INDO-PACIFIC ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997 AND 1996
NOTE 11 - YEAR-END CHANGE
During the 1995 fiscal period the Company changed its year-end from
January 31 to December 31 effective December 31, 1995.
NOTE 12 - COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to
the current period's presentation.
NOTE 13 - SUBSEQUENT EVENTS
The following events have occurred subsequent to the year-end:
a) In January 1998, stock options to purchase 500,000 shares
at a price of $2.50 per share exercisable until March 25,
1999 were cancelled.
b) The Company and two other co-participants have agreed in
principle to assign a total participating interest of 15%
in PEP 38716 to Antrim International, Inc. ("Antrim") in
consideration for the payment of $450,000. The Company is
to assign a 5% participating interest in PEP 38716 in
consideration for the payment of $150,000. After giving
effect to this assignment, the participants will be the
Company (19.8%), Marabella Enterprises Ltd. (31.8%),
Australian Worldwide Exploration N.L. (25%), Antrim
International, Inc. (15%), Euro-Pacific Energy Pty. Ltd.
(4.4%) and Durum Energy Corp. (4%).
<PAGE> 97
INDO-PACIFIC ENERGY LTD.
CONSOLIDATED SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
(EXPRESSED IN UNITED STATES DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE ELEVEN MONTH PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
For the Eleven
For the Year For the Year Month Period
Ended Ended Ended
Note December 31, December 31, December 31,
Reference 1997 1996 1995
(Note 11)
<S> <C> <C> <C> <C>
EXPENSES
Accounting and audit $ 54,165 $ 11,776 $ 3,781
Compensation expense
(recovery) (370,670) 694,630 16,029
Consulting fees 8 150,298 27,346 12,055
Corporate relations
and development 71,548 51,964 19,597
Directors' fees - 734 -
Filing and transfer
agency fees 9,803 28,360 13,462
Foreign exchange (gain) loss 239,713 56,437 (5,091)
Legal fees 61,395 39,503 12,433
Management fees 8 - 11,591 20,092
Office and miscellaneous 68,614 75,188 6,809
Printing 104,901 65,710 41,459
Rent 33,791 9,205 10,335
Telephone 23,005 24,968 8,778
Travel 101,567 15,594 13,425
Wages and benefits 31,879 23,516 8,502
Write-off of
incorporation costs - 867 -
----------- ------------ ---------
$ 580,009 $ 1,137,389 $ 181,666
=========== ============ =========
</TABLE>
<PAGE> 98
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1997
(Unaudited - Prepared by Management)
<PAGE> 99
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(EXPRESSED IN UNITED STATES DOLLARS)
AS AT DECEMBER 31, 1997
(Unaudited - Prepared by Management)
PROVED PETROLEUM AND NATURAL GAS RESERVE QUANTITIES
<TABLE>
<CAPTION>
12/31/97 12/31/96 12/31/95
<S> <C> <C> <C>
PETROLEUM RESERVES
Proved developed reserves, end of period
Oil (barrels) 110,500 70,000 -
Gas (billion cubic feet) 0.17 0.17 -
Proved reserves, end of period
Oil (barrels) 110,500 145,000 -
Gas (billion cubic feet) 0.40 0.40 -
</TABLE>
All petroleum and natural gas reserves are located in New Zealand.
Petroleum and natural gas reserves cannot be measured exactly.
Reserve estimates are based on many factors related to reservoir
performance which require evaluation by engineers interpreting
available data, as well as price, costs and other economic factors.
The reliability of these estimates at any point in time depends on
both the quality and quantity of the technical and economic data,
the production performance of the reservoirs as well as extensive
engineering judgment. Consequently, reserve estimates are subject
to revision as additional data becomes available during the
producing life of a reservoir. When a commercial reservoir is
discovered, proved reserves are initially determined based on only
limited data from the first well or wells. Further drilling may
better define the extent of the reservoir and additional production
performance, well tests and engineering studies will likely improve
the reliability of the estimate.
