<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
_______________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996 Commission file number: 019020
OPTIMA PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
CANADA 98-0115468
(State of Incorporation) (I.R.S. Employee identification No.)
600- 595 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T5
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 684-6886
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
------ ------
Number of shares of Common Stock outstanding at August 13, 1996 11,082,742
1
<PAGE> 2
OPTIMA PETROLEUM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 11
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTIMA PETROLEUM CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
=========================================================================================================
June 30 December 31
1996 1995
- ---------------------------------------------------------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 1,339,116 $ 1,022,925
Accounts receivable 5,114,986 2,472,383
Note receivable 495,187 --
Debenture receivable -- 493,874
- ---------------------------------------------------------------------------------------------------------
6,949,289 3,989,182
OTHER
Advances to operators 510,214 1,350,216
Petroleum and natural gas interests, full cost method (Note 2) 33,494,750 33,499,680
Deferred charges 307,381 338,998
- ---------------------------------------------------------------------------------------------------------
$ 41,261,634 $ 39,178,076
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 3,077,109 $ 3,242,322
Loans from shareholders -- --
- ---------------------------------------------------------------------------------------------------------
3,077,109 3,242,322
LONG-TERM DEBT 7,560,233 7,390,400
SITE RESTORATION AND ABANDONMENT 67,682 67,819
SHAREHOLDERS' EQUITY
Share capital (Note 3)
Authorized 100,000,000 common shares
Issued 10,977,512 (1995 - 10,559,442) common shares 30,508,112 29,024,375
Contributed surplus 608,222 608,222
Retained earnings (deficit) (559,724) (1,155,062)
- ---------------------------------------------------------------------------------------------------------
30,556,610 28,477,535
- ---------------------------------------------------------------------------------------------------------
$ 41,261,634 $ 39,178,076
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
ON BEHALF OF THE BOARD
/s/ R.P. Bourgeois, Director /s/ R.L. Hodgkinson, Director
3
<PAGE> 4
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Operations and Deficit
(unaudited)
<TABLE>
<CAPTION>
================================================================================================================
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING INCOME
Petroleum and natural gas sales,
net of royalties and production taxes $ 2,082,521 $ 1,077,148 $ 4,599,740 $ 2,014,495
Operating costs 328,480 224,172 663,594 385,879
- ----------------------------------------------------------------------------------------------------------------
1,754,041 852,976 3,936,146 1,628,616
EXPENSES
General and administrative (Schedule) 446,056 400,470 836,657 776,980
- ----------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE
INTEREST, TAXES, DEPLETION,
DEPRECIATION AND AMORTIZATION 1,307,985 452,506 3,099,489 851,636
Depletion and depreciation 846,241 449,396 2,145,481 910,616
Interest and bank charges 182,217 111,215 310,975 156,206
Amortization of deferred financing costs 17,079 -- 34,153 --
Foreign exchange loss (gain) 1,127 (18,370) 3,593 (15,204)
Interest revenue (6,385) (50,736) (10,155) (52,972)
- ----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)
BEFORE INCOME TAXES 267,706 (38,999) 615,442 (147,010)
Income taxes 20,104 25,740 20,104 25,740
- ----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD 247,602 (64,739) 595,338 (172,750)
DEFICIT, beginning of period (807,326) (10,710,537) (1,155,062) (10,602,526)
Reduction of common share stated capital -- 10,602,526 -- 10,602,526
- ----------------------------------------------------------------------------------------------------------------
DEFICIT, end of period $ (559,724) $ (172,750) $ (559,724) $ (172,750)
================================================================================================================
INCOME (LOSS) PER SHARE $ 0.02 $ (0.01) $ 0.06 $ (0.02)
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Changes In Financial Position
(unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) for the period $ 247,602 $ (64,739) $ 595,338 $ (172,750)
Items not involving cash
Depletion, depreciation and amortization 863,320 449,396 2,179,634 910,616
- -----------------------------------------------------------------------------------------------------------------
1,110,922 384,657 2,774,972 737,866
Changes in non-cash working capital:
Accounts receivable (435,326) 121,084 (2,642,603 360,258
Accounts payable and accrued liabilities (954,012) 321,640 (165,213) (132,971)
