U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2000
[ ] 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 0-9147
-----------
CANARGO ENERGY CORPORATION
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 91-0881481
------------------------------------- -------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
CanArgo Services (UK) Limited
150 Buckingham Palace Road
London, England SW1W 9TR
------------------------------------- -------------------------------------
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(0)207 808 4700
--------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
1580,727 - 7th Avenue S.W. , Calgary, Alberta, Canada T2P 0Z5
--------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of registrant's common stock outstanding on September 30,
2000 was 73,051,877. An additional 475,291 shares of common stock are issuable
at any time without additional consideration upon exercise of CanArgo Oil & Gas
Inc. Exchangeable Shares.
<PAGE>
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
----------------------------
SEPTEMBER 30, December 31,
2000 1999
------------- -------------
ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . $ 33,357,134 $ 3,534,983
Accounts receivable . . . . . . . . . . . . . . . . . 650,525 464,435
Advances to operator. . . . . . . . . . . . . . . . . 1,063,972 -
Inventory . . . . . . . . . . . . . . . . . . . . . . 221,681 188,500
Other current assets. . . . . . . . . . . . . . . . . 24,936 94,174
------------- -------------
Total current assets. . . . . . . . . . . . . . . . . $ 35,318,248 $ 4,282,092
Property and equipment, net . . . . . . . . . . . . . 7,393,472 7,101,125
Oil and gas properties, net, full cost method
(including unevaluated amounts of $13,017,790
and $12,531,313 respectively). . . . . . . . . . . 34,043,891 30,707,037
Investments in and advances to oil and gas and other
ventures net. . . . . . . . . . . . . . . . . . . . 2,052,528 1,709,215
------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . $ 78,808,139 $ 43,799,469
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable. . . . . . . . . . . . . . . . . . . $ 900,523 $ 1,159,949
Advances from joint venture partner . . . . . . . . . 5,200,334 -
Accrued liabilities . . . . . . . . . . . . . . . . . 322,270 393,411
------------- -------------
Total current liabilities . . . . . . . . . . . . . . $ 6,423,127 $ 1,553,360
Provision for future site restoration . . . . . . . . 33,490 12,700
Minority interest in subsidiary . . . . . . . . . . . 400,000 4,370,785
Stockholders' equity:
Preferred stock, par value $0.10 per share. . . . . . - -
Common stock, par value $0.10 per share . . . . . . . 7,352,717 3,735,292
Capital in excess of par value. . . . . . . . . . . . 137,579,656 106,216,164
Accumulated deficit . . . . . . . . . . . . . . . . . (72,980,851) (72,088,832)
------------- -------------
Total stockholders' equity. . . . . . . . . . . . . . $ 71,951,522 $ 37,862,624
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . $ 78,808,139 $ 43,799,469
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited Unaudited
-------------------------- --------------------------
Three Months Ended Nine Months Ended
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Oil and gas sales . . . . . . . . . . . . . . . . . $ 1,163,277 $ 1,156,652 $ 4,394,448 $ 2,061,114
Other . . . . . . . . . . . . . . . . . . . . . . . - - 364,900 -
------------ ------------ ------------ ------------
1,163,277 1,156,652 4,759,348 2,061,114
------------ ------------ ------------ ------------
Operating Expenses:
Lease operating expense . . . . . . . . . . . . . . 231,558 351,229 863,686 851,279
Direct project costs. . . . . . . . . . . . . . . . 178,200 326,823 561,729 730,360
General and administrative. . . . . . . . . . . . . 780,718 446,069 1,546,737 1,550,453
Depreciation, depletion and amortization. . . . . . 761,000 428,900 2,640,080 827,200
Impairment of oil and gas ventures. . . . . . . . . - 5,459,793 - 5,459,793
------------ ------------ ------------ ------------
1,951,476 7,012,814 5,612,232 9,419,085
------------ ------------ ------------ ------------
OPERATING LOSS. . . . . . . . . . . . . . . . . . . (788,199) (5,856,162) (852,884) (7,357,971)
------------ ------------ ------------ ------------
Other Income (Expense):
Interest, net . . . . . . . . . . . . . . . . . . . 268,450 (17,946) 369,913 (168,566)
Other . . . . . . . . . . . . . . . . . . . . . . . (37,980) (65,482) (37,706) (73,715)
Gain (loss) on disposition of equipment . . . . . . - 40,314 - 10,511
Equity loss from investments in
unconsolidated subsidiaries . . . . . . . . . . . (155,000) (10,000) (237,154) (51,581)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE). . . . . . . . . . . . 75,470 (53,114) 95,053 (283,351)
------------ ------------ ------------ ------------
Minority interest in loss (income) of consolidated
subsidiary. . . . . . . . . . . . . . . . . . . . - (29,593) (134,188) 126,896
------------ ------------ ------------ ------------
NET LOSS AND COMPREHENSIVE LOSS . . . . . . . . . . $ (712,729) $(5,938,869) $ (892,019) $(7,514,426)
============ ============ ============ ============
Weighted average number of
common shares outstanding . . . . . . . . . . . . 66,574,449 23,751,802 48,221,542 23,660,246
------------ ------------ ------------ ------------
NET LOSS PER COMMON SHARE -- BASIC . . . . . . . . $ (0.01) $ (0.25) $ (0.02) $ (0.32)
------------ ------------ ------------ ------------
NET LOSS PER COMMON SHARE -- DILUTED . . . . . . . $ (0.01) $ (0.03) $ (0.02) $ (0.07)
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
--------------------------
Nine Months Ended
SEPTEMBER 30, September 30,
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (892,019) $(7,514,426)
Depreciation, depletion and amortization. . . . . . . . . . . 2,640,080 827,200
Issuance of common stock for services . . . . . . . . . . . . 112,700 -
Impairment of oil and gas ventures. . . . . . . . . . . . . . - 5,459,793
Equity loss from investments in unconsolidated subsidiaries . 237,154 51,581
Loss (gain) on disposition of equipment . . . . . . . . . . . - (10,511)
Minority interest in income (loss) of consolidated subsidiary 134,188 (126,896)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (186,090) 8,096
Advances to operator. . . . . . . . . . . . . . . . . . . . . (1,063,972) 376,890
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . (33,181) 142,405
Other current assets. . . . . . . . . . . . . . . . . . . . . 69,238 350,349
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . (259,426) 616,128
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . (71,141) (763,659)
------------ ------------
NET CASH GENERATED (USED) IN OPERATING ACTIVITIES . . . . . . 687,531 (583,050)
------------ ------------
Investing activities:
Investments in oil and gas properties . . . . . . . . . . . . (2,846,017) (1,446,876)
Purchase of property and equipment. . . . . . . . . . . . . . (3,420,854) (374,458)
Proceeds from the disposition of assets . . . . . . . . . . . 13,408 868,000
Investments in and advances to oil and gas and other
ventures. . . . . . . . . . . . . . . . . . . . . . . . . . (580,467) (513,642)
Advances from joint venture partner . . . . . . . . . . . . . 5,200,334 -
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . (1,633,596) (1,466,976)
------------ ------------
Financing Activities:
Proceeds from sales of common stock . . . . . . . . . . . . 32,928,728 3,670,303
Share issue costs . . . . . . . . . . . . . . . . . . . . . (2,560,512) (655,917)
Proceeds from minority interest . . . . . . . . . . . . . . 400,000 -
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . 30,768,216 3,014,386
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 29,822,151 964,360
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . 3,534,983 1,924,908
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . $33,357,134 $ 2,889,268
------------ ------------
Non cash investing and financing activities:
Issuance of common stock in connection with
acquisition of minority interest in subsidiaries. . . . . . $ 4,500,000 -
Issuance of common stock in connection with
acquisition of oil and gas properties . . . . . . . . . . . - $ 109,500
------------ ------------
$ 4,500,000 $ 109,500
============ ============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 (UNAUDITED)
(1) Basis of Presentation - The interim consolidated condensed financial
statements and notes thereto of CanArgo Energy Corporation and its subsidiaries
(collectively, CanArgo) have been prepared by management without audit. In the
opinion of management, the consolidated condensed financial statements include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of the results for the interim period. The accompanying
consolidated condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
CanArgo's Annual Report on Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission.
