<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: Commission file number:
March 31, 1998 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 May 1, 1998 11,002,346
<PAGE> 2
OPTIMA PETROLEUM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS .............................................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................... 14
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
OPTIMA PETROLEUM CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
------------ ------------
<S> <C> <C>
ASSETS (UNAUDITED) (AUDITED)
CURRENT
Cash and cash equivalents $ 5,033,461 $ 5,660,354
Accounts receivable (Note 12(b)) 1,942,974 2,220,151
Note receivable - current portion (Note 4) 128,599 129,861
Cash in trust -- 715,250
------------ ------------
7,105,034 8,725,616
OTHER
Cash held in trust (Note 5) 705,893 703,996
Advances to operators (Note 6) 473,886 547,200
Note receivable - long term portion (Note 4) 262,502 265,077
Loan receivable (Notes 2,13) 849,960 --
Petroleum and natural gas interests, full cost method (Note 7) 17,285,171 17,695,968
Deferred charges 276,308 205,486
------------ ------------
$ 26,958,754 $ 28,143,343
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 662,093 $ 868,796
------------ ------------
662,093 868,796
REVENUE IN DISPUTE (Note 12(a)) 1,047,664 1,023,998
LONG-TERM DEBT (Note 11) 141,660 143,050
SITE RESTORATION AND ABANDONMENT 369,297 369,297
SHAREHOLDERS' EQUITY
Share capital (Note 9)
Authorized 100,000,000 common shares
Issued 11,002,346 (1997 - 11,002,346) common shares 30,891,689 30,891,689
Contributed surplus 608,222 608,222
Deficit (6,761,870) (5,761,709)
------------ ------------
24,738,041 25,738,202
------------ ------------
$ 26,958,754 $ 28,143,343
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
ON BEHALF OF THE BOARD
/s/ Ronald P. Bourgeois, Director /s/ Robert L. Hodgkinson, Director
3
<PAGE> 4
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Operations and Deficit
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING INCOME
Petroleum and natural gas sales $ 1,119,473 $ 3,380,171
Royalties and production taxes 355,627 993,677
Operating costs 338,175 360,311
----------- -----------
425,671 2,026,183
EXPENSES
General and administrative (Schedule) 386,039 394,990
----------- -----------
EARNINGS BEFORE INTEREST,
DEPLETION, DEPRECIATION,
AMORTIZATION AND INCOME TAXES 39,632 1,631,193
Depletion and depreciation 872,714 1,278,000
Interest and other revenue (99,109) (13,344)
Foreign exchange loss 246,462 7,251
Interest and bank charges 2,644 134,456
Amortization of deferred financing costs 17,082 17,082
----------- -----------
NET INCOME (LOSS) (1,000,161) 207,748
DEFICIT, beginning of period (5,761,709) (926,489)
----------- -----------
DEFICIT, end of period $(6,761,870) $ (718,741)
=========== ===========
NET INCOME (LOSS) PER SHARE $ (0.09) $ 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 March 31,
1998 1997
----------- -----------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period $(1,000,161) $ 207,748
Items not involving cash
Depletion, depreciation and amortization 889,796 1,295,082
----------- -----------
(110,365) 1,502,830
Changes in non-cash working capital:
Accounts receivable 277,177 (677,884)
Accounts payable and accrued liabilities (206,703) 8,295
Cash in trust 713,353 --
----------- -----------
673,462 833,241
----------- -----------
FINANCING ACTIVITIES
Issue (repurchase) of
common shares (net of issue expenses) -- (81,180)
Increase in (repayment of) bank debt (1,390) 34,270
Note receivable 3,837 (5,011)
Deferred Charges (87,904) --
Revenue in dispute 23,666
Loan receivable (849,960) --
----------- -----------
(911,751) (51,921)
----------- -----------
INVESTING ACTIVITIES
Petroleum and natural gas interests (461,918) (1,409,464)
Advances to operators 73,314 (219,284)
Cash held in trust -- (17,110)
Deferred charges -- (159)
----------- -----------
(388,604) (1,646,017)
----------- -----------
INCREASE (DECREASE) IN CASH (626,893) (864,697)
CASH AND CASH EQUIVALENTS, beginning of period 5,660,354 2,055,062
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,033,461 $ 1,190,365
=========== ===========
</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 March 31,
1998 1997
-------- --------
<S> <C> <C>
Consultants $128,154 $177,057
Office expense 110,922 105,701
Legal, audit and tax 51,818 15,762
Public listing 32,471 25,225
Office rent 32,102 21,099
Travel 17,609 17,376
Investor communication 12,963 31,548
Directors' fees -- 1,222
-------- --------
$386,039 $394,990
</TABLE>
6
<PAGE> 7
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 7
- --------------------------------------------------------------------------------
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
31,1997, as filed with the Securities Exchange Commission.