Proved developed reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and
operating methods. Proved reserves are reserves which geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reserves under existing
economic and operating conditions. Reserves are considered proved
if economic producibility is supported by either production or
conclusive formation tests.
<PAGE> 100
INDO-PACIFIC ENERGY LTD.
(FORMERLY CONSOLIDATED NEWJAY RESOURCES LTD.)
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(EXPRESSED IN UNITED STATES DOLLARS)
AS AT DECEMBER 31, 1997
(Unaudited - Prepared by Management)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
12/31/97 12/31/96 12/31/95
<S> <C> <C> <C>
Future cash inflows $1,493,878 $ 850,040 $ -
Future production and development
costs to abandonment at
December 31, 2003 639,322 314,576 -
Future income taxes - - -
---------- ---------- ---------
854,556 535,464 -
Discount at 10% annual
rate for estimated timing
of cash flows 169,983 54,025 -
--------- ---------- ---------
$ 684,573 $ 481,439 $ -
========= ========== =========
</TABLE>
Undiscounted future net cash flows from proved producing oil and
natural gas reserves is largely based on information provided by
in-house reserve calculations. A discount factor of 10% was
applied to estimated future cash flows to compute the estimated
present value of proved oil and natural gas reserves. This
valuation procedure does not necessarily result in an estimate of
the fair market value of the Company's oil and natural gas
properties.
There has been no provision for income taxes, as the Company has
resource and other unused tax pools to offset future taxable
income.
The only change in the standardized measure of future cash flows
from production has been due to the purchase of Ngatoro Energy
Limited (formerly Minora Energy (New Zealand) Limited, a company
whose sole asset was a 5% interest in the producing Ngatoro oil
field. This is the only interest the Company holds in a proven oil
property. The standardized measure calculation for the property,
at December 31, 1997, was $684,573, as compared to the Net Book
Value of $315,150.
<PAGE> 101
INDO-PACIFIC ENERGY LTD.
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
(EXPRESSED IN UNITED STATES DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited - Prepared by Management)
<TABLE>
<CAPTION>
New
Total Zealand
<S> <C> <C>
REVENUES
Petroleum and natural gas $487,941 $487,941
-------- --------
Amortization and depletion 97,827 97,827
Production costs 67,593 67,593
Royalties 44,209 44,209
Write-down of petroleum properties 162,048 162,048
-------- --------
371,677 371,677
-------- --------
RESULTS OF OPERATIONS FROM
PRODUCING ACTIVITIES
(excluding corporate overhead
and interest costs) $116,264 $116,264
======== ========
</TABLE>
<PAGE> 102
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no changes in, or disagreements with, accountants on
accounting and financial disclosure.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements are contained in Item 8 of this Form 10.
(b) No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
(c) Exhibits
Exhibit
Number Document Description
3.1 * Certificate of incorporation as Pryme Energy Resources
Ltd. dated July 31, 1979.
3.2 * Certificate of change of name from Pryme Energy Resources
Ltd. to Newjay Resources Ltd. dated August 23, 1985.
3.3 * Certificate of change of name from Newjay Resources Ltd.
to Consolidated Newjay Resources Ltd. dated August 25,
1993.
3.4 * Certificate of change of name from Consolidated Newjay
Resources Ltd. to Indo-Pacific Energy Ltd. dated May 9,
1995.
3.5 * Articles of incorporation and memorandum of the
Registrant.
3.6 * Articles of continuance dated September 10, 1997 under
Business Corporations Act (Yukon).
3.7 * Certificate of continuance dated September 25, 1997 under
Business Corporations Act (Yukon).
3.8 * Bylaws dated as at September 25, 1997.
10.1 * Copy of permit dated August 19, 1997.
10.2 * Operating agreement regarding PPL 38312 with Asia Pacific
Oil. Filed via paper, pursuant to a Continuing Hardship
Exemption.
10.3 * Copy of permit dated June 19, 1996.