Certain items in the consolidated condensed financial statements have been
reclassified to conform to the current year presentation. There was no effect
on net loss as a result of these reclassifications.
Oil and Gas Properties - CanArgo and the unconsolidated entities for which
it accounts using the equity method, account for oil and gas properties and
interests under the full cost method. Under this accounting method, costs,
including a portion of internal costs associated with property acquisition and
exploration for and development of oil and gas reserves, are capitalized within
cost centers established on a country-by-country basis. Capitalized costs
within a cost center, as well as the estimated future expenditures to develop
proved reserves and estimated net costs of dismantlement and abandonment, are
amortized using the unit-of-production method based on estimated proved oil and
gas reserves. All costs relating to production activities are charged to
expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited to, on
an after tax basis, an amount (the ceiling limitation) equal to (a) the present
value (discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect as of
the balance sheet date (with consideration of price changes only to the extent
provided by fixed and determinable contractual arrangements), plus (b) the lower
of cost or estimated fair value of unproved and unevaluated properties.
(2) Possible Impairment of Assets
Ultimate realization of the carrying value of CanArgo's oil and gas properties
will require production of oil and gas in sufficient quantities and marketing
such oil and gas at sufficient prices to provide positive cash flow to the
CanArgo, which is dependent upon, among other factors, achieving significant
production at costs that provide acceptable margins, reasonable levels of
taxation from local authorities, and the ability to market the oil and gas
produced at or near world prices. In addition, CanArgo must mobilize drilling
equipment and personnel to initiate drilling, completion and production
activities. If one or more of the above factors, or other factors, are
different than anticipated, CanArgo may not recover its carrying value.
CanArgo generally has the principal responsibility for arranging financing for
the oil and gas properties and ventures (see note 4 and 5) in which it has an
interest. There can be no assurance, however, that CanArgo or the entities that
are developing the oil and gas properties and ventures will be able to arrange
the financing necessary to develop the projects being undertaken or to support
the corporate and other activities of CanArgo or that such financing as is
available will be on terms that are attractive or acceptable to or are deemed to
be in the best interests of CanArgo, such entities or their respective
stockholders or participants.
The consolidated financial statements of CanArgo do not give effect to any
additional impairment in the value of CanArgo's investment in oil and gas
properties and ventures or other adjustments that would be necessary if
financing cannot be arranged for the development of such properties and ventures
or if they are unable to achieve profitable operations. Failure to arrange such
financing on reasonable terms or failure of such properties and ventures to
achieve profitability would have a material adverse effect on the financial
position, including realization of assets, results of operations, cash flows and
prospects of the CanArgo.
(3) Property and Equipment, Net
Property and equipment, net of accumulated depreciation and impairment, at
September 30, 2000 and December 31, 1999 include the following:
<TABLE>
<CAPTION>
December 31,
SEPTEMBER 30, 2000 1999
------------------------------------------ ------------
ACCUMULATED
DEPRECIATION
COST AND IMPAIRMENT NET NET
------------------------------------------ ------------
<S> <C> <C> <C> <C>
Oil and gas related
Equipment . . . . . . . $ 9,914,410 $ 2,893,035 $7,021,375 $ 6,794,473
Office furniture, fixtures
and equipment and other 756,522 384,425 372,097 306,652
------------------------------------------ ------------
PROPERTY AND EQUIPMENT . . $10,670,932 $ 3,277,460 $7,393,472 $ 7,101,125
========================================== ============
</TABLE>
Oil and gas related equipment includes new or refurbished drilling rigs and
related equipment, substantially all of which has been transported to the
Republic of Georgia for use by CanArgo in the development of the Ninotsminda
field.
(4) Oil and Gas Properties, Net
CanArgo has acquired interests in oil and gas properties through joint
ventures and other joint operating arrangements. Oil and gas properties, net of
accumulated depletion and impairment, at September 30, 2000 and December 31,
1999 include the following:
<TABLE>
<CAPTION>
December 31,
SEPTEMBER 30, 2000 1999
---------------------------------------- ------------
REPUBLIC OF
GEORGIA USA TOTAL TOTAL
---------------------------------------- ------------
<S> <C> <C> <C> <C>
Proved properties . . . . . $24,717,550 $ -- $24,717,550 $19,331,883
Unproved properties . . . . 13,017,790 1,174,734 14,192,524 13,706,047
Less: accumulated
depletion and impairment (3,691,449) (1,174,734) (4,866,183) (2,330,893)
---------------------------------------- ------------
TOTAL OIL AND GAS
PROPERTIES, NET . . . . . . $34,043,891 $ -- $34,043,891 $30,707,037
======================================== ============
</TABLE>
Unproved properties and associated costs not currently being amortized and
included in oil and gas properties were $13,017,790 at September 30, 2000 and
$12,531,313 at December 31, 1999. Unproved oil and gas properties at September
30, 2000 with respect to properties in Republic of Georgia are expected to be
evaluated over the next 51 months.
(5) Investments in and Advances to Oil and Gas and Other Ventures
CanArgo has acquired interests in oil and gas and other ventures through less
than majority interests in corporate and corporate-like entities. A summary of
CanArgo's net investment in and advances to oil and gas ventures as of September
30, 2000 and December 31, 1999 is set out below:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES 2000 1999
-------------------------------------------------------------------- --------------- --------------
<S> <C> <C>
Ukraine - Stynawske Field, Boryslaw
Through 45% ownership of Boryslaw Oil Company. . . . . . . . . $ 6,086,254 $ 6,086,254
Republic of Georgia - Sartichala
Through 12.9% ownership of Georgian American Oil Refinery. . . . 1,008,845 1,008,845
Republic of Georgia - Ninotsminda
Through 42.5% effective ownership Sagarego Power Corporation. . 635,713 635,713
Republic of Georgia - Ninotsminda
Through an effective 50% ownership of East Georgian Pipeline Co. 90,500 --
Republic of Georgia - CanArgo Standard Oil Products J.V.
Through an effective 50% ownership. . . . . . . . . . . . . . . . 400,000 --
Uentech International Corporation
Through an effective 45% voting interest . . . . . . . . . . . . 289,276 274,310
Other Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 75,001 --
--------------- --------------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,585,589 $ 8,005,122
--------------- --------------
EQUITY IN PROFIT (LOSS) OF OIL AND GAS AND OTHER VENTURES
--------------------------------------------------------------------
Ukraine - Stynawske Field, Boryslaw. . . . . . . . . . . . . . . . . $ (626,461) $ (626,461)
Republic of Georgia - Sagarego Power Corporation . . . . . . . . . . (186,074) (186,074)
Republic of Georgia - East Georgian Pipeline Co. . . . . . . . . . . (50,000) --
Republic of Georgia - CanArgo Standard Oil Products J.V. . . . . . . (50,000) --
Uentech International Corporation. . . . . . . . . . . . . . . . . . (160,733) (23,579)
CUMULATIVE EQUITY IN PROFIT (LOSS) OF OIL AND GAS
AND OTHER VENTURES . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,073,268) $ (836,114)
--------------- --------------
IMPAIRMENT - STYNAWSKE FIELD . . . . . . . . . . . . . . . . . . . . (5,459,793) (5,459,793)
--------------- --------------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS
AND OTHER VENTURES, NET OF EQUITY LOSS AND IMPAIRMENT. . . . . . . . $ 2,052,528 $ 1,709,215
=============== ==============
</TABLE>
CanArgo's ventures are in the development stage. Accordingly, realization of
these investments is dependent upon successful development of and ultimately
cash flows from operations of the ventures.
