<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, 1997
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 6, 1997 11,000,822
-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 CONDITION
AND RESULTS OF OPERATIONS...........................................13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................16
SIGNATURES
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTIMA PETROLEUM CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
===============================================================================================
June 30 December 31
1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (unaudited) (audited)
CURRENT
Cash and cash equivalents $ 8,720,838 $ 2,055,062
Accounts receivable 2,896,056 2,516,578
Note receivable - current portion 125,322 124,423
- - -----------------------------------------------------------------------------------------------
11,742,216 4,696,063
OTHER
Cash held in trust 690,980 638,142
Advances to operators 282,333 468,864
Note receivable - long term portion 250,643 373,269
Petroleum and natural gas interests, full cost
method (Note 3) 20,215,264 34,764,350
Deferred charges 239,815 273,980
- - -----------------------------------------------------------------------------------------------
$ 33,421,251 $ 41,214,668
===============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 1,564,127 $ 2,676,605
Current portion of long-term debt -- 730,947
- - -----------------------------------------------------------------------------------------------
1,564,127 3,407,552
LONG-TERM DEBT 138,050 6,119,670
SITE RESTORATION AND ABANDONMENT 200,505 215,018
SHAREHOLDERS' EQUITY
Share capital (Note 4)
Authorized 100,000,000 common shares
Issued 11,203,346 (1996 - 11,318,894) common shares 31,431,124 31,790,695
Contributed surplus 608,222 608,222
Deficit (520,777) (926,489)
- - -----------------------------------------------------------------------------------------------
31,518,569 31,472,428
- - -----------------------------------------------------------------------------------------------
$ 33,421,251 $ 41,214,668
===============================================================================================
</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,
1997 1996 1997 1996
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING INCOME
Petroleum and natural gas sales $ 2,109,034 $ 2,611,784 $ 4,575,682 $ 5,878,249
Royalties and production taxes 680,870 529,263 1,411,155 1,278,509
Operating costs 253,741 328,480 439,240 663,594
- - -------------------------------------------------------------------------------------------------------------
1,174,423 1,754,041 2,725,287 3,936,146
EXPENSES
General and administrative (Schedule) 517,014 446,056 912,004 836,657
- - -------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST,
DEPLETION, DEPRECIATION,
AMORTIZATION AND INCOME TAXES 657,409 1,307,985 1,813,283 3,099,489
Gain on sale of Canadian petroleum
and natural gas interests (Note 2) (701,351) -- (701,351) --
Interest revenue (47,927) (6,385) (61,271) (10,155)
Depletion and depreciation 828,795 846,241 1,694,795 2,145,481
Interest and bank charges 58,836 182,217 143,244 310,975
Amortization of deferred financing costs 17,083 17,079 34,165 34,153
Foreign exchange loss 30,738 1,127 37,989 3,593
- - -------------------------------------------------------------------------------------------------------------
NET INCOME
BEFORE INCOME TAXES 471,235 267,706 665,712 615,442
INCOME TAXES 260,000 20,104 260,000 20,104
- - -------------------------------------------------------------------------------------------------------------
NET INCOME FOR THE PERIOD 211,235 247,602 405,712 595,338
DEFICIT, beginning of period (732,012) (807,326) (926,489) (1,155,062)
- - -------------------------------------------------------------------------------------------------------------
DEFICIT, end of period $ (520,777) $ (559,724) $ (520,777) $ (559,724)
=============================================================================================================
INCOME PER SHARE $ 0.02 $ 0.03 $ 0.04 $ 0.06
=============================================================================================================
</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,
1997 1996 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income for the period $ 211,235 $ 247,602 $ 405,712 $ 595,338
Items not involving cash
Gain on sale of Canadian petroleum
and natural gas interests (net of tax) (441,351) -- (441,351) --
Depletion, depreciation and amortization 845,878 863,320 1,728,960 2,179,634
- - -------------------------------------------------------------------------------------------------------------------------------
615,762 1,110,922 1,693,321 2,774,972
Changes in non-cash working capital:
Accounts receivable (337,820) (435,326) (379,478) (2,642,603)
Accounts payable and accrued liabilities (1,414,644) (954,012) (1,112,478) (165,213)
Net working capital
adjustments on sale of Canadian
petroleum and natural gas interest 264,690 -- (517,260) --
Debenture receivable -- -- -- 493,874
- - -------------------------------------------------------------------------------------------------------------------------------
(872,012) (278,416) (315,895) 461,030
- - -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue (repurchase) of
common shares (net of issue expenses) (278,391) 1,297,155 (359,571) 1,483,737
Repayment of bank debt (6,746,837) 10,235 (6,712,567) 169,833
Collection of note receivable 126,738 (495,187) 121,727 (495,187)
- - -------------------------------------------------------------------------------------------------------------------------------