The consolidated financial statements included herein as of March 31,
1998, and for the three month periods ended March 31, 1998 and March
31, 1997 are unaudited. Management has reflected all adjustments,
consisting of normal recurring adjustments, which it believes are
necessary to present fairly the financial position as at March 31, 1998
and the results of operations and cash flows for the three month
periods ended March 31, 1998 and March 31, 1997.
(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.
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.
- --------------------------------------------------------------------------------
<PAGE> 8
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 8
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
The operations of the Company's U.S. subsidiary are considered
integrated with the operations of the Company, and thus, are translated
under the temporal method. Under this method, 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, cash in trust,
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.
2. MERGER OF OPTIMA ENERGY (U.S.) COMPANY
On February 11, 1998, the Company entered into a Plan and Agreement of
Merger ("Agreement") whereby the Company's wholly owned U.S. subsidiary
Optima Energy (U.S.) Corporation would merge with American Explorer,
L.L.C., ("American") a Louisiana limited liability company, Goodson
Exploration Company ("Goodson"), a Louisiana corporation, NAB Financial,
L.L.C. ("NAB"), a Louisiana limited liability company, and Dexco Energy,
Inc. ("Dexco"), a Louisiana corporation (American, Goodson, NAB and Dexco
collectively,
- --------------------------------------------------------------------------------
<PAGE> 9
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 9
- --------------------------------------------------------------------------------
2. MERGER OF OPTIMA ENERGY (U.S.) COMPANY (CONTINUED)
referred to as the acquired companies). Goodson, NAB and Dexco are holding
companies which own all the outstanding common shares of American. American
is engaged in the acquisition of and exploration for oil and natural gas.
Under the terms of the Agreement, the acquired companies would be merged
with the Company's U.S. subsidiary in exchange for 7,335,001 common shares
of the Company to be issued to the former shareholders of the acquired
companies, which will represent approximately 40% of the post acquisition
outstanding common shares of the Company. In addition, the Company will
issue 1,667,001 in contingent stock issue rights which will be exchangeable
for common shares of the Company if the Company's share price exceeds U.S.
$5 per share for 20 consecutive trading days. The contingent stock issue
rights will terminate on the third anniversary after issuance if the
condition stated above is not met within the three year time limit. In
addition, the Company was required to provide American with a loan
agreement of U.S. $2.5 million prior to March 1, 1998, with an initial draw
of U.S. $500,000 available at that date and further draws based on the
consummation of this Agreement.
The Agreement is subject to a number of conditions which must be met to
give effect to the merger including but not limited to the following:
- the receipt of various regulatory approvals;
- the approval of the Agreement by the shareholders of the Company and
the shareholders of the acquired companies; and
- due diligence by both the Company and the acquired companies.
If the agreement is consummated, the Company will account for the
acquisition using the purchase method.
The estimated purchase price based on the recent trading history of the
Company's common shares is approximately $14 million.
3. 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.
4. NOTE RECEIVABLE
The note is due on June 18, 2000, bears no interest, is repayable in four
equal installments of $90,780 U.S. which commenced June 18, 1997 and is
secured by a mortgage on certain U.S. oil and gas properties.