Debenture receivable -- (497,414) 493,874 (497,414)
Loans from shareholders -- 349,500 -- 349,500
- -----------------------------------------------------------------------------------------------------------------
(278,416) 679,467 461,030 817,239
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of common shares
(net of issue expenses) 1,297,155 109,325 1,483,737 151,222
Increase in bank debt 10,235 2,247,000 169,833 3,147,000
Note receivable (495,187) -- (495,187) --
Conversion of convertible debentures -- -- -- (20,000)
Deferred financing charges -- (29,122) -- (29,122)
- -----------------------------------------------------------------------------------------------------------------
812,203 2,327,203 1,158,383 3,249,100
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of
petroleum and natural gas interests 1,179,625 544,040 1,179,625 925,863
Petroleum and natural gas interests (1,646,535) (3,662,101) (3,248,832) (4,861,290)
Advances to operators 842,244 196,484 768,521 57,715
Deferred charges (53) -- (2,536) --
- -----------------------------------------------------------------------------------------------------------------
375,281 (2,921,577) (1,303,222) (3,877,712)
- -----------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 909,068 85,093 316,191 188,627
CASH AND CASH EQUIVALENTS, beginning of period 430,048 418,825 1,022,925 315,291
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,339,116 $ 503,918 $ 1,339,116 $ 503,918
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
OPTIMA PETROLEUM CORPORATION
Schedules of Consolidated General and Administrative Expense
(unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consultants $ 166,181 $ 168,626 $ 318,213 $ 335,792
Investor communication 116,175 46,810 149,229 52,055
Legal, audit and tax 64,448 77,882 120,614 157,465
Office expense 32,931 51,405 112,342 116,147
Travel 33,329 38,114 65,251 71,045
Office rent 27,641 4,725 41,660 9,450
Public listing 5,351 12,908 29,348 35,026
- -----------------------------------------------------------------------------------------------------------------
$ 446,056 $ 400,470 $ 836,657 $ 776,980
=================================================================================================================
</TABLE>
6
<PAGE> 7
OPTIMA PETROLEUM CORPORATION
Notes to the Consolidated Financial Statements
June 30, 1996
(unaudited) Page 1
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995,
as filed with the Securities and Exchange Commission.
The consolidated financial statements included herein as of June 30, 1996,
and for the three and six month periods ended June 30, 1996 and 1995 are
unaudited. Management has reflected all adjustments, consisting of normal
and recurring adjustments, which it believes are necessary to present
fairly the financial position as at June 30, 1996 and the results of
operations and cash flows for the three and six month periods ended June
30, 1996 and 1995.
The consolidated financial statements are presented in accordance with
generally accepted accounting principles applicable in Canada and expressed
in Canadian dollars. Except as disclosed in Note 5, these financial
statements conform, in all material respects, with generally accepted
accounting principles in the United States.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Optima Energy (U.S.) Corporation.
(c) Cash and cash equivalents
Cash and cash equivalents include short-term investments with a maturity of
ninety days or less at the time of issue.
(d) Petroleum and natural gas interests
The Company follows the full cost method of accounting for petroleum and
natural gas interests whereby all costs of exploring and developing
petroleum and natural gas reserves, net of government grants, are
capitalized by individual country cost centre. Such costs include land
acquisition costs, geological and geophysical expenses, costs of drilling
both productive and non-productive wells and overhead charges directly
related to acquisition, exploration and development activities.
The total carrying value of the Company's petroleum and natural gas
interests, less accumulated depletion, is limited to the estimated future
net revenue from production of proved reserves, based on unescalated prices
and costs plus the lower of cost and net realizable value of unproved
properties, less estimated future development costs, general and
administrative expenses, financing costs and income taxes. The carrying
value of unproved properties is reviewed periodically to ascertain whether
impairment has occurred. Where impairment has occurred, the costs have
been written down to their net realizable value.
For each cost centre, the costs associated with proved reserves are
depleted on the unit-of-production method based on an independent
engineering estimate of proved reserves, after royalties, with natural
gas converted to its energy equivalent at a ratio of six thousand cubic
feet of natural gas to one barrel of oil.
