Wrangler West Reports 2009 Nine Month Results
Nine Month Highlights
- $10.6 million in revenue
- $4.1 million in funds flow from operations
- $1.5 million in capital expenditures
- closed acquisition of Grand Forks oil property post 2009 third
quarter
2009 Production Update
For the nine months ended
Capital Expenditures Program
Throughout 2009, Wrangler West has restricted expenditures to preserve capital and focus on managing bank indebtedness. We have expanded our inventory of drillable prospects during the weak land sales environment within the Province of Alberta. We will continue to expand our prospect inventory and prepare to resume drilling when commodity prices improve sufficiently to increase funds flow from operations which supports our exploration budget.
Commodity Prices
Throughout 2009, the volatility in commodity prices has challenged our industry. In 2009 third quarter, prices for natural gas tested the lows of the year. Overall, natural gas prices are projecting a seven year low as storage levels continue to build across the North American market. Drilling for natural gas has increased modestly but remains more than 50 percent lower than peak activity levels experienced in
Wrangler West's production is 75 percent natural gas. Corporately, we evaluated all our natural gas assets and shut-in assets that were cash flow negative during the low pricing environment of the past summer. We are focusing on activities intended to increase our exposure to oil projects. During 2009 fourth quarter, we closed an acquisition of three shut-in wells adjacent to Wrangler West's
Industry Conditions
Drilling activity in the Western
Staying Focused in the Downturn
Management has undertaken an initiative to increase Wrangler West's exposure to crude oil projects. We expanded our
Selected Operational and Financial Highlights
Three months ended Nine months ended
Sep 30 Sep 30
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
OPERATIONAL HIGHLIGHTS
Production
Crude oil and NGL (bbls/d) 288 277 4 292 348 (16)
Natural gas (mcf/d) 4,888 5,960 (18) 5,184 6,635 (22)
Total (boe/d) 1,103 1,270 (13) 1,156 1,454 (20)
----------------------------------------- ---------------
Prices
Crude oil and NGL ($/bbl) 65.06 107.59 (40) 54.74 98.98 (45)
Natural gas ($/mcf) 3.29 9.71 (66) 4.43 9.29 (52)
----------------------------------------- ---------------
Per boe ($)
Petroleum and natural gas
revenues 31.55 69.04 (54) 33.67 66.08 (49)
Royalties (5.27) (15.36) (66) (4.59) (13.62) (66)
Operating expenses (12.36) (15.87) (22) (14.15) (14.00) 1
----------------------------------------- ---------------
Field netback 13.91 37.81 (63) 14.93 38.47 (61)
General and
administrative (2.86) (2.88) (1) (2.82) (2.33) 21
Interest (1.45) (0.98) 48 (1.21) (1.11) 9
Current income tax 6.57 0.45 1,360 2.11 (3.38) (162)
Realized loss on
commodity contracts - (6.35) (100) - (3.88) (100)
----------------------------------------- ---------------
Funds flow from
operations 16.17 28.06 (42) 13.02 27.78 (53)
Unrealized gain (loss)
on commodity contracts - 20.62 (100) - (0.40) (100)
Depletion, depreciation,
and accretion (22.44) (25.55) (12) (23.72) (24.65) (4)
Stock-based compensation (2.15) (0.66) 226 (1.06) (0.53) 100
Future income tax - (7.21) (100) 2.10 1.45 45
----------------------------------------- ---------------
Net earnings (loss) (8.42) 15.26 (155) (9.66) 3.64 (365)
----------------------------------------- ---------------
FINANCIAL HIGHLIGHTS
($ thousand)
Petroleum and natural gas
revenues 3,200 8,071 (60) 10,624 26,328 (60)
Royalties (535) (1,795) (70) (1,447) (5,425) (73)
Operating expenses (1,254) (1,855) (32) (4,466) (5,577) (20)
General and
administrative (290) (336) (14) (890) (927) (4)
Interest (147) (114) 28 (381) (441) (14)
Current income tax 667 52 1,174 667 (1,346) (150)
Realized loss on
commodity contracts - (742) (100) - (1,546) (100)
----------------------------------------- ---------------
Funds flow from
operations 1,640 3,280 (50) 4,108 11,066 (63)
Unrealized gain (loss) on
commodity contracts - 2,411 (100) - (158) (100)
Depletion, depreciation,
and accretion (2,276) (2,987) (24) (7,484) (9,822) (24)
Stock-based compensation (218) (77) 182 (336) (213) 58
Future income tax - (843) (100) 664 577 15
----------------------------------------- ---------------
Net earnings (loss) (854) 1,785 (148) (3,049) 1,451 (310)
----------------------------------------- ---------------
Outstanding shares
(thousand, except where
indicated)
Weighted average - basic 6,391 6,391 - 6,391 6,373 -
Weighted average -
diluted 6,631 6,810 (3) 6,569 6,792 (3)
----------------------------------------- ---------------
Funds flow from
operations - basic
($/share) 0.26 0.51 (49) 0.64 1.74 (63)
Funds flow from
operations - diluted
($/share) 0.25 0.48 (48) 0.63 1.63 (61)
Net earnings (loss) -
basic ($/share) (0.13) 0.28 (146) (0.48) 0.23 (309)
Net earnings (loss) -
diluted ($/share) (0.13) 0.26 (150) (0.48) 0.21 (329)
----------------------------------------- ---------------
Total assets ($ thousand) 40,447 47,455 (15)
-------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
for the three and nine months ended September 30, 2009
Management of Wrangler West Energy Corp. ("Wrangler West" or the "Company") prepared the following information as of
Management's Discussion and Analysis contains the terms 'funds flow from operations' and 'netbacks', which are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Management believes, in addition to net earnings, funds flow from operations is a useful supplemental measure to evaluate performance. Management views funds flow from operating activities to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund the capital expenditure program and to repay debt. Investors are cautioned, however, that this measure should not be construed as an alternative to net earnings determined in accordance with GAAP, as an indication of the Company's performance.
