<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A-1
----------
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
-1-
<PAGE> 2
OPTIMA PETROLEUM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
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
-2-
<PAGE> 3
OPTIMA PETROLEUM CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
======================================================================================================
March 31 December 31
1998 1997
- -----------------------------------------------------------------------------------------------------
ASSETS (unaudited) (audited)
<S> <C> <C>
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 369,296 369,297
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
, Director , Director
3
<PAGE> 4
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Operations and Deficit
(unaudited)
<TABLE>
<CAPTION>
================================================================================
Three months ended March 31,
1998 1997
- --------------------------------------------------------------------------------
(Restated -
note 1(a))
<S> <C> <C>
OPERATING REVENUE
Petroleum and natural gas sales $ 1,119,473 $ 2,466,648
COSTS AND EXPENSES
Royalties and production taxes 355,627 730,285
Operating costs 338,175 185,499
Depletion and depreciation 872,714 852,729
General and administrative (Schedule) 386,039 394,990
Interest and other revenue (99,109) (13,344)
Foreign exchange loss 246,462 7,251
Interest and bank charges 2,644 84,408
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
- --------------------------------------------------------------------------------
(Restated -
note 1(a))
CASH PROVIDED BY (USED IN)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $(1,000,161) $ 207,748
Items not involving cash
Depletion, depreciation and amortization 889,796 869,811
- --------------------------------------------------------------------------------
(110,365) 1,077,559
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 --
- --------------------------------------------------------------------------------
673,462 407,970
- --------------------------------------------------------------------------------
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) (984,193)
Advances to operators 73,314 (219,284)
Cash held in trust -- (17,110)
Deferred charges -- (159)
- --------------------------------------------------------------------------------
(388,604) (1,220,746)
- --------------------------------------------------------------------------------
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. The results of operations and cash flow for the three
months ended March 31, 1997 have been restated to reflect the
sale of the Canadian petroleum and natural gas interests
effective January 1, 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.
(i) Revenue recognition
Petroleum and natural gas sales are recognized upon delivery to
the metered gate at the common carrier pipeline.
<PAGE> 9
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 9
- --------------------------------------------------------------------------------
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, 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 and with an effective date of January 1, 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 11,002,346 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 $ 413,415
Financing activities (911,751) (57,366)
Investing activities (388,604) (1,220,746)
- --------------------------------------------------------------------------------
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) Consolidated statements of operations and deficit
There are no significant or material differences between Canadian
and U.S. GAAP.
(d) Balance sheets
================================================================================
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------
Deficit reported $ (6,761,870) $ (5,761,709)
Reduction of common share stated capital (10,602,526) (10,602,526)
- --------------------------------------------------------------------------------
Deficit for U.S. GAAP $(17,364,396) $(16,364,235)
================================================================================
================================================================================
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------
Share capital reported $30,891,689 $30,891,689
Reduction of common share stated capital 10,602,526 10,602,526
- --------------------------------------------------------------------------------
Share capital for U.S. GAAP $41,494,215 $41,494,215
================================================================================
The reduction of common share stated capital by off-setting an
accumulated deficit against share capital is not allowed under
U.S. GAAP.
(e) Shareholders' equity under U.S. GAAP
================================================================================
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------
Opening shareholders' equity under U.S. GAAP $ 25,738,202 $ 30,672,428
Net income (loss) for U.S. GAAP (1,000,161) (4,035,220)
Net share capital issued (repurchased) -- (899,006)
- --------------------------------------------------------------------------------
Closing shareholders' equity under U.S. GAAP $ 24,738,041 $ 25,738,202
================================================================================
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.
<PAGE> 14
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited) Page 14
- --------------------------------------------------------------------------------
12. LITIGATION (CONTINUED)
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. $500,000 under the
terms of the Plan and Agreement of Merger (see note #2).
<PAGE> 15
PART I - FINANCIAL INFORMATION CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's financial statements are stated in Canadian Dollars (CDN$) 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 $1.4333 CDN as at May 12, 1998.
<TABLE>
<CAPTION>
===========================================================================================
Working Interest Quarter Ended March 31 1998 1998
- -------------------------------------------------------------------------------------------
Percentage
Increase Increase
CDN$ 1998 1997 (Decrease) (Decrease)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 (514,558) (45%)
- -------------------------------------------------------------------------------------------
Total Revenue $1,119,473 $2,466,648 (1,347,175)
===========================================================================================
</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. 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:
- 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.
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.
15
<PAGE> 16
OPERATING EXPENSES.
Oil and natural gas operating expenses were $338,175 as compared to $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 which were received 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 $852,729 in the first quarter of 1998 as compared
to $866,000 a year earlier. 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 $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.
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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
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