UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended ________________
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER _______________
CENTURION ENERGY INTERNATIONAL INC.
(Exact name or Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Alberta, Canada
(Jurisdiction of incorporate or organization)
SUITE 800, 205 - 5TH AVENUE S.W.
CALGARY, ALBERTA, CANADA
T2P 2V7
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
NONE
Indicate the number of outstanding shares of each of the issuer's classes
of capital stock as of the close of the period covered by the annual report.
61,185,178 COMMON SHARES
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
NOT APPLICABLE
Indicated by check mark which financial statement item the registrant has
elected to follow.
ITEM 17 [X] ITEM 18 [_]
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TABLE OF CONTENTS
PART I
<S> <C>
GLOSSARY & ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -iii-
REPORTING CURRENCY AND FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . -iv-
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . -iv-
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS . . . . . . . . . . -1-
A. Directors and Senior Management . . . . . . . . . . . . . . . . . . . -1-
B. Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
C. Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . -2-
ITEM 3 KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
A. Selected Financial Information . . . . . . . . . . . . . . . . . . . . -2-
B. Capitalization and Indebtedness . . . . . . . . . . . . . . . . . . . .-4-
C. Reasons for the Offer and Use of Proceeds . . . . . . . . . . . . -4-
D. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
ITEM 4 INFORMATION ON THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . -4-
A. History and Development of the Corporation . . . . . . . . . . . . .-4-
B. Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
Petroleum Industry in Tunisia and Egypt . . . . . . . . . . . . . . -7-
Risks and Uncertainties Associated with the Corporation's Business . . . -8-
C. Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . -14-
D. Property, Plants and Equipment . . . . . . . . . . . . . . . . . . . -15-
Tunisia, North Africa . . . . . . . . . . . . . . . . . . . . . . . . -15-
Egypt, North Africa . . . . . . . . . . . . . . . . . . . . . . . . . -17-
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . . . . . . . . .-20-
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . -21-
Statement of Earnings . . . . . . . . . . . . . . . . . . . . . . . . -22-
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . .-26-
Corporate Events . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . . . . . . -27-
A. Directors and Senior Management . . . . . . . . . . . . . . . . . . .-27-
B. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-28-
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . -28-
Compensation of Executive Officers . . . . . . . . . . . . . . . . . -28-
C. Board Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . .-30-
D. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
E. Share Ownership by Directors and Executive Officers . . . . . . . -31-
Options to Purchase Securities from Registrant or Subsidiaries. . . . . -31-
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . -33-
A. Major Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
B. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . .-33-
C. Interests of Experts and Counsel . . . . . . . . . . . . . . . . . .-35-
ITEM 8 FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
A. Consolidated Statements and Other Financial Information . . . . . . . . -35-
B. Significant Changes . . . . . . . . . . . . . . . . . . . . . . . . . .-36-
ITEM 9 THE OFFERING AND THE LISTING . . . . . . . . . . . . . . . . . . . . . . . -36-
A. Offer and Listing Details . . . . . . . . . . . . . . . . . . . . . -36-
B. Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . .-36-
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C. Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
D. Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . -37-
E. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
F. Expenses of the Issue . . . . . . . . . . . . . . . . . . . . . . . .-37-
ITEM 10 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .-37-
A. Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-37-
Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-37-
Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-38-
Prior Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-38-
B. Memorandum and Articles of Association . . . . . . . . . . . . . . .-39-
C. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
D. Exchange Controls . . . . . . . . . . . . . . . . . . . . . . . . . . .-41-
E. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
Certain United States Federal Income Tax Consequences . . . . . . . . . -43-
F. Dividends and Paying Agents . . . . . . . . . . . . . . . . . . . . .-47-
G. Statement by Experts . . . . . . . . . . . . . . . . . . . . . . . . .-47-
H. Documents on Display . . . . . . . . . . . . . . . . . . . . . . . . .-47-
I. Subsidiary Information . . . . . . . . . . . . . . . . . . . . . . . . -48-
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . -48-
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . . . . . . . . -48-
Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-48-
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES . . . . . . . . . . . . . .-49-
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF
PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
ITEM 15 DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . -49-
ITEM 16 CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . -49-
ITEM 17 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-49-
ITEM 18 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-49-
ITEM 19 EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
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<PAGE>
GLOSSARY & ABBREVIATIONS
The following are certain abbreviations and definitions of terms used herein:
"ABCA" means the Business Corporations Act (Alberta);
"AMALGAMATION" means the amalgamation of Eagle and Leader, effective May 20,
1997, pursuant to the provisions of the ABCA, which amalgamation resulted in the
establishment of Centurion;
"BCF" means billions of cubic feet;
"BOE" means barrels of oil equivalent;
"BOPD" means barrels of oil per day;
"CENTURION" means Centurion Energy International Inc.;
"CORPORATION" means, unless the contest indicates otherwise, Centurion and its
subsidiaries;
"CPC" means Centurion Petroleum Corporation, a subsidiary of Centurion and
holder of certain oil and gas assets in Egypt;
"EAGLE" means Eagle Energy Corp. and its subsidiaries, being one of the
predecessor companies to Centurion and a party to the Amalgamation;
"ECUMED GROMBALIA" means Ecumed Petroleum Grombalia, Ltd., a subsidiary of
Centurion and holder of certain oil and gas assets in Tunisia;
"ECUMED TUNISIA" means Ecumed Petroleum Tunisia, Ltd., a subsidiary of Centurion
and holder of certain oil and gas assets in Tunisia;
"ECUMED ZARZIS" means Ecumed Petroleum Zarzis, Ltd., a subsidiary of Centurion
and holder of certain oil and gas assets in Tunisia;
"EGPC" means Egyptian General Petroleum Company, the Egyptian national oil
company;
"ETAP" means Enterprise Tunisienne d'Activities Petrolieres, the Tunisian
national oil company;
"LEADER" means Canadian Leader Energy Inc. and its subsidiaries, being one of
the predecessor companies to Centurion and a party to the Amalgamation;
"MBOE" means thousands of barrels of oil equivalent;
"MCF" means thousands of cubic feet;
"MINISTRY" means the Ministry of Industry established by the national government
of Tunisia;
"MIOC" means Marathon International Oil Company of Houston, Texas;
"MMCF" means millions of cubic feet;
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"NETBACK" means sales revenue less royalties and operating costs;
"PARTICIPATING INTEREST" means an interest in an oil and gas concession or field
that includes an obligation to pay capital and operating costs and the right to
receive production and production revenue;
"NGL'S" means Natural Gas Liquids;
"SEEB" means Societe d'Electricit d'El Biban, a subsidiary of Centurion, which
company is anticipated to hold the Corporation's interest in the Tunisian power
generation facility;
"TSE" means The Toronto Stock Exchange;
"TUNISIAN SUBSIDIARIES" collectively means Ecumed Grombalia, Ecumed Tunisia and
Ecumed Zarzis;
REPORTING CURRENCY AND FINANCIAL INFORMATION
Currency and Exchange Rates
------------------------------
Financial information in this registration statement is expressed in Canadian
dollars, unless otherwise noted. References to "Cdn$" or "$" are to Canadian
dollars. The following tables sets forth, for the period indicated, the high
and low exchange rates, the average of the month-end exchange rates and the
period-end exchange rate of the Canadian dollar in exchange for the United
States dollars, based upon the inverse of exchange rates reported by the Federal
Reserve Bank of New York at the noon buying rates in New York City for cable
transfers payable in the Canadian dollars as certified for customs purposes. On
November 15, 2000 the noon buying rate was Cdn$1.00 = U.S.$0.6456.
<TABLE>
<CAPTION>
Nine
Months
Ended Fiscal Year Ending December 31
Sept. 30, ------------------------------------------
2000 1999 1998 1997 1996 1995
----------------------------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Rate at End of Period 0.6646 $0.6888 $0.6522 $0.6991 $0.7297 $0.7331
Average Rate During Period(1) 0.6795 0.6737 0.6741 0.7223 0.7334 0.7285
High Rate 0.6974 0.6922 0.7060 0.7424 0.7557 0.7533
Low Rate 0.6635 0.6466 0.6327 0.6991 0.7209 0.7009
</TABLE>
NOTE:
(1) Average Rate During Period means the average rate of exchange based upon
the closing rate of exchange on the last day of each month during the
year or period indicated.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements contained in this Registration Statement that for the years ended
December 31, 1999, 1998 and 1997 are not historical facts may constitute
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from
estimated results. Among such factors are those relating to the Corporation's
ability to carry on oil and gas exploration, development and production
operations within projected operating budgets, volatility in the price of oil,
natural gas and NGL's, the accuracy of estimates of the Corporation's oil, gas
and NGL reserves, the ability of the Corporation to successfully complete a
power generation project in a timely fashion, fluctuating interest and foreign
exchange rates, government regulation and agency action, foreign country risks
related to government regulation and political instability. Such risks and
uncertainties are more fully described in "Item 1 - Description of Business -
Risks and Uncertainties Associated with the Corporation's Business". Any
forward-looking statement speaks only as of the date of this Registration
Statement on Form 20-F, and, except as provided by law, the Corporation
undertakes no obligation to update any forward-looking statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of an unanticipated event.
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ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth the names, position and length of service of each
director and member of senior management of the Corporation.
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<CAPTION>
FULL NAME POSITION SERVED SINCE
---------------------------------- ------------------------------ ----------------
<S> <C> <C>
Said Arrata Director, President and C.E.O. June 1997
800, 205 - 5th Avenue S.W.
Calgary, Alberta T2P 2V7
Barry W. Swan Director, V.P. Finance February 1995(1)
800, 205 - 5th Avenue S.W.
Calgary, Alberta T2P 2V7
A.P. ("Hani") Elsharkawi President and General Manager, April 1998
28 Corniche El Nil Street Egypt
Maadi, Cairo, Egypt
Keith Howells President and General Manager, April 2000
9-13 Rue 8000 Tunisia
Mont Plaisir, Tunis
Tunisia, North Africa 1002
Michael Miller Director May 1997(1)
c/o Safety Boss Limited
921 - 9th Avenue S.E.
Calgary, Alberta T2G 0S5
Leroy Wolbaum Director May 1997(2)
724 Nelson Avenue
Nelson, British Columbia
Derrick R. Armstrong Director June 1998
Armstrong Perkins Hudson LLP
1600, 407 - 2nd Street S.W.
Calgary, Alberta T2P 2Y3
Peter A. Braaten Director June 1998
2M Energy Corp.
Royal Bank Plaza, South Tower
Suite 2315, 200 Bay Street, Box 72
Toronto, Ontario M5J 2J5
Sohail Khan Director August 1999
Delta Oil Company
P.O. Box 6752
Jeddah 21452, Saudi Arabia
Philip Beck Director August 1999
Delta Oil (U.K.) Limited
Charters House
Charters Road
Sunningdale, Ascot, Berkshire
England SL5 0HA
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FULL NAME POSITION SERVED SINCE
---------------------------------- ------------------------------ ----------------
<S> <C> <C>
Edward Tapuska Secretary January 1996(2)
Armstrong Perkins Hudson LLP
1600, 407 - 2nd Street S.W.
Calgary, Alberta T2P 2Y3
</TABLE>
NOTES:
(1) Prior to the Amalgamation, the named director was a director of Canadian
Leader Energy Inc.
(2) Prior to the Amalgamation, the named director/officer was a
director/officer of Eagle Energy Corp.
To the knowledge of the Corporation, there are no arrangements or understandings
between any director or executive officer of the Corporation and any other
person pursuant to which such director or executive officer was selected and
there is no family relationship between any director or executive officer of the
Corporation and any other such director or executive officer.
B. ADVISORS
This item is not applicable.
C. AUDITORS
The current auditors of the Corporation are PricewaterhouseCoopers LLP,
Chartered Accountants, 1200, 425 - 1st Street S.W., Calgary, Alberta, T2P 3V7.
PricewaterhouseCoopers LLP has been the auditor of the Corporation since January
26, 1998. Prior thereto, the Corporation's auditor was Deloitte & Touche,
Chartered Accountants, 2400, 700 - 2nd Street S.W., Calgary, Alberta, T2P 2W2.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
This item is not applicable.
ITEM 3 KEY INFORMATION
A. SELECTED FINANCIAL INFORMATION
The following selected consolidated financial data for the years ended December
31, 1999, 1998 and 1997 are derived from the Audited Consolidated Financial
Statements for the periods indicated and should be read in conjunction
therewith. References to the six month periods ended June 30, 2000 and 1999 are
derived from the Corporation's Unaudited Quarterly Reports to Shareholders and
should be read in conjunction therewith. The Corporation's current activities
relate to the acquisition, exploration and development of oil and gas properties
in Tunisia and Egypt. Prior to August 1997, the Corporation also conducted
exploration, development and production activities in Canada. On August 20,
1997, the Corporation sold all of its Canadian oil and gas assets. ALL MONETARY
REFERENCES CONTAINED IN THIS ITEM 3 ARE IN CANADIAN DOLLARS.
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SELECTED FINANCIAL INFORMATION TABLE
SIX MONTHS ENDED JUNE 30 TWELVE MONTHS ENDED DECEMBER 31
---------------------------- ----------------------------------------
2000 1999 1999 1998 1997
-------------- ------------ ------------ ------------ ------------
CANADIAN GAAP(1) (THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C>
Revenue $ 11,641 $ 6,865 $ 19,915 $ 13,456 $ 15,047
Expenses 4,792 5,563 11,743 10,060 13,837
Income (Loss)(2) 3,973 192 4,487 1,497 (3,291)
Earnings (loss) per share (basic)(3) 0.065 0.004 0.09 0.03 (0.07)
Earnings (loss) per share (fully diluted)(4) 0.062 0.004 0.08 0.03 (0.07)
Total Assets 91,722 86,332 90,916 83,707 73,272
Long Term Debt - 9,381(5) - 9,071(5) -
Shareholders Equity 66,797 51,400 61,152 46,348 44,401
Total Common Shares outstanding(6) 61,055,678(7) 52,998,805 61,185,178 44,226,875 44,226,875
U.S. GAAP(8) (THOUSANDS OF CANADIAN DOLLARS)
Revenue $ 11,641 $ 6,865 $ 19,915 $ 13,456 $ 15,047
Expenses 5,464 5,505 12,342 28,655 51,866
Income (Loss)(2) 2,576 256 2,890 (9,493) (23,564)
Earnings (Loss) per share (basic)(3) 0.04 0.01 0.06 (0.21) (0.54)
Earnings (Loss) per share (diluted) (4) 0.04 0.01 0.06 (0.21) (0.54)
Total Assets 95,429 90,881 94,987 88,366 86,108
Long Term Debt 1,643(5) 9,570(5) 3,920(5) 9,945(5) -
Shareholders Equity 71,687 59,078 67,265 53,766 63,259
Total Common Shares outstanding(6) 61,055,678(7) 52,998,805 61,185,178 44,226,875 44,226,875
</TABLE>
NOTES:
(1) Refers to Canadian Generally Accepted Accounting Principles.
(2) After taxes.
(3) Basic earnings (loss) per share is based upon the average number of common
shares outstanding during the period indicated.
(4) Fully diluted earnings (loss) per share is based on the average number of
common shares outstanding plus the dilutive effect of any options or
convertible securities outstanding during the period indicated.
(5) Refers to a convertible note due September 30, 2000. See Note 4 to the
Corporation's audited financial statements as at December 31, 1999.
(6) End of period. Excludes stock options and any other outstanding
convertible securities.
(7) Commencing on December 15, 1999, the Corporation initiated a re-purchase of
its outstanding common shares pursuant to a normal-course issuer bid under
the policies of the TSE. No common shares were acquired or cancelled during
the year ended December 31, 1999. Between January 1, 2000 and June 30,
2000, Centurion acquired and cancelled 129,500 common shares at a cost of
$75,000.
(8) Refers to U.S. Generally Accepted Accounting Principles.
Neither the Corporation or its predecessors have declared or paid dividends on
its common shares during the last five fiscal periods. Any future decision to
declare dividends on the Corporation's common shares will be made by the Board
of Directors depending upon the financial requirements of the Corporation to
finance growth, the financial condition of the Corporation and other factors
which the Board of Directors of the Corporation may consider appropriate in the
circumstances. The Corporation anticipates that future earnings will be
retained for the development of its business and does not anticipate the payment
of dividends to shareholders for the foreseeable future.
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B. CAPITALIZATION AND INDEBTEDNESS
The following table sets forth the outstanding share capital and long term debt
of the Corporation as at September 30, 2000.
CAPITALIZATION TABLE
OUTSTANDING AS AT
SEPTEMBER 30, 2000
DESIGNATION OF SECURITIES AMOUNT AUTHORIZED (UNAUDITED)
-------------------------- -------------------- ---------------------
Long Term Debt - Nil
Common Shares Unlimited 62,796,896(1)
($60,074,000)(2)
Preferred Shares Unlimited Nil
NOTES:
(1) Does not include options granted for an aggregate of 4,084,667 common
shares to directors, officers, employees and consultants outstanding at
September 30, 2000. See "Item 6E - Options to Purchase Securities from
Registrant or Subsidiaries".
(2) The amounts shown are net of costs of issue.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
This item is not applicable.
D. RISK FACTORS
The Corporation's business consists of the exploration and development of oil
and gas in the North African countries of Tunisia and Egypt. In addition to
usual risks associated with oil and gas exploration and development, the
Corporation faces the additional risks of conducting business in a foreign
jurisdiction. In addition to its oil and gas operations, the Corporation is
also in the process of expanding its business to include an interest in a power
generation facility that will generate electricity utilizing in part, the
Corporation's existing Tunisian gas reserves. The Corporation has limited
experience in this area and will have to develop the requisite expertise or rely
upon the expertise of others within the scope of this business segment.
AN INVESTMENT IN THE CORPORATION MUST BE CONSIDERED HIGHLY SPECULATIVE DUE TO
THE NATURE OF THE CORPORATION'S BUSINESS AND ITS PRESENT STAGE OF DEVELOPMENT.
FOR A DETAILED DISCUSSION OF THE RISKS ASSOCIATED WITH THE CORPORATION'S
BUSINESS, SEE "INFORMATION ON THE CORPORATION B RISKS AND UNCERTAINTIES
ASSOCIATED WITH THE CORPORATION'S BUSINESS".
ITEM 4 INFORMATION ON THE CORPORATION
A. HISTORY AND DEVELOPMENT OF THE CORPORATION
Centurion is an international oil and gas exploration and development company
established pursuant to the Business Corporations Act (Alberta) through an
Amalgamation on May 20, 1997 of Eagle and Leader. The principal assets of the
Corporation currently consist of Participating Interests in oil and gas
properties located in the North African countries of Tunisia and Egypt.
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<PAGE>
Centurion has nine wholly owned subsidiaries that collectively hold all of it's
Participating Interests in its producing and non-producing oil and gas
properties. Centurion's subsidiaries are incorporated in the Bahamas, Barbados
and Tunisia. See "B Organizational Structure". Centurion's head office and
registered office are located at Suite 800, 205 - 5th Avenue S.W., Calgary,
Alberta T2P 2V7, and Suite 1600, 407 - 2nd Street S.W., Calgary, Alberta T2P 2Y3
respectively. The Corporation's telephone, fax and internet web site are (403)
263-6002, (403) 263-5998 and www.centurionenergy.com respectively. The
Corporation also has operations offices in Tunis, Tunisia and Cairo, Egypt.
Since completing the Amalgamation, Centurion's common shares have traded on The
Toronto Stock Exchange under the trading symbol "CUX". Prior thereto, the
common shares of Eagle traded on The Alberta Stock Exchange and the common
shares of Leader traded on the TSE.
B. BUSINESS OVERVIEW
General
-------
The Corporation's business relates to the conventional oil and gas industry
segment. The Corporation's current operations include exploration, development
and production of oil and gas from properties located in Tunisia and Egypt.
During the most recently completed financial year, the Corporation has also
begun to expand its business that is expected to result in the Corporation
developing a 50% interest in a power generation facility that will generate
electricity utilizing in part, the Corporation's existing Tunisian natural gas
reserves.
Centurion was established pursuant to the Amalgamation on May 20, 1997 of Leader
and Eagle, each of which had, until that time, conducted independent business
operations. Since June 1993, Leader's principal business activity had been the
acquisition, development and production of Canadian oil and gas properties, the
majority of which were located in Alberta and Saskatchewan, Canada. Prior to
December 1995, Eagle's principal business activity was the manufacturing,
licencing and distribution of a specialized oil well drilling system designed
for use in overburden drilling applications. Eagle's drilling system technology
was sold in late 1995 in conjunction with a change of management and the board
of directors. Thereafter the business focus of Eagle shifted to the acquisition
and development of oil and gas properties located in Tunisia.
Acquisition, Exploration and Development of Tunisian Oil and Gas Properties
--------------------------------------------------------------------------------
In early 1996, Eagle negotiated a series of agreements with MIOC to acquire all
of MIOC's common stock in two companies that held oil and gas production and
exploration properties and associated production facilities in Tunisia. At the
time of the acquisition, Leader agreed to acquire a minority interest in the
MIOC companies in return for funding a portion of the acquisition cost and
future exploration and development obligations on the properties held by the
acquired companies. In April 1996, Eagle and Leader closed their acquisition of
all of the issued and outstanding shares of Ecumed Tunisia and Ecumed Zarzis
from MIOC. In May 1996 Eagle acquired all of the shares of Ecumed Grombalia
from MIOC.
At the time of the acquisitions, Ecumed Tunisia, Ecumed Zarzis and Ecumed
Grombalia (collectively the "Tunisian Subsidiaries") held Participating
Interests in three oil and gas concessions, one producing field and one oil and
gas exploration permit all of which are located in Tunisia. In September 1998,
Ecumed Grombalia acquired a Participating Interest in a second Tunisian oil and
gas exploration permit. In addition to their Participating Interests, the
Tunisian Subsidiaries also owned and continue to own on-shore production
facilities consisting of primary oil processing equipment, storage tanks and
on-shore oil lifting equipment and facilities, all of which are situate in the
port of Zarzis, Tunis. In early 1998, the Corporation completed an 18 kilometre
pipeline connecting its El Biban #3 well to its on-shore production facilities.
See "Item 2 B Properties".
-5-
<PAGE>
Since acquiring the Tunisian Subsidiaries in April and May 1996, the Corporation
has drilled four wells on its Tunisian properties. As at September 30, 2000,
the Corporation's total net Tunisian oil production was approximately 2,900
bopd. The Corporation anticipates that it will participate in the drilling of
one additional production well in Tunisia prior to year-end 2000. See "Item 2 B
Properties".
Acquisition and Exploration of Egyptian Oil and Gas Properties
----------------------------------------------------------------------
In January 1997, the Corporation acquired all of the shares of CPC which, at the
time of acquisition, held a 40% Participating Interest in the 630,000 acre El
Manzala Exploration Concession located in the Nile Delta region of Egypt. At
the time of the acquisition, the El Manzala Concession had no proved or
producing reserves but had a number of significant exploration prospects. In
1999, the Corporation acquired the remaining 60% Participating Interest in the
El Manzala Concession.
In March, 1998, the Corporation participated in the successful re-completion of
the El Wastani # 1 well and in June 1998, the successful drilling of the Abu
Monkar # 1 well. Each well tested significant quantities of natural gas. Since
completing these wells, the Corporation has formulated an exploration and
development program for the El Manzala Concession which includes the
construction of a gas pipeline to transport natural gas produced from these
wells to the local Egyptian market by June 2001. The construction of the
pipeline is subject to receipt of government approval and the successful
drilling of the El Wastani #2 well which is currently underway. See "Plants,
Property and Equipment B Egypt, North Africa".