Wrangler West's determination of funds flow from operations may not be comparable to that reported by other companies. Funds flow from operations is equal to cash flow from operations before changes in non-cash operating working capital as presented in the statement of cash flows. Wrangler West presents funds flow from operations per share calculated on a basis consistent with the calculation of earnings per share. Netbacks are calculated using total revenue minus royalties and operating expenses.
The table below illustrates the reconciliation between cash flow from operations and funds flow from operations, as defined above, after changes in non-cash operating working capital for the periods ended
Three months Nine months
ended Sep 30 ended Sep 30
-------------------------------------------------------------------------
($ thousands) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flow from operations 1,508 3,686 2,321 7,788
Change in non-cash operating working
capital 132 (406) 1,787 3,278
-------------------------------------------------------------------------
Funds flow from operations 1,640 3,280 4,108 11,066
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BASIS OF PRESENTATION
Wrangler West converts petroleum and natural gas reserves and volumes to a common unit of measure on a basis of six thousand cubic feet ("mcf") of natural gas equals one barrel ("bbl") of oil. Disclosure using barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. The basis for the boe conversion ratio of 6 mcf equals one bbl is an energy equivalency conversion method, primarily applicable at the burner tip, and it does not represent a value equivalency at the wellhead. The Company calculates boe per day based on total production for the period divided by the number of days during the period.
REVIEW OF INTERIM FINANCIAL STATEMENTS
Wrangler West continues to curtail capital expenditures in 2009 as commodity prices continued their decline which started in 2008 fourth quarter. Third quarter production volumes were consistent with 2009 second quarter production volumes. Late in 2009 third quarter, we shut-in production to conduct a reservoir pressure transient study of the Wabamun A pool at Riviere and completed our annual battery turnaround.
SELECTED QUARTERLY INFORMATION
Three months ended Sep 30 Jun 30 Mar 31 Dec 31
($ thousand, except where indicated) 2009 2009 2009 2008
-------------------------------------------------------------------------
Total revenue(1) 3,200 3,315 4,110 5,094
Funds flow from operations 1,640 1,034 1,433 1,878
Funds flow from operations
- basic ($/share) 0.26 0.16 0.22 0.29
Funds flow from operations
- diluted ($/share) 0.25 0.15 0.19 0.28
Cash flow from operations 1,508 546 267 7,518
Net earnings (loss) (854) (1,009) (1,186) (582)
Earnings (loss) - basic ($/share) (0.13) (0.16) (0.19) (0.09)
Earnings (loss) - diluted ($/share) (0.13) (0.16) (0.19) (0.09)
Total production (boe/d) 1,103 1,117 1,249 1,216
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Sep 30 Jun 30 Mar 31 Dec 31
($ thousand, except where indicated) 2008 2008 2008 2007
-------------------------------------------------------------------------
Total revenue 8,071 10,262 7,995 7,089
Funds flow from operations 3,280 4,102 3,683 3,269
Funds flow from operations
- basic ($/share) 0.51 0.64 0.58 0.51
Funds flow from operations
- diluted ($/share) 0.48 0.60 0.54 0.46
Cash flow from operations 3,686 4,709 (607) 1,672
Net earnings (loss) 1,785 (167) (167) 211
Earnings (loss) - basic ($/share) 0.28 (0.03) (0.03) 0.03
Earnings (loss) - diluted ($/share) 0.26 (0.03) (0.03) 0.03
Total production (boe/d) 1,270 1,535 1,558 1,642
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) In 2008, petroleum and natural gas revenue is before
realized/unrealized gain (loss) on commodity price contracts.
Wrangler West's production profile has declined over the last eight quarters reflecting inherent decline in our existing production base. Curtailment of exploration activity due to soft commodity prices has resulted in no new production additions. Improved well performance in 2009 resulted in reserves write-ups which may offset the daily production volumes delivered as sales during the year.