7
<PAGE> 8
OPTIMA PETROLEUM CORPORATION
Notes to the Consolidated Financial Statements
June 30, 1996
(unaudited) Page 2
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Petroleum and natural gas interests (continued)
Site restoration and abandonment costs, net of expected recoveries for
production equipment and facilities, at the end of their useful life, are
provided for on a unit-of-production basis. Amounts accrued for site
restoration and abandonment costs are included in accounts payable and
accrued liabilities.
The resource expenditure deductions for income tax purposes related to
exploration and development activities funded by flow-through share
arrangements are renounced to investors in accordance with income tax
legislation. Petroleum and natural gas interests are reduced by the
estimated renounced income tax benefits when the expenditures are incurred.
Equipment is depreciated on a straight-line basis over five years.
(e) Deferred charges
Debt financing costs are amortized on a straight line basis over the terms
of the related loans.
(f) Foreign currency translation
Transactions of the Company and its subsidiaries that are denominated in
foreign currencies are recorded in Canadian dollars at exchange rates in
effect at the related transaction dates. Monetary assets and liabilities
denominated in foreign currencies are adjusted to reflect exchange rates
at the balance sheet date. Exchange gains and losses arising on the
translation of monetary assets and liabilities, except as they relate to
long-term debt, are included in the determination of income for the year.
Unrealized foreign exchange gains and losses related to long-term debt are
deferred and amortized over the remaining term of the related debt.
(g) Measurement uncertainty
Estimation of reserves in the Company's petroleum and natural gas interests
is subject to inherent uncertainty. Since these reserve measures enter
into the computation of net recoverable amount and depreciation, depletion
and amortization, there is uncertainty of measurement in the Company's
petroleum and natural gas interests.
2. PETROLEUM AND NATURAL GAS INTERESTS
<TABLE>
<CAPTION>
===============================================================================
June 30 December 31
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Petroleum and natural gas interests $ 45,710,683 $ 43,453,987
Other equipment 170,415 143,562
- -------------------------------------------------------------------------------
45,881,098 43,597,549
Accumulated depreciation and depletion (12,386,348) (10,097,869)
- -------------------------------------------------------------------------------
$ 33,494,750 $ 33,499,680
===============================================================================
</TABLE>
8
<PAGE> 9
OPTIMA PETROLEUM CORPORATION
Notes to the Consolidated Financial Statements
June 30, 1996
(unaudited) Page 3
===============================================================================
3. SHARE CAPITAL
(a) Issued
==========================================================================
<TABLE>
<CAPTION>
Number of Capital
Shares Stock
--------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1995 10,559,442 $29,024,375
Issued for cash
Eercise of options 414,500 1,475,250
In lieu of consulting fees 3,570 12,560
Common share issue expenses (4,073)
--------------------------------------------------------------------------
Balance at June 30, 1996 10,977,512 $30,508,112
==========================================================================
Subsequent to June 30,1996, 105,230 common shares were issued for cash
proceeds of $370,034; 100,000 shares were issued for $350,000 upon exercise
of options, 3,000 shares for $10,890 in lieu of consulting fees, 714 shares
for $3,641 upon exercise of warrants and 1,516 shares for $5,503 as
directors' fees.
(b) Reserved in respect of options and warrants:
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Exercise Exercisable
Holder Number Price On or Before
--------------------------------------------------------------------------
<S> <C> <C> <C>
Options
Company directors and employees 293,000 $3.50 April 3, 1998
50,000 $3.55 April 3, 1998
540,000 $4.15 June 12, 1999
110,000 $4.05 July 25, 1998
Non-related persons 170,000 $3.50 April 3, 1998
100,000 $4.15 June 12, 1999
--------------------------------------------------------------------------
1,263,000
--------------------------------------------------------------------------
Warrants
Issued on purchase of subsidiary 1,374,727 $5.10 February 28, 1997
Non-related persons 13,000 $9.10 August 25, 1996
--------------------------------------------------------------------------
1,387,727
--------------------------------------------------------------------------
2,650,727
==========================================================================
</TABLE>
9
<PAGE> 10
OPTIMA PETROLEUM CORPORATION
Notes to the Consolidated Financial Statements
June 30, 1996
(unaudited) Page 4
================================================================================
4. RELATED PARTY TRANSACTIONS
In the six months ended June 30, 1996, the Company was charged consulting
expenses of $183,565 (1995 - $220,282) by companies related by virtue of
common directors. Accounts receivable at June 30, 1996 includes $8,225
relating to office services receivable from a related company and at June
30, 1995 includes $554,824 relating to joint interest billings receivable
from a related company. Office expense includes $nil (1995 - $55,600) paid
to a related company. The Company recovered $10,551 in consulting and rent
expenses from a company with a common director in the six months ended
June 30, 1996.
5. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES
Under United States accounting principles, the following items are not
considered to be cash items and would not appear in the consolidated
statements of changes in financial position:
(i) the conversion of debentures
(ii) the acquisition of a subsidiary in exchange for the issuance of
shares; and
(iii) the issuance of shares on settlement of consulting fees payable.
As a result, cash flows from operating, financing and investing activities
would be presented as follows under United States accounting principles:
<TABLE>
<CAPTION>
=============================================================================================================
Six months ended June 30, Six months ended June 30,
1996 1995 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from:
Operating activities $(76,601) $ 788,792 $ 473,590 $ 948,461
Financing activities 810,388 2,217,878 1,145,823 3,117,878
Investing activities 375,281 (2,921,577) (1,303,222) (3,877,712)
-------------------------------------------------------------------------------------------------------------
Increase in cash $909,068 $ 85,093 $ 316,191 $ 188,627
=============================================================================================================
</TABLE>
Under United States accounting principles, the following supplementary cash
flow information would be disclosed:
<TABLE>
<CAPTION>
=============================================================================================================
Six months ended June 30, Six months ended June 30,
1996 1995 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest paid $182,217 $111,215 $310,975 $156,206
=============================================================================================================
Income taxes paid $ 20,104 $ 25,740 $ 20,104 $ 25,740
=============================================================================================================
</TABLE>
10
<PAGE> 11
PART I - FINANCIAL INFORMATION CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's financial statements are stated in Canadian Dollars (CDN$) and are
prepared in accordance with Canadian Generally Accepted Accounting Principles.
The value of the U.S. Dollar in relation to the Canadian Dollar was U.S. $1.3712
as at August 12, 1996.
The following is a discussion of the Company's financial operations for the
three and six month periods ended June 30, 1996 and 1995. The notes to the
Company's consolidated financial statements included in this report, as well as
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
(and the notes attached thereto), should be read in conjunction with this
discussion.
<TABLE>
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Working Interest Quarter Ended 1996 1996
June 30
- -----------------------------------------------------------------------
CDN$ 1996 1995 Increase Percentage
(Decrease) Increase
(Decrease)
- -----------------------------------------------------------------------
Volume
Natural Gas (mcf) 747,386 530,335 217,051 41%
Oil (bbls) 32,641 13,418 19,223 143%
Average Price per Unit
CDN
Natural Gas (mcf) $1.19 $1.66 ($0.47) (28%)
Oil (bbls) $26.70 $25.01 $1.69 7%
USA
Natural Gas (mcf) $3.49 $2.38 $1.11 47%
Oil (bbls) $28.93 $25.89 $3.04 12%
Gross Revenue,
Natural Gas $1,689,176 $1,133,208 $555,968 49%
Oil $922,608 $344,547 $578,061 168%
- -----------------------------------------------------------------------
Total Revenue $2,611,784 $1,477,755
- -----------------------------------------------------------------------
</TABLE>
OVERVIEW
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, AS COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1995
The Company realized a significant increase in production and improved commodity
prices as compared to the second quarter of 1995 which contributed to the
increase in gross revenue and earnings before interest, taxes, depletion,
depreciation and amortization. Gross natural gas sales increased 41% from
530,335 mcf to 747,386 mcf whereas oil production increased from 13,418 barrels
to 32,841 barrels an improvement of 143%. Based on a barrel of oil equivalent
("boe") of 10 to 1 (1 barrel equals 10 mcf) which in our opinion reflects the
current, comparative financial value of oil and gas, daily production increased
from 730 boe in the second quarter of 1995 to 1,180 boe in the second quarter of
1996 an increase of 62%. Gross revenue increased by 77% from $1,477,755 in
second quarter of 1995 to $2,611,784 in the second quarter of 1996. This
improvement in revenue is due to a combination of higher U.S. oil and gas prices
and the increase in production.