Negotiation for a Tunisian Power Generation Facility
----------------------------------------------------------
In September 1999, the Corporation entered into a joint development agreement
with a major international manufacturer of natural gas engines and industrial
gas turbines for the development, construction, operation and ownership of a
power generation facility to be located adjacent to the Corporation's existing
El Biban Field production facilities. The power generation facility will
utilize natural gas produced from the Corporation's and its field partners' oil
production operations on the El Biban and Ezzaouia Fields. The project will be
owned equally by the Corporation and its industry partner. The Corporation and
its industry partner are currently completing the design specifications for the
facility and are seeking applicable Tunisian government, regulatory and third
party approvals for the facility including approvals for the future sale of
electricity and the utilization of natural gas as the facility's fuel source.
The Corporation and its industry partner are also negotiating project financing
for the construction of the facility, a power purchase agreement for the sale of
electricity and gas purchase contracts with the other Participating Interest
holders of the El Biban and Ezzaouia Fields. Subject to timely receipt of
financing approvals and government consents, the project is anticipated to be on
stream by mid-2002.
Disposition of Canadian Oil and Gas Assets in 1997
----------------------------------------------------------
On August 20, 1997, the Corporation sold all of its Canadian oil and gas assets
to an arms-length third party and has since focused all of its resources on the
exploration, development and production of its oil and gas properties in Tunisia
and Egypt. The proceeds of the sale of the Canadian assets, amounting to
$16,522,000, were used by the Corporation to retire outstanding debt incurred by
the Corporation in the exploration and development of its Canadian properties,
and for general corporate purposes.
-6-
<PAGE>
PETROLEUM INDUSTRY IN TUNISIA AND EGYPT
Tunisia
-------
Tunisia is located on the northern coast of continental Africa on the southern
shore of the Mediterranean Sea between Algeria to the west and Libya to the
southeast. Oil has been produced from Tunisia since 1964. Published reports
state that as of December 1998 (being the most recent date for which such
reports have been made available to the Corporation), the country produces
approximately 82,000 barrels of oil per day and approximately 180 million cubic
feet of gas per day on a reserve base of approximately 308 million barrels of
crude oil and three trillion cubic feet of natural gas. The country also has an
infrastructure network of oil and gas pipelines that link the country's
producing fields with export terminals and urban centres.
The Tunisian petroleum industry is regulated by the Ministry on behalf of the
national Tunisian government. Oil and gas exploration activities may be carried
out in Tunisia in one of three ways: (1) under a Prospecting Authorization that
allows initial geological work; (2) under a Prospecting Permit that allows both
geological and geophysical work; and (3) under an Exploration Permit that allows
data acquisition and drilling work. Exploration Permits are granted by a
Convention and a Memorandum of Obligations, both of which are approved by the
Ministry. In the event a petroleum discovery is made on an Exploration Permit,
a Plan of Development is required to be filed with the Ministry within six years
of the discovery date in the case of an oil discovery and within eight years of
the discovery date in the case of a gas discovery. During the period prior to
the filing of the Plan of Development, hydrocarbon production is allowed with
Ministry approval under the terms of a long-term production test. Provided the
Plan of Development is approved, a petroleum Concession Licence is granted by
the Ministry allowing for exclusive development and production of petroleum by
the concession holder over the field area identified in the Plan of Development.
Petroleum Concession Licences typically have a 30 year term from the initial
date of the petroleum discovery.
A petroleum royalty ranging from 2% to 15% is payable in respect of oil and
natural gas produced in Tunisia and is based on a ratio of cumulative total net
production revenue of the concession to cumulative total expenses of the
concession. The maximum royalty is reached when cumulative revenue is 2.5 times
cumulative total expenses.
The government of Tunisia, through the Tunisian national oil company, ETAP, has
the right to back-in for up to a 50% interest on all petroleum discoveries made
in the country by paying cash for its share of completion and tie-in costs at
the time of its election and by paying for its portion of previously incurred
drilling and exploration costs from its share of future production revenues. In
circumstances where ETAP participates, it is responsible for its portion of
ongoing development and operating costs under the terms of a Contract of
Association that is signed with the interest holder at the time ETAP confirms
its participation in the discovery.
Producers of oil are entitled to negotiate sales contracts directly with foreign
oil purchasers subject to the requirement that up to 20% of output (percentage
dependent upon quantities produced) may be subject to a domestic market
requirement (the "Domestic Market Requirement") at a price equal to 90% of the
average price received by the producer for export sales. Producers of natural
gas are free to export natural gas after meeting the needs of the Tunisian
domestic market. The current price paid for Domestic Market Requirement natural
gas is 85% of the international FOB export price of Mediterranean ports for fuel
oil with high sulphur content and of fuel quality on a boe basis of 6.29 MCF = 1
bbl.
-7-
<PAGE>
Egypt
-----
Oil has been produced in Egypt since the mid-1960's. Based on published
reports, Egypt's reserves are estimated to be approximately 3.5 billion barrels
of oil and 32 trillion cubic feet of gas. The country has an infrastructure of
transportation and production facilities.
The national government regulates and controls the Egyptian oil industry through
the Egyptian national oil company, EGPC, which is active in the upstream,
downstream and petrochemical sectors. EGPC has full responsibility for all
sectors of the Egyptian petroleum industry and holds the sole right to import
and export crude oil and other petroleum products.
The grant of petroleum concessions is administered by EGPC. EGPC invites oil
companies to bid on open exploration blocks each year under a production sharing
system of agreements. Companies are invited to evaluate the potential of the
blocks up for bid by purchasing data packages on the blocks. The successful bid
for a particular concession block is awarded by EGPC based on the exploration
work program, financial commitment, cost recovery, profit split, signature bonus
and production bonuses submitted by respective bidders. There are no royalties
or taxes on production rather, all interests of the government are included in
the production sharing arrangement made between EGPC and the oil company. The
oil company finances 100% of all exploration and development costs on a
concession. In the event of an exploitable discovery being made on a
concession, a joint company is formed between EGPC and the oil company to carry
out production operations. Of the revenue stream generated from the sale of
production, 30% is allocated to cost recovery, all of which is allocated to the
oil company. The balance is Profit Oil which is allocated between the oil
company and EGPC based upon the production sharing regime which is typically 75%
to EGPC and 25% to the oil company. Operating expenses are fully recovered out
of cost recovery with the balance attributable to recovery of exploration costs
and development expenses, limited to 20% cost recovery on such items per year.
Where costs and recoveries are less than 30% of revenues, any balance is
allocated to Profit Oil. Where costs and recovery are greater than 30% in a
given year, such costs and recoveries are carried forward for recovery in
succeeding years.
RISKS AND UNCERTAINTIES ASSOCIATED WITH THE CORPORATION'S BUSINESS
The Corporation's business consists of the exploration and development of oil
and gas in the North African countries of Tunisia and Egypt. There are a number
of inherent risks associated with oil and gas operations and development,
particularly where such operations are conducted in foreign countries. Many of
these risks are beyond the control of management. Consequently, an investment
in the Corporation must be considered highly speculative due to the nature of
the Corporation's business and its present stage of development. The following
outlines some of the principal risks associated with the Corporation's business
and their potential impact to the Corporation.
Oil and Gas Exploration, Development and Production
---------------------------------------------------------
The Corporation is primarily involved in oil and gas exploration, development
and production activities in Tunisia and Egypt. See " - Foreign Operations".
Oil and gas exploration and development involves a high degree of risk and there
is no assurance that expenditures made on future exploration or development
activities by the Corporation will result in new discoveries of oil, condensate
or natural gas that are commercially viable or economically producible. It is
difficult to project the costs of implementing any exploratory drilling program
due to the inherent uncertainties of drilling in unknown formations, the costs
associated with encountering various drilling conditions such as overpressured
zones and tools lost in the hole, and changes in drilling plans and locations as
a result of prior exploratory wells or additional seismic data and
interpretations thereof. A number of the Corporation's properties are located
offshore. Exploration, production and development of offshore oil, condensate
and natural gas properties also involves an increased degree of risk and expense
relative to on-shore exploration, production and development due primarily to
greater technical obstacles.
-8-
<PAGE>
The Corporation's future operations are subject to the general risks of
exploration, development and operation of oil, condensate and natural gas
properties and the drilling of wells thereon, including encountering unexpected
formations or pressures, premature declines of reservoirs, blow-outs,
craterings, sour gas releases, fires and spills. Reduced revenues or losses
resulting from the occurrence of any of these risks could have a materially
adverse effect on the Corporation and its future results of operations. The
Corporation may become subject to liability for pollution, blow-outs or other
hazards. The Corporation has insurance with respect to these hazards, however,
such insurance has limitations on liability that may not be sufficient to cover
the full extent of such liabilities. The payment of such liabilities could
reduce the funds available to the Corporation or could in an extreme case,
result in a total loss of its properties and assets.
The Corporation may become responsible for decommissioning of its current
facilities and the costs associated therewith. There are no immediate plans to
establish a decommissioning reserve account in respect of any of its current
properties or facilities, rather, the costs of decommissioning are expected to
be paid from the proceeds of production in accordance with the practice
generally employed in onshore and offshore oilfield operations. Should
decommissioning be required prior to economic depletion of the Corporation's
current properties or should the estimates of the costs of decommissioning
exceed the value of the reserves remaining at any particular time to cover such
decommissioning costs, the Corporation may have to draw on funds from other
sources to satisfy such costs. The use of other funds to satisfy such costs
could have a materially adverse effect on the Corporation's financial position
and future results of operations.
There is no assurance that oil, condensate or natural gas will be capable of
production in sufficient quantities to make existing fields or future
discoveries commercially viable or economic for the Corporation or that the
existing fields will be able to maintain their economic viability as projected.
The long-term viability of the Corporation depends on its ability to find or
acquire, develop and commercially produce additional oil, condensate and gas
reserves. In the case of natural gas, to be economic, the Corporation will
either have to find or establish a commercial market for its gas.
Title
-----
The Corporation has not requested nor has it obtained formal title opinions with
respect to its oil and gas properties. As a result, the actual interest of the
Corporation in certain properties may vary from the Corporation's records. The
Corporation holds its interest in its properties in accordance with what it
understands to be the standard and usual method of property ownership applicable
to oil and gas properties in Egypt and Tunisia.
Uncertainty of Reserve Estimates
-----------------------------------
There are numerous uncertainties inherent in estimating quantities of reserves
and the present value of net cash flows attributable to such reserves. Such
estimates represent subjective judgments based on available data and the quality
of such data. Different reserve engineers may make different estimates of
reserve quantities and the present value of net cash flows attributable to the
production of such quantities. Substantial revisions to the reserve quantities
and present value estimates may be necessary due to numerous factors, including
the results of drilling, testing and production and changes in the assumptions
regarding declines and production rates, taxes, royalties, prices and costs made
after the date of a reserve estimate. The reserve estimates included and
incorporated by reference in this Registration Statement could be materially
different from the quantities and values ultimately realized by the Corporation.
-9-
<PAGE>
Prices, Markets and Markets of Crude Oil and Condensate
---------------------------------------------------------------
Oil and natural gas are commodities whose prices are determined based on world
demand, supply and other factors all of which are beyond the control of the
Corporation. World prices for oil, natural gas and condensate have fluctuated
widely in recent years. Future price fluctuations in world prices are expected
and will have a significant impact upon the projected revenue of the
Corporation, the projected return from its existing and future reserves and the
general financial viability of the Corporation.
The Corporation's oil and gas prices are affected by factors such as supply and
demand, oil quality and transportation adjustments. For the balance of 2000 and
during 2001, the Corporation expects to have oil sales only from its Tunisian
operations. The Corporation expects to market its oil production in a manner
consistent with past practices. In the case of natural gas, there is not an
immediate market for much of the Corporation's natural gas reserves or
associated gas production. Future sales of natural gas will be dependent upon
the creation or establishment of gas markets and the construction and financing
of facilities and infrastructure to service such markets. There is no assurance
the Corporation will be able to create or establish a market for its natural gas
or that if a market is established, that the price for such gas will be
commercially economic.
The Corporation is paid a Brent-based price for its oil, usually $1.00 to
U.S.$1.50 per barrel less than the spot price for West Texas Intermediate
("WTI") crude oil. Brent prices averaged U.S.$16.96 per barrel in 1999 and
closed the year at U.S.$25.60 per barrel. During 2000, Brent prices reached
prices as high as U.S.$35 per barrel. After the March 2000 annual OPEC
meetings, Brent prices have ranged between U.S.$30 and U.S.$35 per barrel.
There is no assurance that the price paid for the Corporation's oil will remain
at current levels. Based on 2000 cash flow to date, each increase or decrease
of U.S.$1.00 per barrel in the WTI price has a $0.02 per share effect, fully
diluted, on the Corporation's revenues. A decrease in the price obtained for
its oil will have a material adverse affect on the financial condition of the
Corporation and its future results of operations.
Competition
-----------
The oil and gas industry is intensely competitive and the Corporation will
compete with a substantial number of other oil and gas exploration and
production companies, many of whom have greater financial and technical
resources. Many such companies not only explore for and produce oil, condensate
and natural gas, but also carry on refining operations and market petroleum and
other products on a worldwide basis. There is also competition between the
petroleum industry and other industries supplying energy and fuel to industrial,
commercial and individual customers. There is no assurance that the Corporation
will be able to successfully compete against its competitors.
Environmental Regulation
-------------------------
The Corporation's current and future operations are and will be subject to
environmental regulations promulgated by the Tunisian and Egyptian national
governments. Should the Corporation initiate operations in other countries,
such operations will be subject to environmental legislation in such
jurisdictions. Current environmental legislation in Tunisia and Egypt provides
for restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with oil, condensate and natural gas
operations. In addition, certain types of operations may require the submission
and approval of environmental impact assessments. The Corporation's existing
operations are subject to such environmental policies and legislation.
Environmental legislation and policy is periodically amended. Such amendments
may result in stricter standards and enforcement and in more stringent fines and
penalties for non-compliance. Environmental assessments of existing and
proposed projects carry a heightened degree of responsibility for companies and
their directors, officers and employees. The costs of compliance associated
with changes in environmental regulations could require significant
expenditures, and breaches of such regulations may result in the imposition of
material fines and penalties. In an extreme case, such regulations may result
in temporary or permanent suspension of production operations. There can be no
assurance that these environmental costs or effects will not have a materially
adverse effect on the Corporation's future financial condition or results of
operations.
-10-
<PAGE>
The Corporation is currently flaring natural gas associated with its Tunisian
oil production. The Tunisian Ministry has established certain restrictions on
the quantities of natural gas that may be flared in connection with oil
production. These restrictions currently limit and are expected to continue to
limit on an ongoing basis the Corporation's level of crude oil production.
There is increasing pressure on a world-wide basis to substantially reduce and
restrict the flaring of natural gas. Should greater flaring restrictions be
imposed, the Corporation may have to reduce production levels or establish
alternate means of handling natural gas associated with oil production, either
of which could have a materially adverse effect on the Corporation's future
financial condition and results of operations. The Corporation is currently
evaluating a number of alternatives to flaring of natural gas associated with
its oil production including the establishment of a power generation facility
that will use associated natural gas as a prime fuel. There is no assurance
that a power generation facility will be completed or if completed that it will
be economically viable for the remaining life of the Corporation's oil and gas
reserves. If the power generation facility is not completed or is not
commercially viable such that the Corporation is required to resume flaring of
natural gas to produce oil, there is no assurance the Tunisian authorities will
permit or allow such flaring. If flaring is not permitted or permitted at less
than existing levels, the Corporation may have to materially reduce or suspend
oil production operations which would be materially adverse to the Corporation
and its future results from operations.
Tunisian Tax Obligations - Reinvestment Reserve
----------------------------------------------------
Under the provisions of applicable Tunisian tax legislation, oil and gas
producers are entitled to establish a reinvestment reserve (the "Reinvestment
Reserve") for the exclusive purpose of financing companies with an agricultural
or industrial business other than oil and gas exploration. The amount allocated
to the Reinvestment Reserve may be deducted from a company's taxable profit for
the fiscal year in question to the limit of 20% of such profit. The
Reinvestment Reserve claimed in a particular fiscal year which has not been
reinvested in whole or in part within five years of the date it is established
must be reincorporated into the taxable earnings of the company in the fifth
fiscal year following its establishment. The corresponding tax bears interest
dating back to the date the tax would have been payable but for the
establishment of the Reinvestment Reserve.
The Corporation's Tunisian subsidiaries have established a Reinvestment Reserve
of $5.8 million as at June 30, 2000. Should these companies be unable to expend
monies on qualifying businesses, companies or projects, such subsidiaries will
become liable for payment of deferred taxes in this amount along with related
interest thereon. Should the Corporation become liable for such payments, it
would have a materially adverse effect on the Corporation's future financial
condition and results of operations.
The prospective investment by the Corporation into the Tunisian power generation
facility is a qualifying expenditure for the purposes of the Reinvestment
Reserve. The Corporation is required to fund the project company prior to
December 31, 2001 in order to satisfy its tax obligations. The funding of the
project company is subject to, among other things, receipt of applicable
government approvals and the securing of gas supply contracts a power purchase
agreement and project financing. Although the Corporation is working towards
establishing a power generation facility at the earliest possible date, there is
currently no assurance that the power generation facility will proceed, or if it
does proceed, that it will do so in a time or manner prescribed by Tunisian tax
legislation.
-11-
<PAGE>
Foreign Currency Exchange Rates
----------------------------------
The Corporation sells its oil production pursuant to marketing agreements that
are denominated in U.S. dollars. Many of the operational and other expenses
incurred by the Corporation are paid in U.S. dollars or in local currency of the
country where operations are performed. The assets and liabilities of the
Corporation (including reserve information) are recorded in Canadian dollars.
As a result, fluctuations in the U.S. dollar against the Canadian dollar and
each of these currencies against local currencies in jurisdictions where
properties of the Corporation are located could result in unanticipated
fluctuations in the Corporation's financial results which are recorded in
Canadian dollars.
Foreign Operations
-------------------
All of the Corporation's oil and gas operations and related assets are located
outside of Canada and the United States. These operations are subject to the
risks associated with foreign investment including tax increases, royalty
increases, renegotiation of contracts, currency exchange fluctuations and
political uncertainty. In addition, the Corporation's activities in Tunisia and
Egypt may be adversely affected in varying degrees by political or economic
instability. These risks include, but are not limited to, terrorism, military
repression, arbitrary interference with private contract rights, extreme
fluctuations in currency exchange rates, high rates of inflation, exchange
controls, taxation and other laws or policies affecting foreign trade,
investment or taxation. Any changes in oil and gas or investment regulations
and policies or a shift in political attitudes in Tunisia or Egypt are beyond
the control of the Corporation and may adversely affect its business and future
financial results. Operations may be impacted in various degrees by such
factors as government regulations with respect to restrictions on production,
price controls, export controls, income taxes, expropriation of property,
environmental legislation, land use, water use, land claims of local people and
workplace safety. The impact of these factors on the Corporation's future
results of operations cannot be accurately predicted.
Tunisia
Tunisia is located on the northern coast of continental Africa on the southern
shore of the Mediterranean Sea between Algeria to the west and Libya to the
southeast. The country covers an area of approximately 162,000 square
kilometres (63,000 square miles) and, based on a July 1999 census estimate, had
a total population of approximately 9.5 million people.
Tunisia is a constitutional republic that declared independence from France in
1956. The Tunisian legislature is comprised of a 182 member Chamber of Deputies
who are elected for a five-year term, 34 seats of which are held by members of
officially recognized opposition political parties. Elections held on October
24, 1999 were won by the Democratic Constitutional Rally. This was the third
electoral success for General Zine El Abidine Ben Ali, the President and Head of
State. President Ben Ali took office in November 1987 and has since won
presidential elections in April 1989 and March 1994. The constitution provides
that the President can hold office for a maximum of three five-year terms.
-12-
<PAGE>
Tunisia has experienced relative prosperity and stability under the leadership
of President Ben Ali. Notwithstanding this relative stability, Tunisia has been
periodically affected by extremist Islamic militant activity. Tunisian
authorities have implemented anti-terrorism policies and security precautions.
By law, parties organized on the basis of religion, region, race or language are
forbidden. Despite this, there are groups in Tunisia dedicated to turning the
country into an Islamic republic. The Tunisian government has taken steps to
prevent the Islamic militant struggle in neighbouring Algeria from affecting in
Tunisia by increasing its military presence along the Tunisia/Algeria border,
imposing visa restrictions and imposing strict controls on local militants.
Should the military-backed regime in Algeria fall, the establishment of an
Islamic republic in Algeria is likely to have an impact on regional politics and
could lead to increased Islamic extremist activities in Tunisia. The country
also borders Libya. Libya has experienced periods of civil unrest and has been
the subject of international sanctions. Future political unrest in Libya is
likely to affect Tunisia and may also affect Tunisia's political stability.
Egypt
Egypt covers an area of approximately 1,000,000 square kilometres (386,000
square miles) in northeastern Africa, with its northern coastline along the
Mediterranean Sea, its eastern coastline along the Red Sea and touching the
State of Israel in the Sinai. Egypt has an estimated 2000 population of
approximately 68.4 million people.
Egypt is an independent constitutional republic. Although the country is
nominally a multi-party democracy with a 454 member People's Assembly, the true
power of government rests with the President who serves for six year terms and
exercises wide-ranging powers. In 1999, President Hosni Mubarak was endorsed in
a national referendum, in which he ran unopposed, to serve a third six-year term
as President of the People's Assembly. The People's Assembly approves the
country's budget, levies taxes, approves government programs and can censure
cabinet ministers. There is also a 210 member Shura (Advisory) Council which
has an advisory role on public policy but little legislative power. The
Republic is divided into 26 provinces. The President appoints the governors of
the 26 provinces.
The Egyptian political system has undergone significant liberalization since the
1960's. Citizens enjoy a substantial degree of freedom of expression and the
judiciary regularly demonstrates its independence from the executive branch of
government. Further progress on political reform has taken a back seat to
meeting the challenge posed by terrorist groups. Since 1992, extremist groups
seeking to overthrow the Egyptian government have staged attacks on Egyptian
government officials, security forces, foreign tourists and Egyptian Coptic
Christians. The Copts constitute an estimated 20% of Egypt's population.
Dividends
---------
Centurion has not paid any dividends on its common shares since incorporation.
The future payment of dividends on Centurion's common shares will be dependent
upon the financial requirements of the Corporation to finance future growth, the
financial condition of the Corporation and other factors which the board of
directors of the Corporation may consider appropriate in the circumstances.
Centurion anticipates that future earnings will be retained for the development
of its business and does not anticipate the payment of dividends to shareholders
for the foreseeable future.
Conflicts of Interest
-----------------------
Certain directors of the Corporation are associated with other natural resource
companies which may give rise to conflicts of interest. Pursuant to the
requirements of the ABCA, directors who have a material interest in any party to
a material contract or a proposed material contract with the Corporation are
required, subject to certain exceptions, to disclose that interest and generally
abstain from voting on any resolution to approve the contract. In addition, the
directors are required to act honestly and in good faith with a view to the best
interests of the Corporation.
-13-
<PAGE>
Five of the seven directors of the Corporation have either other full time
employment or other business or time restrictions placed on them and
accordingly, these directors and officers of the Corporation will only be able
to devote part of their time to the affairs of the Corporation.
Key Operating Personnel
-------------------------
The Corporation is dependent on certain key personnel. The Corporation
currently does not have key man insurance in place to mitigate any effect of the
loss of any or all such personnel. The loss of one or all of such personnel
could have a materially adverse effect on the operations of the Corporation.