Volatility in commodity prices continues to cause significant fluctuations in revenue and funds flow from operating activities. In mid 2008, commodity prices were at a historical high which had a positive impact on both revenue and funds flow for that period. Fourth quarter 2008 commodity prices retreated, resulting in a significant decrease in revenue and funds flow. Funds flow from operations for the three months ended
During the third quarter of 2009, management discovered that certain changes in non-cash working capital were not correctly classified between operating and investing in the first and second quarters of 2009. The net change in non-cash working capital remained unchanged. Cash flow from operations in the table above represents the corrected amounts.
Management has reduced exploration and development activity in 2009 and redirected available funds flow to reducing bank indebtedness.
In addition to commodity price fluctuations, operational issues and seasonal access limitations affect results from quarter to quarter.
Management recommends readers refer to the appropriate interim period MD&A for analysis of variances between individual quarters.
PRODUCTION
Daily Production
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($ thousand) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Oil and NGL (bbls/d) 288 277 4 292 348 (16)
Natural gas (mcf/d) 4,888 5,960 (18) 5,184 6,635 (22)
Total (boe/d) 1,103 1,270 (13) 1,156 1,454 (20)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total production for the three and nine months ended September 30, 2009
was lower, a result of no production additions to offset natural decline.
Wrangler West has curtailed drilling activity until improved commodity prices
provide stronger funds flow from operating activities.
Total production for 2009 third quarter decreased one percent from 2009
second quarter.
REVENUES
Production Revenues
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($ thousand) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Oil and NGL 1,722 2,746 (37) 4,360 9,445 (54)
Natural gas 1,477 5,325 (72) 6,265 16,883 (63)
Realized loss on
commodity contracts - (742) (100) - (1,546) (100)
-------------------------------------------------------------------------
Petroleum and natural gas
revenues after realized
loss on commodity
contracts 3,200 7,329 (56) 10,624 24,782 (57)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Prices after realized loss on commodity contracts
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Oil and NGL ($/bbl) 65.06 91.50 (29) 54.74 89.96 (39)
Natural gas ($/mcf) 3.29 9.11 (64) 4.43 8.91 (50)
Total production ($/boe) 31.55 62.69 (50) 33.67 62.20 (46)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the nine months ended September 30, 2009, Wrangler West recognized a
57 percent decrease in total production revenue as the result of a 46 percent
decrease in overall commodity prices and a 20 percent decrease in total
production volumes.
Production revenues for 2009 third quarter decreased three percent from
2009 second quarter, reflecting the further decline in natural gas prices and
production volumes.
ROYALTIES
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($ thousand) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Crown 134 843 (84) 255 2,665 (90)
Other 401 952 (58) 1,192 2,759 (57)
-------------------------------------------------------------------------
Total royalties 535 1,795 (70) 1,447 5,425 (73)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($/boe) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Crown 1.32 7.21 (82) 0.81 6.69 (88)
Other 3.95 8.14 (51) 3.78 6.93 (45)
-------------------------------------------------------------------------
Total royalties 5.27 15.36 (66) 4.59 13.62 (66)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and nine months ended September 30, 2009, total royalties
decreased, a reflection of lower commodity prices and lower current production
volumes. Royalties, as a percentage of revenue, for the nine months ended
September 30, 2009 were 14 percent, a reflection of the weakness in commodity
prices and lower production. Lower production volumes and lower prices
resulted in lower royalty rates for the 2009 third quarter compared to 2008
third quarter.
In 2009 second quarter, a capital cost allowance credit, captured on 2008
prices, resulted in a credit for the period.
OPERATING EXPENSES
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Operating expenses
($ thousand) 1,254 1,855 (32) 4,466 5,577 (20)
Operating expenses
($/boe) 12.36 15.87 (22) 14.15 14.00 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and nine months ended
For 2009 third quarter, Wrangler West included crude oil trucking expenses of
In 2009 third quarter, operating expenses decreased 21 percent, in total and on a boe basis, from 2009 second quarter which included annual property taxes.
NETBACKS
Field netbacks(1)
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($/boe) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Light and medium crude
oil ($/bbl) 35.44 44.58 (21) 25.07 51.07 (51)
Natural gas ($/mcf) 1.06 4.57 (77) 1.92 4.89 (61)
NGL ($/bbl) 30.31 67.62 (55) 23.01 56.72 (59)
Combined netback ($/boe) 13.91 31.46 (56) 14.93 34.59 (57)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) In 2008, field netback is after realized loss on commodity price
contracts.
Wrangler West's combined netbacks reflect the weighting of total
production towards natural gas. For the three and nine months ended September
30, 2009, netbacks decreased due to the decline in commodity prices received.
Combined netback for 2009 third quarter decreased two percent from 2009
second quarter ($14.13 per boe).
GENERAL AND ADMINISTRATIVE (G&A)
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
G&A ($ thousand) 290 336 (14) 890 927 (4)
G&A ($/boe) 2.86 2.88 (1) 2.82 2.33 21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the nine months ended
At
G&A for 2009 third quarter increased five percent in total and on a per boe basis from 2009 second quarter.