(6) Accrued Liabilities
Accrued liabilities at September 30, 2000 and December 31, 1999 include the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Professional fees . $ 72,790 $ 167,500
Share issue costs . 50,000 -
Workovers . . . . . -- 150,000
Severance and other 200,000 75,911
-------------- --------------
$ 322,270 $ 393,411
============== ==============
</TABLE>
(7) Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NUMBER OF
SHARES ADDITIONAL
ISSUED AND PAID-IN ACCUMULATED
ISSUABLE PAR VALUE CAPITAL DEFICIT TOTAL
----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
TOTAL, DECEMBER 31, 1999. . . 37,352,922 $3,735,292 $106,216,164 $(72,088,832) $37,862,624
Less shares issuable at
beginning of period . . . . . (529,759) (52,976) (994,678) -- (1,047,654)
Issuance of common stock
upon exchange of CanArgo
Oil & Gas Inc. Exchangeable
Shares. . . . . . . . . . . . 54,468 5,447 102,269 -- 107,716
Issuance of common stock
for services. . . . . . . . . 140,000 14,000 98,700 112,700
Issuance of common stock
for cash pursuant to private
placement . . . . . . . . . . 3,695,000 369,500 2,814,666 -- 3,184,166
Issuance of common stock to
purchase minority interest in
subsidiary. . . . . . . . . . 4,054,054 405,405 4,094,595 -- 4,500,000
Exercise of stock options . . 624,276 62,428 164,833 -- 227,261
Issuance of common stock
for cash pursuant to June
private placement . . . . . . 15,660,916 1,566,092 13,795,415 -- 15,361,507
Issuance of common stock
for cash pursuant to August
private placement . . . . . . 12,000,000 1,200,000 12,955,795 -- 14,155,795
Share issue costs . . . . . . -- -- (2,560,512) -- (2,560,512)
Net loss. . . . . . . . . . . -- -- -- (892,019) (892,019)
----------- ----------- ------------- ------------- ------------
BALANCE, SEPTEMBER 30,
2000. . . . . . . . . . . . . 73,051,877 $7,305,188 $136,687,247 $(72,980,851) $71,011,584
Shares issuable upon
exchange of CanArgo Oil &
Gas Inc. Exchangeable
Shares without receipt of
further consideration . . . . 475,291 47,529 892,409 939,938
----------- ----------- ------------- ------------- ------------
TOTAL, SEPTEMBER 30, 2000 . . 73,527,168 $7,352,717 $137,579,656 $(72,980,851) $71,951,522
=========== =========== ============= ============= ============
</TABLE>
At September 30, 2000, 100 shares of Voting Preferred Shares were also issued
and outstanding. No other shares of the Company's preferred stock have been
issued.
(8) Net Income (Loss) Per Common Share
Basic and diluted net income (loss) per common share for the periods ended
September 30, 2000 and September 30, 1999 are based on the weighted average
number of common shares outstanding during those periods. The weighted average
numbers of shares issued and issuable without receipt of additional
consideration for the nine month periods ended September 30, 2000 and 1999 are
48,221,542 and 23,660,246 respectively. Options to purchase CanArgo's common
stock were outstanding at September 30, 2000 but were not included in the
computation of diluted net income (loss) per common share because the effect of
such inclusion would have been anti-dilutive.
(9) Commitments and Contingencies
OIL AND GAS PROPERTIES AND INVESTMENTS IN OIL AND GAS VENTURES
CanArgo has contingent obligations and may incur additional obligations,
absolute and contingent, with respect to acquiring and developing oil and gas
properties and ventures. At September 30, 2000, CanArgo had the contingent
obligation to issue an aggregate of 187,500 shares of its common stock, subject
to the satisfaction of conditions related to the achievement of specified
performance standards by the Stynawske field project.
In September 2000, CanArgo entered into a ten year office lease agreement
at an annual rental of approximately $213,000 per annum.
(10) Segment Information
For the nine month periods ended September 30, 2000 and 1999, CanArgo
operated through one business segment, oil and gas exploration and production.
Operating revenues for the nine month periods ended September 30, 2000 and 1999
by geographical area were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe. . . . . . . . . . . . . . . . . . . $ 4,759,348 $ 1,817,347
Canada. . . . . . . . . . . . . . . . . . . . . . . -- 243,767
------------- -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 4,759,348 $ 2,061,114
============= =============
</TABLE>
Operating income (loss) for the nine month periods ended September 30, 2000 and
1999 by geographical area were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe. . . . . . . . . . . . . . . . . . . $ 975,227 $ (5,912,671)
Canada. . . . . . . . . . . . . . . . . . . . . . . -- 62,590
------------- -------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 975,227 $ (5,850,081)
CORPORATE EXPENSES. . . . . . . . . . . . . . . . . $ (1,828,111) $ (1,507,890)
------------- -------------
TOTAL OPERATING LOSS. . . . . . . . . . . . . . . . $ (852,884) $ (7,357,971)
============= =============
</TABLE>
Identifiable assets as of September 30, 2000 and December 31, 1999 by business
segment and geographical area were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
CORPORATE
Eastern Europe. . . . . . . . . . . . . . . . . . $ 221,681 $ 262,174
Canada. . . . . . . . . . . . . . . . . . . . . . 35,096,567 3,981,274
Western Europe. . . . . . . . . . . . . . . . . . -- 38,644
------------- ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 35,318,248 $ 4,282,092
------------- ------------
OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION
Eastern Europe. . . . . . . . . . . . . . . . . . $ 41,437,363 $ 37,794,754
Canada. . . . . . . . . . . . . . . . . . . . . . -- 13,408
------------- ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 41,437,363 $ 37,808,162
------------- ------------
OTHER ENERGY INVESTMENTS
Eastern Europe . . . . . . . . . . . . . . . . . . $ 1,923,985 $ 1,458,484
Canada . . . . . . . . . . . . . . . . . . . . . . 128,543 250,731
------------- ------------
$ 2,052,528 $ 1,709,215
------------- ------------
IDENTIFIABLE ASSETS - TOTAL . . . . . . . . . . . . $ 78,808,139 $ 43,799,469
============= ============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUALIFYING STATEMENT WITH RESPECT TO FORWARD-LOOKING INFORMATION
The United States Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for certain forward looking statements. Such forward looking
statements are based upon the current expectations of CanArgo and speak only as
of the date made. These forward looking statements involve risks, uncertainties
and other factors. The factors discussed below under "Forward Looking
Statements" and elsewhere in this Quarterly Report on Form 10-Q are among those
factors that in some cases have affected CanArgo's historic results and could
cause actual results in the future to differ significantly from the results
anticipated in forward looking statements made in this Quarterly Report on Form
10-Q, future filings by CanArgo with the Securities and Exchange Commission, in
CanArgo's press releases and in oral statements made by authorized officers of
CanArgo. When used in this Quarterly Report on Form 10-Q, the words "estimate,"
"project," "anticipate," "expect," "intend," "believe," "hope," "may" and
similar expressions, as well as "will," "shall" and other indications of future
tense, are intended to identify forward looking statements.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
In August, 2000, CanArgo closed a private placement of 12,000,000 new shares at
Norwegian Kroner (NOK) 11.20 per share. Gross proceeds from the placement were
approximately US$14.2 million. In June 2000, CanArgo Energy Corporation
completed a private placement of 15,660,916 shares at NOK 9.00 per share. Gross
proceeds from the placement were approximately US$15.4 million. In April 2000,
CanArgo closed a private placement resulting in the issuance of 3,695,000 shares
at NOK 7.50 per share for gross proceeds of $3.2 million.