Requirement of Additional Capital
------------------------------------
Significant additional financing will have to be raised to continue the
exploration and development of the Corporation's oil and gas properties. There
is no assurance that such additional financing will be available.
C. ORGANIZATIONAL STRUCTURE
Centurion has nine wholly owed subsidiaries that collectively hold all of the
Corporation's interests in its producing and non-producing oil and gas
properties. The Corporation's subsidiaries are incorporated in the Bahamas,
Barbados and Tunisia. Centurion has three wholly and directly owned
subsidiaries being Duraham Petroleum Limited ("Duraham") (Barbados), Eagle
Holdings (Barbados) Limited ("Eagle Holdings") (Barbados) and Ecumed Petroleum
Corporation (Barbados). Eagle Holdings and Duraham collectively have five
wholly and directly owned subsidiaries being Ecumed Petroleum Tunisia, Ltd.
(Barbados), Ecumed Petroleum Zarzis, Ltd. ("Ecumed Zarzis") (Barbados), Ecumed
Petroleum Grombalia, Ltd. ("Ecumed Grombalia") (Barbados), Centurion Petroleum
Corporation (Barbados) and Espanada Resource Corporation (Bahamas). Ecumed
Zarzis and Ecumed Grombalia collectively own all the shares of Societe
d'Electricit d'El Biban (Tunisia).
Centurion's corporate structure, including details of the jurisdiction of
incorporation and the percentage of voting securities of each subsidiary
beneficially held by Centurion is set forth in the following table.
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<PAGE>
[GRAPHIC OMITTED
CENTURION ENERGY INTERNATIONAL INC.
CORPORATE STRUCTURE]
D. PROPERTY, PLANTS AND EQUIPMENT
TUNISIA, NORTH AFRICA
El Biban Concession
---------------------
On January 1, 1984, the Ministry granted the Corporation and several other
companies an oil and gas concession (the "El Biban Concession") authorizing the
exploitation, development and production of the El Biban oil field (the "El
Biban Field") for a term of 30 years. The El Biban Concession covers an area of
approximately 56,316 acres in shallow water, 18 kilometres offshore the east
coast of Tunisia in the Gulf of Gabes.
The Corporation holds a 73.773% participating interest in the El Biban
Concession. In September 1996, the Corporation re-entered and drilled an 800
metre horizontal section in the offshore El Biban #3 well which had been
previously drilled as a vertical well in 1981. The well tested 5,500 barrels of
oil per day with associated gas. Construction of an 18 kilometre pipeline
connecting the well to the Corporation's existing onshore production facilities
was completed in February 1998. Production from the El Biban #3 well commenced
in March 1998. The well is currently producing at approximately 1,250 bopd and
3.5 mmcf per day of gas. Although produced gas is currently being flared, the
Corporation intends to utilize this gas as part of the fuel source for the
Tunisian power generation facility. This facility will allow the Corporation to
market electrical energy to the Tunisian national power grid. See "Business
Overview B Negotiations for a Tunisian Power Generation Facility".
-15-
<PAGE>
Robbana Field
--------------
In June 1974, the Corporation acquired an 80% Participating Interest in the
11,856 acre Robbana Concession application area. The Robbana Concession
application area includes the 1,680 acre Robbana oil field (the "Robbana Field")
discovered in April 1988.
In 1993, the Corporation made formal application to the Ministry for a petroleum
concession licence covering the producing Robbana Field. Oil produced from the
Robbana Field is currently sold pursuant to an authorization from the Ministry
to conduct an extended long-term production test. The Corporation is the
operator of the Robbana Field and is currently producing approximately 80 bopd
from one production well.
Ezzaouia Concession
--------------------
On January 1, 1990, the Ministry granted the Corporation and several other
companies an oil and gas concession (the "Ezzaouia Concession") authorizing the
exploitation, development and production of the on-shore Ezzaouia Field for a
term of 30 years. The Corporation holds a 31.4% participating interest in the
Ezzaouia Concession which comprises an area of approximately 9,880 acres.
During 1998, the Corporation drilled and completed two production wells on the
Ezzaouia oil field (the "Ezzaouia Field"). The Ezzaouia Field is currently
producing at approximately 2,300 bopd from nine wells of which approximately 720
bopd and 1.5 mmcf per day of gas are attributable to the Corporation. The
produced gas is presently being flared, the Corporation intends to combine gas
produced from the Ezzaouia Field with that of the El Biban Field to provide fuel
for the Tunisian power generation facility.
Grombalia Exploration Permit
------------------------------
On June 18, 1991, the Ministry granted the Corporation a 75% Participating
Interest in any new exploration performed in the 518,000 acre Grombalia
Exploration Permit (the "Grombalia Permit"). The Al Manzah #1 exploratory well
was successfully drilled by the Corporation on the Grombalia Permit in November
1998 and initially tested between 1,300 and 3,000 bopd. A long term production
test of the well was carried out from March to October 1999. The well was
shut-in between October 1999 and July 2000 pending receipt of government
approval for long term production. The well resumed production during July 2000
but was shut-in in October 2000 due to high gas production. It is currently
anticipated that the Al Manzah #1 well may be used for gas re-injection as a
secondary recovery scheme. In October 2000, the Corporation completed drilling
of the Al Manzah #2 appraisal well. Initial production rates were established
at 4,000 bopd. Oil produced from the Al Manzah #2 well is currently being sold
and transported by truck to a local Tunisian refinery. ETAP has not formally
exercised its statutory right to back-in for 50% of the Corporation's interest
in the Al Manzah Field. If ETAP elects to exercise its right, the Corporation's
net interest in the Al Manzah oil field (the "Al Manzah Field") will be reduced
to 37.5%.
Belli Concession
-----------------
On September 8, 1992, the Ministry granted the Corporation an oil and gas
concession (the "Belli Concession") authorizing the exploration, development and
production of the Belli oil field (the "Belli Field") contained therein for a
term of 30 years. The Belli Concession comprises an area of approximately
10,800 acres contained within the larger Grombalia Permit. The Corporation
holds a 37.5% Participating Interest in the Belli Concession.
-16-
<PAGE>
In April 1996, the Corporation re-entered and drilled a 340 metre horizontal
section of the on-shore Belli #6 well which had been previously drilled as a
vertical well in May 1993. The horizontal well encountered a large number of
fractures but recovered only formation water with small amounts of oil and was
subsequently abandoned. The Corporation completed an evaluation of seismic data
on the Belli Field in late 1998 and drilled another re-entry well in the Belli
Field in 1999 approximately seven kilometres from the Al Manzah discovery. This
re-entry well did not encounter commercially recoverable amounts of hydrocarbons
and was subsequently abandoned.
Mellita Exploration Permit
----------------------------
In September 1998, the Ministry granted the Corporation a 100% Participating
Interest in the 865,000 acre offshore Mellita Exploration Permit (the "Mellita
Permit") located off the east coast of Tunisia in the Gulf of Gabes. The
initial term of the Mellita Permit runs until September 2002 and is subject to
renewal thereafter for a period of seven years provided the Corporation
completes certain seismic and exploration drilling obligations. The Corporation
currently plans to re-process approximately 1,000 kilometres of 2D seismic data
and acquire approximately 400 kilometres of new 2D seismic data prior to the
scheduled expiry date of the permit. Following an evaluation of the seismic
data, the Corporation plans to drill one exploration well within the permit
area. These activities, if performed, will fully satisfy the Ministry's permit
renewal requirements.
EGYPT, NORTH AFRICA
El Manzala Concession
-----------------------
In November 1996, CPC acquired the right to earn a 40% Participating Interest in
the 630,000 acre El Manzala Concession located in the Nile Delta region of the
Arab Republic of Egypt. To earn its 40% Participating Interest, CPC was
required to fund the costs of a U.S.$4.2 million exploration program. The
exploration program consisted of shooting 220 kilometres of new seismic,
reprocessing 400 kilometres of existing seismic and drilling at least one
exploration well. On January 30, 1997, the Corporation acquired all of the
common shares of CPC. Subsequent to the acquisition, the Corporation satisfied
all of the obligations required to earn its interest in the El Manzala
Concession and made application for recognition of its Participating Interest to
EGPC. In 1999, the Corporation acquired the remaining 60% Participating
Interest in the El Manzala Concession. In July 2000, the Corporation received
formal recognition by EGPC of its 100% Participating Interest in the El Manzala
Concession.
In June 1998, the Corporation participated in the successful drilling of the Abu
Monkar # 1 exploration well which tested at a rate of 21.6 mmcf per day of
natural gas. The Abu Monkar #1 well lies within the 630,000 acre El Manzala
Concession and is located approximately 160 kilometres north of Cairo, Egypt.
The Abu Monkar discovery follows the Corporation's successful re-completion of
the El Wastani # 1 well in March 1998 which tested 12 million cubic feet of gas
per day. In November 2000, the Corporation commenced re-completion of the
suspended El Wastini #2 well. The re-completion is expected to be completed and
tested prior to year-end 2000. Assuming the El Wastani #2 well confirms
commercial viability, the Corporation anticipates constructing a 25 kilometre
pipeline to connect the El Wastani Field to an existing gas processing facility.
-17-
<PAGE>
RESERVES
All of the Corporation's proved and probable reserves are located in Tunisia and
Egypt. As at December 31, 1999, the Corporation's consolidated net proved crude
oil and natural gas reserves were approximately 6.18 million barrels of oil,
51.62 billion cubic feet of natural gas and 1.12 million barrels of natural gas
liquids.
The following table is a summary of the Corporation's estimated working interest
share of total proved producing and proved non-producing oil and natural gas
reserves by geographical location at the end of each of the last three fiscal
years.
<TABLE>
<CAPTION>
GROSS PROVED GROSS PROVED NON-
LOCATION PRODUCING RESERVES(1)(2) PRODUCING RESERVES(2)(3) TOTAL GROSS PROVED RESERVES(2)
---------------- ------------------------- ------------------------- ----------------------------
1999(4) 1998(5) 1997(6) 1999(4) 1998(5) 1999(6) 1999(4) 1998(5) 1997(6)
------- ------- ------- ------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tunisia
Oil (mmstb)(7) 3.85 5.76 3.05 2.36 0.21 0.60 6.21 5.97 3.65
Gas (bcf)(8) - - - 12.97 14.15 15.93 12.97 14.15 15.93
NGL (mmbbl)(9) - - - 0.69 0.83 1.87 0.69 0.83 1.87
Egypt
Oil (mmstb)(7) - - - - - - 40.75 - -
Gas (bcf)(8) - - - 40.75 15.74 - 0.51 15.74 -
NGL (mmbbl)(9) - - - 0.51 0.20 - 0.20 -
Total
Oil (mmstb)(7) 3.85 5.76 3.05 2.36 0.21 0.60 6.21 5.97 3.65
Gas (bcf)(8) - - - 53.71 29.88 15.93 53.71 29.88 15.93
NGL (mmbbl)(9) - - - 1.20 1.03 1.87 1.20 1.03 1.87
</TABLE>
NOTES:
(1) Proved Producing Reserves are those reserves which are estimated to be
recoverable under existing depletion mechanisms and under current
economic and operating conditions and which have been established by
existing production.
(2) All reserve references reflect the Corporation's working interest
share of gross reserves. Gross reserves consist of those reserves
owned by the Corporation before deduction of all royalties, production
taxes or their equivalent.
(3) Proved Non-Producing Reserves are those reserves which are estimated
to be recoverable under the most likely depletion mechanism and under
current economic and operating conditions and which have been
established by adequate tests and other information on zones behind
pipe in existing wells or by geological and/or geophysical control on
undeveloped tracts situated between producing tracts but which are not
currently producing due to lack of facilities and/or markets.
(4) Reserve estimates have been derived from a reserve report dated May
31, 2000 (effective December 31, 1999) (the "Adams Pearson Report
2000") prepared by Adams Pearson Associates Inc., a Calgary, Alberta
independent petroleum consulting firm. Reserves have been based on
constant price and cost assumptions utilizing an average Brent Crude
Oil Price of U.S.$25.60 per barrel less a quality adjustment of
U.S.$1.60 per barrel in the case of the Corporation's Egyptian
properties. It also reflects a quality adjustment in favour of the
Corporation of U.S.$0.50 per barrel on oil production on the Al Manzah
field and a quality adjustment reduction of U.S.$0.90 per barrel for
the Ezzaouia field. For the Tunisian properties a gas price of
U.S.$0.78 per mcf or Cdn$1.20 per mcf has been utilized and held
constant throughout assuming a wellhead netback contract would be
established with the gas purchasers. For the Egyptian properties a gas
price of U.S.$3.83 per mcf has been utilized and held constant, based
on a contractual link to Suez Blend crude oil prices.
(5) Reserve estimates have been derived from a reserve report dated May 6,
1999 (effective December 31, 1998) (the "Adams Pearson Report")
prepared by Adams Pearson Associates Inc., a Calgary, Alberta
independent petroleum consulting firm. Reserves have been based on
constant price and cost assumptions utilizing an average Brent Crude
Oil Price of U.S.$15.00 per barrel less a quality and location
adjustment of U.S.$0.90 per barrel in the case of two of the
Corporation's three producing Tunisian properties and less a quality
adjustment of U.S.$1.60 in the case of the Corporation's Egyptian
properties. The Adams Pearson Report also reflects a quality
adjustment in favour of the Corporation of U.S.$0.50 per barrel on oil
production on the Al Manzah field. A gas price of U.S.$0.78 per mcf
has been utilized and held constant assuming a wellhead netback
contract would be established with prospective gas purchasers.
(6) Reserve references have been derived from a reserve report dated May
4, 1998 (effective January 1, 1998) (the "Chapman Report") prepared by
Chapman Petroleum Engineering Ltd., a Calgary, Alberta independent
petroleum engineering firm. Reserves reflect the Corporation's net oil
and gas reserves after deduction of all outside working interests but
before deduction of royalty burdens and income tax. Reserves have been
based on constant price and cost assumptions utilizing an average
Brent Crude Price of U.S.$16.10 per barrel less a quality adjustment
of U.S.$0.90 per barrel. A gas price of U.S.$1.50 per mcf has been
utilized and held constant throughout assuming a wellhead netback
contract would be established with prospective gas purchasers.
-18-
<PAGE>
(7) "mmstb" means millions of stock tank barrels.
(8) "bcf" means billions of cubic feet.
(9) "mmbbl" means millions of barrels.
PRODUCTION
The Corporation's current production consists of oil and NGL's derived from its
Tunisian properties. Associated natural gas from operations is currently being
flared. See "Risks and Uncertainties Associated with the Corporation's Business
B Environmental Regulation". The Corporation has not produced oil or gas from
its Egyptian property.
The following table sets out total production of oil and gas attributable to the
Corporation for the periods indicated. The figures shown for 1997 include
production for half the year from the Corporation's Canadian operations which
were sold effective July 1, 1997.
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
OIL(1) GAS OIL(1) GAS OIL(1) GAS
(MBOE)(2) (MCF)(3) (MBOE)(2) (MCF)(3) (MBOE)(2) (MMCF)(3)
--------- -------- --------- -------- --------- ---------
Tunisia 833 - 966 - 480 -
Egypt - - - - - -
Canada - - - - 80 953
--------- -------- --------- -------- --------- ---------
833 - 966 - 560 953
NOTES:
(1) Includes NGL's.
(2) "mboe" means thousands of barrels of oil equivalent.
(3) "mcf" means thousands of cubic feet.
The Corporation has no long-term supply or similar arrangements with the
Tunisian government other than the requirement to satisfy the domestic market
requirement for oil. See "Petroleum Industry in Tunisia and Egypt - Tunisia".
TUNISIAN POWER GENERATION FACILITY
In September 1999, the Corporation entered into a joint development agreement
with a major international manufacturer of natural gas engines and industrial
gas turbines (the "industry partner") for the development, construction,
operation and ownership of a power generation facility to be located adjacent to
the Corporation's existing El Biban field production facilities. The power
generation facility will utilize natural gas produced from the Corporation's and
its field partners' oil production operations on the El Biban and Ezzaouia
Fields. The project will be owned equally by the Corporation and its industry
partner. The Corporation and its industry partner are currently completing the
design specifications for the facility and are seeking applicable Tunisian
government, regulatory and third party approvals for the facility including
approvals for the future sale of electricity and the utilization of natural gas
as the facility's fuel source. The Corporation and its industry partner are
also negotiating project financing for the construction of the facility, a power
purchase agreement for the sale of electricity and gas purchase contracts with
the other Participating Interest holders of the El Biban and Ezzaouia Fields.
Subject to timely receipt of financing approvals and government consents, the
project is anticipated to be on stream by mid-2002.
-19-
<PAGE>
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
GENERAL
This discussion should be read in conjunction with the Corporation's
Consolidated Financial Statements. The Corporation's Consolidated Financial
Statements have been prepared in accordance with Canadian GAAP which differ from
U.S. GAAP. For a discussion of these differences, see Note 13 to the
Corporation's Consolidation Financial Statements.
The Corporation is the result of the Amalgamation on May 20, 1997 of Leader and
Eagle. Prior to the Amalgamation, Eagle and Leader conducted independent
business operations. Leader was involved in the acquisition, development and
production of Canadian oil and gas properties and Eagle, following a
re-organization in late 1995, was involved in the acquisition and development of
oil and gas properties in Tunisia. As a result of the Amalgamation,
shareholders of Eagle and Leader received shares of Centurion based upon a
prescribed exchange ratio. Neither of the combining companies where identified
as the acquirer for accounting purposes. Consequently, the business combination
has been accounted for under Canadian GAAP using the pooling of interests method
whereby the combined financial statements of Centurion reflect the assets,
liabilities and shareholders' equity of Eagle and Leader at the values recorded
by these companies. For U.S. GAAP purposes, the combination of Leader and Eagle
was accounted for using the purchase method. A detailed description of the
differences in accounting methods can be found in Note 13 to the financial
statements appended to this registration statement.
The Corporation sells its oil production pursuant to marketing agreements that
are denominated in U.S. currency. Many of the Corporation's operational
expenses are paid in U.S. dollars or in the local currency of the country where
the operations are performed. The Corporation's Consolidated Financial
Statements are reported in Canadian dollars. For the years ended December 31,
1999 and prior, the Corporation translated foreign currency denominated
transactions and the financial statements of operationally dependent foreign
operations using the temporal method. Monetary assets and liabilities were
translated at year-end rates. Non-monetary assets and liabilities were
translated at rates in effect on the date of the transactions. Income and
expenses were translated at average rates in effect during the year with the
exception of depreciation and amortization which were translated at historic
rates. Exchange gains and losses on translation of current monetary items were
reflected in income immediately. Exchange gains and losses on translation of
non-current monetary items were deferred and amortized over the term of the
non-monetary item.
Effective January 1, 2000, the Corporation adopted the self sustaining method of
accounting for operations in Tunisia. The adoption of the self sustaining
method was necessitated by the fact that the Tunisian subsidiaries were no
longer financially dependent upon Canadian operations and the fact that they
performed all business activities without Canadian input. Under the self
sustaining method of foreign currency translation, assets and liabilities are
translated at period end rates and income and expenses are translated at average
rates in effect during the period. Exchange gains and losses are reflected as a
separate component of shareholders equity and are not amortized into income.
The Corporation follows the full cost method of accounting for its petroleum and
natural gas properties whereby all costs incurred in exploring and developing
oil and natural gas reserves are capitalized. Capitalized costs include land
acquisition costs, geological and geophysical expenses, carrying charges for
unproved properties, costs of drilling both productive and non-productive
facilities and general and administrative costs directly related to exploration
and development activities. Capitalized costs are accumulated on a
country-by-country basis and are depleted utilizing the unit of production
method based upon estimated proved net reserves of the Corporation.
-20-
<PAGE>
The Corporation's activities are conducted jointly with other companies. The
Corporation's financial statements reflect only the Corporation's proportionate
interest in such activities.
The Corporation is currently producing oil from two separate regions in Tunisia
- the Al Manzah Field in the north and the El Biban, Ezzaouia and Robbana Fields
in the south-east. Production from the Al Manzah Field is currently being
transported via truck to ETAP's regional refinery where it is sold to ETAP at
the monthly average Brent Blend price plus $0.50. Production from the El Biban,
Ezzaouia and Robbana Fields are sold through the Corporation's offshore export
facility located at the port of Zarzis at prevailing spot market rates at the
point of delivery.
A. RESULTS OF OPERATIONS
During the fiscal year ended December 31, 1999, the Corporation focused its
efforts on increasing both its daily oil production and its cumulative oil and
gas reserves. This included drilling the Belli Re-entry well, which was
subsequently abandoned, and the purchase of the remaining 60% Participating
Interest in the El Manzala Concession in Egypt. These objectives have also
continued into 2000 with the recommencement of oil production from the Al Manzah
#1 discovery well and the drilling of Al Manzah #2 development well.
In Egypt, following the success of the El Wastani #1 well which established the
El Manzala gas field, the Corporation commenced drilling of the El Wastani #2
re-entry well in November 2000. Assuming this well results in a commercial
discovery, the Corporation plans to construct a 20 kilometre pipeline to connect
El Manzala Field to an existing gas processing facility. A further exploration
program for the El Manzala Concession is also in place which includes the
acquisition of additional seismic data on the Abu Monkar Field discovered in
1998 and the drilling of additional exploration wells thereon.
Production
----------
The Corporation is currently producing oil from four fields, all of which are
located in Tunisia. The following table sets out certain operating information
for the periods shown.
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS ENDED
ENDED JUNE 30 DECEMBER 31
------------------ ----------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Corporation's Net Share of Production (bopd) 1,830 2,540 2,300 2,600 1,800
Corporation's Net Share of Production (in barrels) 333,000 459,000 830,000 966,000 655,000
Average price (per barrel) in U.S. dollars $ 37.37 $ 18.42 $ 25.12 $ 15.09 $ 20.75
</TABLE>
Production for the six months ended June 30, 2000 averaged 1,830 bopd compared
to 2,300 bopd for the same period in 1999. The decrease in production rates for
the first six months of 2000 is due to the temporary shut-in of production from
the Al Manzah #1 well pending receipt of applicable long term production
approvals from the Tunisian government and natural decline of production.
Production from the Al Manzah #1 well resumed on July 3, 2000 at a rate of
approximately 750 bopd (280 bopd net to Centurion). The Al Manzah #1 well was
shut-in in October 2000 due to high gas production. It is currently anticipated
that the Al Manzah #1 well may be used for gas re-injection as a secondary
recovery scheme. The Corporation is currently producing the Al Manzah #2 well
at a rate of approximately 3,500 bopd (1,300 bopd net for the Corporation). A
third development well is planned for the Al Manzah Field with drilling expected
to commence prior to year-end 2000.
-21-
<PAGE>
Reserves
--------
The addition to reserves for the fiscal year ended December 31, 1999 was 5.6
million boe gross proved and half-probable (2.13 million boe net). Additional
reserves assigned to the Corporation's discovery in Tunisia at Al Manzah and the
purchase of an additional interest (60%) in the Corporation's El Manzala
Concession accounted for the additions to the Corporation's reserves. The
following table is a summary of the Corporation's estimated working interest
share of proved and half-probable gross reserves for the periods indicated. See
also "Property, Plants and Equipment - Reserves".
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31
-------------------------------------------------------------------------------------------
1999(1) 1998(2) 1997(3)
----------------------------- ----------------------------- -----------------------------
Oil(mmbbl)(4)(5) Gas(bcf)(5) Oil(mmbbl)(4)(5) Gas(bcf)(5) Oil(mmbbl)(4)(5) Gas(bcf)(5)
---------------- ----------- ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tunisia 9.40 13.93 8.69 16.27 6.91 16.51
Egypt 0.76 77.27 0.28 30.90 - -
------- ---------------- ----------- ---------------- ----------- ---------------- -----------
Total 10.16 91.20 8.97 47.17 6.91 16.51
</TABLE>
NOTES:
(1) Reserve estimates have been derived from a reserve report dated May 31,
2000 (effective December 31, 1999), prepared by Adam Pearson Associates
Inc., a Calgary, Alberta independent consulting firm.