<PAGE> 103
10.4 * Farm-in agreement dated November 14, 1996 with
Trans-Orient Petroleum Ltd. and Indo-Pacific Energy (NZ)
Ltd.
10.5 * Farm-in agreement dated October 30, 1997 with Boral
Energy Resources (NZ) Ltd., Indo-Pacific Energy (NZ) Ltd.
and Moondance Energy Ltd.
10.6 * Deed of Assignment and Assumption dated October 30, 1997
with Indo-Pacific Energy (NZ) Ltd., Moondance Energy
Ltd., Croft Exploration Ltd. and Boral Energy Resources
(NZ) Ltd.
10.7 * Deed of Assignment and Assumption dated November 6, 1997
with Indo-Pacific Energy (NZ) Ltd., Moondance Energy
Ltd., Croft Exploration Ltd., Boral Energy Resources (NZ)
Ltd. and Trans-Orient Petroleum (NZ) Ltd.
10.8 * Deed of Withdrawal, Assignment and Assumption dated
November 7, 1997 with Indo-Pacific Energy (NZ) Ltd.,
Moondance Energy Ltd., Croft Exploration Ltd., Boral
Energy Resources (NZ) Ltd. and Trans-Orient Petroleum
(NZ) Ltd.
10.9 * Deed of Withdrawal, Assignment and Assumption dated
November 7, 1997 with Indo-Pacific Energy (NZ) Ltd.,
Moondance Energy Ltd., Boral Energy Resources (NZ) Ltd.
and Trans-Orient Petroleum (NZ) Ltd.
10.10 * Copy of permit 38330 dated June 4, 1996.
10.11 * Copy of permit 38332 dated June 24, 1997.
10.12 * Deed of Assignment dated October 10, 1997 with
Indo-Pacific Energy (NZ) Ltd., Boral Energy Resources
Limited, Boral Energy Resources (NZ) Limited, Trans New
Zealand Oil Company.
10.13 * Copy of permit 38256 dated August 25, 1997.
10.14 * Copy of permit 38148 dated December 23, 1996.
10.15 * Copy of license 38706 dated August 1, 1993.
10.16 * Share Purchase Agreement with Shareholders of Minora
Energy (New Zealand) dated December 4, 1996.
10.17 * Deed of Assignment and Assumption from Minister of Energy
(New Zealand), December 23, 1996.
<PAGE> 104
10.18 * Operating agreement regarding PPL 38706 dated September
2, 1993. Filed via paper, pursuant to a Continuing
Hardship Exemption.
10.19 * Copy of permit 38716 dated October 12, 1995.
10.20 * Operating agreement regarding PEP 38716 dated April 22,
1997. Filed via paper, pursuant to a Continuing Hardship
Exemption.
10.21 * Assignment and novation agreement dated as of July 1,
1997 with Australian Worldwide Exploration NL.
10.22 * Copy of permit 38720 dated September 2, 1996.
10.23 * Copy of permit PEP 38723 dated October 30, 1997.
10.24 * Copy of license PPL 192 dated January 28, 1997.
10.25 * Copy of permit AC P19.
10.26 * Copy of permit 39.
10.27 * Copy of permit WA-199-P.
10.28 * Duplicate copy of permit WA-199-P.
10.29 * Farmin agreement dated November 28, 1997 between Boral
Energy Resources Limited and Indo-Pacific Energy (Aust)
Pty. Ltd.
10.30 * China-Joint Study Agreement of March 18, 1996 (50%).
10.31 * Agreement dated January 31, 1998 among Indo-Pacific
Energy Ltd., Trans-Orient Petroleum Ltd., Trans New
Zealand Oil Company and Gondwana Energy Corp. cancelling
interest of Trans New Zealand and Gondwana in PEP 38256.
10.32 * PEP 38716 permit endorsement dated August 8, 1997.
10.33 * Farm-out agreement dated April 21, 1997 - Marabella
Enterprises Ltd. to Australian Worldwide Exploration NL.