5. CASH HELD IN TRUST
As a condition of a U.S. oil and gas property acquisition, the Company is
obliged to keep cash on deposit to fund future abandonment costs.
- --------------------------------------------------------------------------------
<PAGE> 10
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 10
- --------------------------------------------------------------------------------
6. ADVANCES TO OPERATORS
The Company maintains joint accounts with operators engaged by the Company
to perform exploration and development work on its petroleum and natural
gas interests.
7. PETROLEUM AND NATURAL GAS INTERESTS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Petroleum and natural gas interests $ 34,937,408 $ 34,477,861
Other equipment 215,806 213,436
------------ ------------
35,153,214 34,691,297
Accumulated depreciation, depletion and write-offs (17,868,043) (16,995,329)
------------ ------------
$ 17,285,171 $ 17,695,968
============ ============
</TABLE>
As at March 31, 1998, unproved properties with capitalized costs of
$2,911,126 (December 31, 1997 - $2,911,126) were not subject to depletion.
It is expected that these properties will be evaluated over the next one to
three years.
8. LONG-TERM DEBT
Revolving $5,000,000 (U.S.) bank credit line, with a borrowing base of
$3,250,000 (U.S.) drawn to $100,000 (U.S.) bearing interest monthly at U.S.
Base Rate plus 1.5%, secured by a revolving note due May 15, 1999 and U.S.
oil and gas properties.
9. SHARE CAPITAL
(a) Authorized
The authorized share capital consists of 100,000,000 common shares
without par value.
(b) Issued
<TABLE>
<CAPTION>
Number of Share
Shares Capital
---------- -----------
<S> <C> <C>
Balance at March 31, 1998 and December 31, 1997 11,002,346 $30,891,689
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 11
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 11
- --------------------------------------------------------------------------------
9. SHARE CAPITAL (CONTINUED)
(c) Reserved in respect of options
<TABLE>
<CAPTION>
Exercise Exercisable
Holder Number Price On or Before
------ ------ ----- ------------
<S> <C> <C> <C>
Options
Company directors and employees 193,000 $3.50 April 3, 1998
50,000 $3.55 April 3, 1998
100,000 $4.05 July 25, 1998
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
---------
1,163,000
=========
</TABLE>
(d) 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>
1998 1997
---------- ----------
<S> <C> <C>
Weighted average number of shares 11,159,663 11,313,653
========== ==========
</TABLE>
10. RELATED PARTY TRANSACTIONS
In the three months ended March 31, 1998, the Company was charged
consulting expenses of $105,000 (1997- $104,445) by companies related by
virtue of common directors. Office expense includes $29,400 (1997 -
$29,400) paid to a related company.
11. 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 March
31, 1998 is as follows:
- --------------------------------------------------------------------------------
<PAGE> 12
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 12
- --------------------------------------------------------------------------------
11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES (CONTINUED)
<TABLE>
<S> <C>
Net operating losses deferred tax assets $ 5,137,000
Petroleum and natural gas interests deferred tax liabilities (44,000)
-----------
Net deferred tax assets 5,093,000
Less valuation allowance (5,093,000)
-----------
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
(ii) the acquisition of subsidiary in exchange for the issuance of
shares; and
(iii) the issuance of shares on settlement of consulting fees and
directors 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>
1998 1997
--------- -----------
<S> <C> <C>
Cash flows from:
Operating activities $ 673,462 $ 838,686
Financing activities (911,751) (57,366)
Investing activities (388,604) (1,646,017)
--------- -----------
Increase (Decrease) in cash $(626,893) $ (864,697)
========= ===========
</TABLE>
Under United States accounting principles, the following supplementary
cash flow information would be disclosed:
<TABLE>
<CAPTION>
1998 1997
------ --------
<S> <C> <C>
Interest paid $2,644 $134,456
------ --------
Income taxes paid -- --
====== ========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 13
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 13
- --------------------------------------------------------------------------------
11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES (CONTINUED)
(c) Cash flow per share
Disclosure of cash flow per share information is prohibited under
United States generally accepted accounting principles.