(2) Reserve estimates have been derived from a reserve report dated May 6, 1999
(effective December 31, 1998), prepared by Adam Pearson Associates Inc., a
Calgary, Alberta independent consulting firm.
(3) Reserve estimates have been derived from a reserve report dated May 4, 1998
(effective January 1, 1998) prepared by Chapman Petroleum Engineering Ltd.,
a Calgary, Alberta independent consulting firm.
(4) Includes NGL's.
(5) All reserve references reflect the Corporation's working interest share of
gross reserves. Gross reserves consist of those reserves owned by the
Corporation after deduction of all royalties, production taxes or their
equivalent.
The cycle for finding and development of the Corporation's fields is longer than
one year. Therefore, the analysis of finding and development costs is a series
of estimates for the fields first in the exploration stage and then in the
development phase. When the Corporation makes an exploration discovery it
reports a finding and development cost in the year of discovery based upon the
best estimate of costs to develop the reserves assigned to the discovery in its
initial engineered reserve predictions. As the field is developed and more
information is accumulated the Corporation updates its estimate of finding costs
for full field development. The two areas that the Corporation presently has in
progress are the Al Manzah field in Tunisia and the El Manzala Concession in
Egypt. The Corporation's estimate of finding and development costs for these
two operations was approximately $2.00 per boe in 1998 based on proved and
one-half probable reserve estimates. The Corporation's estimate of finding and
development costs for these operations based upon additional engineering data in
1999 is approximately $3.00 per boe based on proved and one-half probable
reserves.
STATEMENT OF EARNINGS
Revenue
-------
Oil and gas sales for the year, net of royalties, totaled $19,794,000 in 1999,
$13,286,000 in 1998 and $13,199,000 in 1997. For the six months ended June 30,
2000 and 1999, oil and gas sales net of royalties, totaled $11,473,000 and
$6,844,000 respectively. In 1997, approximately 25% of the Corporation's sales
were from its Canadian oil and gas properties that were sold effective July 1,
1997. In 1998 and 1999, all of the Corporation's revenues were earned from its
Tunisian oil production. The average price realized per barrel from Tunisian
production was $25.12 in 1999, $15.09 in 1998 and $20.75 in 1997. For the six
months ended June 30, 2000 and 1999, the average price realized per barrel from
Tunisian production was $37.37 and $18.42 respectively.
-22-
<PAGE>
At December 31, 1998, the Corporation had 42,000 barrels of oil in its storage
facility awaiting sale. This production was accounted for as inventory at year
end using the related operating cost of the oil. Based on the year's average
sales price less royalties and operating cost (the Corporation's netback), this
1998 inventory, had it been sold, would have provided $381,000 more to
Corporation's net income before tax.
Other Income
-------------
In 1998, 1999 and year to date 2000, other income is primarily interest earned
on short term bank investments. Other income in 1997 was a gain on the sale of
marketable securities and the gain on the sale of Canadian oil and gas
properties.
Royalties
---------
A petroleum royalty is payable by the Corporation to the Tunisian government on
petroleum produced in the country. The royalty expense per barrel for the six
months ended June 30, 2000 was $2.92 per barrel. The increase of $1.17 per
barrel from 1999 is due to higher oil prices received in 2000 as compared to
1999.
The 1999 royalty expense per barrel increased from $1.11 in 1998 to $2.15 in
1999. The increase was mainly due to higher oil prices received in 1999 which
results in higher royalty expense. In addition, the Al Manzah test production
was subject to the maximum Tunisian royalty rate of 15%.
The 1998 royalty expense per barrel decreased from $3.20 in 1997 to $1.11 in
1998. This reduction was due mostly to the much lower royalty rate applicable
to production from the Corporation's El Biban well, which began producing in mid
March, 1998.
Operating Expenses
-------------------
For the six months ended June 30, 2000, operating expenses were $1,973,000 or
$5.92 per barrel. The increase in per barrel operating costs from 1999 is due
to lower production levels in 2000.
Operating expenses of $4,815,000 in 1999 compares to an amount of $4,672,000 for
1998 or on a per barrel basis, these expenses increased to $5.28 for 1999 from
$4.91 in 1998. The increase is mainly attributable to the higher costs of test
production at Al Manzah and to the higher overhead component of the operating
costs for 1999 as production volumes decreased from 1998.
Operating expenses increased to $4.7 million in 1998 from $4.0 million in 1997
as a result of increased production volumes. On a per boe basis, these expenses
decreased by $1.14 to $4.91 in 1998, due mainly to lower production costs in
Tunisia.
When comparing Tunisian production costs only, there has also been a decrease of
$0.60 per barrel of oil from $5.51 in 1997.
-23-
<PAGE>
Netback
-------
For the six months ended June 30, 2000, the Corporation's netback on production
was $9,500,000 ($28.53 per barrel) compared to $4,792,000 ($11.67 per barrel)
for the corresponding period in 1999.
The netback on the Corporation's production for 1999 was $15.2 million compared
to $8.6 million in 1998. Per barrel netback was $17.69 for 1999 compared to
$9.07 in 1998. The improvement in netback in 1999 was mainly attributable to
the recovery of world oil prices during the last half of 1999. The netback for
the last quarter of 1999 was $24.99 per barrel.
The netback on the Corporation's production decreased from $9.2 million in 1997
to $8.6 million in 1998. Per barrel netback was also lower at $9.07 in 1998 as
compared with $13.83 in 1997. The netback amount in 1997 included production
for half of the year from Canadian operations which were sold effective July 1,
1997. Production in 1998 was only from Tunisia where the netback was $9.07 per
barrel, down from $15.87 for Tunisian production in 1997. The smaller netback
in 1998 was mitigated somewhat by lower operating costs and royalties, but the
main cause of the decrease was due to the collapse of world crude prices.
Netback (per boe)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 TWELVE MONTHS ENDED DECEMBER 31
------------------ -----------------------------------------------------------------
2000 1999 1999 1998 1997
-------- -------- -------------------- -------------------- ---------------------
TUNISIA TUNISIA TUNISIA CANADA(1) TUNISIA CANADA(1) TUNISIA CANADA(1)
-------- -------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 37.37 $ 18.42 $ 25.12 - $ 15.09 - $ 24.58 $ 19.44
Royalty Expense 2.92 1.75 (2.15) - (1.11) - (3.20) (3.44)
Operating Expense 5.92 5.00 (5.28) - (4.91) - (5.51) (7.47)
-------- -------- --------- --------- --------- --------- --------- ----------
Netback $ 28.53 $ 11.67 $ 17.69 $ 9.07 - $ 15.87 $ 8.53
</TABLE>
NOTE:
(1) The Corporation's Canadian properties were sold on August 20, 1997.
General and Administrative Expenses
--------------------------------------
For the six months ended June 30, 2000, administrative expenses were $0.7
million ($0.6 million capitalized).
For 1999 administrative expenses totaled $1.4 million ($0.9 million
capitalized), up from $1.3 million ($0.6 million capitalized) in 1998.
Management continues its efforts to maintain low administrative expenses even
though operations are in the more expensive international arena.
Administrative expenses totaled $1.3 million ($0.6 million capitalized) in 1998,
down from $1.8 million ($0.3 million capitalized) in 1997. The decrease is a
result of management's continued efforts to maintain low administrative
expenses. The amalgamation of Corporation's predecessor companies in 1997 was
the first step in lowering general and administrative expenses through a more
efficient company. In 1998, this effort continued by actually lowering overhead
in a period of expanding operations.
-24-
<PAGE>
Depreciation, Depletion and Amortization
-------------------------------------------
Depreciation, depletion and amortization ("DD&A") totaled $2.1 million ($6.40
per barrel) for the six months ended June 30, 2000. In 1999, DD&A totaled $3.8
million or $4.64 per boe. In 1998, DD&A amounted to $3.1 million or $3.20 per
boe. DD&A is calculated based on proved reserves only. The increase in the
rate per barrel in 2000 is attributable to higher estimates of future
development costs for proved reserves and the dry hole cost for the Belli
re-entry well. No further provision for site restoration was made in 1999 since
management's estimate of future site restoration costs is lower than the
provision built up from prior periods.
DD&A totaled $3.1 million in 1998 or $3.20 per boe. In 1997, DD&A amounted to
$2.7 million or $4.19 per boe. DD&A is calculated based on proved reserves
only. Further development of the exploration discoveries made in 1997, and the
Corporation's development of existing probable reserves lead to increased proved
reserves in 1998 and the lower DD&A rate.
No further provision for site restoration was made in 1998 since management's
estimate of future site restoration costs is lower than the provision built up
from prior periods.
Income Taxes
-------------
The current income tax provision for the six months ended June 30, 2000 was $1.3
million and the future income tax provision was $1.6 million. For 1999 the
current income tax provision was $0.2 million and the future income tax
provision was $3.5 million compared to $0.2 million current and $1.7 million in
future taxes in 1998. In 1997 current taxes were $3.7 million and the future
taxes amounted to $0.8 million. The Corporation has tax pools in Tunisia of
approximately $80 million which are deductible against future income from the
specific properties that gave rise to the tax pools. The tax benefits related
to these tax pools has been recognized in the Financial Statements. A detailed
explanation of the income tax provision is provided in Note 9 to the Financial
Statements.
Cash Flow and Net Earnings
------------------------------
Cash flow from operations for the six months ended June 30, 2000 was $7.9
million ($0.13 per share basic and $0.12 per share fully diluted). Earnings
were $4.0 million ($0.06 per share basic and fully diluted) for the six months
ended June 30, 1999.
Cash flow from operations increased to $12.8 million in 1999, from $6.9 million
in 1998. Cash flow per share increased from $0.16 ($0.13, fully diluted) in
1998 to $0.25 ($0.21, fully diluted) in 1999. Centurion had earnings in 1999 of
$4.5 million, compared to earnings of $1.5 million in 1998. The earnings per
share in 1999 was $0.09 per share ($0.08, fully diluted) compared to earnings
per share of $0.03 in 1998. The increase in cash flow and earnings for 1999 was
mainly attributable to the recovery of world oil prices in the latter half of
the year.
Cash flow from operations increased to $6.9 million in 1998, from $4.6 million
in 1997. Cash flow per share increased from $0.10 in 1997 to $0.16 ($0.13 fully
diluted) in 1998. Even with the world oil price collapse in 1998, the
Corporation increased its cash flow from operations by 52%. The largest factor
in this increase was the new cash flows from the start up of the Corporation's
El Biban field in March of 1998.
The Corporation had net income in 1998 of $1.5 million, compared to a net loss
of $3.3 million in 1997. The earnings per share in 1998 was $0.03 compared to a
loss per share of $0.07 in 1997. The increase in earnings in 1998 was mostly
the result of two factors; first, the new El Biban production in 1998 and,
second, the $4.3 million Argentine deposit non-recovery provision in 1997 was a
non-recurring charge. The potential for considerably larger earnings was
hampered by the much lower than average oil prices in 1998.
-25-
<PAGE>
B. LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 the Corporation had working capital of $6.2 million, compared
to working capital of $1.0 million at December 31, 1999 and a working capital
deficit of $1.0 million at December 31, 1998. The Corporation believes that its
current working capital is sufficient to meet its current requirements and
scheduled commitments.
Total assets increased to $91.7 million at June 30, 2000 from $90.9 million at
December 31, 1999 and $83.7 million at December 31, 1998.
Capital Expenditures and Liquidity and Capital Resources
--------------------------------------------------------------
The following is a summary of the capital expenditures of the Corporation for
the fiscal years indicated.
1999 Capital Expenditures
Tunisia $ 8,300,000
Egypt 3,300,000
-----------
Total - 1999 $11,600,000
1998 Capital Expenditures
Canada $ 100,000
Tunisia 12,193,000
Egypt 5,450,000
-----------
Total - 1998 $17,743,000
Capital expenditures in 1999 amounted to $11.6 million and consisted of the Al
Manzah seismic and well testing in the amount of $2.2 million; the Belli 1A
re-entry dryhole amounting to $1.3 million, the Ezzaouia tank repair and well
work-overs costing $2.8 million, the Marathon Egyptian purchase costing $2.3
million and other projects totaling $3.0 million. This activity was funded from
cash flow and a private placement raising $5.0 million in May, 1999. At year
end, the Corporation's only debt was convertible notes in the amount of $4.0
million (see "Corporate Events"). Cash on hand at year end 1999 was $5.0
million.
Capital expenditures in 1998 amounted to $17.7 million. This activity was
funded from cash flow and the issue of the $9.2 million convertible notes in
March, 1998. At year end, the Corporation's only long term debt was the
convertible notes. It is corporate policy to use debt in a responsible manner
for development projects. Cash on hand at year end 1998 was $1.7 million.
CORPORATE EVENTS
In March 1998, the Corporation completed a private placement of U.S.$6.5 million
of 8% convertible notes (the "Notes"). The maturity date for the Notes was
March 2000. During October 1999, U.S.$3.8 million of the Notes were converted
to 7,307,692 common shares at a conversion price of U.S.$0.52 per common share.
An additional 778,681 common shares were issued for interest due on the Notes
and as an inducement for early conversion of the Notes. In March 2000, U.S.$1.6
million of the Notes were redeemed for their face value in cash. The maturity
date for the balance of U.S.$1.1 million of the Notes, held by insiders of the
Corporation was extended to September 30, 2000 with no change in terms. On
September 30, 2000 the remaining U.S.$1.1 million of the Notes were converted
into 2,115,385 common shares of the Corporation at a price of U.S.$0.52 per
common share.
-26-
<PAGE>
OUTLOOK
Centurion is embarking on a new era of growth with operations in Tunisia and
Egypt. Centurion's main activity in Tunisia during 2000 and 2001 will be the
continued development of the Al Manzah Field and further exploration of the
Grombalia Concession. The Corporation is also working on finalizing the design
specifications and securing the requisite government approvals, project
financing and fuel agreements for the Tunisian power generation facility.
In Egypt, the Corporation will continue to concentrate on bringing the El
Wastani gas field into production. The Corporation plans on drilling and
completing up to seven additional wells in the field over the next 18 months.
The full cost of the program is estimated to be U.S.$50 million. These
expenditures are expected to be funded by a combination of a bank debt for the
pipelines, leasing arrangements for the compression and other surface facilities
and by scheduling payments with suppliers of drilling services over an extended
period of time. On this basis, the program can be serviced from cash flow from
existing corporate production. First production from the El Wastani Field is
expected by the end of the second quarter 2001.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth the names of each director and executive officer
of the Corporation.
<TABLE>
<CAPTION>
FULL NAME AND SERVED SHARE
RESIDENCE BUSINESS EXPERIENCE AND FUNCTION SINCE OWNERSHIP(1)
----------------- --------------------------------------------------------------------- -------- ------------
<S> <C> <C> <C>
Said Arrata Director, President and Chief Executive Officer of the Corporation June 1,494,000
Calgary, Alberta since June 1997; prior thereto, President of Quantel Engineering 1997
Ltd.
Barry W. Swan Director, Vice President, Finance and Chief Financial Officer of the February 289,000
Calgary, Alberta Corporation since May 1997; prior thereto, Executive Vice President 1995(2)
and Chief Financial Officer of Canadian Leader from February 1995 to
May 1997; prior thereto President of Boss Energy Ltd. from January
1995 to February 1995; Vice President of Boss Energy Ltd. from May
1992.
A.P. ("Hani") President and General Manager, Egypt since January 1, 2000; prior April 57,000
Elsharkawi thereto, Senior Vice-President Exploration since April 1998; prior 1998
Cairo, Egypt thereto, an independent petroleum consultant.
Keith Howells President and General Manager, Tunisia. April Nil
Tunis, Tunisia 2000
Michael Miller Director of the Corporation since May 1997. Chairman of the Board May 1,365,000
Calgary, Alberta of Safety Boss International Ltd. since 1991. 1997(2)
Leroy Wolbaum Director of the Corporation since May 1997. Petroleum technologist May Nil
Nelson, B.C. and independent petroleum consultant since 1971. Partner in Contact 1997(3)
Chemicals. Currently a director of Anglo-Swiss Industries Inc.
(ASW:MSE).
-27-
<PAGE>
Derrick R. Director of the Corporation since June 1998. Lawyer; Partner of June 81,000
Armstrong Ogilvie and Company, Barristers and Solicitors from 1991 to 1998
Calgary, Alberta December 31, 1998. Partner of Armstrong Perkins Hudson LLP since
January 1, 1999.
Peter A. Braaten Director of the Corporation since June 1998. Currently Chairman June 1,396,000
Toronto, Ontario of Brompton Capital Corporation. Prior thereto President and a 1998
Limited. director of Morrison Middlefield Resources
Sohail Khan Director since July 1999. Vice President Finance for Delta July Nil
Jeddah, Saudi International, a real estate, investments and food industry company 1999
Arabia since August 1991. Delta International, Jeddah's business includes
Philip Beck Director since July 1999. Chief Operating Officer of Delta a company August Nil
United Kingdom involved in the upstream oil and gas business. 1999
Edward W. Tapuska Secretary of the Corporation since January 1996. Lawyer; Partner of January 6,000
Calgary, Alberta Ogilvie and Company, Barristers and Solicitors from January 1, 1998 1996(2)
to December 31, 1998. Partner of Armstrong Perkins Hudson LLP
since January 1, 1999.
</TABLE>
NOTES:
(1) Information regarding share ownership is based on information provided to
the Corporation by the respective directors and officers.
(2) Prior to the Amalgamation, the named director was a director of Leader.
(3) Prior to the Amalgamation, the named director/officer was a
director/officer of Eagle.
To the knowledge of the Corporation, there are no arrangements or understandings
between any director or executive officer of the Corporation and any other
person pursuant to which such director or executive officer was selected and
there is no family relationship between any director or executive officer of the
Corporation and any other such director or executive officer.
B. COMPENSATION
COMPENSATION OF DIRECTORS
Directors, excluding directors who are also executive officers, are paid a fee
of $750 per meeting of the Board of Directors or committee thereof attended by
such director. No other compensation was paid to any director who was not an
officer of the Corporation for the year ended December 31, 1999.
COMPENSATION OF EXECUTIVE OFFICERS
During the fiscal year ended December 31, 1999, the Corporation had three
executive officers, two of whom continued to hold such positions with the
Corporation at year end. The two executive officers at year end were Messrs.
Said S. Arrata, President and Chief Executive Officer, and Barry W. Swan, Vice
President, Finance and Chief Financial Officer. On December 31, 1999, Mr. A.P.
("Hani") Elsharkawi resigned as Senior Vice President Exploration and Chief
Operating Officer. Effective January 1, 2000, he was appointed General Manager
of Egypt. The aggregate cash compensation (including salaries, director's fees,
commissions, bonuses paid for services rendered, bonuses paid for services
rendered in a previous year, and any compensation other than bonuses earned),
paid to the three executive officers and corporations controlled by them by the
Corporation and its subsidiaries for services rendered during the fiscal period
ended December 31, 1999 totaled $250,000 to Mr. Arrata, $180,000 to Mr. Swan and
$150,000 to Mr. Elsharkawi.
The following table sets out the compensation paid to the Corporation's Named
Executive Officers for the periods indicated.
-28-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------------------- -----------------------------------
ALL OTHER
OTHER ANNUAL SECURITIES COMPENSATION
FISCAL COMPENSATION UNDER OPTIONS (INCLUDING
PERIOD (INCLUDING (INCLUDING INSURANCE
NAME AND PRINCIPAL ENDING TOTAL INTEREST AND WARRANTS AND PREMIUMS AND
POSITION (D/M/Y) SALARY BONUS DIVIDENDS) RIGHTS) GRANTED SURRENDER VALUES)
----------------------- -------------- -------------- ----------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Said S. Arrata 31/12/99 250,000(1) Nil Nil Nil(2) Nil(3)
President and Chief 31/12/98 250,000(1) Nil Nil 50,000(4) Nil(3)
Executive Officer 31/12/97(5) 145,831(6) Nil Nil 750,000(7) Nil(3)
Barry W. Swan
Vice President, Finance 31/12/99 180,000(8) Nil Nil Nil(9) Nil(3)
and Chief Financial 31/12/98 180,000(8) Nil Nil 50,000(4) Nil(3)
Officer 31/12/97 163,000(8)(10) 150,000(11) Nil 750,000(7) Nil(3)
A.P. Elsharkawi
Senior Vice President 31/12/99(12) 150,000 Nil Nil 50,000(13) Nil(3)
Exploration and Chief 31/12/98(14) 120,500 Nil Nil 100,000(15) Nil(3)
Operating Officer 31/12/97 Nil Nil Nil Nil Nil(3)
----------------------- -------------- -------------- ----------- ------------- ---------------- -----------------
</TABLE>
NOTES:
(1) The amounts shown were paid to Sane Holdings Ltd., a private company
wholly-owned by Said S. Arrata, the President and Chief Executive Officer
of the Corporation pursuant to a management services contract dated June 1,
1997. See "Related Party Transactions B Employment and Management
Contracts".
(2) Subsequent to the year ended December 31, 1999, Mr. Arrata was granted
stock options exercisable into 50,000 common shares at an exercise price of
$0.57 per common share until November 15, 2004 and options exercisable into
500,000 common shares at an exercise price of $0.58 per common share until
March 31, 2005.
(3) The value of perquisites and other personal benefits, securities and
property paid to the Named Executive Officers did not exceed the lesser of
$50,000 or 10% of each total annual salary and bonus.
(4) Represents stock options exercisable into 50,000 common shares at $0.40 per
common share until October 26, 2003. See "Share Ownership by Directors and
Executive Officers B Options to Purchase Securities from Registrant or
Subsidiaries".
(5) Mr. Arrata was appointed President of the Corporation on June 18, 1997.
Figures are reflective of compensation paid from the date of such
appointment.
(6) The amounts shown were paid to Sane Holdings Ltd., a private company
wholly-owned by Said S. Arrata, the President and Chief Executive Officer
of the Corporation pursuant to a management services contract dated June 1,
1997. Reflects payments from June 1 to December 31, 1997.
(7) Represents stock options exercisable into 750,000 common shares at $1.08
per common share until June 24, 2002. See "Share Ownership by Directors and
Executive Officers B Options to Purchase Securities from Registrant or
Subsidiaries".
(8) The amounts shown were paid to Enhanced Management Services Ltd.
("Enhanced"), a private company wholly owned by Barry W. Swan, the Vice
President, Finance and Chief Financial Officer of the Corporation, pursuant
to a management contract dated effective June 1, 1997. See "Related Party
Transactions B Employment and Management Contracts".
(9) Subsequent to the year ended December 31, 1999, Mr. Swan was granted stock
options exercisable into 50,000 common shares at an exercise price of $0.57
per common share until November 15, 2004 and options exercisable into
250,000 common shares at an exercise price of $0.58 per common share until
March 31, 2005.
(10) Reflects cumulative compensation paid by Leader before the Amalgamation and
the Corporation after the amalgamation.
(11) The bonus was awarded by the Board of Directors of the Corporation in
recognition of the contribution made in respect of the successful
completion of the Amalgamation of Leader and Eagle.
(12) On December 31, 1999, Mr. Elsharkawi resigned as Senior Vice President
Exploration and effective January 1, 2000, he was appointed as President
and General Manager of Egypt. See "Related Party Transactions B Employment
and Management Contracts".
