Exhibit 99.1
COMPTON PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION
as at June 30, 2010
Supplemental information to the June 30, 2010 Canadian GAAP unaudited consolidated financial statements as filed on August 5, 2010.
Sale of assets
On June 30, 2010, the Corporation completed the sale of $115.0 million in assets at Niton and also, completed the sale of an additional $35.2 million in assets at Gilby, which closed subsequent to the quarter.
Recapitalization
Subsequent to June 30, 2010, the Corporation announced a proposed Recapitalization Plan affecting the Senior Term Notes. The Recapitalization Plan proposes to exchange all of the existing US$450.0 million Notes for a combination of:
| a) | US$193.5 million 10% notes due 2017; |
| b) | US$184.5 million of cash; and |
| c) | US$45.0 million 10% notes due September 2011 |
Reconciliation of consolidated financial statements to United States generally accepted accounting principles
These consolidated financial statements of Compton Petroleum Corporation (the “Corporation” or “Company”) have been prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”) which, in most respects, conforms to accounting principles generally accepted in the United States of America (“US GAAP”). The significant differences in those principles, as they apply to the Company’s statements of earnings and other comprehensive income, balance sheets, and statements of cash flow, are described below.
Reconciliation of Net Earnings (Loss) under Canadian GAAP to US GAAP:
| Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
| 2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Net earnings (loss) for period, as reported | $ | (35,297 | ) | $ | 2,480 | $ | (8,330 | ) | $ | (43,003 | ) | $ | 129,266 | |||||||
Adjustments | ||||||||||||||||||||
Depletion and depreciation, net (Note a) | 40,476 | 15,733 | 39,819 | (21,806 | ) | (625 | ) | |||||||||||||
Business combination, net (Note e) | — | — | 201 | — | (201 | ) | ||||||||||||||
Ceiling test write-down, net (Note a) | — | (272,678 | ) | (489,272 | ) | (566,441 | ) | — | ||||||||||||
Net earnings (loss) – US GAAP | $ | 5,179 | $ | (254,465 | ) | $ | (457,582 | ) | $ | (631,250 | ) | $ | 128,440 | |||||||
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Consolidated Statements of Earnings (Loss) – US GAAP
| Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
| 2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Revenue, net of royalties | $ | 105,948 | $ | 109,461 | $ | 200,202 | $ | 490,374 | $ | 403,540 | ||||||||||
Expenses | ||||||||||||||||||||
Operating | 36,484 | 40,998 | 86,195 | 114,205 | 101,515 | |||||||||||||||
Transportation | 3,392 | 3,548 | 6,118 | 8,378 | 12,615 | |||||||||||||||
Administrative | 11,239 | 13,235 | 28,611 | 31,015 | 29,717 | |||||||||||||||
Interest and finance charges | 26,977 | 28,641 | 56,886 | 60,911 | 63,493 | |||||||||||||||
Depletion and depreciation (Note a) | 14,397 | 411,940 | 733,983 | 942,301 | 152,245 | |||||||||||||||
Other (gains) and losses | 4,377 | (27,772 | ) | (84,810 | ) | 113,782 | (73,486 | ) | ||||||||||||
Accretion of asset retirement obligations | 2,110 | 1,500 | 3,242 | 3,142 | 2,718 | |||||||||||||||
Stock based compensation | 1,776 | 1,880 | 4,147 | 9,574 | 12,608 | |||||||||||||||
Other Costs | 14,834 | 2,756 | 4,816 | 35,490 | — | |||||||||||||||
Loss on equity investment (Note g) | — | — | — | — | 159 | |||||||||||||||
Goodwill write off | — | — | 9,774 | — | — | |||||||||||||||
Risk management (gain) loss (Note c) | (13,945 | ) | (10,961 | ) | (20,473 | ) | (21,539 | ) | (6,014 | ) | ||||||||||
Earnings (loss) before taxes and non-controlling interest | 4,307 | (356,304 | ) | (628,287 | ) | (806,885 | ) | 107,970 | ||||||||||||
Income tax recovery (Note a, e) | (1,615 | ) | (104,257 | ) | (173,964 | ) | (181,257 | ) | (26,602 | ) | ||||||||||
Non-controlling interest (Note g) | 743 | 2,418 | 3,259 | 5,622 | 6,132 | |||||||||||||||
Net earnings (loss) – US GAAP | $ | 5,179 | $ | (254,465 | ) | $ | (457,582 | ) | $ | (631,250 | ) | $ | 128,440 | |||||||
Net earnings (loss) per common share – US GAAP | ||||||||||||||||||||