12. LITIGATION
(a) S.W. HOLMWOOD
The Company is a party to litigation in the United States District Court,
Western District of Louisiana (Amoco Production Company vs. Texas Meridian
Resource Exploration, Inc.) by virtue of its master participation agreement
with Meridian Resource Corporation (formally known as Texas Meridian
Resource Corporation).
The litigation enures from a joint exploration agreement between the
plaintiff and defendant whereby adjoining petroleum and natural gas leases
were pooled on a 50% / 50% joint ownership basis. Two producing oil wells
have been drilled and placed on production. The plaintiff is claiming a
breach of trust and demands surrender of 100% of the wells ownership on a
retroactive basis and has received a favorable summary judgement. The
operator pending the court's granting of damages intends to appeal the
judgement.
The Company holds a beneficial 4% working interest. Since the outcome of
this litigation is not determinable, the Company has recorded 100% of the
cumulative net operating income to date aggregating to $1,047,664 as
Revenue in Dispute.
(b) WILDHAY
The Company is party to a statement of claim and counterclaim with a
drilling contractor in the Judicial District of Calgary, Court of Queen's
Bench, Alberta. The nature of this litigation is based on a contract
wherein the drilling contractor drilled a well on behalf of the Company and
a joint venture partner. The working interest participants are demanding
$2,738,568 in throw away costs and expenses plus $1,001,755 for loss of the
original well as well as $5,932,000 of reservoir damage from the drilling
contractor. The well in question is reflected in property and equipment at
$1.1 million and an additional $1.2 million is included as a receivable
from the Company's joint venture partner.
13. SUBSEQUENT EVENT
On April 15, 1998, the company issued a draw of U.S. $500,000 under the
terms of the Plan and Agreement of Merger (see note #2).
- --------------------------------------------------------------------------------
<PAGE> 14
PART I -- FINANCIAL INFORMATION CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's financial statements are stated in Canadian Dollars (CDN$) 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. $1.00 equal $1.4333 CDN as at May 12, 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Working Interest Quarter Ended March 31 1998 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Percentage
Increase Increase
CDN$ 1998 1997 (Decrease) (Decrease)
- ---------------------------------------------------------------------------------------------------------------
Volume
Natural Gas (mcf) 138,355 310,429 (172,074) (55%)
Oil (bbls) 29,746 37,596 (7,850) (21%)
Average Price per Unit
USA
Natural Gas (mcf) $3.56 $4.26 ($0.70) (16%)
Oil (bbls) $21.18 $30.45 ($9.27) (30%)
Gross Revenue,
Natural Gas $489,340 $1,321,957 (832,617) (63%)
Oil $630,133 $1,144,691 (514,588) (45%)
- ---------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $1,119,473 $2,466,648 (1,347,115)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(NOTE: The aforementioned information has been restated for 1997 to reflect the
sale of Canadian assets on May 30, 1997, effective January 1, 1997. Previously
reported total revenue for the first quarter of 1997 included Canadian
petroleum and natural gas sales of $913,523.)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, AS COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1997
The Company realized a net loss of $1,000,161 for the first quarter of 1998 or
$0.09 per share as compared to a profit of $207,748 or $0.02 per share in the
first quarter of 1997. Earnings before interest, depletion, depreciation and
taxes ("EBITDA") declined 98% to $39,632 from $1,631,193 in 1996. EBITDA on a
per share basis was $0.01 per share down from $0.15 per share in 1997. The
weighted average of shares in the first quarter of 1997 was 11,002,346 as
compared to 11,313,653 in 1997.
The decline in financial results is due to the following factors:
-Canadian petroleum and natural gas assets were sold on May 30, 1997.