(6,898,490) 812,203 (6,950,411) 1,158,383
- - -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from the sale of
petroleum and natural gas interests 16,750,000 1,179,625 16,750,000 1,179,625
Petroleum and natural gas interests (1,847,812) (1,646,535) (2,951,611) (3,248,832)
Advances to operators 434,356 842,244 186,531 768,521
Cash held in trust (35,728) -- (52,838) --
Deferred charges 159 (53) -- (2,536)
- - -------------------------------------------------------------------------------------------------------------------------------
15,300,975 375,281 13,932,082 (1,303,222)
- - -------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 7,530,473 909,068 6,665,776 316,191
CASH AND CASH
EQUIVALENTS, beginning of period 1,190,365 430,048 2,055,062 1,022,925
- - -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS, end of period $ 8,720,838 $ 1,339,116 $ 8,720,838 $ 1,339,116
===============================================================================================================================
</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,
1997 1996 1997 1996
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consultants $207,170 $166,181 $384,227 $318,213
Office expense 96,703 32,931 202,404 112,342
Legal, audit and tax 96,387 64,448 112,149 120,614
Investor communication 59,318 116,175 90,866 149,229
Public listing 5,662 5,351 30,887 29,348
Office rent 28,358 27,641 49,457 41,660
Travel 21,937 33,329 39,313 65,251
Directors 1,479 -- 2,701 --
- - -----------------------------------------------------------------------------------
$517,014 $446,056 $912,004 $836,657
===================================================================================
</TABLE>
================================================================================
-6-
<PAGE> 7
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
- - --------------------------------------------------------------------------------
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,
1996, as filed with the Securities and Exchange Commission.
The consolidated financial statements included herein as of June 30,
1997, and for the three and six month periods ended June 30, 1997 and
1996 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, 1997 and the
results of operations and cash flows for the three and six month periods
ended June 30, 1997 and 1996.
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 6, 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. All intercompany transactions and balances have been
eliminated.
(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 Consolidated Financial Statements
June 30, 1997
(unaudited)
- - --------------------------------------------------------------------------------
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.
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) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant areas requiring the use of
management estimates relate to the determination of rates for
depreciation, depletion and amortization and the impairment of petroleum
and natural gas interests. Actual results could differ from these
estimates.
(h) Fair value of financial instruments
Financial instruments include cash and cash equivalents, accounts
receivable, note receivable, accounts payable and accrued liabilities
and the current and long term portions of long term debt. Fair values
approximate carrying values for these financial instruments since they
are short term in nature, receivable or payable on demand, or bear
interest at floating rates.
-8-
<PAGE> 9
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
- - --------------------------------------------------------------------------------
2. SALE OF CANADIAN PETROLEUM AND NATURAL GAS INTERESTS
On May 30, 1997 the Company closed the sale of a substantial portion of
its Canadian petroleum and natural gas interests for cash proceeds of
$16,750,000. Previously reported interim results for March 31, 1997 have
been restated to exclude the operating results of the Canadian petroleum
and natural gas interests from January 1, 1997, the effective date of
the disposition.
The following pro-forma summary presents comparative consolidated
results of operations as if the disposition had occurred at the
beginning of 1996:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Petroleum and natural gas sales $2,109,034 $1,878,431 $4,575,682 $4,284,345
Net income (loss) for the period 211,235 324,822 405,712 566,070
Income per share 0.02 0.03 0.04 0.05
------------------------------------------------------------------------------------------------
</TABLE>
These pro-forma results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
disposition been made as of these dates or of results which may occur in
the future.
3. PETROLEUM AND NATURAL GAS INTERESTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
June 30, December 31,
1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Petroleum and natural gas interests $ 34,618,222 $ 50,200,530
Other equipment 186,213 176,271
-------------------------------------------------------------------------------------
34,804,435 50,376,801
Accumulated depreciation, depletion and write-offs (14,589,171) (15,612,451)
-------------------------------------------------------------------------------------
$ 20,215,264 $ 34,764,350
-------------------------------------------------------------------------------------
</TABLE>
As at June 30, 1997, unproved properties with capitalized costs of
$2,439,873 (December 31 - $4,441,055) were not subject to depletion. It
is expected that these properties will be evaluated over the next one to
three years.