Basic | $ | 0.02 | $ | (2.03 | ) | $ | (2.88 | ) | $ | (4.87 | ) | $ | 1.00 | |||||||
Diluted | $ | 0.02 | $ | (2.03 | ) | $ | (2.88 | ) | $ | (4.87 | ) | $ | 0.97 | |||||||
Consolidated Statements of Other Comprehensive Income (Loss) – US GAAP
| Six months ended June 30, | Years ended December 31, | ||||||||||||||||||
| 2010 | 2009 | 2009 | 2008 | 2007 | |||||||||||||||
Net earnings (loss) – US GAAP | $ | 5,179 | $ | (254,465 | ) | $ | (457,582 | ) | $ | (631,250 | ) | $ | 128,440 | ||||||
Defined benefit pension plan (Note d) | (147 | ) | 26 | 102 | 434 | 67 | |||||||||||||
Comprehensive income (loss) | $ | 5,032 | $ | (254,439 | ) | $ | (457,480 | ) | $ | (630,816 | ) | $ | 128,507 | ||||||
Consolidated Statements of Accumulated Other Comprehensive Income (Loss) – US GAAP
| Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
| 2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Balance, beginning of period | $ | (290 | ) | $ | (392 | ) | $ | (392 | ) | $ | (826 | ) | $ | (893 | ) | |||||
Defined benefit pension plan (Note d) | (147 | ) | 26 | 102 | 434 | 67 | ||||||||||||||
Balance, end of period | $ | (437 | ) | $ | (366 | ) | $ | (290 | ) | $ | (392 | ) | $ | (826 | ) | |||||
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Condensed Consolidated Balance Sheets
| As at June 30, 2010 | As at December 31, | ||||||||||||||||||||
| 2009 | 2008 | ||||||||||||||||||||
| As Reported | US GAAP | As Reported | US GAAP Restated | As Reported | US GAAP Restated | ||||||||||||||||
Assets | |||||||||||||||||||||
Cash | $ | 33,560 | $ | 33,560 | $ | — | $ | — | $ | 3,892 | $ | 3,892 | |||||||||
Other current assets | 55,705 | 55,705 | 51,886 | 51,886 | 85,664 | 85,664 | |||||||||||||||
Property and equipment (Note a) | 1,756,705 | 416,312 | 1,944,196 | 549,834 | 2,088,668 | 1,293,579 | |||||||||||||||
Goodwill (Note e) | — | — | — | — | 9,933 | 9,732 | |||||||||||||||
Other assets (Notes c, d) | 744 | 7,869 | 679 | 8,960 | 426 | 9,605 | |||||||||||||||
Risk management gain | 488 | 488 | — | — | — | — | |||||||||||||||
Future income taxes (Notes a, e) | — | 75,311 | — | 71,285 | — | — | |||||||||||||||
| $ | 1,847,202 | $ | 589,245 | $ | 1,996,761 | $ | 681,965 | $ | 2,188,583 |
$ |
1,402,472 |
| |||||||||
Liabilities and shareholders’ equity | |||||||||||||||||||||
Current liabilities | $ | 70,303 | $ | 70,303 | $ | 170,906 | $ | 170,906 | $ | 127,695 | $ | 127,695 | |||||||||
Long-term debt (Note c) | 469,061 | 476,142 | 461,741 | 469,703 | 829,321 | 838,940 | |||||||||||||||
Asset retirement obligations | 40,657 | 40,657 | 41,812 | 41,812 | 34,281 | 34,281 | |||||||||||||||
Risk management loss | 21 | 21 | 1,331 | 1,331 | — | — | |||||||||||||||
Unfunded pension liability (Note d) | — | — | — | — | — | 56 | |||||||||||||||
MPP term financing (Note g) | 43,790 | 49,332 | 46,807 | 51,685 | — | — | |||||||||||||||
Future income taxes (Notes a, e) | 260,258 | — | 277,728 | — | 302,834 | 103,607 | |||||||||||||||
Non-controlling interest | 4,942 | — | 4,199 | — | 59,762 | — | |||||||||||||||
| 889,032 | 636,455 | 1,004,524 | 735,437 | 1,353,893 |
|
1,104,579 |
| ||||||||||||||
Non-controlling interest | — | — | — | — | — | 59,762 | |||||||||||||||
Capital stock (Note b) | 386,714 | 416,701 | 386,706 | 416,693 | 237,703 | 267,690 | |||||||||||||||
Share Purchase Warrants | 13,800 | 13,800 | 13,800 | 13,800 | — | — | |||||||||||||||
Contributed surplus | 37,326 | 37,326 | 36,104 | 36,104 | 33,030 | 33,030 | |||||||||||||||
Retained earnings (deficit) | 520,330 | (514,600 | ) | 555,627 | (519,779 | ) | 563,957 | (62,197 | ) | ||||||||||||
Accumulated other comprehensive income (loss) (Note d) | — | (437 | ) | — | (290 | ) | — | (392 | ) | ||||||||||||
| 958,170 | (47,210 | ) | 992,237 | (53,472 | ) | 834,690 | 297,893 | ||||||||||||||
| $ | 1,847,202 | $ | 589,245 | $ | 1,996,761 | $ | 681,965 | $ | 2,188,583 |
$ |
1,402,472 |
| |||||||||
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Condensed Consolidated Statements of Cash Flow
| Six months ended June 30, | Years ended December 31, | |||||||||||||||||||
| 2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Operating activities | ||||||||||||||||||||