11
<PAGE> 12
Earnings before interest, taxes, depletion, depreciation and amortization
("EBITDA") in 1996 increased to $1,307,985 from $452,506 in 1995 an improvement
of 188%. EBITDA on per share basis increased to $0.12 per share from $0.05 per
share in 1995. Income per share was $0.02 being $247,602 as compared to a
$0.01 loss per share in 1995 which was $64,739.
The weighted average number of shares issued in the calculation was 10,683,890
shares in 1996 as compared to 8,430,716 in 1995.
OPERATING REVENUES.
Petroleum and natural gas sales net of royalties and production taxes ("Net
Revenue") increased to $2,082,521 in the second quarter of 1996 as compared to
$1,077,148 in 1995, an increase of 93%. Canadian Net Revenue increased to
$613,084 from $328,340 a year earlier whereas Net Revenue from U.S. operations
increased from $748,807 to $1,469,437.
OPERATING EXPENSES.
Oil and natural gas operating expenses increased to $328,480 in 1996 from
$224,172 in the second quarter of 1995. On a boe basis, converting gas to its
equivalent barrels at a ratio of 10 mcf equals 1 barrel, operating expenses
fell to $3.05 per boe in 1996 from $3.37 per boe in 1995 an improvement of
$0.31 per boe.
INTEREST EXPENSE.
Interest expense and bank charges increased to $182,217 in the second quarter
of 1996 as compared to $111,215 in the same period of 1995 an increase of 64%.
This change is due to the higher level of bank debt which increased by 176% to
$7,550,233 as at June 30, 1996 from $4,976,000 as at June 30, 1995. Offsetting
this increase was a reduction in the effective bank interest rate particularly
in Canada which is now 7% versus 9.5% a year ago.
DEPLETION, DEPRECIATION AND AMORTIZATION.
Depletion and depreciation increased to $846,241 in the second quarter of 1996
from $449,396 in the second quarter of 1995 an increase of 88%. On a boe
basis, the 1996 expense was $5.38 per boe versus $4.41 per boe in 1995 (this
comparison is based on 6 mcf equal 1 barrel which is the energy equivalent).
The increase is due to increases in boe production of approximately 54% and the
increase in the carrying costs of petroleum and natural gas interests by over
$10 million from the previous year.
The amortization expense of $17,079, is derived from the costs of the plan of
arrangement with Roxbury Capital Corporation which occurred on September 8,
1995. Accordingly, there is no amortization for the second quarter ended June
30, 1995. These deferred charges are being amortized on a straight line over
60 months from the date of acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE.
General and administrative expenses of $446,056 reflect an increase of 11.4%
from $400,470 a year earlier, on a boe basis, converting gas to its equivalent
barrels at a ratio of 10 mcf equals 1 barrel, general and administrative
expenses fell to $4.16 per boe as compared to $6.02 per boe in 1995 an
improvement of 31%.
SIX MONTHS ENDED JUNE 30, 1996, AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1995
The Company enjoyed an increase in production and improved commodity prices as
compared to the first six months of 1995 which contributed to the increase in
gross revenue and earnings before interest, taxes, depletion, depreciation and
amortization. Gross natural gas sales increased 73% from 967,528 mcf to
1,670,844 mcf whereas oil production increased from 27,954 barrels to 62,506
barrels an improvement of 123%. Based on a barrel of oil equivalent ("boe") of
10 to 1 (1 barrel equals 10 mcf) which in our opinion reflects the current,
comparative financial value of oil and gas, daily production increased from 685
boe in the first six months of 1995 to 1,261 boe in the first six months of
1996 an increase of 84%. Gross revenue increased by 111% from $2,779,327 in
first six months of 1995 to $5,878,249 in the first six months of 1996. This
improvement in revenue is due to a combination of higher U.S. oil and gas
prices and the increase in production.
