Pine Cliff Energy Ltd. Announces Third Quarter Results
Highlights
Three Months Ended Nine Months Ended For the September 30 September 30 September 30 September 30 periods ended 2009 2008 2009 2008 ------------------------------------------------------------------------- FINANCIAL ($) Revenue - Oil and Gas 93,177 129,537 398,675 411,068 Cash Flow from Operations (74,702) (305,368) (598,464) (734,432) Per Share Basic and Diluted (0.00) (0.01) (0.01) (0.02) Net Loss (263,808) (505,953) (1,087,350) (1,118,177) Per Share Basic and Diluted (0.01) (0.01) (0.02) (0.02) Capital Expenditures and Acquisitions 600,732 1,511,745 730,099 4,309,347 Total Assets 4,900,934 11,621,915 Working Capital 991,619 3,440,165 Shareholders' Equity 4,089,767 11,400,311 ------------------------------------------------------------------------- OPERATIONS Oil and NGLs - Barrels Per Day 1 1 1 1 - Average Price ($ per barrel) 62.98 119.90 58.10 110.45 Natural Gas - MCF Per Day 295 146 332 152 - Average Price ($ per MCF) 3.13 8.74 4.13 9.18 Total Barrels of Oil Equivalent (BOE) Per Day(1) 51 24 57 25 ------------------------------------------------------------------------- (1) Barrels of oil equivalent (BOE) are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation.
Report to Shareholders
Pine Cliff Energy Ltd. ("Pine Cliff" or "the Company") is pleased to report its operating and financial results for the three months and nine months ended
The Board of Directors and management continue to recognize that there is a need to evaluate the overall direction for the Company and continue to seek opportunities to add value.
Operations
Production during the third quarter of 2009 remained relatively stable quarter over quarter and averaged approximately 51 barrels of oil equivalent (BOE) per day as compared to 53 BOE per day in the second quarter of 2009.
During the third quarter of 2009, Pine Cliff participated in drilling two natural gas wells (0.3 net) on its Sundance property in Alberta. The wells are expected to be completed and tied-in for production prior to the end of
Pine Cliff is reviewing its involvement in
Positive changes in the Canadian energy sector and increased opportunities have focused Pine Cliff's efforts domestically rather than internationally. The Company intends to increase its activities in
Financial:
The Company continues to focus on decreasing general and administrative (G&A) expenses. G&A expenditures decreased by approximately 25 percent in the first nine months of 2009 compared to the first nine months of 2008 and by approximately 30 percent quarter over quarter. The decrease is due mainly to reduced contractor fees for services provided to the Company's South American activities and reduced management fees.
As of
Outlook
The Board of Directors and management remain confident that Pine Cliff will be able to take advantage of the many opportunities that are available, redirect more of its activities towards a domestic perspective and reduce its activities in foreign jurisdictions.
FORWARD-LOOKING INFORMATION
Certain statements contained in this press release include statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and such statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this press release includes, but is not limited to: expected cash provided by continuing operations; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and outlook; expansion and growth of our business and operations; and maintenance of existing customer, supplier and partner relationships; supply channels; accounting policies; credit risks; and other such matters.
All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. The risks, uncertainties, and assumptions are difficult to predict and may affect operations, and may include, without limitation: the risks of foreign operations; foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.
Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do, what benefits will be derived therefrom. Except as required by law, Pine Cliff disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
The forward-looking information contained herein is expressly qualified by this cautionary statement.