(13) Represents stock options exercisable into 50,000 common shares at $0.46 per
common share until April 15, 2004. See "Share Ownership by Directors and
Executive Officers B Options to Purchase Securities from Registrant or
Subsidiaries".
(14) Mr. Elsharkawi was appointed Senior Vice President Exploration on April 1,
1998. Prior thereto he was a consultant for the Corporation. The amount
shown reflects all payments made to Mr. Elsharkawi both as a consultant and
officer of the Corporation for the period indicated. See "Related Party
Transactions B Employment and Management Contracts".
-29-
<PAGE>
(15) Represents stock options exercisable into 100,000 common shares at $0.76
per common share until June 1, 2003. See "Share Ownership B Options to
Purchase Securities from Registrant or Subsidiaries".
C. BOARD PRACTICES
Directors are elected annually at the Corporation's annual meeting of
shareholders and hold office until the earlier of their resignation or removal
from office at a subsequent annual meeting of shareholders. Vacancies created
by departing directors may be filled by the Board of Directors between annual
shareholders meetings. Directors representing in number up to one-third the
size of the board elected at the most recent shareholders meeting may be
appointed by the Board of Directors between shareholders meetings.
AUDIT COMMITTEE
The Audit Committee of the Corporation currently consists of Derrick R.
Armstrong, Peter Braaten and Sohail Khan. There has been no changes to the
membership of this committee since the most recently completed year end. The
general function of the audit committee is to review the overall audit plan and
the Corporation's system of internal controls, to review the results of the
external audit, and to resolve any potential disputes with the Corporation's
auditors.
COMPENSATION COMMITTEE
The Compensation Committee of the Corporation currently consists of Michael
Miller, Leroy Wolbaum and Philip Beck, all of whom are neither officers or
employees of the Corporation. There has been no changes to the membership of
this committee since the most recently completed year end. The mandate of the
Compensation Committee is to review and make recommendations to the Board of
Directors in respect of the level of remuneration and other compensation to be
paid to the executive officers of the Corporation.
Policies of the Compensation Committee
------------------------------------------
Under the direction of the Compensation Committee, the Corporation is committed
to the fundamental principles of pay for performance, improved shareholder
returns and external competitiveness in the design, development and
administration of its compensation programs. The Compensation Committee
recognizes the need to attract and retain a stable and focused leadership with
the capability to manage the operations, finances and assets of the Corporation.
As appropriate, the Compensation Committee recognizes and rewards exceptional
individual contributions with highly competitive compensation. The major
elements of the Corporation's executive compensation program are salary and
long-term incentives, through the granting of stock options.
Base Salaries
--------------
In connection with determining base salaries, the Corporation maintains an
administrative framework of job levels into which positions are assigned based
on internal comparability and external market data. Because of the
Corporation's lean organizational structure and growth in the international
arena, the Compensation Committee's goal is to provide base salaries for its top
performing employees, that are competitive with the Corporation's peers and
which also recognizes the differentials from such peers. The base salary/fee
paid to each executive officer is determined based upon the executive officer's
role, responsibilities and performance, the importance of such officer to the
Corporation and its overall business goals, the financial position of the
Corporation and the level of compensation paid by the industry.
-30-
<PAGE>
Stock and Long-Term Incentives
---------------------------------
The Board believes that every employee should have a stake in the future of the
Corporation and that their interest should be aligned with the interest of the
Corporation's stockholders. To this end, the Compensation Committee selects
those executives and key employees whose decisions and actions can most directly
impact business results to participate in the Corporation's Share Option Plan.
Under the Plan, officers and key employees who are selected to participate are
eligible to receive stock options that are granted subject to a vesting period
determined by the Corporation and approved by the Board to create a long term
incentive to increase shareholder value. Awards of stock options are
supplementary to the cash incentive plan and are intended to increase the
pay-at-risk component for senior management.
Stock options are to be granted using similar criteria and are intended to be
the main incentive of the executive officers in encouraging growth of the
Corporation and its share value. As the Corporation matures, it is expected
that considerable emphasis will be placed on actual performance achievements as
measured against pre-established corporate and business unit goals, as well as
individual executive officer performance of management objectives. See "Share
Ownership by Directors and Executive Officers - Options to Purchase Securities
form Registrant or Subsidiaries".
D. EMPLOYEES
The following table sets out the number of employees of the Corporation and its
operating subsidiaries at the end of the most recently completed financial year
including their main category of employment and geographic location. Excludes
executive officers who are employees. Includes consultants on long term
contracts.
1999
----------------------------------------
Canada Tunisia Egypt
----------- ------------ -------------
Operations(1) 3 12 5
Accounting 2 7 2
Administration 5 11 3
----------- ------------ -------------
TOTAL 10 30 10
NOTE:
(1) Includes personnel involved in exploration and development operations of
the Corporation.
E. SHARE OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
SHARE OWNERSHIP
See "Item A - Directors and Senior Management" above for disclosure regarding
share ownership of the Corporation's directors and executive officers.
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
The Corporation currently has in effect, an Incentive Share Option Plan (the
"Plan") for directors, officers, employees and consultants of the Corporation
and its subsidiaries. The Plan provides that the aggregate number of common
shares which may be reserved for issuance under the Plan shall not exceed
6,000,000 common shares and that the aggregate number of common shares which may
be reserved for issuance to any one individual shall not exceed 5% of the
outstanding issue, subject to adjustment for subdivisions, consolidations or
reclassification of the common shares, arrangements or mergers, the payment of
stock dividends or other relevant changes in the capital of the Corporation.
-31-
<PAGE>
The Plan provides that the Board of Directors shall administer the Plan unless a
special committee of directors is appointed. No such committee has been
appointed to date.
The exercise price of the common shares covered by the issued stock options is
determined by the Board of Directors but cannot be less than the greater of the
"market price" as defined by the Plan, at the time of grant and the price
permitted by the TSE.
The exercise period of options shall be a period of time fixed by the Board of
Directors, not to exceed the maximum five-year period permitted by the TSE. If
a holder shall cease to be a director, officer, employee or consultant for any
reason other than death, the options granted to such holder will expire if not
exercised not later than 90 days following such cessation unless the options are
granted to a consultant in connection with specific services provided or to be
provided by that consultant, in which case the options may be exercised only
after the date of completion of such services and prior to 30 days following the
date of completion. In the event of the death of a holder, the options are
exercisable for a period of twelve months following the date of death by the
person or persons to whom the holder's rights under the options pass by will or
laws of descent and distribution.
The following stock options are outstanding to officers, directors, employees
and consultants of the Corporation as of September 30, 2000.
<TABLE>
<CAPTION>
GROUP NUMBER OF EXERCISE PRICE
(NUMBER OF PERSONS IN COMMON SHARES PER COMMON
GROUP) UNDER OPTION DATE OF GRANT EXPIRY DATE SHARE
---------------------------- -------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Executive Officers (4) 1,500,000 June 25, 1997 June 24, 2002 $ 1.08
100,000 June 1, 1998 June 1, 2003 $ 0.76
100,000 October 26, 1998 October 26, 2003 $ 0.40
50,000 April 15, 1999 April 15, 2004 $ 0.46
100,000 March 23, 2000 November 15, 2004 $ 0.57
750,000 April 3, 2000 March 31, 2005 $ 0.58
100,000 May 17, 2000 May 17, 2005 $ 0.53
Employees and Consultants(1) 30,000(2) December 19, 1995 December 19, 2000 $ 0.83
(29) 15,000(2) December 19, 1995 December 19, 2000 $ 0.40(3)
42,000(2) July 17, 1996 December 19, 2000 $ 1.16
161,000 June 25, 1997 June 24, 2002 $ 0.40(4)
75,000 January 1, 1998 December 24, 2002 $ 0.40(5)
50,000 June 1, 1998 June 1, 2003 $ 0.40(6)
50,000 October 26, 1998 October 26, 2003 $ 0.40
25,000 April 15, 1999 April 15, 2004 $ 0.46
26,667 March 23, 2000 October 15, 2004 $ 0.57
50,000 May 17, 2000 May 17, 2005 $ 0.53
25,000 August 29, 2000 August 31, 2005 $ 0.67
Directors (6) 60,000(2) December 19, 1995 December 19, 2000 $ 0.83
25,000(2) December 22, 1995 December 22, 2000 $ 1.40
200,000 June 25, 1997 June 24, 2002 $ 1.08
200,000 October 26, 1998 October 26, 2003 $ 0.40
350,000 March 23, 2000 October 15, 2004 $ 0.57
--------------
TOTAL 4,084,667
</TABLE>
-32-
<PAGE>
NOTES:
(1) Includes employees, non-executive officers and consultants of the
Corporation and its subsidiaries.
(2) The options shown were granted by Leader or Eagle prior to the
Amalgamation and reflect the number of outstanding options and the exercise
price thereof after giving effect to the Amalgamation.
(3) Repriced from $0.83 per common share on December 9, 1998.
(4) Repriced from $1.08 per common share on December 9, 1998.
(5) Repriced from $0.70 per common share on December 9, 1998.
(6) Repriced from $0.76 per common share on December 9, 1998.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
Centurion has authorized capital consisting of an unlimited number of common
shares, without nominal or par value. As at September 30, 2000, there was a
total of 62,796,896 common shares of Centurion issued and outstanding.
To the knowledge of the directors and senior officers of Centurion there are no
persons or entities who beneficially hold, directly or indirectly or exercise
control or direction over, more than 5% of the voting rights attached to the
issued and outstanding common shares of Centurion except as set forth below:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME DESIGNATION OF CLASS TYPE OF OWNERSHIP OWNED PERCENTAGE OF CLASS
---- -------------------- ----------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Delta Oil (UK) Common Shares Registered 16,200,408(2) 26% (3)
Limited (1)
</TABLE>
NOTES:
(1) Delta Oil (UK) Limited ("Delta") is a company wholly owned by Sheik Badr M.
Al-Aiban of Saudi Arabia. Delta acquired 8,114,035 common shares pursuant
to a private placement that closed in May 1999. In September, 1999, Delta
purchased U.S.$3.8 million of the Notes. Delta converted the Note plus
accrued interest into 7,307,692 common shares in October 1999. See "B
Private Placement" and "B Convertible Notes" and "- Prior Sales".
(2) Number of shares is based upon insider trading reports filed by the named
shareholder with applicable Canadian securities regulatory authorities.
(3) Based on 62.7 million issued and outstanding common shares.
The major shareholders of the Corporation do not have different voting rights
than other shareholders.
As of September 15, 2000, 2,494,857 common shares, representing four (4%)
percent of the Corporation's 60,850,788 outstanding common shares were owned by
19 holders having an address of record within the United States of America.
B. RELATED PARTY TRANSACTIONS
The Corporation is not aware of any other material transaction in the last three
years involving any director, executive officer or any shareholder holding more
than 10% of the voting rights attached to the common shares or any associate or
affiliate of any of the foregoing, other than as set forth herein or as
previously disclosed and as follows:
Employment and Management Contracts
--------------------------------------
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<PAGE>
(a) On December 24, 1994, Leader entered into a two-year consulting contract
with Enhanced Management Services Ltd. ("Enhanced"), a corporation
controlled by Barry W. Swan, the then Executive Vice President of Leader,
for the provision of general management services commencing on February 1,
1995 (the "Enhanced Agreement"). The Enhanced Agreement provided for a
minimum monthly fee of $10,000 and reimbursement of expenses. The Enhanced
Agreement was renewed by Leader and Enhanced for an additional two-year
period effective February 1, 1997 at a minimum monthly fee of $12,000.
Following the Amalgamation, the Enhanced Agreement was amended effective
June 1, 1997 to provide for a minimum monthly fee of $15,000 for a term of
three years. Effective June 1, 2000, the Enhanced Agreement was renewed.
Under the renewed agreement, the minimum monthly fee remained at $15,000
per month. Options to acquire 250,000 common shares at an exercise price of
$0.58 per common share were issued. The Enhanced Agreement has no fixed
term and is subject to termination by the Corporation upon payment of one
years' annual fees.
(b) On June 1, 1997, Centurion entered into a three year consulting contract
with Sane Holdings Ltd. ("Sane"), a corporation controlled by Said Arrata,
the President and Chief Executive Officer of Centurion, for the provision
of general management services commencing June 18, 1997 (the "Sane
Agreement"). The Sane Agreement provided for a minimum monthly fee of
$20,833 and reimbursement of expenses. Effective June, 2000, the Sane
Agreement was renewed. Under the renewed agreement, the minimum monthly fee
remained at $20,833 per month. Options to acquire 500,000 common shares
were issued. The Sane Agreement has no fixed term and is subject to
termination by the Corporation upon payment of 18 months fees.
(c) On June 1, 1997, Centurion entered into a three-year consulting contract
with Cherpin Resource Management Inc., a corporation controlled by William
Cherwayko, a Named Executive Officer and past director of Centurion (the
"Cherpin Agreement"). The Cherpin Agreement provided for a minimum monthly
fee of $15,000 and reimbursement of expenses. In the event of change of
control, the greater of the balance of the contract fees or two years' fees
must be paid by Centurion. On May 11, 1998, the Cherpin Agreement was
terminated. Cherpin received a termination payment of $55,000 in respect
thereof.
(d) On March 31, 1998, the Corporation entered into an agreement with Dr. A.R.
("Hani") Elsharkawi (the "Elsharkawi Agreement"). The Elsharkawi Agreement
provides for an annual salary of $150,000 payable in equal monthly
instalments and reimbursement for expenses. The Elsharkawi Agreement
provides for the granting of options at the time of signing to acquire
100,000 common shares of the Corporation. This grant has been made. On
January 1, 2000, the Elsharkawi Agreement was amended to reflect the
appointment of Mr. Elsharkawi as President and General Manager of the
Corporation's Egyptian operations. The amount of the annual salary remained
the same but was adjusted to be paid in U.S. dollars. The Elsharkawi
Agreement has a three year term and is subject to termination upon payment
of unpaid fees to the end of the existing term.
Private Placement
------------------
In May 1999, Centurion completed a private placement of 8,771,930 common shares
at an issue price of $0.57 per share for gross proceeds of $5,000,000. Delta
Oil (UK) Limited ("Delta") subscribed for 8,114,035 common shares. Upon
completion of the private placement, Philip Beck and Sohail Khan were appointed
to the Board of Directors. Sohail Khan is Vice President of Finance for Delta
International, which business includes Delta. Philip Beck is the Chief
Operating Officer of Delta. These individuals are currently members of the
Board of Directors.
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<PAGE>
Convertible Notes
------------------
(a) In March 1998, Centurion completed a private placement of U.S.$6,500,000 of
8% convertible notes (the "Notes"). At the time of issuance, the Notes had
a term of two years expiring March 26, 2000, bore interest on the principal
amount of the Notes at the rate of 8% per annum and were convertible at the
option of the holder into common shares of Centurion at a conversion price
of U.S.$0.47 until March 26, 1999 and U.S.$0.52 until March 26, 2000. Sane
Holdings Ltd., a corporation wholly owned by Said Arrata, the President and
Chief Executive Officer of Centurion, subscribed for U.S.$300,000 of Notes.
Safety Boss International Ltd., a company controlled by Michael Miller, a
director of Centurion subscribed for U.S.$100,000 of Notes. On July 28,
1998, Peter Braaten, a director of Centurion, acquired Notes in the amount
of U.S.$700,000.
(b) In September 1999, Delta acquired U.S.$3,800,000 of the Notes. In
conjunction with this purchase, Delta agreed to convert the Notes into
7,307,692 common shares of Centurion at the then effective conversion price
of U.S.$0.52 ($0.75) per common share. In consideration of Delta's early
conversion of the Notes, Centurion agreed to pay unpaid interest from April
1, 1999 and interest to the term date of the Notes. Such interest was paid
through the issuance of 778,681 common shares of Centurion at its then
market price of $0.58 per common share. Following the conversion of the
Notes (and after giving effect to the common shares of Centurion acquired
by Delta pursuant to the private placement described above), Delta held
16,200,408 common shares representing approximately 26.5% of Centurion's
issued and outstanding common shares.
(c) In March 2000, Centurion repaid in cash a total of U.S.$1,600,000 of the
outstanding U.S.$2,700,000 Notes. The remaining U.S.$1,100,000 Notes were
held by insiders of Centurion. Pursuant to an agreement reached between
Centurion and the insiders, the term of the outstanding Notes was extended
to September 30, 2000 at which time the balance of the principal and
accrued interest over the extension period was due. The conversion price of
U.S.$0.52 and the interest rate of 8% per annum remain unchanged for the
extended term of the Notes. On September 30, 2000, the outstanding U.S.$1.1
million Notes were converted into 2,115,385 common shares of the
Corporation. As a result of such conversion, Sane Holdings Ltd., a company
wholly owned by Said Arrata, President and CEO of Centurion received
576,923 common shares; Safety Boss International Ltd., a company controlled
by Michael Miller, a director of Centurion received 192,308 common shares;
and Peter Braaten, a director of Centurion received 1,346,154 common
shares.
C. INTERESTS OF EXPERTS AND COUNSEL
This item is not required.
ITEM 8 FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Incorporated hereto are the consolidated financial statements for the years
ended December 31, 1999, 1998 and 1997 and the unaudited interim financial
statements for the period ended June 30, 2000 and 1999.
As at September 30 , 2000, the Corporation is not involved in any lawsuits where
the claim for damages for any such lawsuit exceeds 10% of the value of the
Corporation's current assets.
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<PAGE>
No dividends have been paid on any common shares of the Corporation.
The Corporation intends to retain its earnings for use in the business and does
not expect to pay dividends on its common shares in the foreseeable future.
B. SIGNIFICANT CHANGES
No significant changes.
ITEM 9 THE OFFERING AND THE LISTING
A. OFFER AND LISTING DETAILS
This item is not applicable.
B. PLAN OF DISTRIBUTION
This item is not applicable.
C. MARKETS
The common shares of Centurion trade on the TSE under the trading symbol "CUX".
The common shares of Centurion do not currently trade in the United States. The
following table sets forth the high and low closing sale prices of Centurion's
common shares as reported by the TSE for the periods indicated.
TSE
------------------------------------
(CANADIAN $)
HIGH LOW CLOSE
------- ------- --------
2000
October 0.94 0.84 0.84
September 1.05 0.67 0.91
August 0.69 0.62 0.67
July 0.70 0.58 0.60
June 0.73 0.56 0.73
May 0.59 0.48 0.55
April 0.59 0.45 0.50
First Quarter 0.64 0.39 0.58
1999
Fourth Quarter 0.60 0.37 0.43
Third Quarter 0.75 0.53 0.59
Second Quarter 0.63 0.43 0.55
First Quarter 0.62 0.36 0.56
1998
Fourth Quarter 0.64 0.25 0.30
Third Quarter 0.72 0.29 0.31
Second Quarter 0.95 0.60 0.67
First Quarter 0.93 0.50 0.75
Centurion is authorized to issue an unlimited number of common shares without
par value, of which as at September 30, 2000, 62,796,896 shares were issued and
outstanding.
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<PAGE>
Each of Centurion's common shares carries one vote at all meetings of
shareholders, participates rateably in any dividend declared by the Board of
Directors on Centurion's common shares and, subject to the rights of holder of
any shares ranking prior to Centurion's common shares, carries the right to
receive a proportionate share of the assets of Centurion available for
distribution to a holder of Centurion's common shares in the event of the
liquidation, dissolution or winding-up of Centurion.
D. SELLING SHAREHOLDERS
This item is not applicable.
E. DILUTION
This item is not applicable.
F. EXPENSES OF THE ISSUE
This item is not applicable.
ITEM 10 ADDITIONAL INFORMATION
A. SHARE CAPITAL
The authorized share capital consists of an unlimited number of common shares
and an unlimited number of preferred shares. As of September 30, 2000, the
issued and outstanding share capital consists of 62,796,896 common shares.
There are 4,084,667 common shares reserved for issuance pursuant to the exercise
of previously issued stock options. As of September 30, 2000, no preferred
shares are outstanding.
COMMON SHARES
The holders of common shares are entitled to receive notice of and to attend any
meeting of the shareholders of the Corporation and are entitled to one vote for
each common share held (except at meetings at which only the holders of another
class of shares are entitled to vote). The directors may from time to time
declare a dividend and the Corporation shall pay the dividend out of the money
of the Corporation properly applicable to the payment of the dividend. Such
dividend payment is subject to the rights, privileges, restrictions and
conditions attached to any Preferred Share of the Corporation. The holders of
the common shares are entitled to share equally in the distribution of the
assets of the Corporation in the event of liquidation, dissolution or winding-up
of the Corporation or upon any distribution of the assets of the Corporation
among its shareholders, subject to the rights, privileges, restrictions and
conditions attached to any preferred shares of the Corporation.
PREFERRED SHARES
The preferred shares may be issued from time to time in one or more series. The
designation, rights, privileges, restrictions and conditions including, but not
limited to, the voting rights, the rate or amount of dividends on the method of
calculating dividends, the dates of payment therefor, the terms and conditions
of redemptions, purchase and conversion if any, and any sinking funds or other
provisions shall be determined by the resolution of the directors in their sole
discretion, except as required by law. The preferred shares rank prior to the
common shares with respect to distribution in the event of liquidation,
dissolution or winding-up of the Corporation. If any cumulative dividends are
not paid in full, all series of preferred shares shall participate rateably.
The holders of preferred shares shall not, except as specifically provided in
the Business Corporations Act (Alberta) or as resolved by the directors, in
their discretion, be entitled to receive notice of or vote at any meeting of
shareholders.
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<PAGE>
CAPITALIZATION
The following table sets forth the issued and outstanding capital of the
Corporation for the periods indicated:
<TABLE>
<CAPTION>
CAPITALIZATION TABLE
DESIGNATION OF AMOUNT OUTSTANDING AS AT JUNE OUTSTANDING AS AT OUTSTANDING AS AT
SECURITIES AUTHORIZED(1) 30, 2000 DECEMBER 31, 1999(2) DECEMBER 31, 1998(2)
---------------- ------------- ----------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Long Term Debt -- Nil Nil 9,071,000
Debt -- 1,609,000 4,047,000 --
Common Shares Unlimited 61,055,678(3) 61,185,178 44,226,875
($58,729,000) ($58,854,000) ($48,050,000)
Preferred Shares Unlimited Nil Nil Nil
</TABLE>
NOTES:
(1) The authorized share capital of the Corporation consists of an unlimited
number of common and preferred shares all without nominal or par value.
There are no preferred shares issued or outstanding. See "Share Capital"
for a general description of the material rights, privileges, restrictions
attached thereto.
(2) Does not include options outstanding to acquire an aggregate of 4,084,667
common shares to directors, officers, employees and consultants. See "Share
Ownership by Directors and Executive Officers - Options to Purchase
Securities from Registrant or Subsidiaries".
(3) Commencing on December 15, 1999, the Corporation initiated a re-purchase of
its outstanding common shares pursuant to a normal course issuer bid under
the policies of the TSE. No common shares were acquired or cancelled during
the year ended December 31, 1999. Between January 1 and June 30, 2000,
Centurion acquired and cancelled 129,500 common shares at a cost of
$75,000. See - "Prior Sales".