-9-
<PAGE> 10
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
- - --------------------------------------------------------------------------------
4. SHARE CAPITAL
(a) Issued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Number of Capital
Shares Stock
--------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 11,318,894 $ 31,790,695
In lieu of consulting fees 3,552 12,894
Shares repurchased and canceled under Normal Course
Issuer Bid (119,100) (372,465)
--------------------------------------------------------------------------------------
Balance at June 30, 1997 11,203,346 $ 31,431,124
--------------------------------------------------------------------------------------
</TABLE>
Subsequent to June 30, 1997, 776 common shares were issued for cash
proceeds of $1,815 in lieu of consulting fees and 203,300 shares were
purchased for $548,278 under the Company's Normal Course Issuer Bid. As
of August 6, 1997, shares outstanding were 11,000,822.
(b) Reserved in respect of options
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Exercise Exercisable
Holder Number Price On or Before
----------------------------------------------------------------------------
<S> <C> <C> <C>
Company directors and employees 193,000 $3.50 April 3, 1998
50,000 $3.55 April 3, 1998
105,000 $4.05 July 25, 1999
525,000 $4.15 June 12, 1999
50,000 $3.50 June 2, 1999
Non-related persons 120,000 $3.50 April 3, 1998
125,000 $3.50 June 2, 1999
----------------------------------------------------------------------------
1,168,000
----------------------------------------------------------------------------
</TABLE>
(c) Net income (loss) per share
Net income (loss) per share has been calculated based on the following
weighted average numbers of shares outstanding:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
June 30, 1997 June 30, 1996
------------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of shares 11,299,685 10,683,890
------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 11
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
- - --------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
In the six months ended June 30, 1997, the Company was charged consulting
expenses of $267,690 (1996 - $183,565) by companies related by virtue of
common directors. Office expense includes $58,800 paid to a related company.
6. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES
(a) Accounting for income taxes
Under the asset and liability method of Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), deferred income tax assets
and liabilities, reduced by a valuation allowance to an amount more
likely than not to be recovered, are measured using enacted tax rates
for the future income tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax bases. The approximate effect of
each component of deferred income tax assets and liabilities at December
31, 1996 is as follows:
<TABLE>
<S> <C>
Net operating losses $ 8,911,000
Petroleum and natural gas interests (4,977,000)
---------------------------------------------------------------
Net deferred tax assets 3,934,000
Less valuation allowance (3,934,000)
---------------------------------------------------------------
Deferred tax assets, net of valuation allowance $ --
---------------------------------------------------------------
</TABLE>
The valuation allowance equals the entire amount of the net deferred tax
assets as the recognition criteria for deferred tax assets has not been
met. Therefore, there is no effect of applying the provisions of SFAS
109 on the Company's financial statements.
(b) Consolidated statements of changes in financial position
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; and
(ii) the issuance of shares on settlement of consulting fees and
directors fees payable.
-11-
<PAGE> 12
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
June 30, 1997
(unaudited)
- - --------------------------------------------------------------------------------
As a result, cash flows from operating, financing and investing
activities would be presented as follows under United States accounting
principles:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from:
Operating activities $ (864,072) $(276,601) $ (303,001) $ 473,590
Financing activities (6,906,430) 810,388 (6,963,305) 1,145,823
Investing activities 15,300,995 375,281 13,932,082 (1,303,222)
---------------------------------------------------------------------------------------
Increase in cash $ 7,530,473 $ 909,068 $ 6,665,776 $ 316,191
---------------------------------------------------------------------------------------
</TABLE>
Under United States accounting principals the following supplementary
cash flow information would be disclosed:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Paid $ 58,836 $182,217 $143,244 $310,975
Income Taxes Paid -- -- -- --
-----------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 13
PART I - FINANCIAL INFORMATION CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's financial statements are stated in Canadian Dollars (CDN$) 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.