Net earnings (loss) | $ | 5,179 | $ | (254,465 | ) | $ | (457,582 | ) | $ | (631,250 | ) | $ | 128,440 | |||||||
Amortization of deferred charges and other | 5,863 | 292 | (1,123 | ) | 7,422 | 8,648 | ||||||||||||||
Depletion and depreciation | 14,397 | 411,940 | 733,983 | 942,301 | 152,245 | |||||||||||||||
Accretion of asset retirement obligations | 2,110 | 1,500 | 3,242 | 3,142 | 2,718 | |||||||||||||||
Unrealized foreign exchange (gain) loss | 6,300 | (27,945 | ) | (80,100 | ) | 106,425 | (79,740 | ) | ||||||||||||
Future income taxes | (1,615 | ) | (104,821 | ) | (174,058 | ) | (181,293 | ) | (26,619 | ) | ||||||||||
Unrealized risk management loss | (9,725 | ) | 2,494 | 9,510 | (2,546 | ) | 5,467 | |||||||||||||
Other | (4,660 | ) | 2,618 | 11,567 | 11,680 | 10,266 | ||||||||||||||
Change in non-cash working capital | 11,610 | (20,692 | ) | (16,605 | ) | 44,350 | (23,366 | ) | ||||||||||||
Cash from operating activities | 29,459 | 10,921 | 28,834 | 300,231 | 178,059 | |||||||||||||||
Cash from (used in) financing activities | (109,789 | ) | 47,660 | (29,942 | ) | (119,776 | ) | 60,725 | ||||||||||||
Cash from (used in) investing activities | 113,890 | (62,473 | ) | (2,784 | ) | (185,228 | ) | (241,995 | ) | |||||||||||
Change in cash | 33,560 | (3,892 | ) | (3,892 | ) | (4,773 | ) | (3,211 | ) | |||||||||||
Cash, beginning of period | — | 3,892 | 3,892 | 8,665 | 11,876 | |||||||||||||||
Cash, end of period | $ | 33,560 | $ | — | $ | — | $ | 3,892 | $ | 8,665 | ||||||||||
Notes to the consolidated financial statements
| a) | Full cost accounting |
The full cost method of accounting for crude oil and natural gas operations under Canadian and US GAAP differ in the following respects.
Under US GAAP, an impairment test is applied to ensure the unamortized capitalized costs in each cost centre do not exceed the sum of the present value, discounted at 10%, of the estimated average constant dollar, future net operating revenue from proved reserves plus unimpaired unproved property costs less applicable taxes. Under Canadian GAAP, a similar impairment test calculation is performed with the exception that cash flows from proved reserves are undiscounted and utilize forecasted pricing to determine whether impairments exist. If impairment exists, then the amount of the write-down is determined using the fair value of reserves. An expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period.
The Company has completed an impairment test calculation at June 30, 2010, based on the average prices in effect on the first day of each month in the twelve month period, which indicated no impairment. At December 31, 2009, based on the average prices in effect on the first day of each month in the year, the calculation indicated an impairment of its oil and natural gas properties of approximately $489.3 million, net of tax (June 30, 2009—$272.7 million, December 31, 2008—$566.4 million). As a result, as at December 31, 2009, Compton recorded a reduction to property and equipment and an increase to depletion expense of $652.4 million with a corresponding recovery of future income tax and a reduction of future tax expense of $163.1 million (June 30, 2009—$363.6 million and $90.9 million respectively, December 31, 2008—$755.3 million and $188.8 million respectively). The December 31, 2007 impairment test indicated a write down of $105.4 million, net of tax however, natural gas prices, subsequent to period end, improved sufficiently to eliminate this calculated impairment.
Depletion and depreciation on property and equipment is provided using the unit-of-production method under Canadian and US GAAP. Both methods use proved reserves to determine the rate. However, for Canadian GAAP, proved reserves are determined using forecasted prices whereas US GAAP applies average constant prices. This reconciling item resulted in a $40.5 million, net of tax, decrease to depletion and depreciation expense for US GAAP purposes during the period ended June 30, 2010, (December 31, 2009—$39.8 million decrease, June 30, 2009—$15.7 million decrease, December 31, 2008—$21.8 million increase and December 31, 2007—$0.6 million, increase).