PRIOR SALES
Since the date of the Amalgamation (May 20, 1997) to September 30, 2000, common
shares have been issued by Centurion as follows:
<TABLE>
<CAPTION>
PRIOR SALES TABLE (1)
Number Issue Price Total
Date of Shares Per Share Issue Price Nature of Consideration Received
-------------- ---------- ------------- ------------ ----------------------------------
<S> <C> <C> <C> <C>
May 20, 1997 44,226,875 $ - $ - Issued on Amalgamation
May 1999 8,771,930 0.57 5,000,000 Private Placement - Cash
October 1999 7,307,692 0.758 5,545,000 Conversion of Convertible Notes
October 1999 389,341 0.575 224,000 Interest on Notes to Date of Conversion
October 1999 389,340 0.575 224,000 Inducement to Convert Notes
December 1999 100,000 0.40 40,000 Cash - Exercise of Options
September 2000 53,333 0.57 30,400 Cash - Exercise of Options
September 2000 2,115,385 0.771(2) 1,631,000 Conversion of Convertible Notes
</TABLE>
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<PAGE>
Notes:
(1) The authorized share capital of the Corporation consists of an unlimited
number of common and preferred shares all without nominal or par value.
There are no preferred shares issued or outstanding. See "Share Capital"
for a general description of the material rights, privileges, restrictions
attached thereto. Between July 1 and September 30, 2000, Centurion acquired
and cancelled a further 427,500 common shares at a cost of $210,000. The
acquisition and cancellation of such common shares is not reflected in this
table.
(2) The Notes were converted at U.S.$0.52 per common share. Figure shown is in
Canadian dollars utilizing the rate of exchange in effect at the time of
conversion.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
INCORPORATION DETAILS AND OBJECTS OF THE CORPORATION
Centurion was established pursuant to the issuance on May 20, 1997 of a
Certificate of Amalgamation by the Registrar of Corporations of the Province of
Alberta pursuant to the provisions of the ABCA. The amalgamating companies were
Eagle and Leader. Centurion's Alberta Corporate Registry Access Number is
20738328. The Articles of Amalgamation of Centurion provide that there are no
restrictions on the nature of the business to be carried on by the corporation.
SUMMARY OF DIRECTORS POWERS AND AUTHORITIES
The rights, duties, powers and authorities of the Board of Directors of
Centurion are set out in the Articles of Amalgamation (the "Articles") and
by-laws (the "By-Laws") of the corporation and the statutory provisions of the
ABCA. The following is a selected summary of the Articles, By-Laws and
applicable provisions of the ABCA as they relate to selected rights, duties,
powers and authorities of the Board of Directors of Centurion.
The Articles of Centurion provide for a minimum of one and a maximum of fifteen
directors. The ABCA prescribes that a distributing corporation must have a
minimum of three directors, a majority of whom are Canadian residents and at
least two of whom are not officers or employees of the corporation. The Board
of Directors may, between annual shareholders meetings, appoint one or more
additional directors to serve until the next annual shareholders meeting
provided that the number of directors so added may not exceed by one-third (1/3)
the number of directors who held office at the expiration of the last
shareholders meeting.
The Chairman of the Board of Directors or any one director may call a meeting
upon the provisions of forty-eight hours notice to each director in the manner
prescribed in the By-Laws. Any such notice shall include the items of business
to be considered at the meeting. A majority of the directors constitute a
quorum provided that half of those directors present are Canadian residents.
Business cannot be transacted without a quorum. A quorum of directors may vote
on any matter of business properly brought before the meeting provided that
where a director is a party to a material contract or proposed material contract
or has a material interest in the matter to be considered, such director must
disclose his or her interest at the earliest possible date, request the conflict
be noted in the minutes of the meeting, and with a few limited exceptions
enumerated in the By-Laws, refrain from voting on the matter in which the
director has a material interest. There is no limitation on the Board of
Directors to vote on matters of their remuneration provided such remuneration is
disclosed in the financial statements and annual shareholder proxy materials.
The Board of Directors has broad borrowing powers and may, without authorization
from the shareholders, (a) borrow money on the credit of the corporation; (b)
issue, re-issue, sell or pledge debt obligations of the corporation; (c) subject
to restrictions respecting financial assistance prescribed in the ABCA, give a
guarantee on behalf of the corporation to secure the performance of an
obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise
create a security interest in all or any property of the corporation, owned or
subsequently acquired, to secure any obligation of the corporation.
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<PAGE>
A person is qualified to be or stand for election as a director provided such
person is at least 18 years of age, is not a bankrupt and is not mentally
incapacitated pursuant to applicable Alberta mental health legislation or
pursuant to an order of the Alberta courts. There is no requirement for a
director to hold shares of the corporation.
SECURITIES OF THE CORPORATION
For details regarding the rights, preferences and restrictions attaching to each
class of shares of Centurion, see "Item 10 - Additional Information - Common
Shares" and "- Preferred Shares".
RIGHTS AND PRIVILEGES OF SHAREHOLDERS
Only the registered holders of common shares on the record date are entitled to
receive notice of and vote at annual and special meetings of shareholders.
Where the items of business effect the rights of shareholders other than common
shareholders, a special majority of two-thirds of the votes cast by the effected
shareholders at the meeting called for such purpose is required to approve the
item of business. Beneficial holders of common shares are also entitled to
receive proxy materials in respect of meetings of shareholders in accordance
with Canadian Securities Administrators National Policy No. 41, provided that
such proxies are limited in scope to instructing the registered shareholder
(usually a brokerage house) on how to vote on behalf of the beneficial
shareholder. There are no restrictions on the number of shares that may be held
by non-residents other than restrictions set out in the Investment Canada Act
(Canada). See "Additional Information - Exchange Controls".
There is no specific provisions in the Articles or By-Laws of Centurion that
have the effect of delaying, deferring or preventing a change of control of the
corporation. Notwithstanding this, the Board of Directors, under the general
powers conferred to it under the By-Laws, have the authority to approve and
invoke a shareholders rights plan that will protect shareholders from unfair,
abusive or coercive take-over strategies, including the acquisition or control
of the corporation by a bidder in a transaction or series of transactions that
does not treat all shareholders equally or fairly or that does not afford all
shareholders an equal opportunity to share in any premium paid upon an
acquisition of control. The Board of Directors of Centurion adopted a formal
Shareholders Rights Plan (the "Plan") on May 19, 1999, which Plan was ratified
by shareholders on June 29, 1999. The Plan is currently in effect. See "Item
12 - Description of Securities Other Than Equity Securities".
There are no provisions in the by-laws regarding public disclosure of individual
shareholdings. Notwithstanding this, applicable Canadian securities legislation
required certain public disclosure of persons owning or acquiring common shares
in excess of 10% of a corporation's issued and outstanding share capital.
C. MATERIAL CONTRACTS
The following is a summary of the material contracts of the Corporation (not
made in the ordinary course of business) and which is required to be performed
in whole or in part at or after the filing of this registration statement or
which was entered into not more than two years prior the date of filing of this
registration statement.
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<PAGE>
(a) Consulting Agreement dated June 1, 2000 between Centurion and Sane Holdings
Ltd. (Said Arrata). For a detailed description, see "Item 7 - Major
Shareholders and Related Party Transactions - Related Party Transactions -
Employment and Management Contracts.
(b) Consulting Agreement dated June 1, 2000 between Centurion and Enhanced
Management Services Ltd. (Barry Swan). For a detailed description, see
"Item 7 - Major Shareholders and Related Party Transactions - Related Party
Transactions - Employment and Management Contracts.
(c) Contract for Foreign Assignment dated December 20, 1999 between Centurion
and Dr. A.P. ("Hani") Elsharkawi. Fo a detailed description, see "Item 7 -
Major Shareholders and Related Party Transactions - Related Party
Transactions - Employment and Management Contracts.
D. EXCHANGE CONTROLS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-residents. Dividends paid to
United States residents, however, are subject to a 15% withholding tax or a 5%
withholding tax for dividends paid in 1997 and thereafter, if the shareholder is
a corporation owning at least 10% of the outstanding voting shares of the
corporation pursuant to Article X of the reciprocal tax treaty between Canada
and the United States. (See " - Taxation").
Except as provided in the Investment Canada Act (the "ICA"), which has
provisions that restrict the holding of voting shares by non-Canadians, there
are no limitations specific to the rights of non-Canadians to hold or vote the
common shares under the laws of Canada or the Province of Alberta, or in the
charter documents of Centurion or its subsidiaries.
Management of the Corporation believes that the following general summary fairly
describes those provisions of the Act pertinent to an investment in the
Corporation by a person who is not a Canadian resident (a "non-Canadian").
The ICA requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business (i.e. the gross value of the
assets of which exceed a certain threshold) to identify, notify, or file an
application for review with Investment Canada, the federal agency created by the
Act. The notification procedure involves a brief statement of information about
the investment on a prescribed form which is required to be filed with
Investment Canada by the investor at any time up to 30 days following
implementation of the investment. It is intended that investments requiring
only notification will proceed without government intervention unless the
investment is in a specific type of business activity related to Canada's
cultural heritage and national identity.
If an investment is reviewable under the ICA, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
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<PAGE>
The following investments by non-Canadians are subject to notification under the
Act:
1. An investment to establish a new Canadian business; and
2. An investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
1. Direct acquisitions of control of Canadian businesses with assets of
$5 million or more, unless the acquisition is being made by a World
Trade Organization ("WTO") member country investor (the United States
being a member of the WTO);
2. Direct acquisitions of control of Canadian businesses with assets of
$160 million or more by a WTO investor;
3. Indirect acquisitions of control of Canadian businesses with assets of
$5 million or more if such assets represent more than 50% of the total
value of the assets of the entities the control of which is being
acquired, unless the acquisition is being made by a WTO investor, in
which case there is no review;
4. Indirect acquisitions of control of Canadian businesses with assets of
$50 million or more even if such assets represent less than 50% of the
total value of the assets of the entities the control of which is
being acquired, unless the acquisition is being made by a WTO
investor, in which case there is no review; and
5. An investment subject to notification that would not otherwise be
reviewable if the Canadian business engages in the activity of
publication, distribution or sale of books, magazines, periodicals,
newspapers, film or video recordings, audio or video music recordings,
or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its direct or indirect Canadian parent
and an acquisition is indirect if it involves the acquisition of control of a
non-Canadian direct or indirect parent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of substantially all
of the assets of the Canadian business. No change of voting control will be
deemed to have occurred if less than one-third of the voting control of a
Canadian corporation is acquired by an investor.
A WTO investor, as defined in the Act, includes an individual who is a national
or a member country of the WTO or who has the right of permanent residence in
relation to that WTO member, a government or government agency of a WTO
investor-controlled corporation, limited partnership, trust or joint venture
that is neither WTO-investor controlled or Canadian controlled of which
two-thirds of its board of directors, general partners or trustees, as the case
may be, are any combination of Canadians and WTO investors.
The higher thresholds for WTO investors do not apply if the Canadian business
engages in activities in certain sectors such as uranium, financial services
(except insurance), transportation services or media activities.
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<PAGE>
The ICA specifically exempts certain transactions from either notification or
review. Included among this category of transactions is the acquisition of
voting shares or other voting interests by any person in the ordinary course of
that person's business as a trader or dealer in securities.
E. TAXATION
The following is a summary of the principal Canadian federal income tax
considerations generally applicable in respect of Centurion's common shares.
The tax consequences to any particular holder of common shares will vary
according to the status of that holder as an individual, trust, corporation or
member of a partnership, the jurisdiction in which that holder is subject to
taxation, the place where that holder is resident and, generally, according to
that holder's particular circumstances.
This summary is based upon the current provisions of the Tax Act, the
Regulations thereunder, the current publicly announced administrative and
assessing policies of Canada Customs and Revenue Agency and all specific
proposals to amend the Tax Act and Regulations announced by the Minister of
Finance (Canada) prior to the date hereof. The description is not exhaustive of
all possible Canadian federal income tax consequences and, except for the
specific proposals, does not take into account or anticipate any changes in law,
whether by legislative, governmental or judicial action, nor does it take into
account provincial, territorial or foreign tax considerations, law or treaty.
This summary is general in nature and is not, and should not be construed as,
advice to any particular holder as to Canadian tax consequences applicable to
the holder. Each holder is advised to obtain tax and legal advice applicable to
the holder's particular circumstance.
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, Article X of the tax treaty between Canada and the United States
(Canada - United States Income Tax Convention, 1980) reduces to 15% the
withholding tax on the gross amount of dividends paid to residents of the United
States. A further reduction in the withholding tax rate on the gross amount of
dividends to 5% for dividends paid in 1997 and thereafter where a U.S.
corporation owns at least 10% of the voting stock of the Canadian corporation
paying the dividends.
Capital Gains
--------------
A non-resident who holds common shares as a capital asset will not be subject to
taxes on capital gains realized on the disposition of such common shares unless
such common shares are "taxable Canadian property" within the meaning of the
Income Tax Act (Canada) ("Tax Act") and no relief is afforded under any
applicable tax treaty. The common shares would be taxable Canadian property of
a non-resident if, at any time during the five year period immediately preceding
a disposition by the non-resident of such common shares not less than 25% of the
issued shares of any class of the Corporation belonged to the non-resident
persons with whom the non-resident did not deal at arm's length, or to the
non-resident and any person with whom the non-resident did not deal at arm's
length.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of principal United States federal income
tax consequences that may apply to a "U.S. Holder" (as defined below) of common
shares. This discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury Department regulations
promulgated thereunder (the "Regulations"), published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS, and court
decisions that are currently applicable, any or all of which could materially
and adversely change at any time, possibly on a retroactive basis. In addition,
the discussion does not consider the potential effects, both adverse and
beneficial, of any proposed legislation which, if enacted, could be applied at
any time, possibly on a retroactive basis.
-43-
<PAGE>
The following discussion is for general information purposes only, and is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of common shares. No opinion was requested by the
Corporation, or is provided by its legal counsel and/or auditors, with respect
to the United States federal income tax consequences described in the following
discussion. Accordingly, holders and prospective holders of common shares
should consult their own tax advisors about the United States federal, state,
local and foreign tax consequences of purchasing, owning, and disposing of
common shares.
U.S. Holders
-------------
As used herein, a "U.S. Holder" includes a holder of common shares who is a
citizen or resident of the United States, a corporation or partnership created
or organized in or under the laws of the United States or of any political
subdivision thereof, certain defined trusts and estates, and any other person or
entity whose ownership of common shares is effectively connected with the
conduct of a trade or business in the United States. A U.S. Holder does not
include persons subject to special provisions of Federal income tax law, such as
tax-exempt organizations, qualified retirement plans, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals or foreign
corporations whose ownership of common shares is not effectively connected with
the conduct of a trade or business in the United States and shareholders who
acquired their stock through the exercise of employee stock options or otherwise
as compensation.
Distributions on Common Shares
---------------------------------
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to common shares are required to include in gross income for United
States federal income tax purposes the gross amount of such distributions to the
extent that the Corporation has current or accumulated earnings and profits,
without reduction for any Canadian income tax withheld from such distributions.
Such Canadian tax withheld may be credited, subject to certain limitations,
against the U.S. Holder's United States federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holder's United States
federal taxable income by those who itemize deductions. See "Foreign Tax
Credit" below. To the extent that distributions exceed current or accumulated
earnings and profits of the Corporation, they will be treated first as a return
of capital up to the U.S. Holder's adjusted basis in the common shares and
thereafter as gain from the sale or exchange of the common shares. Preferential
tax rates for long-term capital gains may apply to certain U.S. Holders who
satisfy minimum holding period and other requirements. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder that is a
corporation.
Dividends paid on the common shares generally will not be eligible for the
dividends-received deduction available to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from the Corporation (unless the
Corporation qualifies as a "foreign personal holding company" or a "passive
foreign investment company," as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Corporation. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.
-44-
<PAGE>
Foreign Tax Credit
--------------------
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of common shares of the Corporation may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. Furthermore, a U.S. Holder which
is a domestic corporation may claim a deemed paid foreign tax credit based on
the underlying income taxes of the Corporation.
Generally, it will be more advantageous to claim a credit because a credit
reduces United States federal income taxes on a dollar-for-dollar basis, while a
deduction merely reduces the taxpayer's income subject to tax. This election is
made on a year-by-year basis and applies to all foreign income taxes (or taxes
in lieu of income tax) paid by (or withheld from) the U.S. Holder during the
year. There are significant and complex limitations which apply to the credit,
among which is the general limitation that the credit cannot exceed the
proportionate share of the U.S. Holder's United States federal income tax
liability that the U.S. Holder's foreign source income bears to his/her or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be allocated to
foreign and domestic sources. Complex rules govern this allocation process.
There are further limitations on the foreign tax credit for certain types of
income such as "passive income," "high withholding tax interest," "financial
services income," "shipping income," and certain other classifications of
income. The availability of the foreign tax credit, the deemed paid foreign tax
credit, and the application of the limitations on the credit are fact-specific
and holders and prospective holders of common shares should consult their own
tax advisors regarding their individual circumstances.
Disposition of Common Shares
-------------------------------
A U.S. Holder will recognize gain or loss upon the sale of common shares equal
to the difference, if any, between (i) the amount of cash plus the fair market
value of any property received, and (ii) the shareholder's tax basis in the
common shares. This gain or loss will be capital gain or loss if the common
shares are a capital asset in the hands of the U.S. Holder, which will be a
short-term or long-term capital gain or loss depending upon the holding period
of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders who are individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the Code), an unused net
capital loss may be carried back three years from the loss year and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.
Other Considerations
---------------------
In the following four circumstances, the above sections of the discussion may
not describe the United States federal income tax consequences resulting from
the holding and disposition of common shares of the Corporation. However, on
the basis of (a) the number of shareholders of its common shares, (b) the
majority ownership of its shares by Canadian and other non-U.S. residents, and
(c) the fact that the majority of its assets are actively managed (not passively
held), the Corporation believes that it is neither a "Foreign Personal Holding
Company," "Foreign Investment Company," "Passive Foreign Investment Company,"
nor a "Controlled Foreign Company."
-45-
<PAGE>
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Corporation's outstanding shares is owned,
actually or constructively, by five or fewer individuals who are citizens or
residents of the United States, and 60% or more of the Corporation's gross
income for such year was derived from certain passive sources (e.g. from
dividends received from its subsidiaries), the Corporation would be treated as a
"foreign personal holding company" for United States federal income tax
purposes. In that event, U.S. Holders that hold common shares would be required
to include in gross income for such year their allowable portions of such
passive income to the extent the Corporation does not actually distribute such
income.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Corporation's
outstanding shares is held, actually or constructively, by citizens or residents
of the United States, United States domestic partnerships or corporations, or
estates or trusts (as defined by Code Section 7701(a)(30)), and the Corporation
is found to be engaged primarily in the business of investing, reinvesting, or
trading in securities, commodities, or any interest therein, it is possible that
the Corporation might be treated as a "foreign investment company" as defined in
Section 1246 of the Code, causing all or part of any gain realized by a U.S.
Holder selling or exchanging common shares to be treated as ordinary income
rather than capital gains.
Passive Foreign Investment Company
As a foreign corporation with U.S. Holders, the Corporation could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1297 of the Code, depending upon the percentage of the Corporation's income
which is passive, or the percentage of the Corporation's assets which are held
for the purpose of producing passive income.
The rules governing PFICs can have significant tax effects on U.S. shareholders
of foreign corporations. Section 1297(a) of the Code defines a PFIC as a
corporation that is not formed in the United States and, for any taxable year,
either (i) 75% or more of its gross income is "passive income", which includes
interest, dividends and certain rents and royalties or (ii) the average
percentage, by fair market value (or, if the company is a controlled foreign
corporation or makes an election, by adjusted tax basis), of its assets that
produce or are held for the production of "passive income" is 50% or more. The
taxation of a U.S. shareholder who owns stock in a PFIC is extremely complex and
is therefore beyond the scope of this discussion. U.S. persons should consult
with their own tax advisors with regard to the impact of these rules.
Controlled Foreign Company
If more than 50% of the voting power of all classes of stock or the total value
of the stock of the Corporation is owned, directly or indirectly, by citizens or
residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom own 10% or more of the total combined voting power of all classes of stock
of the Corporation or the total value of the stock of the Corporation ("United
States shareholders"), the Corporation could be treated as a controlled foreign
corporation under Subpart F of the Code.
This classification would trigger the application of many complex results
including the required inclusion by such United States shareholders in income of
their pro rata share of "Subpart F income" (as specifically defined by the Code)
of the Corporation and the Corporation's earnings invested in U.S. property. In
addition, regardless of the classification of the Corporation as a Controlled
Foreign Corporation under Section 1248 of the Code, gain from the sale or
exchange of common shares by a U.S. person who is or was a United States
shareholder (as defined above) at any time during the five-year period ending
with the sale or exchange is treated as ordinary dividend income to the extent
of earnings and profits of the Company attributable to the stock sold or
exchanged. Because of the complexity of Subpart F and Section 1248, and because
it is not clear that the Corporation is a controlled foreign corporation, a more
detailed review of these rules is outside of the scope of this discussion.
-46-
<PAGE>
F. DIVIDENDS AND PAYING AGENTS
No dividends have been paid on any shares of the Corporation and the Corporation
does not expect to pay dividends on its shares in the foreseeable future.
G. STATEMENT BY EXPERTS
Adams Pearson Associates Inc.
--------------------------------
Adams Pearson Associates Inc. ("Adams Pearson") is a Calgary, Alberta based
independent petroleum consulting firm. The Adams Pearson Report and Adams
Pearson Report 2000 was prepared on behalf of Adams Pearson for the Corporation
by Brian D. Weatherill, P. Eng. of 3131 Upper Place N.W., Calgary, Alberta, T2P
4H2. Brian D. Weatherill, an employee of Adams Pearson, graduated with a
Bachelor of Applied Science Degree from the University of British Columbia,
Canada in 1973. He is a registered Professional Engineer in the Province of
Alberta and has in excess of 26 years of experience in petroleum engineering
relating to Canadian and international oil and gas properties. Certain
information contained in this Registration Statement under the heading "Item 4 -
Property, Plants and Equipment - Reserves" and "Item 5 - Operating and Financial
Review and Prospects - Results of Operations - Reserves" have been derived from
the Adams Pearson Report and the Adams Pearson Report 2000 with the consent and
authorization of Adams Pearson and Brian D. Weatherill.
Chapman Petroleum Engineering Ltd.
-------------------------------------
Chapman Petroleum Engineering Ltd. ("Chapman Engineering") is a Calgary, Alberta
based independent petroleum engineering firm. The Chapman Report was prepared
on behalf of Chapman Engineering by Charles W. Chapman, P. Eng. of 750, 840 -
6th Avenue S.W., Calgary, Alberta, T2P 3E5. Charles W. Chapman is the President
of Chapman Engineering . Charles W. Chapman graduated from the University of
Alberta, Canada in 1971 with a Bachelor of Science Degree in Mechanical
Engineering and has been directly involved in reservoir engineering,
petrophysics, operations and evaluations since that time. Certain information
has been derived from the Chapman Report with the consent and authorized of
Chapman Engineering and Charles W. Chapman.
H. DOCUMENTS ON DISPLAY
Documents concerning the Corporation which are referred to in this Form 20-F may
be inspected upon written request to the Corporate Administrator of the
Corporation as follows:
Elaine MacDonald
Corporate Administrator
Centurion Energy International Inc.
Suite 800, 205 - 5th Avenue S.W.
Calgary, AB, Canada
T2P 2V7
-47-
<PAGE>
I. SUBSIDIARY INFORMATION
Not applicable
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation does not engage in any hedging or currency trading activities.
The Corporation's business activities are conducted primarily in Canadian and
U.S. dollars and its assets and liabilities are recorded in Canadian dollars.
The Corporation's local activities are paid for in Tunisian Dinars and Egyptian
Pounds. The U.S. dollar is the functional currency in both Tunisia and Egypt.