$1.38669 as at August 6, 1997.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Working Interest Quarter Ended June 30 1997 1997
- - ----------------------------------------------------------------------------------------------------
1996 1996 Increase Percentage
USA Canadian (Decrease) in Increase
CDN$ 1997 Operations Operations USA Operations (Decrease)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Volume
Natural Gas (mcf) 327,900 347,725 399,660 (19,825) (6%)
Oil (bbls) 40,412 22,959 9,682 17,483 76%
Average Price per Unit
CDN
Natural Gas (mcf) $ - $ - $1.19 N/A N/A
Oil (bbls) $ - $ - $26.70 N/A N/A
USA
Natural Gas (mcf) $3.10 $3.49 $ - $(0.39) (11%)
Oil (bbls) $27.01 $28.93 $ - $(1.92) (7%)
Gross Revenue,
Natural Gas $1,017,642 $1,214,299 $474,877 $(196,657) (16%)
Oil $1,091,392 $664,132 $258,476 $427,260 64%
- - ----------------------------------------------------------------------------------------------------
Total Revenue $2,109,034 $1,878,431 $733,353 $230,603
- - ----------------------------------------------------------------------------------------------------
Earnings, before Interest,
depletion, amortization
and taxes ("EBITDA")
per Share $0.06 $0.08 $0.04 $(0.02) (25%)
- - ----------------------------------------------------------------------------------------------------
Income per Share $0.02 $0.03 $ - $(0.01) (33%)
- - ----------------------------------------------------------------------------------------------------
</TABLE>
OVERVIEW
GENERAL - SALE OF CANADIAN ASSETS
On May 30, 1997, the Company closed the sale of a substantial portion of its
Canadian petroleum and natural gas interests for cash proceeds of $16,750,000.
The sale was effective retroactively to January 1, 1997. The Company used the
proceeds in the quarter to repay $6.7 million in bank debt, expend $1.8 million
in its United States capital program and increase its working capital by $8.3
million.
Reference should be made to Note 2 of the Notes to the Consolidated Financial
Statements as provided in Part I of this report.
Previously reported interim results for March 31, 1997 have been restated to
exclude the operating results of the Canadian petroleum and natural gas
interests from January 1, 1997, the effective date of the disposition.
-13
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997, AS COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996
The results for the second quarter of 1997 reflect disposition of the Canadian
operations. Previously reported interim results for March 31, 1997 have been
restated to exclude the operating results of the Canadian petroleum and natural
gas interests from January 1, 1997, the effective date of the disposition.
Reference should be made to Note 2 of the Consolidated Financial Statements as
provided in Part I, Item 1 of this report.
After accounting for the effect of the restating first quarter 1997 operating
results, gross revenue declined by $357,614 due to lower commodity prices. The
average wellhead price fell for the U.S. operations from $3.49 per mcf to $3.10
per mcf for natural gas and from $28.93 per barrel to $27.01 per barrel for oil
between the first quarter and second quarter of 1997. Average daily U.S.
production increased moderately to 804 BOE per day in the second quarter 1997
from 758 BOE per day in the first quarter of 1997. Oil production accounts for
55% of the Company's output in 1997.
Earnings before interest, depletion, depreciation and taxes ("EBITDA") showed a
decline of 50% to $657,409 from $1,307,985 in 1996. EBITDA on a per share basis
was $0.06 per share down from $0.12 per share in 1996. Canadian operations, now
sold, had contributed $0.04 per share to EBITDA in the second quarter of 1996.
The Company posted net income of $211,235 or $0.02 per share for the second
quarter of 1997 as compared to $247,602 or $0.03 per share in the same period of
1996. The gain on the sale of Canadian petroleum and natural gas interests of
$701,351 is included in net income, and is offset by estimated taxes related to
the transaction of $260,000.
The weighted average number of shares was 11,299,685 shares as at June 30, 1997
as compared to 10,683,890 as at June 30, 1996. At August 6, 1997 11,000,822
shares were issued and outstanding.
OPERATING REVENUES.
Gross revenue from U.S. operations increased $230,603 or 11% to $2,109,034 in
the second quarter of 1997 from $1,878,431 in 1996. Canadian operations, now
sold, had contributed $733,353 in revenue to the second quarter of 1996.
Operating income declined from $1,754,041 in 1996 to $1,174,423 in 1997. The
elimination of Canadian operations account for $403,370 of the total decline of
$594,893. The remainder is due to higher U.S. operating expenses.
OPERATING EXPENSES.
Oil and natural gas operating expenses declined to $253,741 in 1997 from
$328,480 in the second quarter of 1996. On a BOE basis, converting gas to its
equivalent barrels at a ratio of 10 mcf equals 1 barrel, operating expenses
increased to $3.10 per BOE in 1997 from $2.89 per BOE in 1996, an increase of
$0.21 per BOE. This change represents a $196,488 increase ($1.22 per BOE) in
U.S. operating costs from the same period last year and reflects the September,
1996 acquisition of low productivity gas wells at Valentine which have a high
operating cost on a BOE basis. This increase was offset by the elimination of
high cost Canadian operations which operated at $4.18 per BOE in 1996. The
Company also paid $56,904 in Louisiana franchise taxes in the quarter which were
booked to operating expenses.