10.34 * Participation commitments in PEP 38716 of Indo-Pacific
Energy Ltd., Durum Energy Corp. and Euro-Pacific.
10.35 * PEP 38706-Deed of withdrawal of Australia and New Zealand
Resources and of Petroleum Resources dated January 28,
1998.
10.36 * PMP 38148-Oil sales contract dated November 9, 1997.
<PAGE> 105
10.37 * PMP 38148-Gas sales contract dated February 18, 1998.
10.38 * PEP 38328-Permit endorsements dated December 8, 1997.
10.39 * PEP 38330-Deed of assignment of Moondance Pty. to
Moondance dated February 29, 1998. -Permit endorsement
dated April 14, 1998.
10.40 * AC/P19-Agreement dated August 12, 1997 among Lonman Pty.
Ltd., Mosiac Oil N.L. and Indo-Pacific Energy Pty. Ltd.
granting to Lonman a free carried interest of five
percent (1.75% from Mosiac and 3.25% from Indo).
10.41 * Vic/P39-Agreement dated August 12, 1997 among Lonman Pty.
Ltd., Mosiac Oil N.L., Euro Pacific Energy Pty. Ltd. and
Indo-Pacific Energy Pty. Ltd. granting to Lonman a free
carried interest of five percent (1 2/3% from each).
10.42 * PEP 38716-Australia World Wide Exploration farmin
agreement dated April 10, 1997
10.43 * PEP 38716-Antrim Energy farmin agreement dated November
6, 1997.
10.44 * PEP 38716 proportional participation agreement dated May
6, 1998 among Marabella, Durum, PEP 38716 and Euro
10.45 * PEP 38332 Deed dated August 25, 1997-TNZ to TNZ(NZ)
10.46 * PEP 38332 Deed dated October 10, 1997-Boral to Boral(NZ)
10.47 * PEP 38332 Permit endorsement dated January 14, 1998-Boral
to Boral(NZ)
10.48 * PEP 38332 Deed dated April 1, 1998-TNZ(NZ) to TOP(NZ)
10.49 * WA-199-P Farmin agreement dated March 26, 1998-Boral,
Indo(Aus) and Indo as guarantor
10.50 * WA-199-P-Indo deed of guarantee dated March 26, 1998
10.51 * WA-199-P-Permit endorsement dated May 12, 1998
10.52 * Vic/P39-Permit dated July 31, 1997
10.53 * PEP 38716-Various endorsements to PEP 38716
10.54 * Permit 38148 and various endorsements
27 * Financial Data Schedule
<PAGE> 106
99.1 * Escrow agreement dated April 8, 1994 among the Pacific
Corporate Trust Company, the Registrant and certain
shareholders of the Registrant.
99.2 * Form Incentive Stock Option Agreement.
99.3 * Letter granting Continuing Hardship Exemption.
99.4 * Agreement dated December 15, 1997 between 437577 B.C.
Ltd. (now International Resources Management Corp.) and
Dr. David Bennett for sale of 225,000 escrow shares.
99.5 * Terms and conditions attached to share purchase warrants-May 1, 1998.
* Filed previously.
<PAGE> 106
SIGNATURES
Pursuant to the requirements of section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this
signature page to the Form 10 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in Wellington, New Zealand on this 28th day of
October, 1998.
INDO-PACIFIC ENERGY LTD.
By: /s/ Dr. David Bennett, President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Dr. David
Bennett as true and lawful attorney, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this
registration statement, and to file the same, therewith, with
the Securities and Exchange Commission, and to make any and all
state securities law or blue sky filings, granting unto said
attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite or necessary to
be done in or about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or any
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10 Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Name Title Date
/s/ Dr. David Bennett President, Chief Executive
Officer and member of the
Board of Directors 10/28/98
/s/ Ronald Bertuzzi Director 10/28/98
/s/ Alex Guidi Chairman of the 10/28/98
Board of Directors
/s/ Brad Holland Member of the 10/28/98
Board of Directors
/s/ Mark Katsumata Secretary 10/28/98