The Corporation is paid in U.S. dollars for the sale of its production except
for a 20% portion of the Tunisian oil production which is dedicated to the
domestic market. The production sold under the domestic market obligation
receives a price equal to 90% of the U.S. dollar price for the Brent based
export sales but the proceeds are paid in Tunisian Dinars which are utilized for
Dinar expenditures such as local salaries. The Tunisian Dinar has experienced
approximately a 25% depreciation during the last year but this has not had a
negative effect on the Corporation as its revenues are denominated in U.S. funds
and the Corporation has actually experienced savings on Dinar expenditures. As
operations are primarily carried out in U.S. dollars, the main exposure to
currency exchange fluctuations is the conversion to equivalent Canadian funds
for reporting purposes. Based upon projected 2000 cash flow, and a Canadian
dollar exchange rate between U.S.$0.67 and U.S.$0.70, the effect for each $0.01
change in exchange rate is less than $0.01 per share, fully diluted.
Consequently, anticipated fluctuations in currency exchange rates in not
expected to have a materially adverse effect on the Corporation's financial
condition or results of operations.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
RIGHTS PLAN
On May 19, 1999, the Board of Directors (the "Board") of the Company adopted the
rights plan of the Company ("Rights Plan"), which was implemented pursuant to a
shareholders rights plan agreement (the "Rights Plan Agreement") of the same
date between the Company and Montreal Trust Company of Canada, as rights agent.
The shareholders of the Company approved the Rights Plan on June 29, 1999. The
purpose of the Rights Plan is, firstly, to protect shareholders of the Company
from unfair, abusive or coercive takeover strategies, including the acquisition
of control of the Company by a bidder in a transaction or series of transactions
that does not treat all shareholders equally or fairly or that does not afford
all shareholders an equal opportunity to share in any premium paid upon an
acquisition of control. Secondly, the purpose of the Rights Plan is to afford
both the shareholders of the Company and the Board adequate time to assess an
offer made for the Company's and to pursue, explore and develop alternative
courses of action in any attempt to maximize shareholder value.
The Rights Plan is not intended to deter a person from seeking to acquire
control of the Company if such person is prepared to make a takeover bid
pursuant to a Permitted Bid or Competing Permitted Bid in accordance with the
provisions of the Rights Plan. The Rights Plan is intended to make it
impracticable to acquire 20% percent or more of the outstanding voting shares of
the Company other than by way of a Permitted Bid or a Competing Permitted Bid.
This impracticability arises as a result of the fact that the Rights will
substantially dilute the holdings of a person that seeks to acquire control of
the Company other than by means of a Permitted Bid or a Competing Permitted Bid.
-48-
<PAGE>
PART II
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
The Corporation has no defaults, dividend arrearages or delinquencies.
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF
PROCEEDS
Not Applicable.
ITEM 15 DEFAULTS UPON SENIOR SECURITIES
The Corporation has not issued and is not in default of any senior securities.
ITEM 16 CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
Not Applicable.
PART III
ITEM 17 FINANCIAL STATEMENTS
See pages F-1 through F-__ incorporated by reference herein.
ITEM 18 FINANCIAL STATEMENTS
Not Applicable
ITEM 19 EXHIBITS
(a) Financial Statements filed as part of this Registration Statement.
See Index to Financial Statements on page.
(b) Exhibits filed as part of this Registration Statement.
-49-
<PAGE>
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration statement on its behalf.
CENTURION ENERGY INTERNATIONAL INC.
Date: November 28, 2000 By: /s/ Said Arrata
-------------------------------------
Said Arrata
President and Chief Executive Officer
<PAGE>
FINANCIAL STATEMENTS
PRICEWATERHOUSECOOPERS PWC
--------------------------------------------------------------------------------
CENTURION ENERGY INTERNATIONAL INC.
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
F - 1
<PAGE>
PRICEWATERHOUSECOOPERS PWC
--------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
425 1st Street SW
Suite 1200
Calgary Alberta
Canada T2P 3V7
Telephone +1 (403) 509 7500
Facsimile +1 (403) 781 1825
March 24, 2000
AUDITORS' REPORT
TO THE DIRECTORS OF
CENTURION ENERGY INTERNATIONAL INC.
We have audited the consolidated balance sheets of CENTURION ENERGY
INTERNATIONAL INC. as at December 31, 1999 and 1998 and the consolidated
statements of income and retained earnings and cash flows for each of the years
in the three year period ended December 31, 1999. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada and the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 1999 in accordance with
Canadian generally accepted accounting principles.
/S/ "PRICEWATERHOUSECOOPERS LLP"
CHARTERED ACCOUNTANTS
Calgary, Alberta
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
F - 2
<PAGE>
<TABLE>
<CAPTION>
CENTURION ENERGY INTERNATIONAL INC.
Consolidated Balance Sheets
------------------------------------------------------------------------------------------
AS AT AS AT AS AT
JUNE 30, DECEMBER 31, DECEMBER 31,
2000 1999 1998
$ $ $
(UNAUDITED) (RESTATED - (RESTATED -
NOTE 2) NOTE 2)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 5,092,000 5,018,000 1,691,000
Accounts receivable 7,652,000 7,312,000 4,551,000
Inventory 439,000 63,000 288,000
Deposits and prepaids 455,000 648,000 518,000
------------------------------------------
13,638,000 13,041,000 7,048,000
CAPITAL ASSETS (note 4) 54,362,000 51,303,000 43,536,000
DEFERRED FINANCING COSTS - 46,000 560,000
FUTURE TAX ASSET (notes 2 and 9) 23,722,000 26,526,000 32,563,000
------------------------------------------
91,722,000 90,916,000 83,707,000
==========================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable 5,782,000 7,976,000 8,011,000
Convertible notes (note 6) 1,609,000 4,047,000 -
------------------------------------------
7,391,000 12,023,000 8,011,000
CONVERTIBLE NOTES (note 6) - - 9,071,000
REINVESTMENT RESERVE (note 5) 5,794,000 4,939,000 4,893,000
PROVISION FOR SITE RESTORATION COSTS 1,597,000 1,460,000 1,460,000
DEFERRED CREDIT (note 2) 10,143,000 11,342,000 13,924,000
------------------------------------------
24,925,000 29,764,000 37,359,000
------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 7) 58,729,000 58,854,000 48,050,000
CONTRIBUTED SURPLUS 161,000 - -
EQUITY PORTION OF CONVERTIBLE NOTES (note 6) 76,000 187,000 450,000
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 1,747,000 - -
RETAINED EARNINGS (DEFICIT) 6,084,000 2,111,000 (2,152,000)
------------------------------------------
66,797,000 61,152,000 46,348,000
------------------------------------------
91,722,000 90,916,000 83,707,000
==========================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 3
<PAGE>
<TABLE>
<CAPTION>
CENTURION ENERGY INTERNATIONAL INC.
Consolidated Statements of Income and Retained Earnings
-------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
---------------------------------- ----------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED) (RESTATED - (RESTATED - (RESTATED -
(RESTATED - NOTE 2) NOTE 2) NOTE 2) NOTE 2)
<S> <C> <C> <C> <C> <C>
REVENUE
Oil and gas - net of royalties 11,473,000 6,844,000 19,794,000 13,286,000 13,199,000
Other income 168,000 21,000 121,000 170,000 1,848,000
----------------------------------------------------------------------------------
11,641,000 6,865,000 19,915,000 13,456,000 15,047,000
----------------------------------------------------------------------------------
EXPENSES
Operating 1,973,000 2,052,000 4,815,000 4,672,000 4,020,000
Depletion, depreciation and
amortization 2,130,000 1,834,000 3,848,000 3,088,000 2,746,000
General and administrative 662,000 650,000 1,404,000 1,348,000 1,761,000
Interest 107,000 378,000 656,000 604,000 -
Amortization of discount on
convertible notes 23,000 113,000 192,000 168,000 -
Amortization of deferred
financing costs 46,000 224,000 383,000 336,000 -
Foreign exchange loss (gain) (149,000) 312,000 445,000 (156,000) 212,000
Foreign prospect review - - - - 811,000
Provision for non-recovery of
Argentine deposit - - - - 4,287,000
----------------------------------------------------------------------------------
4,792,000 5,563,000 11,743,000 10,060,000 13,837,000
----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 6,849,000 1,302,000 8,172,000 3,396,000 1,210,000
----------------------------------------------------------------------------------
INCOME TAXES (note 9)
Current 1,271,000 187,000 230,000 247,000 3,688,000
Future (note 2) 1,605,000 923,000 3,455,000 1,652,000 813,000
----------------------------------------------------------------------------------
2,876,000 1,110,000 3,685,000 1,899,000 4,501,000
----------------------------------------------------------------------------------
INCOME (LOSS) FOR THE PERIOD 3,973,000 192,000 4,487,000 1,497,000 (3,291,000)
RETAINED EARNINGS (DEFICIT) -
BEGINNING OF PERIOD 2,111,000 (2,152,000) (2,152,000) (3,649,000) (358,000)
INDUCEMENT CHARGE ON - - (224,000) - -
CONVERSION OF NOTES
----------------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT) -
END OF PERIOD 6,084,000 (1,960,000) 2,111,000 (2,152,000) (3,649,000)
==================================================================================
BASIC EARNINGS (LOSS) PER
SHARE 0.065 0.004 0.09 0.03 (0.07)
==================================================================================
FULLY DILUTED EARNINGS (LOSS)
PER SHARE 0.062 0.004 0.08 0.03 (0.07)
==================================================================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 4
<PAGE>
<TABLE>
<CAPTION>
CENTURION ENERGY INTERNATIONAL INC.
Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
---------------------------------- ----------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED) (RESTATED - (RESTATED - (RESTATED -
(RESTATED - NOTE 2) NOTE 2) NOTE 2)
NOTE 2)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Income (loss) for the period 3,973,000 192,000 4,487,000 1,497,000 (3,291,000)
Items not affecting cash
Depletion, depreciation and
amortization 2,130,000 1,834,000 3,848,000 3,088,000 2,746,000
Increase in reinvestment reserve 265,000 37,000 46,000 50,000 731,000
Amortization of deferred
financing costs 46,000 224,000 383,000 336,000 -
Amortization of foreign
exchange loss (gain) (102,000) 197,000 197,000 153,000 -
Amortization of discount on
convertible notes 23,000 113,000 192,000 168,000 -
Gain on sale of capital assets - - - - (645,000)
Gain on sale of marketable
securities - - - - (877,000)
Provision for non-recovery of
Argentine deposit - - - - 4,287,000
Foreign prospect review - - - - 811,000
Non-cash interest payment on
convertible notes - - 224,000 - -
Future income taxes 1,605,000 923,000 3,455,000 1,652,000 813,000
----------------------------------------------------------------------------------
Cash flow from operations 7,940,000 3,520,000 12,832,000 6,944,000 4,575,000
Changes in non-cash operating
working capital items (note 12) (1,072,000) 100,000 (2,395,000) 1,092,000 (4,802,000)
----------------------------------------------------------------------------------
6,868,000 3,620,000 10,437,000 8,036,000 (227,000)
----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Petroleum and natural gas property
expenditures (4,479,000) (4,341,000) (11,921,000) (18,362,000) (19,802,000)
Proceeds on disposition of petroleum
and natural gas properties - - - 16,522,000
Proceeds on sale of marketable
securities - - - 3,539,000
Deposit for Argentine acquisition - - - (4,287,000)
Foreign prospect review - - - (811,000)
----------------------------------------------------------------------------------
(4,479,000) (4,341,000) (11,921,000) (18,362,000) (4,839,000)
----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds (redemption) of convertible
notes, net of issue costs (2,359,000) - - 8,481,000 -
Repayment of shareholder loan - - - - 53,000
Amalgamation costs - - - - (1,483,000)
Issue (repurchase) of capital stock, net
of issue costs (75,000) 4,860,000 4,811,000 - 3,880,000
Cash paid on deferred charges - - - - (177,000)
----------------------------------------------------------------------------------
(2,434,000) 4,860,000 4,811,000 8,481,000 2,273,000
----------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION 119,000 - - - -
----------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS PWC
F - 5
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Consolidated Statements of Cash Flows...continued
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
---------------------------------- ----------------------------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED) (RESTATED - (RESTATED - (RESTATED -
(RESTATED - NOTE 2) NOTE 2) NOTE 2)
NOTE 2)
INCREASE (DECREASE) IN CASH 74,000 4,139,000 3,327,000 (1,845,000) (2,793,000)
CASH - BEGINNING OF PERIOD 5,018,000 1,691,000 1,691,000 3,536,000 6,329,000
----------------------------------------------------------------------------------
CASH - END OF PERIOD 5,092,000 5,830,000 5,018,000 1,691,000 3,536,000
==================================================================================
BASIC CASH FLOW FROM OPERATIONS
PER SHARE 0.130 0.079 0.25 0.16 0.10
==================================================================================
FULLY DILUTED CASH FLOW FROM
OPERATIONS PER SHARE 0.121 0.062 0.21 0.13 0.10
==================================================================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 6
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
1 SUMMARY OF ACCOUNTING POLICIES
a) CONSOLIDATION
These financial statements include the accounts of Centurion Energy
International Inc. (the "Company") and its wholly owned subsidiaries:
Ecumed Petroleum Grombalia, Ltd., Ecumed Petroleum Tunisia, Ltd.,
Ecumed Petroleum Zarzis, Ltd., Ecumed Petroleum Corporation, Eagle
Holdings (Barbados) Limited, Centurion Petroleum Corporation, Espanada
Resources Corporation, Duraham Petroleum Limited, Societe
d'Electricite d'El Biban, 585877 Alberta Ltd. and 585882 Alberta Ltd.
b) FOREIGN CURRENCY TRANSLATION
The Company translates foreign currency denominated transactions and
the financial statements of operationally or financially dependent
foreign operations using the temporal method. Monetary assets and
liabilities are translated at year end rates. Non-monetary assets and
liabilities are translated at rates in effect on the date of the
transactions. Revenue and expenses are translated at average rates in
effect during the year with the exception of depreciation and
amortization which are translated at historic rates. Exchange gains
and losses on translation of current monetary items are reflected in
income immediately. Exchange gains and losses on translation of
non-current monetary items are deferred and amortized over the term of
the non-current monetary item.
Effective January 1, 2000, the Company adopted the self-sustaining
method of accounting for operations in Tunisia. The adoption of the
self-sustaining method was necessitated by the fact that the Tunision
subsidiaries were no longer financially and operationally dependent
upon the Canadian company. Under the self-sustaining method of foreign
currency translation, assets and liabilities are translated at period
end rates and income and expenses are translated at average rates in
effect during the period. Exchange gains and losses on translation are
reflected as a separate component of shareholders' equity.
c) PETROLEUM AND NATURAL GAS PROPERTIES AND RELATED DEPLETION AND
AMORTIZATION
The Company follows the full cost method of accounting, whereby all
costs incurred in exploring for and developing oil and gas reserves
are capitalized. Such expenditures include land acquisition costs,
geological and geophysical expenses, carrying charges for unproved
properties, costs of drilling both productive and non-productive
wells, gathering and production facilities and general and
administrative costs directly related to exploration and development
activities. Capitalized costs are accumulated on a country-by-country
basis and are depreciated and depleted using the unit of production
method based upon estimated proved reserves. Natural gas reserves are
converted to equivalent barrels of oil on the basis of their relative
energy content (6 mcf equals 1 barrel). Costs directly associated with
the acquisition and evaluation of unproved properties are initially
excluded from the computation of depletion. These unevaluated
properties are assessed periodically to ascertain whether impairment
has occurred. When proved reserves are assigned or the property is
considered impaired, the cost of the property or the amount of the
impairment is added to all other capitalized costs subject to
depreciation and depletion.
PRICEWATERHOUSECOOPERS PWC
F - 7
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
The Company calculates a ceiling test whereby the net capitalized
costs of properties and the future tax asset, less the provision for
site restoration costs, cannot exceed an amount equal to the estimated
undiscounted value of future net revenues from proved oil and gas
reserves based on current prices and costs, after deducting estimated
future general and administrative expenses, future removal and site
restoration costs, financing costs, and income taxes, all undiscounted
and unescalated.
Sales of oil and gas properties are accounted for as adjustments of
capitalized costs, with no gain or loss recognized unless such
adjustments would alter the rate of depletion and amortization by more
than twenty percent.
d) INVENTORY
Inventory is recorded at the lower of average cost and net realizable
value.
e) OFFICE FURNITURE AND EQUIPMENT AND RELATED AMORTIZATION
The Company provides for amortization on office furniture and
equipment using the declining balance method at annual rates of 20 -
30%.
f) JOINT VENTURES
Substantially all of the Company's exploration and production
activities are conducted jointly with others. These financial
statements reflect only the Company's proportionate interest in such
activities.
g) SITE RESTORATION COSTS
Estimated future site restoration costs are provided for over the life
of the proved reserves on a unit of production basis. Site restoration
expenditures are charged to the accumulated provision accounts as
incurred.
h) EARNINGS AND CASH FLOW PER SHARE
Per share information is calculated on the basis of the weighted
average number of common shares outstanding during the year. Fully
diluted per share information assumes conversion of options, warrants
and notes at the beginning of the year or date of issue, if later.
i) STOCK-BASED COMPENSATION PLANS
The Company has an incentive share option plan which is described in
Note 8. No compensation expense is recognized for this plan when stock
options are issued. Any consideration paid on exercise of stock
options is credited to share capital.
PRICEWATERHOUSECOOPERS PWC
F - 8
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
j) FINANCIAL INSTRUMENTS
Canadian accounting standards require the disclosure of the fair value
of financial assets and liabilities. The Company's financial assets
comprise cash and accounts receivable while its financial liabilities
include accounts payable and the convertible notes. Due to the current
nature of these items and the short-term nature of the convertible
notes, fair value is considered to be equal to book value. The
reinvestment reserve is created as a result of a statutory tax
requirement of the Tunisian government and accordingly, has been
excluded from the definition of financial instruments.
k) MEASUREMENT UNCERTAINTY
The amounts recorded for depletion, depreciation and amortization of
petroleum and natural gas properties and equipment and the provision
for future site restoration and abandonment costs are based on
estimates. The ceiling test is based on estimates of proved reserves,
production rates, oil and gas prices, future costs and other relevant
assumptions. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of
changes in such estimates in future periods could be significant.
l) INCOME TAXES
The Company follows the liability method of accounting for income
taxes. Under this method, future tax liabilities and assets are
recognized for the estimated tax consequences attributable to
differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases. Future tax liabilities
and assets are measured using enacted tax rates. The effect on future
tax liabilities and assets of a change in tax rates is recognized in
income in the period that the change occurs.
2 CHANGE IN ACCOUNTING POLICY
Effective January 1, 2000, the Company changed from the deferral method of
accounting for income taxes to the liability method in accordance with the
new standard set by the Canadian Institute of Chartered Accountants. The
change was applied retroactively and resulted in the following adjustments
to the 1999, 1998 and 1997 financial statements.
<TABLE>
<CAPTION>
JUNE 30, 1999 (UNAUDITED)
---------------------------------------------
AS ORIGINALLY
REPORTED ADJUSTMENTS AS RESTATED
$ $ $
<S> <C> <C> <C>
Future tax asset - 30,951,000 30,951,000
Capital assets 60,670,000 (15,508,000) 45,162,000
Deferred credit - 13,234,000 13,234,000
Retained earnings (4,169,000) 2,209,000 (1,960,000)
Future income tax expense - 923,000 923,000
Income (loss) for the year 570,000 (378,000) 192,000
Earnings (loss) per share - basic 0.01 (0.006) 0.004
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 9
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------
AS ORIGINALLY
REPORTED ADJUSTMENTS AS RESTATED
$ $ $
<S> <C> <C> <C>
Future tax asset - 26,526,000 26,526,000
Capital assets 65,946,000 (14,643,000) 51,303,000
Deferred credit - 11,342,000 11,342,000
Retained earnings 322,000 1,789,000 2,111,000
Future income tax expense 1,248,000 2,207,000 3,455,000
Income (loss) for the year 5,285,000 (798,000) 4,487,000
Earnings (loss) per share - basic 0.10 (0.01) 0.09
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
AS ORIGINALLY
REPORTED ADJUSTMENTS AS RESTATED
$ $ $
<S> <C> <C> <C>
Future tax asset - 32,563,000 32,563,000
Capital assets 59,588,000 (16,052,000) 43,536,000
Deferred credit - 13,924,000 13,924,000
Retained earnings (deficit) (4,739,000) 2,587,000 (2,152,000)
Future income tax expense - 1,652,000 1,652,000
Income for the year 1,276,000 221,000 1,497,000
Earnings per share - basic 0.03 - 0.03
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
AS ORIGINALLY
REPORTED ADJUSTMENTS AS RESTATED
$ $ $
<S> <C> <C> <C>
Future tax asset - 35,448,000 35,448,000
Capital assets 46,806,000 (17,925,000) 28,881,000
Deferred credit - 15,157,000 15,157,000
Retained earnings (deficit) (6,015,000) 2,366,000 (3,649,000)
Future income tax expense 795,000 18,000 813,000
Income (loss) for the year (4,219,000) 928,000 (3,291,000)
Earnings (loss) per share - basic (0.10) 0.02 (0.08)
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 10
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
This change in accounting policy resulted in an increase in future income
tax expense of $1,605,000 for the six months ended June 2000.
The deferred credit arises on the purchase of the Tunisian oil and gas
properties and represents the excess of the future tax assets and other net
assets acquired as compared to the purchase consideration. The deferred
credit will be amortized in proportion to the realization of the future tax
asset.
3 PLAN OF ARRANGEMENT
Pursuant to a March 31, 1997 Arrangement Agreement, Canadian Leader Energy
Inc. ("Leader") and Eagle Energy Corp. ("Eagle") entered into discussions
to amalgamate the two companies to form Centurion Energy International Inc.
The Plan of Arrangement was approved by the shareholders of Leader and
Eagle on May 12, 1997. On May 20, 1997, Leader and Eagle shares were
exchanged for shares in the Company. Leader shareholders received 0.5
shares in the Company in exchange for each Leader share and Eagle
shareholders received 0.6 shares in the Company in exchange for each Eagle
share.
The nature of the business combination was such that neither of the
combining companies could be identified as the acquirer for accounting
purposes. The business combination has been accounted for using the pooling
of interests method of accounting whereby the consolidated financial
statements reflect the combined historical carrying values of the assets,
liabilities, and shareholders' equity, and the historical operating results
of the two companies.
The book value of the assets and liabilities at the date of the combination
are as follows:
<TABLE>
<CAPTION>
LEADER EAGLE
$ $
<S> <C> <C>
Assets
Current assets 12,205,000 5,488,000
Capital assets 29,301,000 5,205,000
Future tax asset 13,313,000 22,166,000
----------- -----------
54,819,000 32,859,000
----------- -----------
Liabilities
Current liabilities 12,133,000 4,425,000
Reinvestment reserve 1,179,000 2,934,000
Provision for future site restoration costs 552,000 1,342,000
Deferred credit 5,692,000 9,478,000
----------- -----------
19,556,000 18,179,000
----------- -----------
Net assets 35,263,000 14,680,000
=========== ===========
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 11
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
4 CAPITAL ASSETS
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED)
---------------------------------------
ACCUMULATED
COST AMORTIZATION NET
$ $ $
<S> <C> <C> <C>
Petroleum and natural gas properties and
production equipment 59,741,000 11,008,000 48,733,000
Non-petroleum and natural gas land 1,205,000 - 1,205,000
Other capital assets 5,028,000 604,000 4,424,000
---------------------------------------
65,974,000 11,612,000 54,362,000
=======================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
ACCUMULATED
COST AMORTIZATION NET
$ $ $
<S> <C> <C> <C>
Petroleum and natural gas properties and
production equipment 56,235,000 8,937,000 47,298,000
Non-petroleum and natural gas land 1,205,000 - 1,205,000
Other capital assets 3,343,000 543,000 2,800,000
---------------------------------------
60,783,000 9,480,000 51,303,000
=======================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
ACCUMULATED
COST AMORTIZATION NET
$ $ $
<S> <C> <C> <C>
Petroleum and natural gas properties and
production equipment 45,432,000 5,201,000 40,231,000
Non-petroleum and natural gas land 1,205,000 - 1,205,000
Other capital assets 2,531,000 431,000 2,100,000
---------------------------------------
49,168,000 5,632,000 43,536,000
=======================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 12
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
The Company's proven reserves include reserves that are dependent on the
completion of a natural gas powered electrical generation project. The
Company has signed a joint venture agreement for the project and is
currently negotiating terms for the construction and financing of the
facility and for the sale of the power that will be generated.