CanArgo's management believes that cash and cash equivalents at September 30,
2000 should be sufficient to cover operating needs for existing projects during
the next twelve month period. Also, CanArgo's cash balance at September 30,
2000 satisfies CanArgo's near term funding requirements with respect to its
current activities in the Republic of Georgia. Current development plans for the
Ninotsminda field includes the completion of well N97 to the Cretaceous, a
horizontal sidetrack of wells N48 and N53 several rehabilitations of existing
wells, with a view towards increasing oil and gas production. The development
plan is scheduled to be implemented in 2000 and the first half of 2001, but that
timing is dependent upon key supplies and other equipment for the development
being available promptly.
In December 1998, Ninotsminda Oil Company, a wholly owned subsidiary of CanArgo,
entered into a convertible loan agreement with International Finance Corporation
("IFC"), an affiliate of the World Bank, under which IFC agreed under specified
conditions, to lend $6 million to Ninotsminda Oil Company primarily to fund the
Ninotsminda field current development program. IFC has the right, upon notice to
CanArgo, to terminate its loan commitment if, among other things, the first
disbursement under the loan agreement is not made by June 30, 1999, or such
other date as IFC and CanArgo agree. IFC has no obligation to disburse funds
after June 29, 2000.
No funds have been disbursed under the loan agreement. If funds were disbursed,
IFC would have the right to convert all or part of the loan into common shares
of Ninotsminda Oil Company. IFC would also have the ability to accept or reject
joint venture or third party investment in the project. As a result of these
and other conditions, CanArgo does not intend to draw from this loan in its
current form.
While a considerable amount of infrastructure for the Ninotsminda field has been
put in place, CanArgo cannot provide assurance that:
- funding of the Ninotsminda field current development plan will be timely,
- that the development plan will be successfully completed or will increase
production, or
- that the Ninotsminda field operating revenues after completion of the
development plan will exceed operating costs.
To pursue additional projects and opportunities, CanArgo would require
additional capital. Potential sources of funds include additional equity,
project financing, debt financing and the participation of other oil and gas
entities in CanArgo's projects. Based on continuing discussions including those
with major stockholders, investment bankers and other companies, CanArgo
believes that such required funds will be available. However, there is no
assurance that such funds will be available, and if available, will be offered
on attractive or acceptable terms.
Development of the oil and gas properties and ventures in which CanArgo has
interests involves multi-year efforts and substantial cash expenditures. Full
development of CanArgo's oil and gas properties and ventures will require the
availability of substantial additional financing from external sources. CanArgo
also intends where opportunities exist to transfer portions of its interests in
oil and gas properties and ventures to entities in exchange for such financing.
CanArgo generally has the principal responsibility for arranging financing for
the oil and gas properties and ventures in which it has an interest. There can
be no assurance, however, that CanArgo or the entities that are developing the
oil and gas properties and ventures will be able to arrange the financing
necessary to develop the projects being undertaken or to support the corporate
and other activities of CanArgo. There can also be no assurance that such
financing as is available will be on terms that are attractive or acceptable to
or are deemed to be in the best interest of CanArgo, such entities and their
respective stockholders or participants.
Ultimate realization of the carrying value of CanArgo's oil and gas properties
and ventures will require production of oil and gas in sufficient quantities and
marketing such oil and gas at sufficient prices to provide positive cash flow to
CanArgo. Establishment of successful oil and gas operations is dependent upon,
among other factors, the following:
- mobilization of equipment and personnel to implement effectively drilling,
completion and production activities;
- achieving significant production at costs that provide acceptable margins;
- reasonable levels of taxation, or economic arrangements in lieu of
taxation in host countries; and
- the ability to market the oil and gas produced at or near world prices.
CanArgo has plans to mobilize resources and achieve levels of production and
profits sufficient to recover the carrying value of its oil and gas properties
and ventures. However, if one or more of the above factors, or other factors,
are different than anticipated, these plans may not be realized, and CanArgo may
not recover the carrying value of its oil and gas properties and ventures.
CanArgo will be entitled to distributions from the various properties and
ventures in which it participates in accordance with the arrangements governing
the respective properties and ventures. If a loan from IFC was drawn, until
Ninotsminda Oil Company repays the IFC loan, CanArgo would have a limited
ability to transfer funds from Ninotsminda Oil Company to CanArgo.
CHANGES IN FINANCIAL POSITION
As of September 30, 2000, CanArgo had working capital of $28,895,000,
compared to working capital of $2,729,000 as of December 31, 1999. The
$26,166,000 increase in working capital from December 31, 1999 to September 30,
2000 principally reflects completion of private placements in April, June and
August 2000 and a positive contribution to working capital from operations in
the period, less capital expenditures.
Cash and cash equivalents increased $29,822,000 during the first nine
months of 2000 from $3,535,000 at December 31, 1999 to $33,357,000 at September
30, 2000, primarily as a result of the April, June and August 2000 private
placements less operating and capital expenditures. Cash and cash equivalents
at September 30, 2000 included $5,200,000 held by Ninotsminda Oil Company with
respect to initial advances, less capital expenditures, from AES Gardabani
related to AES Gardabani's participation in a three well exploration program in
the Republic of Georgia.
Accounts receivable increased from $464,000 at December 31, 1999 to
$651,000 at September 30, 2000 primarily as a result of increased gas sales in
the three months ended September 30, 2000 compared to the prior quarter.
Advances to operator increased from $nil at December 31, 1999 to $1,064,000
at September 30, 2000, as a result of advances to the operator of the
Ninotsminda field for future expenditures on behalf and at the direction of
CanArgo.
Inventory increased from $189,000 at December 31, 1999 to $222,000 at
September 30, 2000, as result of the placement of crude oil into storage for
future sale to the Georgian domestic and regional market. Depending on the
demand and price for oil in the Georgian domestic and regional market CanArgo
may decide to place additional production in storage. At September 30, 2000,
approximately 47,000 barrels of oil were held in storage. Oil inventories are
valued at lower of cost or market. In early October 2000, CanArgo sold
approximately 18,900 barrels of oil from storage at a price of $23.13 per
barrel.
Other current assets decreased from $94,000 at December 31, 1999 to $25,000 at
September 30, 2000, as a result of the amortization of prepaid expenses.
Property and equipment, net, increased from $7,101,000 at December 31,
1999, to $7,393,000 at September 30, 2000, primarily as a result of the
acquisition of gas production equipment, pipeline and other infrastructure.
Oil and gas properties, net, increased from $30,707,000 at December 31,
1999, to $34,044,000 at September 30, 2000 primarily as a result of drilling and
workover costs partially offset by depletion charges of $2,535,000.
Investments in and advances to oil and gas and other ventures, net
increased slightly from $1,709,000 at December 31, 1999, to $2,053,000. The
increase reflects CanArgo's investment in CanArgo Standard Oil Products of
$400,000 and East Georgian Pipeline Company of $90,000, partially offset by
CanArgo's equity share of loss of Uentech International Corporation, CanArgo
Standard Oil Products and East Georgian Pipeline Company. CanArgo Standard Oil
is the brand name of a chain of petrol stations being developed in Tbilisi, the
capital city of Georgia. CanArgo will have the option but not the obligation
to participate in 50% of any future petrol stations and to back in to ownership
of 50% of the six existing stations. East Georgian Pipeline Company leases
from Georgian Oil the pipeline used to transport natural gas from Sartichala to
the Gardabani power plant.
At September 30, 2000, CanArgo held 45% of the voting common shares of
Uentech International Corporation and 78% of the total common shares
outstanding. Uentech International Corporation specializes in the exploitation
of patented downhole-heating technology.