Quarterly Financial and Operational Highlights
2009 ------------------------------------------------------------------------- 3rd 2nd 1st Financial ($) Revenue - Oil and Gas 93,177 111,773 193,725 Cash Flow from Operations (74,702) (294,455) (229,307) Per Share Basic and Diluted (0.00) (0.01) (0.01) Net Loss (263,808) (325,010) (498,532) Per Share Basic and Diluted (0.01) (0.01) (0.01) Capital Expenditures and Acquisitions 600,732 9,581 119,786 Total Assets 4,900,934 4,558,217 4,966,907 Working Capital 991,619 1,738,974 1,903,038 Shareholders' Equity 4,089,767 4,341,385 4,644,004 ------------------------------------------------------------------------- Operations Oil and NGLs (barrels per day) 1 2 1 Natural Gas (MCF per day) 295 312 392 ------------------------------------------------------------------------- 2008 ------------------------------------------------------------------------- 4th 3rd 2nd 1st Financial ($) Revenue - Oil and Gas 295,944 129,537 138,415 143,116 Cash Flow from Operations (68,211) (305,368) (224,141) (204,923) Per Share Basic and Diluted 0.00 (0.01) 0.00 0.00 Net Loss (6,423,691) (505,953) (295,111) (317,113) Per Share Basic and Diluted (0.14) (0.01) (0.01) (0.01) Capital Expenditures and Acquisitions 1,067,843 1,511,745 2,516,214 281,388 Total Assets 5,570,015 11,621,915 12,043,617 12,221,650 Working Capital 2,316,982 3,440,165 5,278,074 7,937,179 Shareholders' Equity 5,044,701 11,400,311 12,043,617 12,003,398 ------------------------------------------------------------------------- Operations Oil and NGLs (barrels per day) 2 1 - 4 Natural Gas (MCF per day) 453 146 142 168 ------------------------------------------------------------------------- 2007 ------------------------------------------------------------------------- 4th 3rd 2nd 1st Financial ($) Revenue - Oil and Gas 112,685 95,160 176,590 198,515 Cash Flow from Operations (234,653) (172,281) (262,144) (115,860) Per Share Basic and Diluted (0.01) (0.01) (0.01) 0.00 Net Loss (381,561) (383,540) (346,274) (270,109) Per Share Basic and Diluted (0.01) (0.01) (0.01) (0.01) Capital Expenditures and Acquisitions 193,350 174,289 233,648 2,196,476 Total Assets 12,445,994 4,173,333 3,946,888 4,211,984 Working Capital 8,378,110 (314,684) 182,319 602,650 Shareholders' Equity 12,205,066 3,371,089 3,749,025 4,008,304 ------------------------------------------------------------------------- Operations Oil and NGLs (barrels per day) 2 1 5 7 Natural Gas (MCF per day) 182 163 226 226 -------------------------------------------------------------------------
Production
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Crude oil and NGLs (barrels per day) 1 2 1 1 1 Natural gas (MCF per day) 295 312 146 332 152 Total BOE per day(1) 51 53 24 57 25 ------------------------------------------------------------------------- (1) Barrels of oil equivalent (BOE) are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation.
During Q3 2009, the Company participated in drilling two (0.3 net, 15 percent working interest in each well) natural gas wells on its Sundance property in
During the fourth quarter of 2008, a natural gas well that is not operated by Pine Cliff was completed and placed on production (0.15 net) by the operator. Production for the first nine months of 2009 from this well is 208 MCF per day net to the Company.
Revenue
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenue: Oil and gas sales 93,177 111,773 129,537 398,675 411,068 Average Realized Prices Crude oil and NGLs (per barrel) 62.98 62.14 119.90 58.10 110.45 Natural gas (per MCF) 3.13 3.62 8.74 4.13 9.18 -------------------------------------------------------------------------
Revenue from petroleum and natural gas sales for the first nine months of 2009 decreased by
Royalties
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Crown royalties (4,421) (49,052) 31,888 (8,917) 87,882 Gross overriding royalties 2,120 2,533 5,568 9,449 18,355 ------------------------------------------------------------------------- Total royalty expense (2,301) (46,519) 37,456 532 106,237 -------------------------------------------------------------------------
Crown royalties are lower in the first nine months of 2009 compared to the first nine months of 2008 due to a
Interest Income
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Interest income 16 284 21,025 6,081 115,355 -------------------------------------------------------------------------
The Company maintains both Canadian and U.S. investment accounts that pay interest at prime less various percentages as long as the Company maintains certain minimum account balances. The Company was earning interest at higher rates and on an increased cash balance throughout the first three quarters of 2008.
Production Costs
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Production costs 36,848 24,680 27,187 119,337 66,709 $ per BOE 7.92 5.30 12.17 7.68 9.70 -------------------------------------------------------------------------
Production costs were higher in the first nine months of 2009 versus the first nine months of 2008 due to higher production volumes. The increase in production costs in the third quarter of 2009 compared to the second quarter of 2009 was due to adjustments to prior period charges in the second quarter.
General and Administrative
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- G&A expense 174,363 249,238 358,105 748,598 999,277 -------------------------------------------------------------------------
General and administrative (G&A) expenditures decreased by
Pine Cliff does not have any employees at the present time but has engaged Bonterra Energy Corp. (Bonterra Corp) a related party (see Related Party section), to provide management services and engage the services of consultants on a contract or temporary basis. Pine Cliff's subsidiary CanAmericas Energy Ltd. (CanAmericas) has also engaged the consulting services of an individual professional as senior management and officer of CanAmericas.