Approximately 30% of the Company's proven reserves in Tunisia are dependent
on the completion of this project. If these reserves had not been assigned
proven status, depletion and depreciation expense in 1999 would have
increased by approximately $1,401,000 (1998 - $113,000). Exclusion of these
reserves from proven status would not have resulted in a ceiling test
write-down.
General and administrative costs capitalized during 1999 were $916,000
(1998 - $664,000).
As at December 31, 1999, petroleum and natural gas properties include
$3,456,000 (1998 - $3,384,000) in respect of unproved properties in Tunisia
which have been excluded from depletion calculations. Petroleum and natural
gas properties also include $12,539,000 in respect of expenditures in Egypt
which are not subject to depletion as production has not yet commenced in
that country.
As at December 31, 1999 other capital assets includes $2,220,000 (1998 -
$1,806,000) in respect of assets under construction which has been excluded
from depreciation calculations.
5 REINVESTMENT RESERVE
Tunisian taxation law permits eligible companies to reduce their taxable
income up to 20% by participating in a special reinvestment program. An
amount equal to 25% of the reduced taxable income must be paid into the
capital of a Tunisian subsidiary within five years and the balance of 75%
must be paid into capital within ten years. Any amount not invested is
reincorporated into taxable income. The subsidiary must expend the capital
on an eligible investment.
The Company's reinvestment reserve, in the amount of $5,794,000 at June 30,
2000 (1999 - $4,939,000; 1998 - $4,893,000; 1997 - $4,843,000), represents
the amount of taxes, excluding interest, that would be payable should the
required investments not be made. It is the Company's intention to make
expenditures on qualifying investments in Tunisia in sufficient amounts to
eliminate the reinvestment reserve. There is no requirement for additional
expenditures to be made prior to December 31, 2001.
6 CONVERTIBLE NOTES
On March 26, 1998, the Company closed a private placement of $9,200,000 (US
$6,500,000) of 8% convertible notes (the "Notes"). The Notes have a term of
two years from March 26, 1998, bear interest on the principal amount of the
Notes at the rate of 8% per annum and were convertible, at the option of
the holder, into the common shares of the Company at a conversion price of
US $0.47 until March 26, 1999 and U.S. $0.52 thereafter until March 26,
2000. The Notes are general obligation Notes and are unsecured. A maximum
of 12,500,000 common shares of the Company may be issued pursuant to the
conversion of the Notes.
PRICEWATERHOUSECOOPERS PWC
F - 13
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
As the Notes are considered to be compound financial instruments, the
liability component and the equity component must be presented separately,
as determined at March 26, 1998. The Company has valued the equity
component of the Notes using the residual value of equity component method,
whereby the liability component is measured first using the market interest
rate, for comparable instruments having no conversion rights. The
difference between the proceeds of the notes issued and the value of the
liability is assigned to the equity component. The resulting liability and
equity values determined using this method, based on a 10.5% rate, are
$8,750,000 and $450,000 respectively. Over the term to maturity, the debt
discount of $450,000 will be amortized such that at maturity, the liability
will be reflected at its principal amount.
During October 1999, $5,500,000 (US$ 3,800,000) of the notes were converted
to 7,307,692 common shares. In addition 389,340 common shares were issued
as an inducement to convert the notes.
The convertible notes liability comprises the following amounts:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
2000 1999 1998
$ $ $
(UNAUDITED)
<S> <C> <C> <C>
Redemption value US $1,100,000 at June 30, 2000
(1999 - $2,700,000; 1998 - US $6,500,000) 1,643,000 3,920,000 9,945,000
Deferred foreign exchange gain (loss) (34,000) 150,000 (592,000)
Unamortized discount - (23,000) (282,000)
--------------------------------------------
Convertible notes liability 1,609,000 4,047,000 9,071,000
============================================
</TABLE>
Subsequent to December 31, 1999, the maturity date for notes in the amount
of US $1,100,000 was extended to September 30, 2000 under the same terms
and conditions. The balance of the notes were redeemed for face value.
PRICEWATERHOUSECOOPERS PWC
F - 14
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
7 CAPITAL STOCK
Authorized
Unlimited number of common shares
Unlimited number of preferred shares which may be issued in one or
more series
Issued and outstanding
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES
--------------------------- -------------------------
NUMBER OF STATED VALUE NUMBER OF STATED VALUE
SHARES $ SHARES $
<S> <C> <C> <C> <C>
Balance at December 31, 1996 40,676,461 44,213,000 26,110 -
Issued for petroleum and natural
gas properties 600,000 1,440,000 - -
Issued on exercise of options 942,395 872,000 - -
Issued on conversion of warrants 1,746,917 3,060,000 - -
Conversion of preferred shares 261,102 - - -
Conversion of common shares - - (26,110) -
Share issue costs - (52,000) - -
Amalgamation costs - (1,483,000) - -
------------------------------------------------------
Balance at December 31, 1997
and 1998 44,226,875 48,050,000 - -
Issued for cash 8,771,930 5,000,000 - -
Issued on conversion of notes 7,307,692 5,545,000 - -
Issued for interest payment on
notes 389,341 224,000 - -
Issued as an inducement to
convert notes 389,340 224,000 - -
Issued on exercise of options 100,000 40,000 - -
Share issue costs - (229,000) - -
------------------------------------------------------
Balance at December 31, 1999 61,185,178 58,854,000 - -
Buybacks pursuant to share
repurchase plan (129,500) (125,000) - -
------------------------------------------------------
Balance at June 30, 2000
(unaudited) 61,055,678 58,729,000 - -
======================================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 15
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
8 INCENTIVE SHARE OPTION PLAN
The Company has a share option plan (the "Plan") for directors, officers,
employees and consultants of the Company and its subsidiaries. The Plan
provides that the aggregate number of common shares which may be reserved
for issuance shall not exceed 6,000,000 common shares and that the
aggregate number of common shares which may be reserved for issuance to any
one individual shall not exceed 5% of the outstanding shares. The plan is
administered by the Board of Directors. The exercise price of the common
shares covered by the issued stock options is determined by the directors
but cannot be less than the greater of the market price at the time of the
grant and the price permitted by the Toronto Stock Exchange. The exercise
period of the options is fixed by the Board of Directors and is not to
exceed the maximum period permitted by the Toronto Stock Exchange. Vesting
rights are determined at the discretion of the Board of Directors.
The following is a summary of changes in outstanding stock options during
the six months ended June 30, 2000 and for the years ended December 31,
1999 and 1998:
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------- ---------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARE PRICE SHARE PRICE SHARE PRICE
OPTIONS $ OPTIONS $ OPTIONS $
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
Beginning of
period 3,133,000 0.89 3,333,000 0.89 4,080,000 1.03
Granted 1,430,000 0.57 160,000 0.46 775,000 0.47
Exercised - - (100,000) 0.40 - -
Forfeited (250,000) 1.02 (260,000) 0.80 (1,522,000) 1.06
-----------------------------------------------------------------------
Outstanding - End
of period 4,313,000 0.78 3,133,000 0.89 3,333,000 0.89
=======================================================================
Options exercisable
- End of
period 3,934,666 0.80 2,941,334 0.91 2,504,333 0.89
=======================================================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 16
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
(UNAUDITED) (UNAUDITED)
-------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING REMAINING
EXERCISE OPTIONS CONTRACTUAL OPTIONS CONTRACTUAL
PRICE OUTSTANDING LIFE IN YEARS EXERCISABLE LIFE IN YEARS
<S> <C> <C> <C> <C>
0.40 651,000 2.8 634,333 2.8
0.46 125,000 3.8 83,333 3.8
0.70 50,000 2.5 50,000 2.5
0.76 100,000 2.9 100,000 2.9
0.83 90,000 0.5 90,000 0.5
1.02 - - - -
1.08 1,800,000 2.0 1,800,000 2.0
1.16 42,000 0.5 42,000 0.5
1.40 25,000 0.5 25,000 0.5
0.57 530,000 4.5 310,000 4.5
0.53 150,000 4.9 50,000 4.9
0.58 750,000 4.8 750,000 4.8
----------- ----------
4,313,000 3,934,666
=========== ==========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING REMAINING
EXERCISE OPTIONS CONTRACTUAL OPTIONS CONTRACTUAL
PRICE OUTSTANDING LIFE IN YEARS EXERCISABLE LIFE IN YEARS
<S> <C> <C> <C> <C>
0.40 651,000 3.3 592,667 3.3
0.46 125,000 4.3 41,667 4.3
0.70 50,000 3.0 33,333 3.0
0.76 100,000 3.4 66,667 3.4
0.83 90,000 1.0 90,000 1.0
1.02 250,000 0.1 250,000 0.1
1.08 1,800,000 2.5 1,800,000 2.5
1.16 42,000 1.0 42,000 1.0
1.40 25,000 1.0 25,000 1.0
----------- ----------
3,133,000 2,941,334
=========== ==========
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 17
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
9 INCOME TAXES
The difference between the income tax provision recorded and the provision
obtained by applying the combined federal and provincial statutory rates is
as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income before income taxes 6,849,000 1,302,000 8,172,000 3,396,000 1,210,000
Canadian corporate tax rate 44.6% 44.6% 44.6% 44.6% 44.6%
Calculated income tax provision 3,055,000 581,000 3,645,000 1,515,000 540,000
Effect on taxes from
Non-deductible payments to
governments - - - - 271,000
Resource allowance - - - - (35,000)
Alberta royalty tax credits - - - - (118,000)
Foreign tax rate differential 771,000 423,000 1,186,000 592,000 1,107,000
Provision for non-recovery of
Argentine deposit - - - - 1,912,000
Reduction of future income tax
asset - - - - 795,000
Expenses incurred in Canada
with no recognized tax
benefit 249,000 795,000 1,436,000 1,026,000 -
Amortization of deferred credit (1,199,000) (689,000) (2,582,000) (1,234,000) (13,000)
Other - - - - 42,000
--------------------------------------------------------------------------
2,876,000 1,110,000 3,685,000 1,899,000 4,501,000
==========================================================================
</TABLE>
The future tax asset of $23,722,000 at June 30, 2000 (1999 - $26,526,000;
1998 - $32,563,000) relates to the excess of the tax cost of capital assets
over the related net book carrying value.
10 COMMITMENTS
The Company has entered into three year consulting agreements with two
companies controlled by directors and officers of the Company. Under the
terms of these agreements, the Company is committed to pay fees of $20,833
per month and $15,000 per month, respectively, commencing June 1, 1997.
PRICEWATERHOUSECOOPERS PWC
F - 18
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
11 SEGMENTED INFORMATION
<TABLE>
<CAPTION>
CANADA NORTH AFRICA TOTAL
$ $ $
<S> <C> <C> <C>
June 30, 2000 (unaudited)
Revenue 146,000 11,495,000 11,641,000
Capital assets 348,000 54,014,000 54,362,000
June 30, 1999 (unaudited)
Revenue 14,000 6,851,000 6,865,000
Capital assets 274,000 44,888,000 45,162,000
December 31, 1999
Revenue 89,000 19,826,000 19,915,000
Capital assets 345,000 50,958,000 51,303,000
December 31, 1998
Revenue 134,000 13,322,000 13,456,000
Capital assets 324,000 43,212,000 43,536,000
December 31, 1997
Revenue 4,705,000 10,342,000 15,047,000
Capital assets 234,000 28,647,000 28,881,000
</TABLE>
Substantially all of the Company's operations are in North Africa. All of
the Company's producing properties at December 31, 1999 were in Tunisia.
The net book value of the Tunisian capital assets is $40,759,000 at June
30, 2000 (1999 - $38,419,000; 1998 - $33,951,000, 1997 - $24,836,000). The
remaining foreign capital assets of $13,255,000 at June 30, 2000 (1999 -
$12,539,000; 1998 - $9,261,000, 1997 - $3,811,000) are in Egypt.
PRICEWATERHOUSECOOPERS PWC
F - 19
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
12 SUPPLEMENTAL CASH FLOW INFORMATION
a) CHANGES IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Accounts receivable (588,000) 1,922,000 (2,735,000) (830,000) (527,000)
Inventory (376,000) (255,000) 225,000 (242,000) 140,000
Deposits and prepaids 193,000 49,000 (130,000) (411,000) (56,000)
Accounts payable (301,000) (1,616,000) 245,000 2,575,000 (4,359,000)
--------------------------------------------------------------------------
Total operating activities (1,072,000) 100,000 (2,395,000) 1,092,000 (4,802,000)
==========================================================================
</TABLE>
b) NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------- ---------------------
NUMBER OF STATED NUMBER OF STATED NUMBER OF STATED
SHARES VALUE SHARES VALUE SHARES VALUE
$ $ $
<S> <C> <C> <C> <C> <C> <C>
Notes payable converted to
common shares 7,307,692 5,500,000 - - - -
Shares issued for purchase of
petroleum and natural gas
properties - - - - 600,000 1,440,000
</TABLE>
c) CASH, TAXES AND INTEREST
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998 1997
$ $ $ $
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash taxes paid 44,000 115,000 270,000 2,962,000
Cash interest paid 159,000 554,000 402,000 209,000
Cash interest received 146,000 110,000 118,000 287,000
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 20
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
13 UNITED STATES ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles (GAAP) in Canada. They differ from
GAAP in the United States in the following respects:
<TABLE>
<CAPTION>
JUNE 30, 2000 (UNAUDITED) DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------- ----------------------------
AS REPORTED US GAAP AS REPORTED US GAAP AS REPORTED US GAAP
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
Current assets 13,638,000 13,638,000 13,041,000 13,041,000 7,048,000 7,048,000
Capital assets (note a, b, e) 54,362,000 67,846,000 51,303,000 64,898,000 43,536,000 58,439,000
Deferred financing charges - - 46,000 46,000 560,000 560,000
Future tax asset (note a, b) 23,722,000 13,945,000 26,526,000 17,002,000 32,563,000 22,319,000
--------------------------------------------------------------------------------------
Total assets 91,722,000 95,429,000 90,916,000 94,987,000 83,707,000 88,366,000
======================================================================================
Current liabilities 5,782,000 5,782,000 7,976,000 7,976,000 8,011,000 8,011,000
Convertible notes (note c, d) 1,609,000 1,643,000 4,047,000 3,920,000 9,071,000 9,945,000
Reinvestment reserve 5,794,000 5,794,000 4,939,000 4,939,000 4,893,000 4,893,000
Provision for site restoration 1,597,000 1,597,000 1,460,000 1,460,000 1,460,000 1,460,000
Deferred credit (note a, b) 10,143,000 8,926,000 11,342,000 9,427,000 13,924,000 10,291,000
Total liabilities 24,925,000 23,742,000 29,764,000 27,722,000 37,359,000 34,600,000
--------------------------------------------------------------------------------------
Share capital (note a, e) 58,779,000 94,698,000 58,854,000 94,875,000 48,050,000 84,267,000
Contributed surplus 111,000 111,000 - - - -
Equity portion of convertible notes
(note d) 76,000 - 187,000 - 450,000 -
Foreign currency translation
adjustment 1,747,000 1,912,000 - - - -
Retained earnings (deficit) 6,084,000 (25,034,000) 2,111,000 (27,610,000) (2,152,000) (30,501,000)
--------------------------------------------------------------------------------------
Total equity 66,797,000 71,687,000 61,152,000 67,265,000 46,348,000 53,766,000
--------------------------------------------------------------------------------------
Total liability and equity 91,722,000 95,429,000 90,916,000 94,987,000 83,707,000 88,366,000
======================================================================================
</TABLE>
PRICEWATERHOUSECOOPERS PWC
F - 21
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income as reported in accordance with
Canadian GAAP 3,973,000 192,000 4,487,000 1,497,000 (3,291,000)
U.S. GAAP adjustments
Additional depletion related to
purchase accounting (note a) (4,780,000) (2,512,000) (5,240,000) (6,964,000) (3,515,000)
Ceiling test writedown (note b) - - - (14,715,000) (34,975,000)
Reduction to depletion as a result
of ceiling test writedown
(note b) 4,320,000 1,938,000 4,042,000 3,655,000 -
Additional depletion as a result of
capitalization of
amalgamation costs (note e) (42,000) (53,000) (111,000) (147,000) (74,000)
Adjustment to future taxes (note a,
b, e) (725,000) 6,000 (998,000) 7,605,000 17,756,000
Deferred (loss) gain (note c) (193,000) 572,000 742,000 (592,000) -
Inducement charge on
conversion of notes (note f) - - (224,000) - -
Amortization of note discount
(note d) 23,000 113,000 192,000 168,000 -
Pre-acquisition loss of acquired
company (note a) - - - - 535,000
--------------------------------------------------------------------------
Income (loss) under U.S. GAAP 2,576,000 256,000 2,890,000 (9,493,000) (23,564,000)
==========================================================================
Basic earnings per share under U.S.
GAAP 0.04 0.01 0.06 (0.21) (0.54)
Diluted earnings per share under U.S.
GAAP 0.04 0.01 0.06 (0.21) (0.54)
</TABLE>
a) PURCHASE METHOD VERSUS POOLING METHOD
As disclosed in note 3, under Canadian GAAP, the business combination
has been accounted for using the pooling of interest method. Under
United States GAAP, the pooling of interests method is precluded
because the fair value of an investment in a common joint venture
represents more than 50% of the estimated fair value of one of the
combining companies. Accordingly, purchase accounting is required.
PRICEWATERHOUSECOOPERS PWC
F - 22
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
Under the purchase method, Leader is deemed to have acquired Eagle for
a purchase consideration of $52,865,000 which has been allocated as
follows:
<TABLE>
<CAPTION>
$
<S> <C>
Assets
Current assets 5,488,000
Capital assets 75,361,000
-----------
80,849,000
-----------
Liabilities
Current liabilities 4,425,000
Reinvestment reserve 2,934,000
Provision for future site restoration 1,342,000
Future tax liability 19,283,000
-----------
27,984,000
-----------
Net assets 52,865,000
===========
</TABLE>
In addition, as a result of the purchase method of accounting being
applied, the pre-acquisition loss of the acquired company of $535,000
has been added back to income. Accordingly, the opening deficit of
$2,814,000 of the acquired company has been eliminated from the
consolidated deficit.
b) FULL COST ACCOUNTING - CEILING TEST
As disclosed in note 1(c), under Canadian GAAP, a ceiling test is
applied to ensure that capitalized costs for oil and gas properties
and equipment do not exceed the sum of estimated undiscounted,
unescalated future net revenues from proven reserves less the cost
incurred or estimated to develop those reserves, interest and general
and administration costs, and an estimate for restoration costs and
applicable taxes.
Under the full cost method of accounting in the United States, costs
accumulated in each cost centre are limited to an amount equal to the
present value, discounted at 10%, of the estimated future net
operating revenues from proven reserves, net of restoration costs and
income taxes.
Under United States GAAP, no ceiling test write down would be required
for 1999. A write down would be required for 1998 of $14,715,000 (1997
- $34,975,000).
c) FOREIGN CURRENCY TRANSLATION
Under Canadian GAAP, as disclosed in note 1(b), long-term debt in
foreign currencies is translated at the rate of exchange in effect at
the end of the year. Unrealized exchange gains and losses arising on
translation are deferred and amortized over the remaining term of the
debt. United States GAAP requires that such gains and losses be
reflected in income in the period in which they arise.
PRICEWATERHOUSECOOPERS PWC
F - 23
<PAGE>
CENTURION ENERGY INTERNATIONAL INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(Information as at and for the six months ended June 30, 2000 and June 30, 1999
are unaudited)
--------------------------------------------------------------------------------
d) CONVERTIBLE NOTES
Under Canadian GAAP, as described in note 6, the convertible notes are
treated as compound financial instruments, with a separate equity and
liability component. The discount on the convertible notes is then
amortized over the term to maturity. Under United States GAAP, the
convertible notes are treated entirely as debt.
e) AMALGAMATION COSTS
Under Canadian GAAP, amalgamation costs relating to a business
combination accounted for as a pooling of interests are charged
directly to share capital. As explained in note (a) above, the
combination is accounted for as a purchase under United States GAAP
and the amalgamation costs are included as part of the purchase cost
assigned to the assets acquired.
f) INDUCEMENT CHARGES ON CONVERSION OF NOTES
Under Canadian GAAP, inducement charges were charged directly to
retained earnings. Under United States GAAP, such costs are expensed.
g) STOCK OPTION PLAN
The Company provides stock based compensation in the form of stock
options to full-time employees. At the time of grant, the exercise
price is equal to the market price and no compensation expense is
recognized under the Company's accounting policies. For US GAAP
purposes, the Company follows the intrinsic value method of accounting
for stock options. This method does not result in any adjustment to
earnings and earnings per share.
h) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Financial Accounting Standards Board (FASB) in the United States
issued FAS 133 Accounting for Derivative Instruments and Hedging
Activities, which has been amended by FAS 138, which is effective for
the Company in its 2001 fiscal year. The impact of the new standard on
the consolidated financial statements has not been determined.
PRICEWATERHOUSECOOPERS PWC
F - 24
<PAGE>
INDEX TO EXHIBITS
Exhibits No. Description
------------ -----------
1.1 Articles of Amalgamation dated May 14, 1997
1.2 By-Law Number One dated March 31, 1997
2.1 Shareholders Rights Plan Agreement dated as of May 19, 1999
4.1 Indemnity Agreement dated August 15, 1998 between Centurion
and Peter Braaten
4.2 Indemnity Agreement dated August 15, 1998 between Centurion
and Barry Swan
4.3 Indemnity Agreement dated August 15, 1998 between Centurion
and Sohail Khan
4.4 Indemnity Agreement dated August 15, 1998 between Centurion
and Leroy Wolbaum
4.5 Indemnity Agreement dated August 15, 1998 between Centurion
and Derrick R. Armstrong
4.6 Indemnity Agreement dated August 15, 1998 between Centurion
and Michael Miller
4.7 Indemnity Agreement dated August 15, 1998 between Centurion
and Said Arrata
4.8 Indemnity Agreement dated August 15, 1998 between Centurion
and Philip Beck
4.9 Consulting Agreement dated June 1, 2000 between Sane
Holdings Ltd. (Said Arrata) and Centurion
4.10 Contract for Foreign Assignment dated December 20, 1999
between Centurion and Dr. A.P. ("Hani") Elsharkawi
4.11 Consulting Agreement dated June 1, 2000 between Enhanced
Management Services Ltd. (Barry Swan) and Centurion
4.12 Convertible Note dated March 26, 1998 (due March 26, 2000)
for U.S. $300,000 issued by Centurion to Sane Holdings Ltd.
(Said Arrata).
4.13 Convertible Note dated March 26, 1998 (due March 26, 2000)
for U.S. $100,000 issued by Centurion to Safety Boss
International Ltd. (Michael Miller)
6.1 Earnings per Share Calculation
8.1 List of Material Subsidiaries.
<PAGE>