INTEREST AND OTHER INCOME.
Interest expense and bank charges decreased to $58,836 in the first quarter of
1997 as compared to $182,217 in the same period of 1996, a decrease of 68%. This
change is due to a payout of the bank loans at the end of May, 1997.
DEPLETION, DEPRECIATION AND AMORTIZATION.
Depletion and depreciation was $828,795 in the second quarter of 1997 as
compared to $846,241 a year earlier, representing a decrease of $20,446. On a
BOE basis the 1997 expenses were $9.28 per BOE as compared to $9.69 per BOE for
the U.S. operations in the first quarter of 1997 and $6.08 per BOE in the second
quarter of 1996 (this calculation is based on 6 mcf equals 1 barrel which is the
1996 full fiscal year depletion and depreciation rate of the energy equivalent).
-14
<PAGE> 15
The amortization expense of $17,083 is identical to a year earlier as it
reflects the amortization of costs on a straight line basis.
GENERAL AND ADMINISTRATIVE EXPENSE.
General and administrative expenses of $517,083 reflect an increase of 16% from
$446,056 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 increased to $7.06 per BOE as compared to $4.15 per BOE in 1996 an
increase of 70%. This increase is due to the disposition of the Canadian
operations which represented 46% of the production base in the second quarter of
1996.
BALANCE SHEET
The sale of the Canadian operations have made a significant impact on the
balance sheet. Total assets as at June 30, 1997 were $33,421,251 as compared to
$41,261,634 a year earlier and $41,383,801 as at March 31, 1997. Working capital
was $10,178,089 as compared to $1,825,602 as at March 31, 1997. Additionally,
bank debt has been reduced from $6,884,887 to $138,050 ($100,000 U.S.).
Shareholders equity fell to $31,518,569 from $31,598,996 at the end of the first
quarter 1997. This reduction is a result of the share buyback program wherein
the Company purchased 193,000 shares for consideration of $372,465 to June 30,
1997 and as of the date of this report an additional 203,300 shares have been
purchased for $548,278 representing $2.70 per share.
CERTAIN OF THE FOREGOING STATEMENTS MAY BE DEEMED "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, THERE CAN BE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. CERTAIN RISKS AND UNCERTAINTIES INHERENT IN THE COMPANY'S BUSINESS
ARE SET FORTH IN THE FILINGS OF THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE RISKS INCLUDE PRICE CHANGES FOR OIL AND GAS, RISKS REGARDING
ESTIMATES OF RESERVES, PRODUCTION RISKS, GOVERNMENTAL REGULATIONS AND GENERAL
RISKS REGARDING THE EXPLORATION FOR, AND THE PRODUCTION OF, OIL AND GAS
RESERVES.
-15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
All resolutions presented at the Annual General Meeting of shareholders held on
May 29, 1997 were adopted. The Proxy Statement, Notice of Annual General
Meeting, and Information Circular were attached as exhibits to from 10Q filed on
May 14, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The Company reported in a press release dated May 30, 1997 that it had closed
the sale of a substantial portion of its Canadian petroleum assets for $16.8
million. The effective date for accounting purposes is January 1, 1997. As a
result, the Company no longer has any oil and gas exploitation, exploration or
development activity in Canada.
Attached is the Form 8-K filed May 30, 1997 with the Securities and Exchange
Commission.
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.
OPTIMA PETROLEUM CORPORATION AND SUBSIDIARIES
(Registrant)
Date: August 13, 1997 By: /s/ R.L. Hodgkinson
Robert L. Hodgkinson
President - CEO
By: /s/ R.P. Bourgeois
Ronald P. Bourgeois
Chief Financial Officer - Secretary
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 0.7287
<CASH> 8,720,838
<SECURITIES> 0
<RECEIVABLES> 2,896,056
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,742,216
<PP&E> 34,804,435
<DEPRECIATION> 14,589,171
<TOTAL-ASSETS> 33,421,251
<CURRENT-LIABILITIES> 1,564,127
<BONDS> 138,050
0
0
<COMMON> 31,431,124
<OTHER-SE> 87,445
<TOTAL-LIABILITY-AND-EQUITY> 33,421,251
<SALES> 4,525,682
<TOTAL-REVENUES> 5,338,304
<CGS> 1,850,395
<TOTAL-COSTS> 4,457,194
<OTHER-EXPENSES> 215,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,244
<INCOME-PRETAX> 665,712
<INCOME-TAX> 260,000
<INCOME-CONTINUING> 405,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,712
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