INTEREST EXPENSE
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Interest ($ thousand) 147 114 28 381 441 (14)
Interest ($/boe) 1.45 0.98 48 1.21 1.11 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense for the nine months ended
Interest expense in 2009 third quarter increased 17 percent (18 percent on a per boe basis) from 2009 second quarter due to increases in the cost of borrowing. The credit facility bears interest based on the Corporation's debt to cash flow ratio determined at the most recently completed fiscal quarter. Credit facility utilization up to
STOCK-BASED COMPENSATION
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Stock-based compensation
($ thousand) 218 77 183 336 213 58
Stock-based compensation
($/boe) 2.15 0.66 226 1.06 0.53 100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At
For the nine months ended
In 2009 third quarter, stock-based compensation increased from 2009 second quarter due to a grant of options to purchase 600,000 common shares on
DEPLETION, DEPRECIATION AND ACCRETION ("DD&A")
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Depletion, depreciation
and accretion
($ thousand) 2,276 2,987 (24) 7,484 9,822 (24)
Depletion, depreciation
and accretion ($/boe) 22.44 25.55 (12) 23.72 24.65 (4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The decrease in DD&A on a per boe basis for 2009 third quarter reflects
increased reserves at Riviere as a result of better well performance.
DD&A for 2009 second quarter was $22.05 on a per boe basis. Throughout
2009, weak commodity prices caused Wrangler West to defer oil and natural gas
exploration and development activities. Thus, there were no additions to
reserves from exploration.
INCOME TAX
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($ thousand) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Current income tax
expense (recovery) (667) (52) 1,174 (667) 1,346 (150)
Future income tax expense
(recovery) - 843 (100) (664) (577) 15
-------------------------------------------------------------------------
Total (667) 791 (184) (1,330) 770 (273)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($/boe) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Current income tax (6.57) (0.45) 1,360 (2.11) 3.38 (162)
Future income tax expense
(recovery) - 7.21 (100) (2.10) (1.45) 45
-------------------------------------------------------------------------
Total (6.57) 6.76 (197) (4.22) 1.93 (319)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Tax pools sheltered approximately
NET EARNINGS (LOSS)
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Net earnings (loss)
($ thousand) (854) 1,785 (148) (3,049) 1,451 (310)
Net earnings (loss)
($/boe) (8.42) 15.26 (155) (9.66) 3.64 (365)
Net earnings (loss)
- basic ($/share) (0.13) 0.28 (146) (0.48) 0.23 (309)
Net earnings (loss)
- diluted ($/share) (0.13) 0.26 (150) (0.48) 0.21 (329)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and nine months ended September 30, 2009, Wrangler West's
earnings reflected continued low commodity prices for natural gas.
Wrangler West recorded a loss of $1.0 million for 2009 second quarter
(loss of $0.16 on a per share basis).
FUNDS FLOW AND LIQUIDITY
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Funds flow from
operations ($ thousand) 1,640 3,280 (50) 4,108 11,066 (63)
Funds flow from
operations ($/boe) 16.17 28.06 (42) 13.02 27.78 (53)
Funds flow from
operations - basic
($/share) 0.26 0.51 (49) 0.64 1.74 (63)
Funds flow from
operations - diluted
($/share) 0.25 0.48 (48) 0.63 1.63 (61)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and nine months ended
Improvements to funds flow from operating activities and net income will depend on improvements in crude oil and natural gas prices while managing production levels. A shortfall in funds flow from operating activities resulting from weaker commodity prices would require review and prioritization of Wrangler West's exploration budget. As new business opportunities arise, Wrangler West may pursue an increase in the credit facility or seek alternate funding in the equity markets to capture new opportunities.
Wrangler West had a working capital deficiency of
The Corporation's authorized demand revolving credit facility (the "credit facility") decreased to
The Corporation has no material commitments.
Management prepared these financial statements on a going concern basis which assumes the Corporation will be able to discharge its obligations and realize its assets in the normal course of business at the values for which they are carried in these financial statements and the Corporation will be able to continue business activities. In light of the factors described herein, should the going concern assumption not be appropriate, certain asset and liability amounts would require adjustment and reclassification and such adjustments and reclassifications may be material.
TOTAL CAPITALIZATION
($ thousand except where noted) As at 2009 Sep 30
-------------------------------------------------------------------------
Common shares outstanding (thousand) 6,416
Closing market price at September 30 ($/share) 2.25
Market value of common shares 14,436
Net debt 10,215
Total capitalization 24,651
-------------------------------------------------------------------------
As at November 25, 2009, Wrangler West had 6,415,827 common shares
outstanding.
CAPITAL EXPENDITURES
Three months ended Nine months ended
Sep 30 Sep 30
-------------------------------------------------------------------------
% %
($ thousand) 2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
Land 380 78 386 523 438 19
Seismic (13) 96 (113) 113 371 (70)
Capitalized general and
administrative expenses 126 232 (46) 416 580 (28)
Drilling and completions 1 2,711 (100) 502 3,825 (87)
Production equipment
and gathering systems (15) 357 (104) (36) 2,698 (101)
----------------------------------------- ---------------
Total capital expenditures 480 3,474 (86) 1,518 7,912 (81)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In the nine months ended
During the nine months ended
OUTLOOK
Capital expenditures for 2009 third quarter were
Wrangler West's objective is to maintain operations and to expand our inventory of opportunities. We have launched a corporate initiative to increase Wrangler West's exposure to crude oil. We are reviewing operations and may consider rationalizing certain assets to improve our inventory of drillable prospects in an effort to acquire new reserves. We will consider business combinations, acquisitions or mergers and pursue opportunities that have the most potential to enhance shareholder value.