On an historical basis, the Canadian operations provided between 25%
and 33% of consolidated net revenue
-decline in commodity prices of approximately 30% over the same
reporting period last year
-the Company's decision to curtail exploration and development
activities pending a corporate transaction
-curtailed oil production at S.W. Holmwood with Meridian Resource
Corporation due to outstanding litigation
-unanticipated decline in oil production at East Cameron.
-14-
<PAGE> 15
OPERATING REVENUES.
Gross revenue decreased by $1,347,115 to $1,119,473 from $2,466,648 a year
earlier, a decline of 55%. Actual production on a BOE basis (6 MCF of natural
gas equal 1 barrel of oil) fell 41% whereas commodity prices declined 16% for
natural gas and 30% for crude oil.
OPERATING EXPENSES.
Oil and natural gas operating expenses were $338,175 as compared to $360,311
a year earlier. The first quarter for 1997 included $174,812 from Canadian
operations. Operating expenses for US operations increased to $338,175 from
$185,499 a year earlier. On a BOE equivalent basis, operating expenses
increased to $6.40 per BOE from $2.08 BOE in the first quarter of 1997 in
respect of US operations. The increase is due to workovers at Turtle Bayou in
January, 1998. The operating expenses for the month of March, 1998 have been
reduced to $3.71 per BOE.
INTEREST AND OTHER INCOME.
Interest income increased to $99,109 from $13,344 a year earlier whereas
interest expense and bank charges fell to $2,644 from $134,456 in the first
quarter of 1997. This improvement is due to the cash proceeds on the sale of
Canadian assets on May 30, 1997.
The foreign exchange loss of $246,462 as compared to $7,251 a year earlier
results from the reality that the Company reports in Canadian $ dollars whereas
over 90% of its assets and liabilities are US $ dollar denominated. Accordingly
a minor fluctuation in the exchange rate results in a foreign currency
translation gain or loss which could be material for financial reporting but
does not reflect a realized gain or loss.
DEPLETION, DEPRECIATION AND AMORTIZATION.
Depletion and depreciation was $872,000 in the first quarter of 1998 as
compared to $1,299,420 a year earlier. The first quarter of 1997 included
$412,000 of depletion and depreciation in respect of Canadian petroleum and
natural gas assets which were sold on May 30, 1997. In respect of US
operations, on a BOE basis the 1998 expense was $16.51 as compared to $9.69 per
BOE a year earlier (this calculation is based on 6 MCF of natural gas equal 1
barrel of oil).
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 $386,039 reflect a modest decline of 2%
from $394,990 a year earlier. On a BOE basis, converting natural gas to its
equivalent barrels of oil at a ratio of 6 mcf equals 1 barrel, general and
administrative expenses increased to $7.13 per BOE as compared to $4.42 per BOE
in 1996 an increase of 61%. This increase on a BOE basis is a result of the
decline in production from the first quarter of 1997.
BALANCE SHEET.
Total assets as at March 31, 1998 were $26,975,836 as compared to $41,383,801 a
year earlier and $28,143,343 as at December 31, 1997. Petroleum and natural gas
interests declined marginally since the beginning of the fiscal year as capital
expenditures of $461,918 were offset by depletion and depreciation expenses of
$872,714. Working capital has decreased to $6,442,941 from $7,856,820 as at
December 31, 1997. Shareholder's equity has decreased by $983,079 since
December 31, 1997 reflecting the net loss for the fiscal quarter.
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 government 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.
There were no matters submitted to security holders for a vote in the quarter
ended March 31, 1998. The Company has filed a preliminary form of the Proxy
Statement and Information Circular in respect of the Plan and Agreement of
Merger between Optima Petroleum Corporation and American Explorer, L.L.C. with
the Securities and Exchange Commission. Accordingly the annual general meeting
of shareholders will be scheduled upon receiving notification of acceptance. It
is expected that the meeting will occur prior to the end of June, 1998.
ITEM.6. EXHIBITS AND REPORTS ON FORM 8-K.
Attached is a Form 8-K dated February 28, 1998 announcing the merger agreement
between Optima Petroleum Corporation and American Explorer, L.L.C.