Foreign Exchange Loss (Gain)
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Foreign exchange loss (gain) 4,771 16,432 26,816 28,246 (77,118) -------------------------------------------------------------------------
The Company maintains foreign denominated bank accounts to facilitate its foreign operations. The loss on foreign exchange in the first nine months of 2009 relates to the appreciation of the Canadian dollar with the Argentine peso and U.S. dollar versus depreciation in 2008.
Stock-Based Compensation
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Stock-based compensation 12,190 22,392 106,998 132,416 313,422 -------------------------------------------------------------------------
The Company has a stock-based compensation plan. The Company records a compensation expense over the vesting period based on the fair value of options granted to employees of the management company (see section "Related Party Transactions"), directors and service providers in respect of the Company. The decrease in stock-based compensation in 2009 is due to the amortization in 2008 of most of the stock-based compensation, on the 1,108,000 options issued in the fourth quarter of 2007. The Company issued 40,000 stock options in Pine Cliff during the first nine months of 2009. The Company estimated the 2009 stock options fair value at
Depletion, Depreciation, and Accretion and Dry Hole Exploration Costs
During the first nine months of 2009, the Company expensed
Income Taxes
The Company follows the liability method of accounting for income taxes under which the income tax provision is based on the temporary differences in the accounts calculated using income tax rates expected to apply in the year in which the temporary differences will reverse. The Company has sufficient tax pools so that it is not liable for current income tax. However the Company is subject to a one percent
The Company has the following tax pools which can be used to reduce future taxable income:
Rate of Utilization % Amount ------------------------------------------------------------------------- Undepreciated capital costs 25 $ 343,117 Foreign exploration expenditures 10 5,373,217 Share issue costs 20 45,622 Canadian exploration expenditures 100 392,110 Canadian development expenditures 30 949,190 Canadian oil and gas expenditures 10 545,733 Non-capital loss carry forward* 100 4,839,645 ------------------------------------------------------------------------- $12,488,634 ------------------------------------------------------------------------- * $700,214 expires 2026, $1,523,672 expires 2027, $1,684,143 expires in 2028 and $931,616 expires in 2029
Non-Controlling Interest
A private foreign company (Foreign Corp.) owns seven percent of CanAmericas Energy Ltd. (CanAmericas), a 93 percent owned subsidiary of Pine Cliff. In 2008, losses in CanAmericas exceeded the non-controlling interest investment and therefore none of CanAmericas' loss in 2009 was allocated to the non-controlling interest.
Loss
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Loss (263,808) (325,010) (505,953) (1,087,350) (1,118,177) Loss per share (0.01) (0.01) (0.01) (0.02) (0.02) -------------------------------------------------------------------------
The decrease in loss for the first nine months of 2009 compared to the first nine months of 2008 was predominantly due to crown royalty recoveries, reduced general and administrative costs and lower stock based compensation than 2008. These cost reductions were partially offset by lower interest income and increased production costs, depletion and depreciation and accretion, taxes, dry hole costs and a foreign exchange loss instead of a foreign exchange gain in 2009. The decrease in the Q3 2009 loss compared to Q2 2009 loss was predominantly due to the reduced G&A costs.
Cash Flow (Deficiency) from Operations
Three months ended Nine months ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept 30, ($) 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash flow (deficiency) from operations (74,702) (294,455) (305,368) (598,464) (734,432) Cash flow (deficiency) from operations per share (0.00) (0.01) (0.01) (0.01) (0.02) -------------------------------------------------------------------------
Cash flow deficiency decreased in the first three quarters of 2009 compared to the first three quarters of 2008 as the Company decreased its general and administrative costs. This decrease was partially offset by lower interest income and increased production costs. The reduction in cash flow deficiency from Q3 2009 compared to Q2 2009 was primarily due to an increase in non-cash working capital adjustments and reduced G&A costs.
Related Party Transactions
Pine Cliff has a management agreement with Bonterra Corp, a wholly owned subsidiary of Bonterra Oil & Gas Ltd. (a company with common directors and management with Pine Cliff), to have Bonterra Corp provide executive services (President and CEO, CFO and COO), accounting services, oil and gas administration and office administration. The management fee consists of a monthly fee of
Liquidity and Capital Resources
As of
Pine Cliff through its subsidiaries has paid 40 percent of costs totaling U.S.