FORWARD-LOOKING STATEMENTS
This MD&A contains certain forward-looking statements and forward-looking information (collectively, "forward-looking statements") within the meaning of Canadian securities laws. These statements may relate to management's outlook, anticipated events or expected results specific to: Wrangler West's future financial position and business strategy; projected operating expenses; capital expenditures; financial and operating results; taxes, tax horizons and tax treatment; plans and objectives involving financing; commodity prices; number, type, timing and tie-in of wells drilled or recompleted; commencement of production and related expenses; the magnitude of crude oil and natural gas reserves; the ultimate value of operated and non-operated assets. Information relating to reserves is deemed forward-looking, as it involves the implied assessment, based on certain estimates and assumptions that reserves described can be profitably produced in the future. In some cases, readers can identify forward-looking statements by terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts.
Certain factors and assumptions are the basis for management's forward-looking statements regarding: the outcome of future business prospects and transactions; results of operations; supply and demand for commodities produced, their prices and volatility; and royalty rates or any related incentives. Specifically, in projecting future activities, Wrangler West may make certain assumptions about the Company's ability to: discover and develop economic crude oil and natural gas reserves; produce discovered reserves; manage expenses for material and services; access to production and transportation facilities; access, recruit and retain qualified and experienced staff; respond to changes in government and other regulations. While management considers the assumptions made are reasonable, based on information currently available, they may prove incorrect. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted.
Wrangler West's business risks arise from uncertainties involving, but not limited to: crude oil and natural gas commodity prices; interest and currency exchange rates; environmental and safety issues; unanticipated interruption of operations; surface access timing and costs; and financial and liquidity considerations. Additional risk arises from, among other factors, the production performance of existing properties, changes in regulatory standards and uncertain results from the investment of capital.
Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, from management's assessment of relevant information currently available. Readers are cautioned that: a) such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein; and b) the list of risk factors cited is not exhaustive.
Wrangler West provides this MD&A as of
ADDITIONAL INFORMATION
Additional information relating to Wrangler West Energy Corp. is filed on SEDAR and accessible at www.sedar.com. To obtain copies of published corporate information, contact JoAnne Dorval-Dronyk, Chief Financial Officer at Wrangler West Energy Corp. 1950, 444 Fifth Avenue SW,
Interim Balance Sheets
(unaudited)
2009 Sep 30 2008 Dec 31
-------------------------------------------------------------------------
Assets
Current assets
Accounts receivable $ 1,056,121 $ 1,824,809
Income tax receivable 389,567 -
Prepaid expenses 362,191 517,242
-------------------------------------------------------------------------
1,807,879 2,342,051
Property and equipment (note 3) 38,638,918 44,297,308
-------------------------------------------------------------------------
$40,446,797 $46,639,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness (note 5) $10,690,020 $10,272,953
Accounts payable and accrued liabilities 1,332,982 3,933,928
Income tax payable - 996,727
-------------------------------------------------------------------------
12,023,002 15,203,608
Asset retirement obligation 2,173,971 2,058,195
Future income tax 4,580,655 5,199,419
-------------------------------------------------------------------------
18,777,628 22,461,222
Shareholders' equity
Share capital (note 4) 11,390,557 11,309,057
Contributed surplus (note 4) 4,005,070 3,546,955
Retained earnings 6,273,542 9,322,125
-------------------------------------------------------------------------
21,669,169 24,178,137
Basis of presentation (note 1)
-------------------------------------------------------------------------
$40,446,797 $46,639,359
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the interim financial statements
Interim Statements of Operations,
Comprehensive Loss and Retained Earnings
(unaudited)
Three months ended Sep 30 Nine months ended Sep 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue
Petroleum and
natural gas $ 3,199,673 $ 8,071,478 $10,624,410 $26,328,321
Royalties (534,750) (1,795,291) (1,446,985) (5,424,802)
Realized loss on
commodity contracts - (742,401) - (1,546,354)
Unrealized gain (loss)
on commodity
contracts - 2,411,377 - (157,623)
-------------------------------------------------------------------------
2,664,923 7,945,163 9,177,425 19,199,542
Expenses
Operating 1,253,690 1,855,050 4,465,710 5,576,680
General and
administrative 290,444 336,411 889,625 927,094
Interest 146,910 114,342 380,574 440,843
Stock-based
compensation
(note 4) 218,106 77,086 336,025 212,642
Depletion,
depreciation
and accretion 2,276,030 2,987,048 7,484,090 9,821,844