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: May 13, 1998 By: /s/ Robert L. Hodgkinson
------------------------
Robert L. Hodgkinson
President-CEO
By: /s/ Ronald P. Bourgeois
-------------------------
Ronald P. Bourgeois
Chief Financial Officer-Secretary
-16-
<PAGE> 17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of the Report: February 28, 1998 Commission File No. 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)
(604) 684-6886
Registrant's Telephone Number Including Area Code
<PAGE> 18
ITEM 2 - DISPOSITION OF ASSETS
The Company has entered into a definitive agreement with American Explorer,
L.L.C., a privately owned independent oil and gas company based in Lafayette,
Louisiana calling for the merger of these two companies. The merger is subject
to approval by Optima shareholders, U.S. and Canadian regulatory authorities, an
independent fairness opinion and customary conditions to closing.
Attached is a news release which was delivered to the Toronto Stock Exchange and
NASDAQ Stock Market on February 12, 1998, prior to the opening for stock
trading.
ITEM 7 - EXHIBITS
No. Description
7.1 Press Release dated February 12, 1998
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this report to be signed on behalf of the undersigned
hereunto duly authorized.
March 5, 1998 OPTIMA PETROLEUM CORPORATION
/s/ RONALD P. BOURGEOIS
----------------------------------------
RONALD P. BOURGEOIS
CHIEF FINANCIAL OFFICER
<PAGE> 19
[OPTIMA LETTERHEAD]
OPTIMA PETROLEUM CORPORATION
AND
AMERICAN EXPLORER, L.L.C.
ANNOUNCE MERGER AGREEMENT
HOUSTON, TEXAS - FEBRUARY 12, 1998 - OPTIMA PETROLEUM CORPORATION (NASDAQ:
OPPCF) and American Explorer, L.L.C., a privately owned independent oil and gas
company based in Lafayette, Louisiana, today announced the signing of a
definitive agreement calling for the merger of these two companies. This merger
is subject to approval by Optima shareholders, U.S. and Canadian regulatory
authorities, an independent fairness opinion and customary conditions to
closing.
Under the terms of the agreement, American Explorer owners will receive 7.335
million shares of Optima common stock and rights to acquire an additional 1.667
million shares of Optima common stock issuable upon the occurrence of certain
post closing events in return for 100% of American Explorer, L.L.C. and
associated companies. It is anticipated that the Annual General Meeting of
Optima shareholders will be held on or before May 31, 1998 with the closing of
these transactions to occur immediately thereafter.
Optima and American Explorer are both engaged in the exploration, development
and production of oil and gas, primarily in the U.S. Gulf Coast region and have
previously worked together on a number of oil and gas projects. As part of the
merger with American Explorer, Optima will be redomiciled as a U.S. (Delaware)
corporation headquartered in Lafayette, Louisiana with exploration offices in
Houston, Texas. Canadian offices will be closed. Optima shareholders will be
asked to elect a new seven person board of directors to be effective at the
closing, to include Charles T. Goodson, Alfred J. Thomas, II, Ralph J. Daigle
and Robert R. Brooksher, of American Explorer and Daniel G. Fournerat, outside
counsel to American Explorer. William C. Leuschner and Robert L. Hodgkinson,
both current officers of Optima will continue as directors. Mr. Goodson will
become President and Chief Executive Officer of Optima, Mr. Thomas becoming
Chief Operating Officer and Mr. Daigle becoming Senior Vice President,
Exploration. Mr. Brooksher shall become Chief Financial Officer.
Optima shares are traded on the Nasdaq National Market System under the symbol
"OPPCF" and on the Toronto Stock Exchange under the symbol "OPP". For additional
information, please contact:
OPTIMA PETROLEUM CORPORATION AMERICAN EXPLORER, L.L.C.
Mr. Robert L. Hodgkinson Mr. Charles T. Goodson
(604) 684-6886 (318) 232-7028
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<CURRENCY> CANADIAN DOLLARS
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