CanArgo has contingent obligations and may incur additional obligations,
absolute and contingent, with respect to acquiring and developing oil and gas
properties and ventures. At September 30, 2000, CanArgo had a contingent
obligation to issue 187,500 shares of common stock to a third party upon
satisfaction of conditions relating to the achievement of specified Stynawske
field project performance standards. As CanArgo develops current projects and
undertakes other projects, it could incur significant additional obligations.
Accrued liabilities decreased to $322,000 at September 30, 2000 from
$393,000 at December 31, 1999 primarily as a result of net advances in 2000 to
the operator of the Ninotsminda field for workover and drilling operations. The
decrease in accrued liabilities was partially offset by severance costs of
$200,000 associated with the move of administrative and finance functions from
Calgary to London in the third quarter of 2000. These costs are expected to be
paid over the next nine months.
Advances from joint venture partner increased to $5,220,000 at September
30, 2000 compared to $nil at December 31, 1999 as advances, less capital
expenditures, were received from AES Gardabani related to AES Gardabani's
participation in a three well exploration program in the Republic of Georgia.
Minority interest in subsidiaries decreased to $400,000 at September 30, 2000
compared to $4,371,000 at December 31, 1999 following the acquisition by CanArgo
in June 2000 of the minority shareholders 21.2% interest in Ninotsminda Oil
Company. Total consideration paid was 4,054,054 new common shares of CanArgo at
a price of $1.11 per share for total consideration of $4,500,000. In July,
2000, CanArgo established CanArgo Norio Limited, a new subsidiary in which the
subsidiary's minority interest shareholders have contributed $400,000 for use
towards the current seismic program. CanArgo holds 50% of the outstanding
common shares of CanArgo Norio Limited but has the unilateral ability through
CanArgo Norio Limited's governing body to control the strategic, financial and
operating decisions of the company.
NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities and in June 2000 issued SFAS No. 138,which
amended certain provisions of SFAS 133. CanArgo plans to adopt the provisions
of SFAS 133, as amended, in the first quarter of the year ending December 31,
2001, and is currently evaluating the impact of SFAS No. 133, as amended, on its
financial statements.
RESULTS OF OPERATIONS
Nine Month Period Ended September 30, 2000 Compared to Nine Month Period Ended
September 30, 1999
In 1999, CanArgo completed its restructuring of the combined assets and
administration of Fountain Oil Incorporated and CanArgo Oil & Gas Inc. following
the business combination of the two companies in July 1998.
Since the business combination, CanArgo has focused primarily on the development
of the Ninotsminda field and the reduction of corporate overheads.
CanArgo recorded operating revenue of $4,759,000 during the nine month
period ended September 30, 2000 compared with $2,061,000 for the nine month
period ended September 30, 1999. The increase is primarily due to increases in
gross crude oil and natural gas production from the Ninotsminda field, higher
crude oil prices and service revenue.
Ninotsminda Oil Company generated $3,353,000 of oil revenue and $1,041,000
of gas revenue in the nine month period ended September 30, 2000 compared to
$1,817,000 of oil revenue and $nil gas revenue for the nine month period ended
September 30, 1999. Its net share of the 382,454 barrels (1,400 barrels per
day) of gross oil production from the Ninotsminda field in the period amounted
to 191,594 barrels. From production, 10,000 barrels of oil were placed into
storage in the period. For the nine month period ended September 30, 1999,
Ninotsminda Oil Company's net share of the 302,400 barrels (1,108 barrels per
day) of gross production was 102,400 barrels. During the nine month period
ended September 30, 1999, 50,000 barrels of oil were removed from storage and
sold. Ninotsminda Oil Company's net share of the 1,379,000 thousand cubic feet
(mcf) of gas delivered in the nine month period ended September 30, 2000 was
896,000 mcf.
All of Ninotsminda Oil Company's share of production was sold into the
Georgian local and regional market. Because lower transportation costs are
involved, CanArgo believes that sales of Ninotsminda oil to customers in the
Georgian local and regional market generally yield relatively higher net sales
prices to Ninotsminda Oil Company than sales to other customers. The net oil
sales price for Ninotsminda oil sold during the nine months ended September 30,
2000 averaged $18.46 per barrel as compared with an average of $11.92 per barrel
in the nine month period ended September 30, 1999. The net gas sales price
during the nine month period ended September 30, 2000 averaged $1.16 per mcf
($41.23 per thousand cubic meter).
CanArgo recorded in the nine months ended September 30, 2000, other revenue
of $365,000 with respect to equipment rentals. There were no equipment rentals
for the corresponding period in 1999.
The operating loss for the nine month period ended September 30, 2000 amounted
to $853,000 compared with an operating loss of $7,358,000 for the corresponding
period in 1999. The decrease in the operating loss is attributable primarily to
the impairment in 1999 of CanArgo's interest in the Stynawske project, increased
oil production and sales, higher oil prices and the addition of gas sales.
Lease operating expenses increased to $864,000 for the nine month period ended
September 30, 2000 as compared to $851,000 for the nine month period ended
September 30, 1999. The increase is primarily a result of increased oil and gas
production in the period.
Direct project costs decreased to $562,000 for the nine month period ended
September 30, 2000, from $730,000 for the nine month period ended September 30,
1999, reflecting efforts initiated in early 1999 to reduce Ninotsminda project
expenses.
General and administrative costs decreased to $1,547,000 for the nine month
period ended September 30, 2000, from $1,550,000 for the nine month period ended
September 30, 1999. The decrease is primarily attributable to higher legal
costs in 1999 as part of the Fountain restructuring and reduction in involvement
in development of the Stynwaske field. These reductions were largely offset by
costs related to increased corporate activity and costs related to the
transition of administrative and finance functions from Calgary to London in the
third quarter of 2000 including accrued severance costs of $200,000.
The increase in depreciation, depletion and amortization expense from
$827,000 for the nine month period ended September 30, 1999 to $2,640,000 for
the nine month period ended September 30, 2000 is attributable principally to
higher oil and gas production from the Ninotsminda field and depreciation of
drilling equipment.
CanArgo recorded net other income of $95,000 for the nine months ended
September 30, 2000, as compared to net other expenses of $283,000 during the
nine months ended September 30, 1999. The principal reason for the increase is
interest income during the nine months ended September 30, 2000 on cash balances
and the payment of facility fees in the nine months ended September 30, 1999
related to Ninotsminda Oil Company's Loan Agreement with the International
Finance Corporation.
The net loss of $892,000 or $0.02 per share for the nine month period ended
September 30, 2000 compares to a net loss of $7,514,000, or $0.32 per share for
the nine month period ended September 30, 1999. The weighted average number of
common shares outstanding was substantially higher during the nine month period
ended September 30, 2000 than during the nine month period ended September 30,
1999, due in large part to a registered public offering in August 1999 and
private placements in December 1999, April 2000, June 2000 and August 2000.
Three Month Period Ended September 30, 2000 Compared to Three Month Period Ended
September 30, 1999
CanArgo recorded operating revenue of $1,163,000 during the three month period
ended September 30, 2000 compared with $1,157,000 for the three month period
ended September 30, 1999. The increase is primarily due to increases in gross
crude oil and natural gas production from the Ninotsminda field, higher crude
oil prices and service revenue partially offset by the sale in the three month
period ended September 30, 1999 of crude oil from storage.
Ninotsminda Oil Company generated $753,000 of oil revenue and $410,000 of
gas revenue in the three month period ended September 30, 2000 compared to
$1,110,000 of oil revenue and $nil gas revenue for the three month period ended
September 30, 1999. Ninotsminda Oil Company's net share of the 126,053 barrels
(1,370 barrels per day) of gross oil production from the Ninotsminda field in
the period amounted to 65,000 barrels. An additional 27,135 barrels of oil were
placed into storage in the period. For the three month period ended September
30, 1999, Ninotsminda Oil Company's net share of the 96,700 barrels (1,051
barrels per day) of gross production was 31,100 barrels. An additional 42,600
barrels of oil was sold from storage in the three month period ended September
30, 1999. Ninotsminda Oil Company's net share of the 588,303 mcf of gas
delivered in the three month period ended September 30, 2000 was 382,397 mcf.