12
<PAGE> 13
Earnings before interest, taxes, depletion, depreciation and amortization
("EBITDA") in 1996 increased to $3,099,489 from $851,636 in 1995 an increase of
264%. EBITDA on per share basis increased to $0.29 per share from $0.10 per
share in 1995. Income per share was $0.06 being $595,338 as compared to a
$0.02 loss per share in 1995 which was $172,750.
The weighted average number of shares issued in the calculation was 10,683,890
shares in 1996 as compared to 8,430,716 in 1995.
OPERATING REVENUES.
Petroleum and natural gas sales net of royalties and production taxes ("Net
Revenue") increased to $4,599,740 in the first six months of 1996 as compared
to $2,014,495 in 1995, an increase of 128%. Canadian Net Revenue increased to
$1,360,157 from $551,565 a year earlier whereas Net Revenue from U.S.
operations increased from $1,462,929 to $3,239,583.
OPERATING EXPENSES.
Oil and natural gas operating expenses increased to $663,594 in 1996 from
$385,879 in the first six months of 1995. On a boe basis, converting gas to
its equivalent barrels at a ratio of 10 mcf equals 1 barrel, operating expenses
fell to $2.89 per boe in 1996 from $3.09 per boe in 1995 an improvement of
$0.20 per boe.
INTEREST EXPENSE.
Interest expense and bank charges increased by 99% from $156,206 in the first
six months of 1995 to $310,975 for the same period in 1996. This increase was
primarily the result of an increase in the bank credit facility with Comerica
Bank - Texas granted effective June 1, 1995 for $1.3 million. The effective
interest in the first six months of 1996 has benefited from a reduction in
Canadian bank rates which have fallen from 9.5% at June 30, 1995 to the current
rate of 7.00% on our Canadian facility with the Credit Lyonnais Canada.
DEPLETION, DEPRECIATION AND AMORTIZATION.
Depletion and depreciation increased to $2,145,481 in the first six months of
1996 from $910,616 in the same period of 1995 an increase of 136%. On a boe
basis, the 1996 expense was $6.29 per boe versus $4.81 per boe in 1995 (this
comparison is based on 6 mcf equal 1 barrel which is the energy equivalent).
The increase is due to increases in boe production of approximately 80% and the
increase in the carrying costs of petroleum and natural gas interests by over
$10 million from the previous year.
The amortization expense of $17,079, is derived from the costs of the plan of
arrangement with Roxbury Capital Corporation which occurred on September 8,
1995. Accordingly, there is no amortization for the six months ended June 30,
1995. These deferred charges are being amortized on a straight line over 60
months from the date of acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE.
General and administrative expenses of $836,657 reflect an increase of 7.7%
from $776,980 a year earlier, on a boe basis, converting gas to its equivalent
barrels at a ratio of 10 mcf equals 1 barrel, general and administrative
expenses fell to $3.64 per boe as compared to $6.23 per boe in 1995 an
improvement of 42%.
LIQUIDITY AND NATURAL RESOURCES
During the first six months of 1996, the Company's liquidity needs were met
from oil and natural gas production sales, cash reserves as well as proceeds
from the issuance of common shares in the amount of $1,483,737. An at June 30,
1996, the Company had a cash balance of $1.3 million and working capital of
$3,872,180.
Capital expenditures for the first six months of 1996 were $3,248,832 which was
partially offset by the sale of non-core assets at Elm Grove, Louisiana, in the
amount of $1,179,625. The composition of the capital expended includes lease
acquisition, geological and geophysical, drilling, completion and equipping
costs in respect of various prospects. The Company has budgeted between $2.0
and $3.0 in its capital program for the remainder of 1996.
13
<PAGE> 14
Cash requirements in the future will be funded from existing working capital,
cash flow from established properties, newly drilled wells developed on the
Company's exploration prospects and extension to the borrowing base with its
Canadian and U.S. bankers. In respect of 1997 onwards the Company's cash
requirements are dependent upon the results of its current drilling program as
well as any new prospects it may undertake.
In management's opinion, the Company has sufficient capital resources available
to it to fund its development and drilling commitments as well as other
obligations and liquidity.