The following consolidated financial statements and notes to the consolidated financial statements have been provided for further details. Consolidated Balance Sheets As at September 30, 2009 and December 31, 2008 (unaudited) 2009 2008 ------------------------------------------------------------------------- Assets Current Cash $ 1,582,216 $ 2,624,556 Accounts receivable 108,561 107,200 Prepaid expenditures 28,036 29,602 ------------------------------------------------------------------------- 1,718,813 2,761,358 ------------------------------------------------------------------------- Property and Equipment (Note 6) Property and equipment 4,526,446 3,878,550 Accumulated depletion and depreciation (1,344,325) (1,069,893) ------------------------------------------------------------------------- Net Property and Equipment 3,182,121 2,808,657 ------------------------------------------------------------------------- $ 4,900,934 $ 5,570,015 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current Accounts payable and accrued liabilities (Note 4) $ 727,194 $ 444,376 Asset Retirement Obligations 83,973 80,938 Non-Controlling Interests (Note 5) - - ------------------------------------------------------------------------- 811,167 525,314 ------------------------------------------------------------------------- Commitments Shareholders' Equity (Note 8) Share capital 14,588,722 14,588,722 Contributed surplus 855,384 722,968 Deficit (11,354,339) (10,266,989) Accumulated other comprehensive income - - ------------------------------------------------------------------------- Total Shareholders' Equity 4,089,767 5,044,701 ------------------------------------------------------------------------- $ 4,900,934 $ 5,570,015 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Loss, Comprehensive Loss and Deficit For the periods ended September 30 (unaudited) Three Months Nine Months 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenue Oil and gas sales $ 93,177 $ 129,537 $ 398,675 $ 411,068 Royalties 2,301 (37,456) (532) (106,237) Interest income 16 21,025 6,081 115,355 ------------------------------------------------------------------------- 95,494 113,106 404,224 420,186 ------------------------------------------------------------------------- Expenses Production costs 36,848 27,187 119,337 66,709 General and administrative (Note 4) 174,363 358,105 748,598 999,277 Foreign exchange loss (gain) 4,771 26,816 28,246 (77,118) Stock-based compensation (Note 8) 12,190 106,998 132,416 313,422 Depletion, depreciation and accretion 82,829 77,792 277,468 201,336 Dry hole costs (Note 6) 22,167 - 82,203 - ------------------------------------------------------------------------- 333,168 591,898 1,388,268 1,503,626 ------------------------------------------------------------------------- Loss Before Taxes and Non-Controlling Interests (237,674) (478,792) (984,044) (1,083,440) ------------------------------------------------------------------------- Taxes (Note 7) Current 26,134 27,161 103,306 59,916 Future - - - - ------------------------------------------------------------------------- 26,134 27,161 103,306 59,916 ------------------------------------------------------------------------- Loss before Non-Controlling Interests (263,808) (505,953) (1,087,350) (1,143,356) Loss applicable to non-controlling interests (Note 5) - - - 25,179 ------------------------------------------------------------------------- Loss and Comprehensive Income for the Period (263,808) (505,953) (1,087,350) (1,118,177) Deficit, Beginning of Period (11,090,531) (3,337,345) (10,266,989) (2,725,121) ------------------------------------------------------------------------- Deficit, End of Period ($11,354,339) ($3,843,298) ($11,354,339) ($3,843,298) ------------------------------------------------------------------------- Loss Per Share - Basic and Diluted ($0.01) ($0.01) ($0.02) ($0.02) ------------------------------------------------------------------------- Weighted Average Common Shares Basic and diluted 45,275,695 45,275,695 45,275,695 45,275,695 ------------------------------------------------------------------------- Consolidated Statements of Cash Flow For the periods ended September 30 (unaudited) Three Months Nine Months 2009 2008 2009 2008 ------------------------------------------------------------------------- Operating Activities Loss for the period ($263,808) ($505,953) ($1,087,350) ($1,118,177) Items not affecting cash Stock-based compensation 12,190 106,998 132,416 313,422 Depletion, depreciation and accretion 82,829 72,792 277,468 201,336 Dry hole costs 22,167 - 82,203 - Unrealized foreign exchange loss (gain) - 26,816 - (77,118) Loss applicable to non-controlling interests - - - (25,179) ------------------------------------------------------------------------- (146,622) (299,347) (595,263) (705,716) ------------------------------------------------------------------------- Change in non-cash working capital Accounts receivable 13,206 14,533 (1,361) (26,351) Prepaid expenditures 4,531 2,624 1,566 (6,929) Accounts payable and accrued liabilities 54,183 (23,178) (3,406) 4,564 ------------------------------------------------------------------------- 71,920 (6,021) (3,201) (28,716) ------------------------------------------------------------------------- Cash Used in Operating Activities (74,702) (305,368) (598,464) (734,432) ------------------------------------------------------------------------- Financing Activities - - - - ------------------------------------------------------------------------- Cash Provided by Financing Activities - - - - ------------------------------------------------------------------------- Investing Activities Property and equipment expenditures (600,732) (1,511,745) (730,099) (4,309,347) Proceeds on disposal of restricted term investments - - - 2,689,601 Change in non-cash working capital Accounts payable and accrued liabilities 539,139 - 286,223 - ------------------------------------------------------------------------- Cash used in Investing Activities (61,593) (1,511,745) (443,876) (1,619,746) ------------------------------------------------------------------------- Unrealized Foreign Exchange Gain (Loss) on Cash Held in Foreign Currency - (26,816) - 77,118 ------------------------------------------------------------------------- Net Cash Outflow (136,295) (1,843,929) (1,042,340) (2,277,060) Cash, Beginning of Period 1,718,511 5,336,317 2,624,556 5,769,448 ------------------------------------------------------------------------- Cash, End of Period 1,582,216 3,492,388 1,582,216 3,492,388 ------------------------------------------------------------------------- Cash interest paid $ - $ - $ - $ - Cash taxes paid $ 2,259 $ 5,902 $ 57,962 $ 27,327 ------------------------------------------------------------------------- Notes to the Consolidated Financial Statements Periods ended September 30, 2009 and 2008 (unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements for Pine Cliff Energy Ltd. ("Pine Cliff" or the "Company") as at and for the three and nine months ended September 30, 2009 should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2008. The notes to these interim consolidated financial statements do not conform in all respects to the note disclosure requirements of generally accepted accounting policies ("GAAP") for annual consolidated financial statements. These interim consolidated financial statements are prepared using the same accounting policies and methods of computation as disclosed in the annual consolidated financial statements as at and for the year ended December 31, 2008, except for those disclosed in Note 2 below. The disclosures provided within are incremental to those included with the annual financial statements. 2. CHANGE IN ACCOUNTING POLICIES On January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, "Goodwill and Intangible Assets". The new section replaces the previous goodwill and intangible asset standard and revises the requirement for recognition, measurement, presentation and disclosure of intangible assets. The adoption of this standard had no impact on the Company's consolidated financial statements. On January 1, 2009, the Company adopted the CICA's EIC-173, "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". The EIC provides guidance on how to take into account credit risk of an entity and counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. The adoption of this EIC had no impact on the Company's consolidated financial statements. Effective January 1, 2009, the Company prospectively adopted the CICA issued Section 1582, "Business Combinations", which will replace the former guidance on business combinations. Under the new standard, the purchase price used in a business combination is based on the fair value of consideration exchanged at the date of exchange. Currently the purchase price used is based on the fair value of the consideration for a reasonable period before and after the date of acquisition is agreed upon and announced. The new standard generally requires all acquisition costs be expensed, which are currently capitalized as part of the purchase price. In addition, the new standard modified the accounting for contingent consideration and negative goodwill. Effective January 1, 2009, the Company prospectively adopted the CICA issued Sections 1601, "Consolidated Financial Statements", and 1602, "Non-controlling Interests", which replace existing guidance. Section 1601 establishes standards for the preparation of consolidated financial statements and Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary subsequent to a business combination. Recent and Pending Accounting Pronouncements In June 2009, the CICA issued amendments to CICA Handbook Section 3862, "Financial Instruments - Disclosures". The amendments include enhanced disclosures related to the fair value of financial instruments and the liquidity risk associated with financial instruments. The amendments will be effective for annual financial statements for fiscal years ending after September 30, 2009. The amendments are consistent with recent amendments to financial instrument disclosure standards in International Financial Reporting Standards ("IFRS"). The Company will include these additional disclosures in its annual consolidated financial statements for the year ending December 31, 2009. The Canadian Accounting Standards Board has confirmed that IFRS will replace Canadian GAAP effective January 1, 2011, including comparatives for 2010, for Canadian publicly accountable enterprises. The Company has completed its high-level IFRS impact study and established a preliminary timeline for the execution and completion of the conversion project. The impact of IFRS on the Company's consolidated financial statements is not reasonably determinable at this time. 3. BANKING AGREEMENT The Company has a line of credit through its subsidiary CanAmericas to the lower of its available amount of cash or U.S. $3,690,000, which can be drawn by means of letters of guarantee and letters of credit. The line of credit may be cancelled without notice. No letters of guarantee or credit are currently outstanding. 