No gas was delivered in the three month period ended September 30, 1999.
All of Ninotsminda Oil Company's share of production was sold into the Georgian
local and regional market. Because lower transportation costs are involved,
CanArgo believes that sales of Ninotsminda oil to customers in the Georgian
local and regional market generally yield relatively higher net sales prices to
Ninotsminda Oil Company than sales to other customers. The net oil sales price
for Ninotsminda oil sold during the third quarter of 2000 averaged $19.88 per
barrel as compared with an average of $15.06 per barrel in the third quarter of
1999. The net gas sales price during the third quarter of 2000 averaged $1.07
per mcf ($38.06 per thousand cubic meter).
The operating loss for the three month period ended September 30, 2000
amounted to $788,000 compared with an operating loss of $5,856,000 for the
corresponding period in 1999. The decrease in the operating loss is
attributable primarily to the impairment in 1999 of CanArgo's interest in the
Stynawske project, increased oil production and sales, higher oil prices and the
addition of gas sales.
Lease operating expenses decreased to $232,000 for the three month period ended
September 30, 2000 as compared to $351,000 for the three month period ended
September 30, 1999. The decrease is primarily a result of the deferral of
operating costs related to oil placed into storage for the three months ended
September 30, 2000.
Direct project costs decreased to $178,000 for the three month period ended
September 30, 2000, from $327,000 for the three month period ended September 30,
1999, reflecting efforts initiated in early 1999 to reduce Ninotsminda project
expenses.
General and administrative costs increased to $781,000 for the three month
period ended September 30, 2000, from $446,000 for the three month period ended
September 30, 1999 primarily attributable to costs related to increased
corporate activity and CanArgo's transition of administrative and finance
functions from Calgary to London including accrued severance costs of $200,000.
The increase in depreciation, depletion and amortization expense from
$429,000 for the three month period ended September 30, 1999 to $761,000 for the
three month period ended September 30, 2000 is attributable principally to
depletion related to Ninotsminda field oil production and depreciation of
drilling equipment.
CanArgo recorded net other income of $75,000 for the three months ended
September 30, 2000, as compared to other loss of $53,000 during the three months
ended September 30, 1999. The principal reason for the increase is interest
income during the three months ended September 30, 2000 on cash balances and the
payment of facility fees in the three months ended September 30, 1999 related
to Ninotsminda Oil Company's Loan Agreement with the International Finance
Corporation. The equity loss from investments in unconsolidated subsidiaries
increased to $155,000 for the three month period ended September 30, 2000, from
$10,000 for the three month period ended September 30, 1999 as a result as a
result of greater activity by Uentech International Corporation and investments
in 2000 in CanArgo Standard Oil Products and East Georgian Pipeline Company.
The net loss of $713,000 or $0.01 per share for the three month period
ended September 30, 2000 compares to a net loss of $5,939,000, or $0.25 per
share for the three month period ended September 30, 1999. The weighted average
number of common shares outstanding was substantially higher during the nine
month period ended September 30, 2000 than during the nine month period ended
September 30, 1999, due in large part to a registered public offering in August
1999 and private placements in late 1999, April 2000, June and August 2000.
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Item 2 and elsewhere in
this Form 10-Q are subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements. Included among the important
risks, uncertainties and other factors are those hereinafter discussed.
Few of such forward looking statements deal with matters that are within
the unilateral control of CanArgo. Joint venture, acquisition, financing and
other agreements and arrangements must be negotiated with independent third
parties and, in some cases, must be approved by governmental agencies. Such
third parties generally have interests that do not coincide with those of
CanArgo and may conflict with CanArgo's interests. Unless CanArgo and such
third parties are able to compromise their respective objectives in a mutually
acceptable manner, agreements and arrangements will not be consummated.
Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In
addition, the policies and practices of governmental agencies may be affected or
altered by political, economic and other events occurring either within their
own countries or in a broader international context.
CanArgo does not have a majority of the equity in the entity that is the
licensed developer of some projects that CanArgo may pursue in Eastern Europe
such as the Stynawske field project, even though CanArgo may be the designated
operator of the oil or gas field. In such circumstances, the concurrence of
co-venturers may be required for various actions. Other parties influencing the
timing of events may have priorities that differ from those of CanArgo, even if
they generally share CanArgo's objectives. As a result of all of the foregoing,
among other matters, the forward looking statements regarding the occurrence and
timing of future events may well anticipate results that will not be realized.
The availability of equity or debt financing to CanArgo or to the entities
that are developing projects in which CanArgo has interests is affected by many
factors including:
- world economic conditions;
- international relations;
- the stability and policies of various governments;
- fluctuations in the price of oil and gas and the outlook for the oil and
gas industry;
- competition for funds; and
- an evaluation of CanArgo and specific projects in which CanArgo has an
interest.
Rising interest rates might affect the feasibility of debt financing that
is offered. Potential investors and lenders will be influenced by their
evaluations of CanArgo and its projects and comparisons with alternative
investment opportunities. CanArgo's ability to finance all of its present oil
and gas projects and other ventures according to present plans is dependent upon
obtaining additional funding. An inability to obtain financing could require
CanArgo to scale back its project development, capital expenditure, production
and other plans.
The development of oil and gas properties is subject to substantial risks.
Expectations regarding production, even if estimated by independent petroleum
engineers, may prove to be unrealized. There are many uncertainties inherent in
estimating production quantities and in projecting future production rates and
the timing and amount of future development expenditures. Estimates of
properties in full production are more reliable than production estimates for
new discoveries and other properties that are not fully productive.
Accordingly, estimates related to CanArgo's properties are subject to change as
additional information becomes available.
Most of CanArgo's interests in oil and gas properties and ventures are
located in Eastern European countries. Operations in those countries are subject
to certain additional risks including the following:
- legal uncertainties regarding the enforceability of contracts;
- currency convertibility and transferability;
- unexpected changes in tax rates;
- political instability;
- sudden or unexpected changes in demand for crude oil and or natural gas;
- availability of trained personnel; and
- availability of equipment and services and other factors that could
significantly change the economics of production.
Production estimates are subject to revision as prices and costs change.
Production, even if present, may not be recoverable in the amount and at the
rate anticipated and may not be recoverable in commercial quantities or on an
economically feasible basis. World and local prices for oil and gas can
fluctuate significantly, and a reduction in the revenue realizable from the sale
of production can affect the economic feasibility of an oil and gas project.
World and local political, economic and other conditions could affect CanArgo's
ability to proceed with or to effectively operate projects in various foreign
countries.
Demands by or expectations of governments, co-venturers, customers and
others may affect CanArgo's strategy regarding the various projects. Failure to
meet such demands or expectations could adversely affect CanArgo's participation
in such projects or its ability to obtain or maintain necessary licenses and
other approvals.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CanArgo had no interest in investments subject to market risk during the
period covered by this report.
PART II - OTHER INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On August 18, 2000, CanArgo issued 12,000,000 shares of common stock at
Norwegian Kroner 11.20 per share. Gross proceeds from the private placement
were approximately US $14.2 million. Sundal Collier & Co ASA and Den norske
Bank ASA, DnB Markets acted as placement agents for this transaction. The
placement agents received a commission of 5.75% of the gross proceeds of the
placement.