-------------------------------------------------------------------------
4,185,180 5,369,937 13,556,024 16,979,103
-------------------------------------------------------------------------
Earnings (loss)
before income tax (1,520,257) 2,575,226 (4,378,599) 2,220,439
Current income tax
(recovery) (666,514) (52,316) (666,514) 1,346,464
Future income tax
(recovery) - 842,988 (663,502) (576,539)
-------------------------------------------------------------------------
(666,514) 790,672 (1,330,016) 769,925
-------------------------------------------------------------------------
Net earnings (loss)
and comprehensive
income (loss) for
the period (853,743) 1,784,554 (3,048,583) 1,450,514
Retained earnings,
beginning of period 7,127,285 8,119,608 9,322,125 8,453,648
-------------------------------------------------------------------------
Retained earnings,
end of period $ 6,273,542 $ 9,904,162 $ 6,273,542 $ 9,904,162
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per
share - basic $ (0.13) $ 0.28 $ (0.48) $ 0.23
Earnings (loss) per
share - diluted $ (0.13) $ 0.26 $ (0.48) $ 0.21
-------------------------------------------------------------------------
See accompanying notes to the interim financial statements
Interim Statements of Cash Flows
(unaudited)
Three months ended Sep 30 Nine months ended Sep 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by
(used in):
Operating
Net earnings (loss)
for the period $ (853,743) $ 1,784,554 $(3,048,583) $ 1,450,514
Items not
involving cash
Depletion,
depreciation
and accretion 2,276,030 2,987,048 7,484,090 9,821,844
Stock-based
compensation 218,106 77,086 336,025 212,642
Future income
tax (recovery) - 842,988 (663,502) (576,539)
Unrealized loss
(gain) on
commodity
contracts - (2,411,377) - 157,623
-------------------------------------------------------------------------
1,640,393 3,280,299 4,108,030 11,066,084
Change in non-cash
operating working
capital (note 7) (132,751) 405,798 (1,787,001) (3,277,857)
-------------------------------------------------------------------------
1,507,642 3,686,097 2,321,029 7,788,227
Financing
Increase (decrease)
in bank
indebtedness (496,213) (1,908,552) 417,067 (2,279,384)
Issuance of common
shares 56,250 - 56,250 165,000
-------------------------------------------------------------------------
(439,963) (1,908,552) 473,317 (2,114,384)
Investing
Additions to
petroleum and
natural gas
properties (479,504) (3,473,959) (1,517,847) (7,912,191)
Change in non-cash
investing working
capital (note 7) (588,175) 1,696,414 (1,276,499) 2,238,348
-------------------------------------------------------------------------
(1,067,679) (1,777,545) (2,794,346) (5,673,843)
Cash and cash
equivalents,
beginning and end
of period - - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary cash
flow information
Interest paid $ 149,782 $ 130,608 $ 369,133 $ 460,944
Income tax paid $ - $ - $ 685,000 $ 1,240,000
See accompanying notes to the interim financial statements
Notes to the Interim Financial Statements
Three and nine months ended September 30, 2009 and 2008
(unaudited)
Wrangler West Energy Corp. (the "Corporation") was incorporated on
March 17, 2000 under the Business Corporations Act (Alberta). The
Corporation's primary business activity is the exploration for,
development and production of, petroleum and natural gas in the Province
of Alberta, Canada.
1. Basis of presentation
The preparation of the financial statements in conformity with Canadian
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
dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
The comparative interim financial statements for the three and nine
months ended September 30, 2008 were not reviewed by the Corporation's
auditor.
The Corporation's future operations are dependent on its ability to: a)
successfully acquire, explore for, develop and produce economically
viable reserves; b) access capital as required to support the
Corporation's activities; and, c) maintain the financial support of its
lenders. Future operations are also dependent on oil and natural gas
prices, the latter of which has continued to deteriorate during 2009. The
Corporation currently has no derivative contracts and is therefore fully
exposed to any commodity price deterioration.
For the nine months ended September 30, 2009, the Corporation had cash
flow from operations of $2.3 million after utilizing net cash of
$1.8 million to reduce the non-bank indebtedness portion of working
capital deficiency, and a net loss of $3.0 million. At September 30,
2009, there was a working capital deficiency (which includes bank
indebtedness) of $10.2 million, an improvement over the deficiency of
$11.4 million at June 30, 2009 and $12.9 million at December 31, 2008.
The Corporation's authorized demand revolving credit facility (the
"credit facility") decreased to $15 million from $20 million on May 20,
2009. The $15 million credit facility initially included a base lending
value of $12.5 million which declined to $11.5 million on July 15, 2009.
Any amount drawn above the base lending value requires consent of the
lender. The borrowing base is reviewed at least semi-annually with the
most recent review completed on October 31, 2009. There were no changes
to the amount or terms of the credit facility. The next review is
scheduled to be completed prior to April 30, 2010. The Corporation's
capital program for the remainder of 2009 will continue to be funded by
funds generated from operating activities.