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| b) | Future income taxes |
Under US GAAP, enacted tax rates are used to calculate future taxes, whereas Canadian GAAP uses substantively enacted tax rates. The future income tax adjustments included in the reconciliation of net earnings under Canadian GAAP to US GAAP and the balance sheet effects include the effect of such rate differences, if any, as well as the tax effect of the other reconciling items noted.
US GAAP requires flow-through shares be recorded at their fair value without any adjustment for the renouncement of the tax deductions and any temporary difference resulting from the renouncement must be recognized in the determination of tax expense in the year incurred.
The cumulative retained earnings adjustment relating to flow-through shares issued prior to December 31, 2003 was $30.0 million.
The book value of the Corporation’s assets, for US GAAP purposes, is less than the tax pools available resulting in a future income tax asset. Compton anticipates future earnings generated from the realization of its proved and probable reserves will be more than sufficient to realize this asset.
| c) | Deferred financing charges |
Under Canadian GAAP, transaction costs associated with the issuance of senior term notes and MPP are netted against long-term debt. Under US GAAP, these costs are disclosed as other assets and have been reclassified to conform to this presentation.
| d) | Defined benefit pension plan |
For US GAAP purposes, the Corporation follows ASC Topic 715 “Compensation Retirement Benefits”. As a result, the Corporation recognizes the over or under funded status of defined benefit pension plans on the balance sheet as either an asset or liability and to recognize changes in the funding status through other comprehensive income. Canadian GAAP currently requires recognition of the accrued benefit or liability, however does not require the Corporation to recognize the funded status of the plan on the balance sheet.
| e) | Business combination |
On August 15, 2007, Compton closed the acquisition of Stylus. During the five month period prior to close, the Corporation had acquired 3.7% of the issued and outstanding shares of Stylus on the open market. US GAAP requires retroactive restatement of the initial 3.7% to an equity investment from the date of acquisition to the date of consolidation on change of control. The application of this standard to the acquisition resulted in a fiscal 2007 charge to earnings of $201.0 thousand net of tax recovery and a corresponding adjustment to goodwill. At December 31, 2009, the goodwill balance was written off to earnings.
| f) | Share based payments |
On March 1, 2008, Compton implemented a RSU plan as disclosed in note 12(d) of the December 31, 2009 consolidated financial statements. Under Canadian GAAP the obligations of the plan are recorded using the intrinsic value method. US GAAP, under ASC Topic 718, “Compensation – Stock Compensation”, measures the obligation using the fair value method. The Corporation has determined that there was no difference in the obligation using either method.
| g) | MPP term financing |
At June 30, 2010, Compton volumes, processed through the plant, equated to 81% of total throughput volume and the Corporation continues to manage the day to day operations of the plant through a management agreement with the owners of the facility. MPP is considered a variable interest entity, with Compton as the primary beneficiary, and as such is consolidated in these consolidated financial statements. In April 2009, the terms of the renewed processing agreement, between Compton and the Mazeppa Processing Partnership (“MPP”), changed sufficiently such that the Corporation has bi-furcated the payments made to MPP under the agreement between
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current liabilities, long term liabilities and non-controlling interest (“NCI”). Under US GAAP, bi-furcation is not permitted and consequently, the entire amount of the NCI has been classified to MPP term financing.
| h) | Receivable and payable amounts |
| As at June 30, | As at December 31, | ||||||||
| 2010 | 2009 | 2008 | |||||||
Accounts receivable includes the following: | |||||||||
Revenue receivable | $ | 1,162 | $ | 1,453 | $ | 3,012 | |||
Joint interest receivable | 8,971 | 6,540 | 16,236 | ||||||
Accruals | 30,132 | 28,038 | 43,161 | ||||||
Other receivables | 2,382 | 1,358 | 2,808 | ||||||
| $ | 42,647 | $ | 37,389 | $ | 65,217 | ||||
Accounts payable includes the following: | |||||||||
Trade payables | $ | 8,010 | $ | 5,587 | $ | 24,133 | |||
Royalties payable | 830 | 1,363 | 4,815 | ||||||
Accruals | 49,838 | 51,066 | 93,414 | ||||||
Other payables | 4,210 | 954 | 2,930 | ||||||
| $ | 62,888 | $ | 58,970 | $ | 125,292 | ||||
| i) | Recent accounting pronouncements |
New and revised accounting pronouncements have been evaluated by the Company and it was determined that the following may have a significant impact on the consolidated financial statements:
| i) | On January 1 2010, the Company adopted, for US GAAP purposes, ASC Topic 810 “Consolidation” (formerly SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (Consolidation of Variable Interest Entities)). The revised standard changed how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated. The statement also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and requires enhanced disclosures about an enterprise’s involvement in a variable interest entity. The adoption of this standard did not have a material impact on the consolidated financial statements other than increased disclosure in note g to this supplemental information. |
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