The offer and sale of the shares issued in connection with this placement
were issued under Regulation S of the United States Securities Act of 1933, as
amended. The purchaser of the shares represented to CanArgo , among other
things, that (a) the shares may not be offered or sold in the United States or
to, or for the account or benefit of, any "U.S. person" (as defined in
Regulation S), unless such Shares are registered under the US Securities Act and
any applicable state securities or blue sky laws or such offer or sale is made
pursuant to exemptions from the registration requirements of such laws, (b) the
Shares are being offered and sold pursuant to the terms of Regulation S
promulgated under the Securities Act, which permits securities to be sold to
non-"U.S. persons" in "offshore transactions" (as defined in Regulation S),
subject to certain terms and conditions, (c) the Shares have been offered and
sold to the Purchaser in an "offshore transaction" and Purchaser has not engaged
in any "directed selling efforts", as each such term is defined in Regulation S,
and (d) in the view of the Securities & Exchange Commission, the statutory basis
for the exemption from registration claimed for this Offering would not be
present if the Offering of the Shares, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration provisions
of the Securities Act.
CanArgo agreed, as soon as practicable after the closing date of the
placement, to prepare and file with the United States Securities and Exchange
Commission a registration statement registering the Shares on Form S-3 (the
"Registration Statement"), if available, for resale. On September 21, 2000, a
Registration Statement on Form S-3 including the 12,000,000 shares issued
pursuant to the private placement was declared effective by the Securities &
Exchange Commission.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Management Contracts, Compensation Plans and Arrangements
are identified by an asterisk (*)
<C> <S>
1(1) Escrow Agreement with Signature Stock Transfer, Inc. (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295 filed on September 9, 1999).
1(2) Selling Agent Agreement with each of Credifinance Securities Limited, David Williamson
Associates Limited, and Orkla Finans (Fondsmegling) ASA (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295 filed on September 9,
1999).
1(3) Escrow Agreement with Orkla Finans (Fondsmegling) ASA (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295 filed on September
9, 1999).
1(4) Selling Agent Agreement with National Securities Corporation (Incorporated herein by
reference from Post-Effective Amendment No. 1 to Form S-1 Registration Statement, File
No. 333-72295 filed on July 29, 1999).
1(5) Escrow Agreement with Continental Stock Transfer & Trust Company (Incorporated
herein by reference from Post-Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 333-72295 filed on July 29, 1999).
2(1) Agreement Relating to the Sale and Purchase of All the Issued Share Capital of Gastron
International Limited dated August 10, 1995 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995 Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase of All the Issued Share Capital
of Gastron International Limited dated November 3, 1995 by and among Ribalta Holdings,
Inc. as Vendor and Fountain Oil Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from October 19, 1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All the Issued Share Capital of
Gastron International Limited dated May 29, 1996 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from September 30, 1997 Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services Pty, Ltd., A.C.N. 005
506 123 and Fountain Oil Incorporated dated May 16, 1995 (Incorporated herein by
reference from December 31, 1997 Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain Oil Incorporated and
CanArgo Energy Inc. dated as of February 2, 1998 (Incorporated herein by reference from
Form S-3 Registration Statement, File No. 333-48287 filed on September 9, 1998).
2(6) Voting, Support and Exchange Trust Agreement (Incorporated herein by reference as
Annex G from Form S-3 Registration Statement, File No. 333-48287 filed on September
9, 1998).
3(1) Registrant's Certificate of Incorporation and amendments thereto (Incorporated herein by
reference from July 15, 1998 Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from Post-Effective Amendment
No. 1 to Form S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999).
4(1) Registration Rights Agreement between Registrant and JKX Nederland B.V. dated
September 28, 2000, relating to purchase of 21.2% interest in Ninotsminda Oil Company
(Incorporated herein by reference from July 20, 2000 Form 8-K).
*10(1) Form of Option Agreement for options granted to certain persons, including Directors
(Incorporated herein by reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the Company's predecessor).
*10(2) Amended and Restated 1995 Long-Term Incentive Plan (Incorporated herein by reference
from Post-Effective Amendment No. 1 to Form S-1 Registration Statement, File No. 333-
72295 filed on July 29, 1999).
*10(3) Amended and Restated CanArgo Energy Inc. Stock Option Plan (Incorporated herein by
reference from September 30, 1998 Form 10-Q).
*10(4) Workorder between CanArgo Energy Inc. and Nils N. Trulsvik as Consultant
(Incorporated herein by reference from September 30, 1998 Form 10-Q).
*10(5) Employment Contract between CanArgo Energy Inc. and Anthony J. Potter (Incorporated
herein by reference from September 30, 1998 Form 10-Q).
10(6) Convertible Loan Agreement between Ninotsminda Oil Company (NOC) and International
Finance Corporation (IFC) dated December 17, 1998 (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(7) Put Option Agreement between CanArgo Energy Corporation, JKX Oil & Gas PLC. and
IFC dated December 17, 1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(8) Guarantee Agreement between CanArgo Energy Corporation and IFC dated December 17,
1998 (Incorporated herein by reference from Form S-1 Registration Statement, File No.
333-72295 filed on February 12, 1999).
10(9) Agreement between Georgian American Oil Refinery Company and CanArgo Petroleum
Products Ltd. dated September 26, 1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(10) Terrenex Acquisition Corporation Option regarding CanArgo (Nazvrevi) Limited
(Incorporated herein by reference from Form S-1 Registration Statement, File No. 333-
72295 filed on February 12, 1999).
10(11) Production Sharing Contract between (1) Georgia and (2) Georgian Oil and JKX Navtobi
Ltd. dated February 12, 1996 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on September 7, 1999).
10(12) Agreement and Promissory Note dated July 19, 1999, with Terrenex Acquisition
Corporation (Incorporated herein by reference from Post-Effective Amendment No. 1 to
Form S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999).
10(13) Agreement between CanArgo Energy Corporation, Ninotsminda Oil Company and IFC
dated October 19, 1999 (Incorporated herein by reference from September 30, 1999 Form
10-Q).
10(14) Agreement on Financial Advisory Services between CanArgo Energy Corporation, Orkla
Finans (Fondsmegling) A.S and Sundal Collier & Co. ASA dated December 8, 1999
(Incorporated herein by reference from December 28, 1999 Form 8-K).
10(15) Form of Subscription Agreement (Incorporated herein by reference from December 28,
1999 Form 8-K).
10(16) Agreement between CanArgo Energy Corporation and JKX Nederland BV dated January
19, 2000 (Incorporated herein by reference from December 31, 1999 Form 10-K).
*10(17) Employment Agreement between CanArgo Energy Corporation and Paddy Chesterman
dated February 24, 2000 (Incorporated herein by reference from December 31, 1999 Form
10-K).
10(18) Agreement between Ninotsminda Oil Company and AES Gardabani dated March 10, 2000
(Incorporated herein by reference from December 31, 1999 Form 10-K).
10(19) Term Sheet dated September 27, 2000 relating to sale of 15,660,916 shares of Registrant's
common stock (Incorporated herein by reference from July 20, 2000 Form 8-K).
10(20) Form of Subscription Agreement relating to sale of 15,660,916 shares of the Registrant's
common stock (Incorporated herein by reference from July 20, 2000 Form 8-K).
10(21) Subscription Agreement between Registrant and JKX Nederland B.V. dated September 15,
2000 relating to purchase of 21.2% interest in Ninotsminda Oil Company (Incorporated
herein by reference from July 20, 2000 Form 8-K).
*10(22) Employment Agreement between CanArgo Energy Corporation and Dr. David Robson
dated June 29, 2000
10(23) Tenancy Agreement between CanArgo Energy Corporation and Grosvenor West End
Properties dated September 8, 2000.
21 List of Subsidiaries (Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
On July 20, 2000, CanArgo filed a Form 8-K dated June 28, 2000 reporting
Item 5. Other Events regarding a press release as to the sale of 15,660,916
shares of CanArgo's Common Stock at Norwegian Kroner (NOK) 9.00 per share.