4. RELATED PARTY TRANSACTIONS Bonterra Oil & Gas Ltd. (Bonterra O&G) an oil and gas corporation publicly traded on the Toronto Stock Exchange with common directors and management with Pine Cliff and a former parent of the Company, through its wholly owned subsidiary Bonterra Energy Corp. (Bonterra Corp) provides management services and office administration to the Company. Total fees for the nine month period were $90,000 (2008 - $178,200) plus minimal administrative costs. As of September 30, 2009 Pine Cliff owed Bonterra Corp $916 (December 31, 2008 - $592). These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 5. NON-CONTROLLING INTERESTS The Company has incorporated a subsidiary company, CanAmericas Energy Ltd. (CanAmericas) to explore and develop oil and gas properties primarily in South America. CanAmericas is owned 93 percent by the Company and seven percent by a foreign private corporation (Foreign Corp.). CanAmericas was initially financed by investments of $1,400,000 U.S. for 5,600,000 common shares from the Company and $100,000 U.S. for 400,000 common shares from Foreign Corp. Changes to non-controlling interest were as follows: September 30, December 31, 2009 2008 --------------------------------------------------------------------- Non-controlling interest, January 1 $ - $ 25,179 Loss applicable to non-controlling interest ($ -) (25,179) --------------------------------------------------------------------- Non-controlling interest, end of period $ - $ - --------------------------------------------------------------------- Foreign Corp. has been granted an option to acquire an additional 1,000,000 common shares of CanAmericas at U.S. $0.25 per common share. Fifty percent of the options vested on January 13, 2007, and the remaining 50 percent vested on January 13, 2008, and all of the options will expire on January 13, 2011. 6. PROPERTY AND EQUIPMENT September 30, 2009 December 31, 2008 --------------------------------------------------------------------- Accumulated Accumulated Depletion Depletion and and Cost Depreciation Cost Depreciation --------------------------------------------------------------------- Petroleum and natural gas properties and related equipment $ 4,472,935 $ 1,309,058 $ 3,825,038 $ 1,041,902 Furniture, equipment and other 53,512 35,268 53,512 27,991 --------------------------------------------------------------------- $ 4,526,447 $ 1,344,326 $ 3,878,550 $ 1,069,893 --------------------------------------------------------------------- In 2009, the exploration costs related to the Canadon Ramirez Concession of $82,203 (2008 -$6,171,140) were written-off to dry hole costs as the three-well program was unsuccessful. Exploration costs of $1,444,965 included in petroleum and natural gas properties and related equipment presently have been excluded from costs subject to depletion and depreciation. Development costs of $568,479 included in petroleum and natural gas properties and related equipment were incurred to drill two natural gas wells. The drilling costs for these wells have been excluded from costs subject to depletion and depreciation as these wells were not completed or producing as of September 30, 2009. 7. TAXES The Company has expensed $103,306 current tax expense related to Argentina capital tax. A one percent Argentina capital tax is payable in respect of the exploration costs for the Canadon Ramirez and the Laguna de Piedra Concessions. The Company continues to record a full valuation allowance for its future income tax assets as the recoverability is uncertain. 8. SHARE CAPITAL Authorized Unlimited number of Common Shares without nominal or par value. Unlimited number of Class B Preferred Shares without nominal or par value which may be issued in one or more series. Issued Number Amount --------------------------------------------------------------------- Common Shares Balance, January 1, 2009 45,275,695 $14,588,722 --------------------------------------------------------------------- Balance, September 30, 2009 45,275,695 $14,588,722 --------------------------------------------------------------------- A summary of the changes to the Company's contributed surplus is presented as follows: Contributed surplus ($) 2009 2008 --------------------------------------------------------------------- Balance, January 1 722,968 341,465 Stock-based compensation expensed (non-cash) 132,416 313,422 --------------------------------------------------------------------- Balance, September 30 855,384 654,887 --------------------------------------------------------------------- The deficit balance is composed of accumulated earnings. A summary of the status of the Company's stock option plan as of September 30, 2009 and December 31, 2008, and changes during the nine month and twelve month periods ending on those dates is presented as follows: September 30, 2009 December 31, 2008 --------------------------------------------------------------------- Weighted- Weighted- Average Average Exercise Exercise Options Price Options Price --------------------------------------------------------------------- Outstanding at beginning of period 3,118,000 $0.63 3,053,000 $0.62 Options granted 40,000 0.15 65,000 1.15 Options exercised - - - - Options cancelled (12,000) 1.15 - - --------------------------------------------------------------------- Outstanding at end of period 3,146,000 $0.62 3,118,000 $0.63 --------------------------------------------------------------------- Options exercisable at end of period 2,961,000 $0.58 2,003,500 $0.33 --------------------------------------------------------------------- The following table summarizes information about stock options outstanding at September 30, 2009: Options Outstanding Options Exercisable ------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 9/30/09 Life Price at 9/30/09 Price ------------------------------------------------------------------------- $0.15 1,130,000 0.3 years $0.15 1,090,000 $0.15 0.50 - 0.60 825,000 0.3 years 0.51 825,000 0.51 