Management prepared these financial statements on a going concern basis
which assumes the Corporation will be able to discharge its obligations
and realize its assets in the normal course of business at the values for
which they are carried in these financial statements and the Corporation
will be able to continue business activities. In light of the factors
described herein, should the going concern assumption not be appropriate,
certain asset and liability amounts would require adjustment and
reclassification and such adjustments and reclassifications may be
material.
2. Significant accounting policies
Management prepared the interim financial statements of the Corporation
in accordance with generally accepted accounting principles ("GAAP") in
Canada. The interim financial statements have been prepared following the
same accounting policies and methods of computation as the financial
statements for the year ended December 31, 2008. Management has omitted
or condensed certain information and disclosures normally required as
inclusions in the notes to the annual financial statements. These interim
financial statements and the notes thereto should be read in conjunction
with the annual financial statements in the Corporation's 2008 annual
report.
3. Property and equipment
2009 Sep 30 2008 Dec 31
-------------------------------------------------------------------------
Petroleum and natural gas interests
and equipment $ 89,223,408 $ 87,513,484
Accumulated depletion and depreciation (50,584,490) (43,216,176)
-------------------------------------------------------------------------
$ 38,638,918 $ 44,297,308
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At September 30, 2009 the cost of unproved interests of $264,000 (2008
Dec 31 - $472,000) were excluded from costs subject to depletion and
depreciation. At September 30, 2009, the future costs of developing
proved reserves of $3,418,000 (2008 Dec 31 - $3,228,000) were included in
costs subject to depletion and depreciation.
For the three and nine months ended September 30, 2009, the Corporation
capitalized general and administrative expenses of $126,000 and $416,000
respectively (2008 - $232,000 and $580,000) and stock-based compensation
of $122,000 and $192,000 (2008 - $55,000 and $233,000) relating to
exploration and development activities.
4. Share capital
(a) Common shares issued
Number Amount
-----------------------------------------------------------------
Balance, beginning of period 6,390,827 $ 11,309,057
Stock options exercised 25,000 81,500
-----------------------------------------------------------------
Balance, end of period 6,415,827 $ 11,390,557
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) Stock options
The table below provides a reconciliation of common share options
outstanding at September 30, 2009.
2009 Sep 30
-----------------------------------------------------------------
Balance, beginning of period 1,232,000
Expired May 28, 2009 (590,000)
Expired June 25, 2009 (30,000)
Granted September 16, 2009 600,000
Exercised September 28, 2009 (25,000)
-----------------------------------------------------------------
Balance, end of period 1,187,000
-----------------------------------------------------------------
-----------------------------------------------------------------
(c) Stock-based compensation
On September 16, 2009, the Corporation granted options to
purchase 600,000 common shares at $2.25 per common share. These
options vested one-half immediately. The remaining one-half will
vest on September 16, 2010.
The Corporation estimated the fair value of each option grant on
the grant date using the Black-Scholes option-pricing model with
the following weighted average assumptions and results.
-----------------------------------------------------------------
2009
-----------------------------------------------------------------
Assumptions
Risk free interest rate 4%
Volatility 45%
Dividend yield -
Expected life (in years) 5
-----------------------------------------------------------------
Resulting weighted average fair value per option $ 1.01
-----------------------------------------------------------------
-----------------------------------------------------------------
(d) Contributed surplus
The table below provides a reconciliation of contributed surplus
for the nine months ended September 30, 2009.
2009 Sep 30
-----------------------------------------------------------------
Balance, beginning of period $ 3,546,955
Stock-based compensation 483,365
Options exercised (25,250)
-----------------------------------------------------------------
Balance, end of period $ 4,005,070
-----------------------------------------------------------------
-----------------------------------------------------------------
(e) Per share amounts
For the three and nine months ended September 30, 2009, the
weighted average common shares outstanding used in calculating
net loss per share were 6,391,370 and 6,391,010 respectively,
basic and diluted (three months ended September 30, 2008 -
6,390,827 basic and 6,810,083 diluted; nine months ended
September 30, 2008 - 6,372,575 basic and 6,791,831 diluted).
5. Financial instruments
(a) Fair value
The Corporation's financial instruments recognized in the balance
sheet consist of accounts receivable, bank indebtedness and
accounts payable and accrued liabilities. The fair values of
these financial instruments approximate their carrying amounts
due to their short terms to maturity or the market interest rate
on the bank indebtedness.
(b) Liquidity risk
Liquidity risk addresses whether the Corporation will meet its
financial obligations as they are due. The Corporation's approach
to managing liquidity is to ensure, as far as possible, it will
have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring
unacceptable losses or risking harm to the Corporation's
reputation.
The Corporation prepares an annual capital expenditures budget,
which is regularly monitored and updated as considered necessary.
Further, the Corporation requires authorizations for expenditures
for both operated and non-operated projects to further manage
capital expenditures. The Corporation matches its payment cycle
to the collection of petroleum and natural gas revenues on the
25th of each month.
To support the capital expenditures program, the Corporation has
a credit facility subject to annual review by the lender. In May
2009, Wrangler West negotiated a renewal of its credit facility.