On July 28, 2000, CanArgo filed a Form 8-K dated July 20, 2000 reporting
Item 5. Other Events regarding a press release as to the agreement with JSC
National Oil Company ("Georgian Oil") and the State Agency for the
Regulation of Oil and Gas Resources of Georgia on CanArgo's participation in
the Norio Block XIC located in eastern Georgia.
On August 24, 2000, CanArgo filed a Form 8-K dated August 16, 2000
reporting Item 5. Other Events regarding a press release as to the declaration
by the U.S. Securities and Exchange Commission on August 15, 2000 that
CanArgo's Registration Statement on Form S-3 relating to the offer and
sale of 25,048,766 shares of its common stock by certain stockholders was
declared effective. CanArgo also announced on August 18, 2000 that it had
closed a private placement of 12,000,000 shares at NOK 11.20 per share.
On September 7, 2000, CanArgo filed a Form 8-K dated August 31, 2000
reporting Item 5. Other Events regarding a press release as to the appointment
on August 31, 2000 of Mr. Roger Brittain as non-executive Chairman of the
Board of Directors, effective September 1, 2000. On August 31, 2000,
CanArgo also announced the initial results of its horizontal well, N98H on the
Ninotsminda field in the Republic of Georgia.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CANARGO ENERGY CORPORATION
Date: November 14, 2000 By: /s/Anthony J. Potter
----------------------
Anthony J. Potter
Chief Financial Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED
HEREWITH EXHIBIT
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1(1) Escrow Agreement with Signature Stock Transfer, Inc. (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295 filed on September 9, 1999).
1(2) Selling Agent Agreement with each of Credifinance Securities Limited, David Williamson
Associates Limited, and Orkla Finans (Fondsmegling) ASA (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295 filed on September 9,
1999).
1(3) Escrow Agreement with Orkla Finans (Fondsmegling) ASA (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295 filed on September
9, 1999).
1(4) Selling Agent Agreement with National Securities Corporation (Incorporated herein by
reference from Post-Effective Amendment No. 1 to Form S-1 Registration Statement, File
No. 333-72295 filed on July 29, 1999).
1(5) Escrow Agreement with Continental Stock Transfer & Trust Company (Incorporated
herein by reference from Post-Effective Amendment No. 1 to Form S-1 Registration
Statement, File No. 333-72295 filed on July 29, 1999).
2(1) Agreement Relating to the Sale and Purchase of All the Issued Share Capital of Gastron
International Limited dated August 10, 1995 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995 Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase of All the Issued Share Capital
of Gastron International Limited dated November 3, 1995 by and among Ribalta Holdings,
Inc. as Vendor and Fountain Oil Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from October 19, 1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All the Issued Share Capital of
Gastron International Limited dated May 29, 1996 by and among Ribalta Holdings, Inc. as
Vendor and Fountain Oil Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from September 30, 1997 Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services Pty, Ltd., A.C.N. 005
506 123 and Fountain Oil Incorporated dated May 16, 1995 (Incorporated herein by
reference from December 31, 1997 Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain Oil Incorporated and
CanArgo Energy Inc. dated as of February 2, 1998 (Incorporated herein by reference from
Form S-3 Registration Statement, File No. 333-48287 filed on September 9, 1998).
2(6) Voting, Support and Exchange Trust Agreement (Incorporated herein by reference as
Annex G from Form S-3 Registration Statement, File No. 333-48287 filed on September
9, 1998).
3(1) Registrant's Certificate of Incorporation and amendments thereto (Incorporated herein by
reference from July 15, 1998 Form 8-K).
3(2) Registrant's Bylaws (Incorporated herein by reference from Post-Effective Amendment
No. 1 to Form S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999).
4(1) Registration Rights Agreement between Registrant and JKX Nederland B.V. dated
September 28, 2000, relating to purchase of 21.2% interest in Ninotsminda Oil Company
(Incorporated herein by reference from July 20, 2000 Form 8-K).
*10(1) Form of Option Agreement for options granted to certain persons, including Directors
(Incorporated herein by reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the Company's predecessor).
*10(2) Amended and Restated 1995 Long-Term Incentive Plan (Incorporated herein by reference
from Post-Effective Amendment No. 1 to Form S-1 Registration Statement, File No. 333-
72295 filed on July 29, 1999).
*10(3) Amended and Restated CanArgo Energy Inc. Stock Option Plan (Incorporated herein by
reference from September 30, 1998 Form 10-Q).
*10(4) Workorder between CanArgo Energy Inc. and Nils N. Trulsvik as Consultant
(Incorporated herein by reference from September 30, 1998 Form 10-Q).
*10(5) Employment Contract between CanArgo Energy Inc. and Anthony J. Potter (Incorporated
herein by reference from September 30, 1998 Form 10-Q).
10(6) Convertible Loan Agreement between Ninotsminda Oil Company (NOC) and International
Finance Corporation (IFC) dated December 17, 1998 (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(7) Put Option Agreement between CanArgo Energy Corporation, JKX Oil & Gas PLC. and
IFC dated December 17, 1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(8) Guarantee Agreement between CanArgo Energy Corporation and IFC dated December 17,
1998 (Incorporated herein by reference from Form S-1 Registration Statement, File No.
333-72295 filed on February 12, 1999).
10(9) Agreement between Georgian American Oil Refinery Company and CanArgo Petroleum
Products Ltd. dated September 26, 1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(10) Terrenex Acquisition Corporation Option regarding CanArgo (Nazvrevi) Limited
(Incorporated herein by reference from Form S-1 Registration Statement, File No. 333-
72295 filed on February 12, 1999).
10(11) Production Sharing Contract between (1) Georgia and (2) Georgian Oil and JKX Navtobi
Ltd. dated February 12, 1996 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on September 7, 1999).
10(12) Agreement and Promissory Note dated July 19, 1999, with Terrenex Acquisition
Corporation (Incorporated herein by reference from Post-Effective Amendment No. 1 to
Form S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999).
10(13) Agreement between CanArgo Energy Corporation, Ninotsminda Oil Company and IFC
dated October 19, 1999 (Incorporated herein by reference from September 30, 1999 Form
10-Q).
10(14) Agreement on Financial Advisory Services between CanArgo Energy Corporation, Orkla
Finans (Fondsmegling) A.S and Sundal Collier & Co. ASA dated December 8, 1999
(Incorporated herein by reference from December 28, 1999 Form 8-K).
10(15) Form of Subscription Agreement (Incorporated herein by reference from December 28,
1999 Form 8-K).
10(16) Agreement between CanArgo Energy Corporation and JKX Nederland BV dated January
19, 2000 (Incorporated herein by reference from December 31, 1999 Form 10-K).
*10(17) Employment Agreement between CanArgo Energy Corporation and Paddy Chesterman
dated February 24, 2000 (Incorporated herein by reference from December 31, 1999 Form
10-K).
10(18) Agreement between Ninotsminda Oil Company and AES Gardabani dated March 10, 2000
(Incorporated herein by reference from December 31, 1999 Form 10-K).
10(19) Term Sheet dated September 27, 2000 relating to sale of 15,660,916 shares of Registrant's
common stock (Incorporated herein by reference from July 20, 2000 Form 8-K).
10(20) Form of Subscription Agreement relating to sale of 15,660,916 shares of the Registrant's
common stock (Incorporated herein by reference from July 20, 2000 Form 8-K).
10(21) Subscription Agreement between Registrant and JKX Nederland B.V. dated September 15,
2000 relating to purchase of 21.2% interest in Ninotsminda Oil Company (Incorporated
herein by reference from July 20, 2000 Form 8-K).
X *10(22) Employment Agreement between CanArgo Energy Corporation and Dr. David Robson
dated June 29, 2000
X 10(23) Tenancy Agreement between CanArgo Energy Corporation and Grosvenor West End
Properties dated September 8, 2000.
21 List of Subsidiaries (Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
X 27 Financial Data Schedule.
</TABLE>