0.70 - 0.75 80,000 0.3 years 0.72 80,000 0.72 1.10 - 1.20 1,071,000 0.7 years 1.18 926,000 1.18 1.40 - 1.50 40,000 1.3 years 1.49 40,000 1.49 ------------------------------------------------------------------------- $0.15 - $1.50 3,146,000 0.5 years $0.62 2,961,000 $0.58 ------------------------------------------------------------------------- The Company records a compensation expense over the vesting period based on the fair value of options granted to employees, directors and consultants. Unvested options as of September 30, 2009 vest 87,500 in 2009, 77,500 in 2010 and 20,000 in 2011. The Company issued 40,000 (December 31, 2008 - 65,000) stock options with an estimated fair value of $3,350 (December 31, 2008 - $33,761) ($0.08 per option (December 31, 2008 - $0.52 per option)) using the Black-Scholes option pricing model with the following key assumptions: September 30, December 31, 2009 2008 --------------------------------------------------------------------- Weighted-average risk free interest rate (%) 1.24 2.89 Dividend yield (%) - - Expected life (years) 2.5 2.5 Weighted-average volatility (%) 96.0 72.0 --------------------------------------------------------------------- 9. SEGMENTED INFORMATION The Company has operations in Canada and in South America. All operating activities are related to exploration, development and production of petroleum and natural gas: South ($) Canada America Total --------------------------------------------------------------------- Three Months Ended September 30, 2009 Revenue, gross 93,178 15 93,193 Loss before non-controlling interest 92,396 171,412 263,808 Capital expenditures 571,525 29,207 600,732 Nine Months Ended September 30, 2009 Revenue, gross 402,967 1,789 404,756 Loss before non-controlling interest 337,938 749,412 1,087,350 Capital expenditures 573,041 157,058 730,099 Property and equipment 1,722,579 1,459,542 3,182,121 Total assets 3,371,995 1,528,939 4,900,934 Three Months Ended September 30, 2008 Revenue, gross 150,276 286 150,562 Loss before non-controlling interest 201,176 304,777 505,953 Capital expenditures 66,283 1,445,462 1,511,745 Nine Months Ended September 30, 2008 Revenue, gross 505,383 21,040 526,423 Loss before non-controlling interest 505,053 638,303 1,143,356 Capital expenditures 76,505 4,232,842 4,309,347 December 31, 2008 Property and equipment 1,416,693 1,391,964 2,808,657 Total assets 3,884,908 1,685,107 5,570,015 --------------------------------------------------------------------- 10. FINANCIAL AND CAPITAL RISK MANAGEMENT Financial Risk Factors ---------------------- The Company undertakes transactions in a range of financial instruments including: - Cash deposits; - Receivables; - Payables; The Company's activities result in exposure to a number of financial risks including market risk (commodity price risk, interest rate risk, foreign exchange risk, credit risk, and liquidity risk). Financial risk management is carried out by senior management under the direction of the Board of Directors. The Company does not enter into risk management contracts. The Company sells its oil and gas commodities at market prices at the date of sale in accordance with the Board directive. Capital Risk Management ----------------------- The Company's objectives when managing capital, which includes current assets and long-term assets, are to safeguard the Company's ability to continue as a going concern, to continue providing returns to its Shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may issue debt or new shares. The Company monitors capital on the basis of the ratio of budgeted exploration capital requirements to current working capital. This ratio is calculated using the projected cash requirements for a year in advance and maintaining a working capital balance of at least six months to satisfy this requirement on a continuous basis. The Company believes that maintaining approximately a six month current working capital balance to the exploration capital budget requirement is an appropriate basis to allow it to continue its future development of the Company's assets. The following section (a) of this note provides a summary of our underlying economic positions as represented by the carrying values, fair values and contractual face values of our financial assets and financial liabilities. The Company's working capital to capital expenditure requirement ratio is also provided. The following section (b) addresses in more detail the key financial risk factors that arise from the Company's activities including its policies for managing these risks. a) Financial assets, financial liabilities The carrying amounts, fair value and face values of the Company's financial assets and liabilities other than cash are shown in Table 1. Table 1 As at September 30, 2009 As at December 31, 2008 Carrying Fair Face Carrying Fair Face ($000) Value Value Value Value Value Value --------------------------------------------------------------------- Financial assets Accounts receivable 109 109 175 107 107 142 Financial liabilities Accounts payable and accrued liabilities 727 727 727 444 444 444 --------------------------------------------------------------------- The budgeted capital expenditure to working capital base figures for September 30, 2009 is presented below: September 30, ($000) 2009 --------------------------------------------------------------------- Budgeted capital expenditure(1) 600 --------------------------------------------------------------------- Current assets 1,719 Current liabilities (727) --------------------------------------------------------------------- Working capital 992 --------------------------------------------------------------------- Working capital to budgeted capital