The $15 million credit facility initially included a base lending
value of $12.5 million which declined to $11.5 million on
July 15, 2009. Any amount drawn above the base lending value
requires consent of the lender. The borrowing base is reviewed at
least semi-annually with the most recent review completed at
October 31, 2009. There were no changes to the amount or terms of
the credit facility at October 31, 2009. The next review is
scheduled to be completed prior to April 30, 2010.
The credit facility bears interest based on the Corporation's
debt to cash flow ratio determined at the most recently completed
fiscal quarter. Credit facility utilization up to $11.5 million
bears interest at the bank's prime rate plus 225 basis points for
a debt to cash flow ratio less than, or equal to, 1 : 1. As the
Corporation's debt to cash flow ratio increases, the interest
rate increases to a maximum of prime plus 400 basis points for a
debt to cash flow ratio greater than 3 : 1. The Corporation paid
interest at a rate of prime plus 350 basis points for the three
months ended September 30, 2009.
At September 30, 2009, the Corporation had drawn $10.7 million on
the credit facility. Working capital deficit (net debt) at
September 30, 2009 was $10.2 million (see note 1).
6. Capital management
Wrangler West's objectives when managing capital are to: (1) deploy
capital to provide an appropriate return on investment to shareholders;
(2) maintain financial flexibility to preserve the Corporation's ability
to meet financial obligations; and (3) maintain a capital structure that
provides financial flexibility to manage the Corporation's ongoing
exploration program.
The Corporation's strategy is to maintain a flexible capital structure
consistent with its business objectives and to respond to changes in
economic conditions while managing the risk characteristics of the
underlying petroleum and natural gas assets. Capital structure is
considered to include share capital, bank debt and working capital. To
maintain or adjust capital structure, the Corporation may issue common
shares, increase debt, or adjust capital expenditures.
A key measure Wrangler West utilizes in evaluating capital structure is
the ratio of net debt to annualized funds flow from operations. The ratio
is calculated as net debt, defined as outstanding bank debt plus or minus
working capital, divided by annualized funds flow from operations before
asset retirement obligations and changes in non-cash working capital for
the most recent quarter, annualized (multiplied by four).
Wrangler West's objective is to maintain a ratio of net debt to
annualized funds flow from operations of 1.5 : 1 or less. During periods
of depressed commodity prices, the Corporation may not meet this
objective. Remedies include reductions in capital expenditures, operating
expenses and other measures. At September 30, 2009, Wrangler West's ratio
of net debt to annualized funds flow from operations was 1.6 : 1.
Wrangler West's share capital is not subject to external restrictions.
However the credit facility available is based on the lender's annual
review of the Corporation's petroleum and natural gas reserves.
There were no changes to the Corporation's approach to capital management
during the nine months ended September 30, 2009.
7. Other
During the third quarter of 2009, management discovered that certain
changes in non-cash working capital were not correctly classified between
operating and investing in the first and second quarters of 2009. The net
change in non-cash working capital remained unchanged. The following
table summarizes the corrected and reported amounts for those periods.
Six months ended Three months ended Three months ended
2009 Jun 30 2009 Jun 30 2009 Mar 31
-------------------------------------------------------------------------
($
thousand) Corrected Reported Corrected Reported Corrected Reported
-------------------------------------------------------------------------
Change in
non-cash
operating
working
capital (1,654) (407) (489) 351 (1,166) (759)
Change in
non-cash
investing
working
capital (688) (1,935) 484 (356) (1,172) (1,579)
-------------------------------------------------------------------------
Net change
in non-cash
working
capital (2,342) (2,342) (5) (5) (2,338) (2,338)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash
provided by
operations 813 2,060 546 1,386 267 674
-------------------------------------------------------------------------
Cash
provided by
(used in)
investing (1,727) (2,973) (61) (901) (1,666) (2,073)
-------------------------------------------------------------------------
Comparative amounts in 2010 will reflect the corrected amounts.
Reader Advisory
Financial outlook information contained in the MD&A of this news release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, from management's assessment of relevant information currently available. Readers are cautioned that: a) such financial outlook information should not be used for purposes other than for which it is disclosed herein; and b) the list of risk factors cited in the forward-looking statements disclosure in the MD&A is not exhaustive.
Wrangler West provides this information as of
Corporate Profile
Wrangler West is a Canadian junior oil and natural gas producer which has been building production and assets through exploration in Alberta. Since inception, our mandate has been to use the drill bit to add shareholder value. We expect disciplined management of our operations and production portfolio will create sufficient funds flow to support ongoing operations. Wrangler West will continue to reinvest funds flow from operations and other available capital to protect and add future value. Wrangler West trades on the TSX Venture Exchange under the symbol "WX".
The TSX Venture Exchange has not reviewed, and does not accept
responsibility for, the adequacy or accuracy of this press release.
For further information: To obtain copies of published corporate information, contact JoAnne Dorval-Dronyk, Chief Financial Officer at Wrangler West Energy Corp. 1950, 444 Fifth Avenue SW, Calgary, Alberta, Canada, T2P 2T8 or e-mail [email protected]
Share this article