It is the policy of the Company to retain its existing cash for reinvestment in
the business affairs of the Company and not to pay dividends with respect to
its common stock in the foreseeable future.
OTHER.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) and that involve risk and uncertainty. These
forward-looking statements may include, but are not limited to, exploration and
seismic acquisition plans, anticipated results from current and future
exploration prospects, the anticipated results from current and future
exploration prospects, the anticipated results of wells based on logging data
and production tests, future sales of production, earnings, margins, production
levels and costs, market trends in the oil and gas industry and the exploration
and development sector thereof, environmental and other expenditures and
various business trends. Forward-looking statements may be made by management
orally or in writing including, but not limited to, the Management's Discussion
and Analysis and Financial Condition Results of Operation section and other
sections of the Company's filings with the Securities and Exchange Commission
under the Securities Act of 1933 and the Securities Exchange Act of 1934.
Actual results and trends in the future may differ materially depending on a
variety of factors including, but not limited to, the success of the Company's
exploration and development program, changes in the price of oil and natural
gas, world-wide political stability and economic growth, the Company's
successful execution of internal exploration, development and operating plans,
environmental regulation and costs, regulatory uncertainties and legal
proceedings.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Shareholders of the Company held on May 24, 1996, the
Company's shareholders ratified the appointment of KPMG Peat Marwick Thorne as
the Company's independent auditors for 1996. The number of shares voted for
and withheld with respect to the election of the directors and the number of
shares voted for and against and the abstention for the ratification of the
appointment of the Company's auditors were as follows:
<TABLE>
<CAPTION>
Nominee For Withhold/Against Abstain
- ------- --- ---------------- -------
<S> <C> <C> <C>
Robert L. Hodgkinson 5,861,311 5,155 66,858
William C. Leuschner 5,861,311 5,155 66,858
Ronald P. Bourgeois 5,858,808 7,658 66,858
Emile D. Stehelin 5,854,633 11,833 66,858
Martin G. Abbott 5,859,094 7,372 66,858
Appointment of Auditors 5,847,999 72,813 12,512
</TABLE>
14
<PAGE> 15
Additionally the following proposals were approved at the Company's annual
meeting:
<TABLE>
<CAPTION>
Affirmative Votes Withhold/Against Abstain
----------------- ---------------- -------
<S> <C> <C> <C> <C>
1. Approval of a new Stock
Option Plan, allocating and
reserving 750,000 shares for
future issuance. 2,301,067 1,248,258 58,718
2. Approval of a share compen-
sation arrangement, allocating
and reserving 3,740 shares for
issuance to outside Directors. 5,186,735 693,037 53,552
3. Approval of a share compen-
sation arrangement, allocating
and reserving 12,000 shares
for issuance to the Chief
Financial Officer. 4,787,100 423,815 722,409
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
There were no transactions during the quarter ended June 30, 1996 which could
require the filing of a Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
OPTIMA PETROLEUM CORPORATION AND SUBSIDIARIES
(Registrant)
<S> <C>
Date: August 13, 1996 By: /s/ Robert L. Hodgkinson
-----------------------------------
Robert L. Hodgkinson
President - CEO
By: /s/ Ronald P. Bourgeois
-----------------------------------
Ronald P. Bourgeois
Chief Financial Officer - Secretary
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> .7316
<CASH> 1,339,116
<SECURITIES> 0
<RECEIVABLES> 5,610,173
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,949,289
<PP&E> 45,881,098
<DEPRECIATION> 12,386,348
<TOTAL-ASSETS> 41,261,634
<CURRENT-LIABILITIES> 3,077,109
<BONDS> 7,560,233
0
0
<COMMON> 30,508,112
<OTHER-SE> 48,498
<TOTAL-LIABILITY-AND-EQUITY> 41,261,634
<SALES> 4,599,760
<TOTAL-REVENUES> 4,609,895
<CGS> 663,594
<TOTAL-COSTS> 3,645,732
<OTHER-EXPENSES> 368,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310,975
<INCOME-PRETAX> 615,442
<INCOME-TAX> 20,104
<INCOME-CONTINUING> 595,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595,338
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