expenditure (in months) 19.8 --------------------------------------------------------------------- (1) Budgeted capital expenditure represents the Company's estimated future twelve month capital expenditures. b) Risks and mitigations Market risk is the risk that the fair value or future cash flow of the Company's financial instruments will fluctuate because of changes in market prices. Components of market risk to which Pine Cliff is exposed are discussed below. Commodity price risk -------------------- The Company's principal operation is the exploration and possible development of its oil and gas properties. The Company also engages in the exploration and development of oil and natural gas properties in Canada. Fluctuations in prices of these commodities may directly impact the Company's performance and ability to continue with its operations. The Company's management currently does not use risk management contracts to set price parameters for its production. Sensitivity Analysis The Company is still in the exploration stage of development of its exploration properties and as such generates nominal cash flow or earnings from these properties. In addition, the Company's petroleum and natural gas operations provide only moderate cash flow and as such changes in commodity prices would have no material impact on the Company. Interest rate risk ------------------ Interest rate risk refers to the risk that the value of a financial instrument or cash flow associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that Pine Cliff uses. The principal exposure to the Company is on its cash balances which have a variable interest rate which gives rise to a cash flow interest rate risk. Pine Cliff's cash consists of Canadian dollar, U.S. dollar and Argentinean peso investment chequing accounts. Since these funds need to be accessible for the development of the Company's capital projects, management does not reduce its exposure to interest rate risk through entering into term contracts of various lengths. As discussed above, the Company generally manages its capital such that its budgeted capital requirements to current working capital ratio are at least six months. Foreign exchange risk --------------------- The Company has foreign operations, but no revenue from production from the foreign properties and currently sells all of its Canadian product sales in Canadian currency. The Company has a U.S. cash and Argentina peso cash balance and earns an insignificant amount of interest on its U.S. and Argentinean peso bank accounts. Funds held in foreign denominated accounts are generally held for short periods of time, as the Company transfers and converts Canadian funds to foreign currency as payments for foreign currency denominated payables come due. As such, Pine Cliff does not mitigate exchange rate risk by using risk management contracts. Credit risk ----------- Credit risk is the risk that a contracting party will not complete its obligations under a financial instrument and cause the Company to incur a financial loss. Pine Cliff is exposed to credit risk on all financial assets included on the balance sheet. To help mitigate this risk, the Company maintains the majority of its cash balances with a major Canadian chartered bank and invests in secure financial instruments. Substantially all of the accounts receivable balance at September 30, 2009 ($151,000) and December 31, 2008 ($107,000) relates to product sales with Canadian oil and gas companies and crown royalty credits with the province of Alberta, all of which have consistently been received within 30 to 60 days. The Company through its subsidiary CanAmericas also has a receivable of $66,000 for Argentina Value Added Tax on non-capital expenditures. The Company has taken a full allowance on the V.A.T., as the Company has no Argentina income subject to V.A.T. to claim it against. The Company assesses quarterly if there has been any impairment of the financial assets of the Company. The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying value of accounts receivable approximates their fair value due to the relatively short periods to maturity on this instrument. Currently no accounts receivable is greater than 90 days. The maximum exposure to credit risk is represented by the carrying amount on the balance sheet. There are no material financial assets that the Company considers past due. Liquidity risk -------------- Liquidity risk includes the risk that, as a result of Pine Cliff's operational liquidity requirements: - The Company will not have sufficient funds to settle a transaction on the due date, - Pine Cliff will not have sufficient funds to continue with its financing of its major exploration projects, - The Company will be forced to sell assets at a value which is less than what they are worth, or - Pine Cliff may be unable to settle or recover a financial asset at all. To help reduce these liquidity risks, the Company: - Has a general capital policy of maintaining at least six months of budgeted capital requirements as its working capital base. - Maintains a continuous evaluation approach as to the requirements for its largest exploration programs; the Canadon Ramirez Concession and Laguna de Piedra Concession. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
%SEDAR: 00021536E
For further information: Further information relating to the Company may be found on www.sedar.com as well as on the Company's website at www.pinecliffenergy.com or by contacting: George F. Fink, President and CEO, Randy M. Jarock, COO, or Kirsten Kulyk, Manager, Investor Relations, Telephone: (403) 269-2289, Fax: (403) 265-7488, Email: [email protected]
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